Mistake #7- Visit China
There is no excuse for being unprepared to establish a business presence in China today.
It is important to take the time necessary to build relationships with your potential business partners and to conduct due diligence in China. If you feel that you are too busy to do this, then you are probably too busy to consider establishing a business presence in China.
Doing business in or with China can be as tricky as it is rewarding. Before you begin your long journey to the China market, you should perform due diligence regarding every aspect of your business, from potential partners, suppliers and employees to the area and facility in which you plan to locate your business.
It is quite easy in China for potential partners to appear more experienced or “connected” than they are in fact and to exaggerate the benefits of doing business with them. You cannot rely on mere representations. You need to verify your potential partners are who they say they are: they possess the qualifications and experience they claim; and the benefits of doing business with them are as represented.
Good independent professionals, such as lawyers and accountants can help you perform the due diligence you need to do before you get too far into your China planning. However, once things appear to be as represented, it is time to visit China.
Why is a visit so important? In China, face-to-face communication is irreplaceable. Visiting China for face-to-face meetings with local business partners and potential customers is necessary to gain both market knowledge and your perspective on doing business in China. It can also start the process of developing key personal “Guanxi” relationships and trust.
Building trust in China involves lengthy discussions in person on non-business topics and shared meals in restaurants. In China, business-related discussions start only once your counterpart has become comfortable with you as a person. If you want to do business in China, you better have plenty of time. Believe it or not, literally millions of dollars have been “left on the table” because Americans were too impatient to close the deal. Do not rush into or out of a deal.
Visits to China are also necessary to understand your potential business partner’s operations and to determine if you will be comfortable working with your business partner.
When visiting your potential business partner, one of the most important things to evaluate is the quality of the company’s key people. Intangibles such as trustworthiness and competence are difficult to judge, but they are the key to the success of your business in China.
Company ownership is an issue to address during your first visit. While many state owned enterprises have been privatized or turned into joint ventures with foreign companies, ownership details are often hazy. A private enterprise is not inherently riskier than a state-owned or joint venture, but a small private entity will have more difficulty acquiring the capital necessary to expand its operations to meet demand. A visit is important to get a sense of your potential partner’s financial background and status.
Quality control is a crucial detail to discuss during your visit to a factory. You can get to know the factory’s quality control system with the help from the director of Quality Control. However, you need to physically inspect their assembly lines or work shops to really understand the factory’s quality control system.
It is also important to determine whether the factory operates in a “cleanroom” environment. Due diligence conducted before the visit may provide this information, but a physical inspection of the factory will confirm your potential business partner’s representations.
Take-away lessons: (1) do not rush into or out of a deal; (2) visit China before you go too far with your plan to establish your business presence in China.
