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on Monday, 11 January 2010
in Business in China

How (Not) to Choose a Partner in China (Part 1)

“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.

The English Professor

For most clients, communication with their representative in China is one of the most important things. This always bring a dilemma since many companies are looking for an experienced (10 years or above) sales manager. Unfortunately, many of the highly skilled and experienced sales people are still from the older generation and their English skills are not that great. There are much younger sales people who speak excellent English but lack the experience, so what do you do?

 
One of the clients who came to see us brought along his China Sales Manager. His English was perfect and our client was very proud of that. When we asked him about his background he said that he was a professor of English studies at one of the local universities and before holding this position he had no previous experience in sales. When we asked the foreign client what was his target for the coming year, he said 2-3 million US dollars.
 
We were quite shocked that they were expecting to reach this level of sales with a guy who has no experience at all in the business world. The client was not only being naïve but also being irresponsible.
 
I am sure that they had great communication with their sales person and that his reports were written in perfect English, but the question is whether he had any successful sales deal in China to report on.

The Beauty Queen

Many foreigners are coming to China after hearing many terrifying stories about being ripped off in China. Many times when they meet the first friendly face that can speak English they feel the urge to hire them. If the friendly and smiling face is also a beautiful woman and if our poor representative is single (or even if he is not…) it is even more likely to happen.
 
I admit that when I first came to China 12 years ago I was ready to hire anybody that could speak few words of English and was nice enough. Luckily, I didn’t have the budget to follow through with this. However, very few people will admit that this is the reason they hire someone, but when you investigate a little bit about past experience it is very obvious. The most significant case was a client who hired a junior secretary they met in an office sharing facility and made her their sales representative in China. She was 23 years old, with no business experience whatsoever, but she was breathtakingly beautiful!
 
Lucky for her she was also very smart and picked up very quickly every trick in the market and surprisingly reached a very nice level of sales for a young woman with no experience. Three years later, while the overseas company changed two CEOs, three Asia pacific sales directors and two COO, they could not understand why they had a very low profit in China despite the growing sales. When the last Sales director came to China he was picked up by his sales representative in a very fancy car and on the way from the airport she pointed out her two brand new apartments she has just bought. Finally he was able to see where the profit of his company in China going.
 
The fact that their sales representative managed to sell their products showed that their product was indeed a good product that had a market in China. But imagine if a professional experienced sales director would have managed the sales, I am sure they would sell ten times more than what she sold for them. We tried to open their eyes by showing them what their real problems in China are and why they are not growing fast enough and not profitable but they refused to listen. Even after they discovered some of the tricks she used to gain even more profit from them they still chose to keep working with her and making her their main exclusive distributor in China.
 
What we believe will happen is that our beauty queen will sell well until she will reach to the end of her ability to open new markets and then she will look for other products from other producers to sell to the same channels she has instead of making more efforts to sell their product in new markets.

In this case we have learnt that beauty sells and can actually survive, but the question is for how long?

The Trustworthy Person

Everyone has heard that in China it is very hard to find trustworthy person and therefore they are terrified of choosing someone that they don’t know. The result is they would hire anyone as long as that person can be verified as a trustworthy and high integrity Chinese person.
We have heard many “valid” and “convincing” statements showing that the partner is trustworthy such as:
  • “I totally trust him since he/she is …
  • … is my girlfriend/ wife/ lover/ my brother’s wife/lover” – all of these options will destroy not only the business but also the family.
  • “He was my roommate in the dormitories” – that maybe shows that he is a comfortable person to live with but doesn’t necessarily make him a good business partner.
  • “His sister is married to my best (foreign) friend”
  • “His father works for the police”- does that make him trustworthy? Perhaps on the contrary
  • “He comes from a very rich family” – does that mean he has lost his need to make more money? Does that mean he is a good businessman?
  • “His family is in the same business as ours”- this is probably the main reason why NOT to do business with him because he will be sure to take care of his family business first.

One of our clients thought he did the best thing possible. He consulted with a foreign friend who used to work in another foreign company and asked him if he could recommend a trustworthy guy. Indeed he did have someone to recommend and gave them the most “trustworthy and reliable” person possible that worked for him for 5 years. The only problem was that this person was from a completely different industry working in a completely different position.
 
He was hired to be China sales director with no experience in sales whatsoever. We tried to tell them being honest is great but that is not the only thing you when you recruit a sales person. A few months later the client came back to us asking us to recruit a new sales person for them. When we asked what happened to the previous one they said that he understood that he doesn’t have enough capabilities to sell their product and he preferred to move on to another position.

He was honest enough to tell them that well in advance and he was also willing to train the next sales person and be his consultant for as long as he needed. This guy was indeed a good man but to be a good man is not enough to be a good sales person.

In some cases it is actually quite the opposite; many CEO’s would love to have a sales person that would do anything that it takes to close a deal. Sometimes that requires being in the gray area. In many cases (especially in China) honest and high integrity sales person means low level of sales. Unfortunately a shrewd and sneaky sales person brings better results most of the time. The danger is that when you have a shrewd sales person he could also try to get more profit for himself rather than for his employer. The secret should be  very tight management of that sales person with some external supervision mechanisms that will monitor his actions.

At the same time, you need to take into consideration that sooner or later if you have a smart and ambitious sales person, at one stage he will leave to do his own business or worse he will build his business while working for you, which means reducing the level of sales for you. You should be ready to replace such a sales person when the first signs appear and do not hesitate. The best result would be to keep a sales person for the period of time he brings more value than damage. When this starts to change, it’s time to change him.

This is only the beginning. The business adventure in China is full of surprises, we have been living and breathing it for almost 15 years.

In the next posts, I will discuss cultural characteristics of Chinese sales people and managers, describe some deceiving generosity of some distributors and few more traps that await overseas entrepreneurs in China.
 
See you next time.

Arie Schreier has been living in China for a total of six years, four of which have been spent living and working in Shanghai as a COO and Sales Director at PTL Group.
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