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China Business. I FEEL "The Second Wave."

By Dan Harris and Steve Dickinson

As a lawyer, I usually deal in facts, not feelings, but I've been pontificating about a feeling for the last few weeks, based mostly on an accumulation of facts and past experiences. The feeling I am getting is that Chinese companies are getting more sophisticated/businesslike/global. They are starting to play for the long haul. I recently had lunch with a good friend and long-time client who heads up the Seattle office of a Singapore based oil and gas company/supplier. Client was born and educated in Russia, but has lived in Seattle for around 15 years now and is very Americanized. We spent most of the lunch talking about schools for our kids, the upcoming election, and the economy. Towards the end of the lunch, my law firm partner, Charles Moure, brought over a local banker with whom he was having lunch in the same restaurant (in case there is anyone in Seattle who does not know this, but if you ever want to find either Charles or me at lunchtime, your safest bet is always Redfin restaurant. This banker has a Master's Degree in Russian literature and he and my client immediately lapsed into Russian, leaving me trying to pick out the maybe 1500 Russian words I know. After a couple minutes, it dawned on me that during my entire lunch with my client, his "Russianness" had never even occurred to me. Just this afternoon, I had a two and a half hour (or, in lawyer speak, 2.6 -- that's a joke!) meeting with another long-time Russian client and, once again, his "Russianness" was a complete non-factor. Many of our Russian clients have become such experienced international players that our dealings with them are no different from our dealings with our American clients. Though my firm has a Russian born employee with a US law degree and Russian born employee with a Russian law degree, at least half our Russian clients never deal with either, simply because there is no reason nor need. This has never been true of our Chinese clients. Every time we have represented or sought to represent a Chinese company, whether that company has a permanent presence in the United States or not, we have had to involve one of our Chinese speaking lawyers in virtually every telephone conversation and meeting. Many times it was necessary not so much for language reasons, but to have someone there to make very clear that yes, in the United States, it is always better (and in the long run much cheaper) to follow every law. But just recently, we took on a new Chinese client that, in the slightly ungrammatical words of the old Apple ad, "thinks different." This is a very large and very successful Chinese manufacturing company that set up a sales/distributing arm in the US and for the first few years, did things the "Chinese way" here. The head people in the US were friends of friends of the company owner and the extent of their US business/legal knowledge appears to have been confined to the fact that they live here. The US arm functioned very poorly and the Chinese company eventually replaced the first wave of leadership with a second wave. This second wave attended college here in the United States and very much wants to do things correctly here, and avoid the mistakes of its predecessors. Our telephone conversations and meetings do not require attendance by our Chinese speaking lawyers and they do not differ from meetings with American clients. Just last week we added another one, with nearly the very same background. Steve Dickinson, who heads up my firm's China practice and who is based in China, is always telling me that our best American clients in China are those who came into China 4-7 years ago, made all kinds of mistakes, yet survived. They are now so profitable they are willing to pay lawyers to avoid future mistakes because they now have so much to protect. I think more and more Chinese companies are hitting that stage in the US now. I see similar changes/business maturation happening with Chinese businesses in China as well. Shanghaiist recently did a post entitled, "Shanghai matchmakers promise to tell the truth":

Shanghai Daily tells us that around 30 members of the Shanghai Matchmaking Trade Association (yes, there is such an organization), have signed an agreement promising to be honest to their customers. If information provided by these agencies turn out to be false, or if their service isn't satisfying, customers will get a refund. The trade association also said they will inspect these companies once a year to make sure they live up to their standards. This move seems much needed, in a city with over 100 matchmaking agencies. According to the article: Complaints about companies faking identities and credentials have poured in during recent years. Many people also complained of high fees for poor services.

This evidences Chinese companies grasping the importance of reputation. Then just this morning, I read an email summary of stories from the China Economic Review, that the following two summaries: BYD to debut electric car in November BYD, a Shenzhen-based company best known for producing batteries, is set to begin selling China's first mass-produced electric car in late November, the Wall Street Journal reported. The car, called the F3DM, will be priced at about US$22,000 and will be able to travel up to 110km on electricity when fully charged. The F3DM ? reportedly a major reason for a US$230 million investment in the company by Warren Buffett ? will come out two years ahead of the expected release dates of GM's Chevy Volt, which is similar in design, and Toyota's new hybrid-electric model. GM and Toyota have said they are taking more time to ensure the safety of the lithium-ion batteries in their cars. IBM plans Shanghai R&D center IBM is planning to open a research facility in Shanghai, its first new research center in a decade, the Wall Street Journal reported. The lab will focus on building new applications for the internet and small businesses. John E. Kelly III, IBM's director of research, said China's population, economic growth and large number of private enterprises present a "huge laboratory" for the company, and that its customers have recently gravitated toward China. IBM has eight R&D centers worldwide, but has not opened a new one since building two facilities in India. The Shanghai lab will be an extension of the company's lab in Beijing, which it opened in 1995. Other technology companies, including Google and Microsoft, have expanded their R&D presence in China. The sad part of all this though is that in the last few weeks, for the first time ever, we have been receiving more inquiries from Chinese companies owed money on deals gone bad with American companies than the other way around. Far more. Yup, "the times they are a changin...." and "I'm hooked on a feeling."

Full post as published by China Law Blog on October 15, 2008 (boomark / email).