Complete Manufacturing & Distribution Blog

Best Practices For Starting Business in China

Jan 30, 2017

In the late 80s I arrived in Shanghai with a backpack.  Regan was in the White house, the Berlin Wall came down, Nintendo launched the Gameboy, and Billy Ocean topped Billboard Charts.  China’s awakening was just beginning.  My dreams, like many entrepreneurs, had no boundaries.

My Initial Exposure To Starting A Business In China

 

I started out in a factory. In the early days it was making point of sales terminals and box printers for American Express to manage their money order float more efficiently, as well as card readers for IBM copiers and in-vehicle bases for tablets which your friendly UPS man has you sign when he delivers a package.  Three decades later, we continue to get things made – to meet goals for on time delivery, quality, and price – accelerating business for clients around the world.

While things change fast , these timeless best practices form an important foundation as you ramp up business in China.

 

Compare costs Sourcing China Manufacturers

 

Before stepping foot in China, what does the status quo cost?  What will alternatives cost? 

Example: A maker of components for propane tanks was considering outsourcing production to China to cut costs. The client asked us to perform a study. We discovered setup, tooling, taxes, and transport costs outweighed the simple solution of expanding production in their home country.  We also explored savings by moving further inland, but we found that for every 100 miles travelled in from the coast, management experience regressed by 10 years.  Costs related to oversight increase proportionally.

The bottom line: If labour and overhead savings cannot offset additional shipping costs and then some, the product is not a good candidate for offshoring. Know when to say no, and those with China experience can help you make numbers-driven decisions.

 

Lost in translation (repeat that please…)

 

It’s always humbling what gets lost in translation.   False assumptions nip budding relationships, resulting in missed expectations.

Example: Prior to engaging with us, one client was growing increasingly frustrated that the early momentum with a supplier was fizzling fast…resulting in unreturned phone calls and emails.  Our client had product development lead times to meet and Kickstarter investor expectations to manage. With a unique consumer electronic product for the medical industry – the client was concerned about losing their first-mover advantage.  They were burning cash without much to show for their efforts.

The bottom line: Explain to your partner what you want, and then ask what you said be explained back to you, whether it be with your initial RFP, day-to-day meetings where action items are identified, or training sessions. Works great with kids and suppliers alike.  

 

Contract signals a beginning, not an end

Contract Negotiations are Different in China from Christina Li on Vimeo.

In the West, a contract defines the rules of engagement over the lifecycle of a deal; vs. in the East, it often means you have reached a broad understanding of how to proceed. 

Example: One client came to us frustrated with contract terms being continuously re-visited, re-written, and re-negotiated—or simply ignored.  It is a common business practice in China for pragmatism to override rules.  What was not understood at the beginning was causing chronic frustrations.   

The bottom line: Don’t overthink the ink.  Chinese often focus on winning the relationship first, and sorting out details later.  An advocate on your behalf who knows the culture and the ebbs and flows of successful relationships and agreements can save you headaches.  The relationship carries more weight than the contract.

 

These three best practices join dozens more in a large library to which clients continuously contribute.  Checking out China for contract manufacturing, outsourcing, eCommerce and more?  Let's talk and explore options. 

Topics: Operations