Posted by Elena Luk'yanenko
Elena Luk'yanenko
Elena has more than five years of experience in international marketing providing services for the foreign com...
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on Friday, 22 January 2010
in Business in China

How (Not) to Choose a Partner in China (Part 2)

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.

The distributor took over our client’s timetable and gave him a car with a driver that took him everywhere, showed him around, took him to do shopping for the wife and even paid for the presents.

After a week of spending many hours and lots of money together they developed a close relationship through the experiences they had together. When they finally hugged and kissed each other goodbye, just before leaving, the distributor said: “you will give me exclusivity in China, right?”

Few are the people who would have the guts to say no at this stage after being spoiled so extravagantly and cause their host to lose face.

Many foreigners fall into this trap and find it very hard to leave this distributor because every time they come he treats them like kings.  He doesn’t give them a free minute in China so they don’t have a chance to meet other distributors or agents.

Normally when they wanted to meet us, they had to sneak out of the hotel very late at night or very early in the morning because there was always someone watching them.

The distributor indeed sold their product very well for 2 years but then the sales declined. Clients normally don’t know what is happening and the distributor often asks them to increase the marketing budget so he can “open” the market for them. In fact what happened is that the distributor sells everything he can to his captive market and instead of looking for other channels to sell more; he prefers to find more products to sell to his existing channels. In fact the marketing budget he demands is being used to find new companies who could provide new products for his portfolio while he has no intention of investing in marketing to other markets.

One solution for this trap is to stay away from that kind of distributor.  A better solution, however, is to have many such channels of not only distributors but also agents, system integrators, design offices, etc. The most important thing is not to give exclusivity to any of those channels. The other important thing is to recruit someone very professional and experienced to manage all of those channels and make sure they don’t fight each other and ruin your business while doing so.

It is important to remember that no one can be big enough to cover the whole China market and therefore you need to find strong partners in each province, city or region and make sure they don’t interfere with other provinces.

The High Flyer

Many companies train their first employee and they then become their right hand in China. They develop expertise and every once in a while threaten to leave and request a higher salary and benefits.  We are witnessing some young people who started working for a foreign company with hardly any experience and they moved rapidly up the salary ladder with no real relation to their experience and abilities. The foreign client is so terrified to lose them he pays almost anything to keep them and becomes totally dependent on them while those employees navigate the business path of the overseas company according to their own interest and personal benefit.

The most amazing story we met about a high flyer was the following:

The GM of a foreign company took a taxi and was surprised that the taxi driver could speak English. He offered him a job on the spot and made him his personal driver. The driver was very helpful and joined all of the sales meeting as a translator and slowly became his personal assistant.  A few months later the GM was looking for a sales manger in China so he offered the job to his driver since he was so dependent on him. The driver took the job with great pleasure and did his best with the limited experience and lack of contact that he had. Needless to say, his salary tripled to 6000 RMB through this promotion before earning additional sales bonuses.

A year later, the GM was replaced by another Chinese GM who wanted to gain power in the company and therefore “bought” all the people he thought were the key figures in the company. In order to do it he offered our poor little driver a raise in his salary to 25,000 RMB (before bonuses and commissions)  in return for his loyalty and providing his support against the other foreign managers.

The foreign owner of the company was left in China with a corrupt GM and head of the sales team who was driving a taxi only a year before. He was managing a team of four sales people who all had no previous experience in the industry. The only skill they had was a strong friendship with our (not so) poor little driver.

Needless to say,  the sales of the company dropped dramatically. The GM recruited 50 more of his friends or relatives to give him more power in the company and brought the company to the brink of bankruptcy.

For the company that was run by a corrupt GM  and an incompetent Sales director, something drastic had to be done. PTL Group took this challenge upon itself and performed a turnaround project that lasted 7 months.

During that period 50 people were laid off and 20 more were replaced by more competent people. After restructuring the company financially and strategically, the company was ready to compete in the market with a healthy structure and a new management team.

You can read more about turnaround process  here.

In the next post, I will discuss some common mistakes when recruiting Overseas Chinese managers, Singaporean, Taiwanese or Hong Kong managers or even western managers.

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. You may contact him by sending him This e-mail address is being protected from spambots. You need JavaScript enabled to view it. .
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