Don’t be cheated

It’s not about trust, it’s about verification.

After a very nice meal at his Chinese partner’s house, our man from Milwaukee remarked, “You are lucky. Your wife is so nice. All my wife does is drive me to drink.” His Chinese host looked at him and after a few moments said, “No, I think you are also lucky. My wife makes me walk.”

My first two “Dispatches From China” talked about the need for businesses to respect and understand the culture of new markets; respect in terms of making deals and understanding in terms of selling your products/services.

Unfortunately, pushed by the realities of the global economy and confronted by unknown new markets, business people become the victims of half-baked advice and observations by “experts,” consultants, books and articles.

You may not have the time to study a country’s history, philosophy, literature, art, language and be part of its daily life, but you still need to sort out how to do business in your chosen new market, and that will require a plan and ability to figure out what is and is not reliable information.

For your plan, you need to first figure out where you are in the global economy.

Second, you need to know what you intend to do – are you selling in a domestic or a foreign market?

Third, figure out how you will create the product or service – sourcing through others or manufacturing yourself.

Fourth, figure out what you need to know to execute your plan.

Two hints, the easier it is, the less likely it will be profitable long term and the more your plan relies on the efforts of others, outside your business, the less likely it will be successful.

Global markets strategy

Today’s global economy chases low-cost production. As the clock turns old, manufacturing areas are abandoned, and the local economies which depended on them stagnate or adapt. Meanwhile, new manufacturing areas develop creating economies around them. For entrepreneurs, this creates new opportunities, but for the companies which supplied/serviced the old manufacturers, they must either adapt or die. Their choices are simple: do something unique which puts you ahead of the competition; change your business to fit your local economy; or move.

What and where is your market?

You need to be very clear about what products/services you are selling and where you will sell them. Businesses tend to think in terms of existing markets and feel pressure to innovate or be more competitive within the areas they know. Too often, businesses pass up new markets because they are not aware of the opportunities. Do the research. Look at what other markets are buying/using your products/services, their quality, pricing and profitability. If you are going into a new market, look at all of the opportunities. Many of the companies who first came to China because of cheap sourcing have matured into local market sellers, but they lost a lot of time and potential profits by not recognizing the opportunities earlier. Others followed supply chain relationships into the new market but failed to diversify their sales to others. Many of the auto parts companies who supplied the big three have learned this lesson the hard way.

Sourcing vs. self-poduced

Once you know where you want to sell, you need to figure out how it’s going to happen. Sourcing has and still is a bonanza for companies who use the cost savings to improve their profits. The problem with sourcing is once one company does it, the rest soon follow and to maintain an edge, you have to find a lower cost source. GE Medical and Nike are examples of companies which have successfully used sourcing to improve the profit lines. Both enjoy prominent market positions and have a worldwide supplier network and both are continually looking to cut actual costs on a yearly basis. But if you’re not in their shoes, no pun intended, you need to have a coherent strategy based on your company’s competitive advantage.

Manufacturing a product or growing your service business in a new market is best-suited for businesses that have a high degree of proprietary knowledge, which they need to protect and/or because the reality of servicing the new market requires it. The Manitowoc Company is a good example of a business which is following the markets as they move and seems to be doing an outstanding job of using their market position and the quality of their products to create opportunities in new markets, including China. Part of their success is due to the creation of a worldwide manufacturing and servicing support network which makes their machines more valuable, because the last thing you can afford to hear is that it will take three weeks to fix the crane when you’re in the middle of a multimillion dollar project.

What do you need to know?

If you are a decent business person you have a moral compass, a desire to take care of your people and a willingness to take calculated risks for calculated rewards. The risks you take are based on a set of assumptions about how things work and the rewards which will come if you are successful. The problem is that your assumptions are based on the legal/political/social structure you know and will not necessarily work in a new market. Because you do not know which assumptions transfer, be safe. Don’t make any. The difficult part for most is recognizing when they are making an assumption. But this does not mean that you abandon your moral compass or your concern for your people. Setting up and operating a business in a foreign country is complex but, once you do it, like it or not, you become linked to the people and the economy of your new environment, and if you do not take care of them, do not expect them to take care of you.

The truth is, like your business at home, you need to have your own plan and the capabilities and resources to execute it. You have to understand the options, location, logistics and markets, who you are dealing with, the local conditions and the power structure. You have to follow the laws, and you have to make a commitment if you want a commitment. In short, you have to use everything you know to do everything you have always done.

The difference is, since you’re in a strange place, make no assumptions about anything, check out everything and everybody twice and make sure when you make a deal that it’s in writing, it’s legal and you and the other party completely understand it. Verify everything and operate under the motto, “I will only be cheated if I let myself be.”

I give the same advice to Chinese companies who are setting up abroad. It has nothing to do with prejudice and everything to do with how most people react to foreigners and uncertainties. Of course, you will have to use qualified lawyers, accountants, consultants and hire employees who know what they are doing, but you have to direct and control the goals and understand the plan’s assumptions and mechanisms yourself. As long as you understand what you do not know and use what you do, you will at least be way ahead of the sheep.

When you are thinking about going to a foreign market, take a look at your strategy and actions in terms of how they would play out if the situation was reversed and a foreign company was coming to your home town. Look closely at your assumptions about process and human nature from the other party’s side, and most importantly, remember that it’s not about trust, it’s about verification.

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