David Xu, Adviser at a couple of startups, Information Technology and Services.

I have been recently working for a startup company as senior advisor. This company is focusing on providing service to PC manufacturers in China; a tailored service based on Linux platform. From last year, the company began to provide tailored and porting services based on Android platform.

I have helped them establish a medium term plan for three years: design relative organization structure; establish sales and marketing management and evaluation system; and get well prepared for the financing as the next step.

What kind of problems between Western companies and Chinese manufacturers do you see?

Frankly speaking, I have few chances to get in touch with manufacture industry in my past experience; it was mainly focused on software and internet. As per my observation and understanding, with the increase of the cost of HR, manufacturers in China shall be facing much more pressure. For which, they have to seek for a business mode with added value, instead of stopping at the previous position as a subcontractor. For instance, they will develop from OEM to ODM. They may also set up their own sales channel and cultivate their own brand.

How a Western company can find a reliable Chinese supplier?

To deal business with a reliable third party platform (such as the B2B platform of Alibaba, or Canton Fair) is for sure the best way with lowest cost. Although there was deceitful cases in Alibaba in China, and its CEO resigned for this, I still firmly believe that an enterprise with strong social responsibility will try all the way to promote its reputation. In an opening marketing environment, it is not hard to realize that good reputation will bring the final long-term business interests.

Let’s talk from a different angle, local governments in China have been working hard on economic development; and on promoting the exportation of local service and product. They have set up specific institutions to enhance the communication with foreign purchasers – for example, the Foreign Economic and Trade Cooperation Bureau of each and every province. Through communication with related institution of the local governments, reliable and potential supplier partners can also be found with reasonable cost.

What is necessary for TOP managers of western companies for start-up business with China?

To have a deep understanding of the politics and legal environment in China is key to success as well. Although China has joined WTO for many years already, it is still a must to have a more comprehensive understanding of local practice to avoid possible mis-judgment.

China is still a country that talks a lot about “politics”. While paying attention to the business code, we do have to get well prepared with the influence of “political consciousness” to the business activities in China.

What are the risks while working with a Chinese manufacturers and with what they are related?

When we talk about basic risk management control, many common points can be found while working with Chinese manufacturers; of which, the biggest risk in this kind of cooperation would be a comprehension of related laws and regulations regarding the business engaged. In my opinion, we need to take into consideration of the following points:

• The degree of decentralization of product chain is comparatively high. Many enterprises are not large-scale, which means that a single product may need the involvement of many medium and small sized enterprises for its final fulfill. The control of cost and quality management is relatively low if we compare the Chinese situation with that of the West.
• Business entrance and criteria – if this kind of issues have any changes during the cooperation period, such changes might lead to certain risk.
• Intellectual right protection, esp. the patents related to products – which is not only sensitive, but also easy to result in dissension. During the transition period from OEM to ODM in Chinese manufacture industry, this kind of disputes will become more and more; and an intangible zone which is be hard to define may jump out easily. My suggestion would be: during the cooperation by and between foreign enterprises with Chinese manufacture industry, try to particularize as much as possible the items of sharing of and/or restrictions on the intellectual right. The dispute above mentioned is not impossible to avoid, and the key point is to reach agreement on detailed planning before the cooperation starts.

What kind of advice could you give to Western companies: how to effectively sell Chinese products?

Most Chinese people have a certain preference to the Western brands, I should say, admitting the Western ones deserve a higher quality (like high-tech products) or value (such as the luxuries).

On the aspect of brand communication strategy, the most significant point in my opinion would be the establishment of a comfortable “relationship” between the brand and the Chinese consumers. To copy the local western experience in a simple and rude way is surely not enough – cultural complication of Chinese people must be taken into serious consideration. With regard to value proposition of a brand, we must put ourselves in the shoes of a Chinese consumer to set forth this value – we will get half the result with twice the effort or simply go to the opposite direction if otherwise.

On the aspect of sales strategy: due to the vast territory of China, there is huge gap of economic development levels between the East and West; while that of cultural differences between the South and North. Based on this actual situation, the establishment of local sales channel, might be multi-layer distribution channels is needed. This will need strong capacity on channel conformity and management.

How usually do you prefer to conduct negotiations?

I would like to define clearly the theme of the negotiation at the very start; while listening to the other Party. Generally speaking, I will adjust my strategy based on the feedback of the other Party. If the other Party happens to copy the same strategy, this will turn out to be less effective. Under certain circumstances, I will initiatively let the other Party know my bottom line in order to increase efficiency of the negotiation; with the decrease of potential income as the cost. In many cases, I regard it more important to make the deal in a prompt way within my bottom line.

Who usually makes main decisions? International sale manager or director of the company?

I need to make it clear that in my previous working experiences, I do not often get involved in the field of international trade. Upon my observation, the international sales manager has a big say in decision making within his/her popedom; only need to “inform” his/her supervisor (Director). Once it is beyond his/her popedom, the involvement of Director is a must. If it is still beyond that, a Company decision will be needed.

Could you tell us a short interesting story from your experience, which shows difference of the Chinese and European business culture?

To make it short, doing business in China relies heavily on “acquaintance”; which means that the sales team need to spend a great deal of time to set up and maintain this acquaintance relationship. The business culture in the West is definitely not the same way. Sometimes, this factor of acquaintance will even be more powerful than the performance price ratio [abbreviated as PPR hereafter] of the product. This seems extremely true if the other Party is a SOE. Comparatively, to do business with a privately owned enterprise is much easier since it is more rational on the business itself and put PPR as the first priority.

Besides, whatever type of Chinese enterprises you are facing now, the Chinese people like to present the human feelings. During the process of product selection and comparison, whether you are showing great sympathy will massively influence the final decision of the person related. Chinese people believe that to do business with a “friend” is more comfortable. If they are not “friends” in the past, they shall be after the deal made.

What would you like to tell to our audience?

Although China is opening its door to the outside world, the management and control of the current government is also getting broader. To do business in China, the sensitivity to Politics is one of the pillar factors so as to better understand the behavior the Chinese enterprises; avoid misunderstanding; and grasp the opportunity. The factor of “people” can never be neglected whenever you communicate with a Chinese enterprise; no matter the other Party is a common sales manager or a low clerk – the maintenance of intimate private relationship is indispensable. This is actually a big challenge to those business people who have never lived or worked in China. From my personal point of view, I would also like to do business with “friends”. On the other hand, I am able to face the interaction of my business partner in a fairly comfortable way; therefore if you get the chance to do business with me, relax and no need to concern about the above points mentioned.

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