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On How To Handle The Accidental China Business

By Dan Harris and Steve Dickinson

Interesting post by Andrew Hupert over at China Solved, entitled, "Selling China to the Accidental Expats." The post is intended to instruct China consultants on how they should handle calls from American companies that have now decided they must take advantage of China's growing market. But it also makes some very good points for those American companies as well. Andrew starts out by defining "Accidental Expats":

I call them Accidental Expats. They are the American business owners and senior managers who had never really considered setting up shop in China ? not while the US market was big & active enough to support their growth strategies. They?ve got nothing against China per se. They just used to consider it an unnecessary risk and huge inconvenience. But now, of course, times are changing. I?m already starting to hear from lots of Americans I haven?t spoken with in a while. When I first moved to Shanghai they had no idea why I was doing it. Now they want to know how they can do it.

He then describes what comforts these Accidental Expats:

Remember ? these are the guys who never really wanted to be here before ? even during China?s previous booms. These are the head-down, show-me-the-numbers business owners and managers who aren?t easily impressed by big numbers and pie-in-the-sky stories of 1.3 billion customers. * * * * They want to hear about process, safety, QC and regulations. These Accidental Expats want the facts about set-up and operation. It?s important to take a balanced approach ? don?t scare them away, but don?t talk about how easy it is. Your value is in being able to provide solutions to problems that they don?t know they have yet.

He then gets down to the brass tacks. Money. More particularly, the tendency of companies looking to go into China to grossly underestimate the costs of doing so:

Goal-setting is their No.1 challenge ? and your main value to them. US business owners are probably going to try to get very granular and specific way too early in the conversation. If you want to avoid difficulties later in the process, you are strongly advised to start the China conversation by making them come up with realistic goals ? and a budget ? for their China entry. Westerners will talk your ear off about profit splits and market plans ? but if they don?t know how much money they have to invest in China or what they expect to get out their investment, then someone has a problem. Make sure it?s not yours.

This is so true. I would estimate that about half of the companies that call my firm with China plans have completely failed to account for at least one large financial piece in their plans. Sometimes it is the minimum capital required to form a WFOE (which in some cities starts at around USD $250,000. Sometimes they completely ignore the 30 to 40% in employer taxes that must be paid on employee salaries. Other times, they wrongly believe it will be "no problem" for them to staff their China company with independent contractors on whom they will not have to pay these taxes nor have to fulfill the requirement of written contracts and a written employer/employee manual. Other times, they wrongly believe they can start out without having to rent any space specifically for the business. Then there are the companies who simply never realized that just as is true in the United States, they cannot just go into any business without a specific license or import or use any product without approval. Andrew concludes his post by advocating the following for these companies with China pies in their eyes:

If your home-town connection is still in the ?big-picture? stages of his China plans, then the best thing you can do is persuade him to invest in 10 day trip over here. Don?t try to plan a China business for someone who has never set foot in Mainland China.

I completely agree, but would add that after returning stateside, these companies should next retain a top tier China consultant to work out the real numbers.

Full post as published by China Law Blog on April 23, 2009 (boomark / email).