How (Not) to Choose a Partner in China (Part 3)

Posted by Elena Luk'yanenko
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The Returnee

Many foreign companies think that if they hire someone with the same passport as them and speak the same language, that this will make their life easier in China. Since sending an expat is very expensive, many times a Chinese returnee, someone who was born and/or educated overseas is hired.

Overseas companies think that the returnee has several advantages:
  • He is cheaper, especially compared to an expat with a family with a few children who all need international education, which is extremely expensive.
  • He knows the Chinese language and the culture, which help him and his family settle in much quicker than a foreigner.
  • He knows the western style of thinking and can bridge the culture difference.
  • He might be more respected by local Chinese who will appreciate his achievements.
  • He should have similar moral standards to the country he was educated in.
Unfortunately most of these assumptions are not always true. If he was educated overseas he might lack a high level of Chinese that people who went through the Chinese education system have, and local Chinese will pick up his dialect or slight foreign accent immediately. Also in many cases the locals Chinese feel that the “returnee” is looking down at them since he “made it” overseas and they didn’t. This creates antagonism and a bad atmosphere.
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Opportunities in the Chinese Market: Strategy, Tactics and Practical Tips

Posted by Elena Luk'yanenko
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TEL AVIV, ISRAEL – This week MIT Enterprise Forum Israel held a conference for Israeli entrepreneurs, managers and professionals in Tel Aviv University to discuss business opportunities and challenges in the Chinese market.

Zvi Shalgo, Founder and CEO of PTL Group, who has been recently appointed as the Chairman of the Israel Chamber of Commerce in Shanghai, was invited  to share his personal and valuable experience of helping numerous Israeli companies to establish and manage their business presence in China for the last 14  years.

Prof. Gadi Ariav, an expert of international business management opened the seminar by saying that nowadays there is no excuse to fail when doing business overseas.  Israeli entrepreneurs and companies should learn from the experience that Israeli businessmen have accumulated over the last decade.

Mr. Shalgo stressed the point that many foreign companies don’t realize how important the process of recruiting local Chinese employees is.  Later they also fail to manage their Chinese team.  He believes that only local Chinese professionals should sell the products of the foreign companies in China.  There has to be a local control and supervision platform around the Chinese Manager, which will regulate the company's financial and logistics activities and allow the Manager to concentrate on the business development and sales activities.

Talking about the future of the Israeli export to China, Mr. Shalgo mentioned that 90% of the competition usually comes from the local companies, which have strong local government support.  In order to be competitive Israeli companies have to localize their supply chain and manufacturing.

Mr. Effi Wachtel, President and CEO of RAD Data Communications, who has been doing business in China since 1990, supported Mr. Shalgo's opinion by adding that the best way to operate in China is to set up a company that does it all: R&D, manufacturing and sales.

Prof. Ariav said that foreign companies must work in China, but most of them are just afraid.

The general consensus of all the speakers was that giving up on the Chinese market is a crucial mistake, which will be hard to correct in the future.

If you didn't have a chance to attend "Opportunities in the Chinese Market" conference, you may review its recorded version online on YouTube or on MIT Enterprise Forum Israel website.

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The Israeli Chamber of Commerce in Shanghai Announces Steering Committee Election 2010 Results

Posted by Elena Luk'yanenko
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SHANGHAI, CHINA – The Israeli Chamber of Commerce in Shanghai (IsCham Shanghai) has announced the results of its 2010 election for the new Steering Committee.

IsCham Shanghai's members elected Mr. Zvi Shalgo to the position of Chairman. Mr. Shalgo is the Founder and CEO of PTL Group. Dr. Bella Ohana, Life Managing Director at Infinity, has been elected to serve as Vice Chairman.

“I joined Zvi Shapiro, the Founder of the IsCham Shanghai, in an effort to maintain his achievements of two previous years of activity,” said Mr. Shalgo. “We targeted a clear goal - to reorganize the Chamber into a working organization based on a realistic business model that will enable it to exist for the long term and to support the Israeli business community in Shanghai for many years to come.”

“Many helped this effort,” said  Mr. Shalgo, “my role was mainly to manage marketing concepts, gather the investing founding corporate members and make them to believe in the project.”
 
“The most important task we accomplished over the last six months is establishment of cooperation with the Israeli diplomatic mission to enable a smoother and more flowing channel of mutual resources.”

Three additional Steering Committee members have been elected:
  • Mr. Amit Ben-Yehoshua - China Partner, Shibolet & Co. Advocates & Notaries  and Senior Counsel at Da-Cheng Law Offices.
  • Mrs. Shiri Atsmon - Research Manager at Orcale Added Value.
  • Mr. Ido Klein - Joint Managing and Founder of ToyMonster Ltd.
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How (Not) to Choose a Partner in China (Part 2)

Posted by Elena Luk'yanenko
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The Generous Distributor

Many foreign companies start their quest in China by coming to a Chinese professional business exhibition. Many clients told us a similar version of the following story.
 
The client was approached by a very nice, English speaking, well dressed, professional person who presented himself as a distributor in their field. He showed great knowledge about their company and seemed to have done his homework about them. He showed them his huge and costly exhibition booth where they could see that he has indeed sold many brand names well known in their industry.

He then offered to take him to dinner in his luxurious car, in one of the most expensive restaurants in town which was then followed by karaoke and dining on expensive gourmet food, wine and more. The foreigner was astonished by how much money the distributor was spending on someone he just met that day and was very impressed.

What he didn’t know was that the distributor was using the marketing budget that other clients gave him to do marketing for them - but instead the distributor uses it to entertain prospective clients  - just like he intends to do with the marketing budget the new client will give him to develop the market for him.
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How (Not) to Choose a Partner in China (Part 1)

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“Why is it that when overseas entrepreneurs come to China they lose their sensibility and rationalism?” I keep asking myself and others, after finishing yet another meeting with a potential client who came to tell us all of his troubles regarding his business in China.

In our business we meet many overseas entrepreneurs who started their business in China and after getting into trouble, come to us for possible solutions. By the point they come to us, it is normally two to three years after they started the business in China and they already have at least one partner they rely on. This partner does not necessarily have to be a legal partner such as a Joint Venture partner (God forbid…) , but it can be anything from the first sales representative, first distributor, agent, Chief Rep Office, Office manager, business developer and various other arrangements that represent a very special relationship between the foreign client and their local representative. The foreign client normally comes to meet us with their “trusted” partner and they assure us that everything can be said in front of their representative.

 
I hate to generalize, but typically for every nine out ten cases, the main cause of the business failure in China is sitting next to the foreign client. Each time I am introduced to the “trusted” partner I am always astonished how the foreign client chose this person in the first place. I always like to hear the story of how they met and why they decided to form a partnership. I would like to share some of these stories to show how people lose their senses when starting a business in China.
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Selecting a Distribution Partner in China

Posted by Elena Luk'yanenko
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For many firms entering China it makes more sense establish their presence through distributors already established in China rather than setting up their own sales and marketing organizations. However, while working through a distributor can reduce capital requirements and reduce risks in some areas, choosing an effective distribution partner raises its own set of challenges.

RightSite spoke with Arie Schreier, Vice-President Downstream at PTL Group, a provider of outsourced management solutions for foreign investors in China to get his insight on selecting a distributor that your business can grow with.

RightSite: Many distributors claim to operate nationally, but may actually cover only one region of the country. How can companies ensure that their products are truly distributed nationwide?

Schreier: Every distributor will claim that they cover all of China, or at least that they have partners that cover all of China. This is far from the truth. In fact no distributor can ensure nationwide coverage, just like no distributor can cover the whole Shanghai area.

The reason is very simple: in China sales are done normally through personal relationships and networks. The “guanxi” network that a distributor has can help a lot in the sales process. For example, if a distributor has good contacts in the purchasing department of a hospital, he will be able to sell this hospital anything from bed sheets to MRI machines. But to the hospital across the street where he has no contacts he may not be able to sell even one bed.

The distributor that you will choose will sell as much as he can to his contacts but when his contacts don’t need any more of your products, this distributor is not likely to find new clients for you. Instead he will try to generate more sales of additional product lines through his existing contacts and then start to neglect the sales of your products.

For a company seeking nationwide coverage, it is better to rely on a number of distributors that will cover a larger geographical area as well generating a variety of sales channels.

The biggest challenge (and possibly the biggest obstacle in China) is to manage so many distributors effectively.

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The Art of Turning Around Distressed Entities in China

Posted by Elena Luk'yanenko
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PTL Group: What brings you nowadays to China?

Jan Molenkamp: Many international companies have ventured into China without taking into account the necessary preparation and analysis steps. Consequently they inevitably run into trouble some way or another. During the time that the domestic markets of these companies were on a “high”, underperformance or even loss making of their Chinese entities was accepted as a “part of the business development process.”

Now the domestic markets are less than favorable due to the global economic crisis. Due to this, more focus is put on the individual contribution of the various international ventures. After all, these were set up over the past couple of years to contribute to the enterprise’s overall bottom line. The attention to these contribution factors quickly (and in some cases finally) exposes to some unlucky international enterprises that the Chinese venture is underperforming at best.

Due to enormous pressures on profitability and cost saving a culture of decision making emerges in corporations, which previously was deemed unnecessary. Quickly the companies scramble their own analysts, reorganization- or liquidation experts, who are immediately sent to China to see what can be saved, improved or shut down.

The Impact of the Stimulus Package on FIEs in China

Posted by Elena Luk'yanenko
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In recent weeks a mood of cautious optimism concerning China’s economic growth prospects has started to take hold. The result has been the upward revision of many analysts’ 2009 full-year GDP growth forecasts, and a stronger Q2 2009 GDP growth result of 7.9% (compared to 6.1% in Q1 2009).

The biggest winners from China’s economic stimulus package so far have been domestic Chinese companies, particularly state owned enterprises (SOE) whose combined investment has increased by 40.6% year-to-date over the same period in 2008. A preference for domestic goods and services under the stimulus package was recently confirmed by a government circular issued in early June which mandates that where possible all products and services for government invested projects must be domestically sourced. This has quickly become known as the “buy Chinese” order.

However, as confirmed by the National Development and Reform Commission (NDRC), such preference does not exclude goods produced by ‘legal branches of foreign companies in China’ and after the notice was released there have been evidence that national and provincial government agencies are continuing to buy foreign products.

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PTL Group holds China workshops in Israel and the Netherlands

Posted by Elena Luk'yanenko
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“The Smart Approach to Set Up and Manage Business in China” and “Management of Chinese HR” were the subjects of the seminars held by PTL Group in June in Israel and the Netherlands accordingly.

Israeli workshop was held in June 11 at Dan Accadia Hotel, Herzliya Pituach and was organized by PTL Group in cooperation with HIL Lawyers and Advisors, accounting company Baker TIlly Israel and Israel Management Center (HAMIL). Workshop attracted senior executives and decision-makers from over 40 Israeli companies which are already present or plan their business presence in China.

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PTL Group and HIL Lawyers and Advisors - strategic partners for Corporate Turnaround and Business Recovery in China

Posted by Elena Luk'yanenko
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PTL Group, provider of outsourced management solutions for international companies in China, and HIL Lawyers and Advisors, international law firm licensed in China, formed a strategic partnership to provide a complex corporate turnaround and restructuring services for troubled, distressed or under achieving foreign businesses in China.

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Israel and China get closer with the Launch of the Israeli Chamber of Commerce in Shanghai

Posted by Elena Luk'yanenko
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Now, Israeli and Chinese business worlds will get closer to each other. The Israeli Chamber of Commerce in Shanghai (shortly IsCham Shanghai) was officially launched at Israel 61st Independence Party which was held in Shanghai on the 9th of May at Hyatt on the Bund, Shanghai. The Mission of the Chamber is to support the success of its members by promoting a healthy business environment in China, strengthening Israel-China commercial ties, providing high-quality business information and resources as well as to develop and support social activities of Israelis in Shanghai.

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Marketing in Downturn

Posted by Elena Luk'yanenko
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Most industries go through downturns at some juncture. Planning a more aggressive approach to sales and marketing can help to keep your business in the black during difficult times. In addition, it can set your company apart from the competition which may be complacently weathering the storm. The conventional wisdom is that businesses hurt themselves in the long run by cutting back on marketing during recessions.

A downturn can create opportunity for the companies that are more efficient at turning marketing investments into revenue, since there will be less competition overall. In a study of U.S. recessions, McGraw-Hill Research found that business-to-business firms that maintained or increased advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth than those that eliminated or decreased advertising. In fact, by 1985 companies that were aggressive recession advertisers grew their revenue over 2.5X faster than those that reduced their advertising.

Now is the time to go on the offensive and steal share to expand your business. If you have the right marketing ROI system, it may be easier, more reliable and more predictable to improve sales than it is to raise capital. The key is increasing the effectiveness and efficiency of marketing.

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ICT Industry in China

Posted by Elena Luk'yanenko
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China ICT industry has been an engine of the country's economic growth – growing two to three times faster than GDP over the past 10 years. China's booming information industry is expected to maintain its robust health in the coming years.

China imported USD$245.2 billion of ICT/Electronic products in 2007, approximately two-thirds of which were electronic components.  Exports of ICT/Electronic products from China in 2007 reached USD$459.5 billion, accounting for 37.7% of the country's exports.

 

Overall revenues of ICT/Electronic products in 2007 increased by 18%, with computer manufacturing, communications equipment manufacturing and electronic components accounting for over 61.4% of revenues.

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Doing business in China: the lessons for Israeli businessmen

Posted by Elena Luk'yanenko
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SHANGHAI, APRIL 15-18 – Shanghai International MBA (SIMBA) in partnership with the Graduate School of Management, University of Haifa held the 2nd Joint International Seminar, which goal was to create an opportunity for mature Israeli and Chinese MBA students to gain the experience of working together in multinational teams. The highlight of the seminar was Team Projects, which included the collection of background data, interviewing company managers in Israel and China, data analysis, report writing and presentations. The projects covered business strategies, management and marketing challenges and problems of actual Israeli companies working in China.

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Medical Equipment in China

Posted by Elena Luk'yanenko
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With the economic and social development, China has become the world's third largest medical device market following United States and Japan and will be the world's second largest market in 3-6 years. It’s projected to grow from USD 10 billion in 2007 to USD 15.5 billion in 2012.

Medical equipment and medical drugs are the two major means of health care, the ratio of sales of medical equipment and drug in developed countries is about 1:1, while in China it is only 1:10, so we can see that Chinese medical equipment market has great potential.

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Business Strategies for the Downturn

Posted by Elena Luk'yanenko
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Many companies have little experience of how to manage through a downturn. The last deep recession was in the early 1990s-sufficiently long ago and there is an entire generation of management who has only experienced a rising market. For some companies, the current economic environment will challenge their very survival. While for others the downturn offers the chance to extend their lead over the competition. "High performing" companies will be looking at ways to strengthen their position and emerge from the downturn stronger and better-placed to win.

A deepening recession need not be all doom and gloom. Studies of previous recessions have shown that there will be winners as well as losers. Companies that effectively manage the downturn have a higher likelihood to emerge more quickly and successfully post recession.

In today's highly networked economy it is not enough to understand what the effect of the downturn will be on demand for your own products and services. It is equally important to understand what is happening to your partners, customers and suppliers. A 360 degree assessment of risk provides the starting point for designing your strategy. So, choose your response.

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China Remembers Those Who Deliver in Difficult Times

Posted by Elena Luk'yanenko
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No one realized how fast China was growing. When revised figures were released earlier this year, we all learned that China's economy had grown by a blistering 13 per cent in 2007. The precipitous drop from that elevated level to 6.8 per cent in last year's fourth quarter has presented new challenges to everyone doing business in the country.

Given the state of the global economy and China's reaction to it, what should foreign companies and investors expect to see in 2009?
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Seizing the Upside of a Downturn

Posted by Elena Luk'yanenko
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We are living in extraordinary times. The events that have roiled the global economy in recent months will have a real and lasting impact on every business in every industry. The economic crisis gives organizations an opportunity to examine every aspect of their business model and lay the foundation for sustainable growth and improved competitive advantage. Obsessing over threats obscures a surprising but crucial truth about downturns: the worst of times for the economy as a whole can be the best of times for individual firms to create value for the long term.

In the recession, clever business leaders discover new products or methods, and sometimes market fundamentals shift to give the advantage to an existing business model. However, these tend to be exceptions to recessionary economics. If you are just waiting for the fog to lift, you may emerge to find that your business is weakened. What is more, there is a great chance that your best remaining people will leave and take better positions at other firms once the firing freeze thaws.

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Business Environment in China in light of Global Financial Crisis

Posted by Elena Luk'yanenko
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TEL AVIV, APRIL 7 – The Israel Export and International Cooperation Institute (IEICI) held the convention for the Israeli marketing, business development and industrial companies specialized in Asia and the Far East. The purpose of the convention was to initiate direct contact and cooperation between the companies in order to promote their export activities in the region.

Mepi Frankel, Director, PTL Group was invited as the key speaker to give a one-hour lecture on “Business Environment in China in light of Global Financial Crisis”. He presented the latest information on the impact of global crisis on the Chinese economy and the working plan which is to spark China’s economical growth introduced by Premier Wen Jiabao at Parliament’s annual session on last month. Mr. Frankel had also given an overview of the “China Business Climate in 2009” survey conducted by the American Chamber of Commerce in China during last two quarters. The survey indicated that despite downturn and certain challenges arising from it foreign companies and investors remain optimistic about their business in China.
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Managing Change in Management Teams

Posted by Elena Luk'yanenko
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SHANGHAI, MARCH 24 – Benelux Chamber of Commerce (BenCham) in Shanghai held an interactive seminar on “SME: Managing Change in Management Teams.” Invited speakers shared their ideas and experience on what to do when the teams in your organization are not performing and how to react to this in time. Through real-life examples the speakers presented some insights on how you can improve both communication and team alignment.

Zvi Shalgo, CEO, PTL Group presented hands-on experience of managing change process within the Chinese subsidiary of the European company. The case study described the common problems arising between HQ and its subsidiary in China, such as loss of confidence and disbelief, and the solutions for their improvement, which can bring the company from stress to the stable and normally-functioning state.

PTL Group is one of the few companies in China implementing and managing operational turnaround and change process of sales-oriented organizations. For more information on business recovery and coaching underachieving departments click here.

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