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How To Succeed In China Business. THE Rules.

By Dan Harris and Steve Dickinson

Rich Brubaker of All Roads Lead To China is out with an über-helpful post, entitled,A Few Rules for Succeeding in China, setting out the following eight rules to follow to succeed in China: 1. Show up with reasonable expectations. Rich notes how many come to China with "unrealistic expectations? or at least have yet to fully put into context the amount of investment it will take in time, money, and capacity to achieve those goals." A classic example of where I see this as a lawyer is when our client emails us a lease it needs to sign for it to be able to register as a WFOE and asks us to review it and get it back to them in a few days. We respond by telling them that, at minimum, we need to make sure of the following items separate and apart from the lease itself: a) Is the landlord on the lease really authorized to lease the premises? I would estimate that about 20% of the time (even higher outside the major cities) it is not. b) Is the property zoned for that which you are planning to use it? I would estimate that about 10% of the time it is not. c) Does this property/lease qualify for a WFOE? Nearly always it does, but one needs to make sure. 2. Develop a high tolerance for pain. Yup. 3. Have lines (moral and economic) that cannot be moved. This is a great one and one that I too often have seen violated. In fact, I met with someone just the other day who told me that he had left China after building up a successful business there when he realized that what he was doing to keep it up had turned him into someone he did not want to be. 4. Understand the motivating factors of the parties sitting across the table. Stop negotiating and begin collaborating. "If you are walking into a meeting preparing for a heated pissing contest why bother? There are no deals of the century in China, no deal has to be done today, and there are options." Right on all counts. 5. Plan ahead, speak up, and move quickly when things do go wrong. Right again. 6. Pay the full real costs up front. Rich does such a great job here, I will merely quote:

Factoring in the costs of negative externalities is a must. Regulations and consumer expectations are only getting tighter, and firms who caught on the wrong side of a moving regulation are going to pay more to bring themselves into compliance. Want to use a supplier who abuses line workers. You will pay the cost. Don?t care if your supplier dumps chemicals into the river. Someone else will. Think that hongbao is the ?key? to a relationship? What happens when they go to jail? Price in the cost of choosing suppliers, partners, and channels that follow global standards because local standards are only going that way, and anything local will require upgrading at some point at a cost that is far more uncertain than if you build your platform on it now.

Absolutely. China Hearsay has been writing lately on how Chinese consumers are coming to expect foreign companies to provide them with the same things these foreign companies are providing to consumers elsewhere in the world. Stan's did a post on this today, entitled, "Is HP the New Toyota?" 7. If something goes wrong, look internally first. "It is not always the supplier's fault or a nationalistic regulation. When things fail it is typically no more than the byproduct of a failed process or system. Identify that, work with it, and move on." Again, I completely agree. I cannot tell you how many times companies have come to me after having failed to abide by a Chinese law and seeking my confirmation that the Chinese law they violated was stupid. The reality is that the overwhelming majority of China's laws make sense, but whether they are sensible or not, it is sensible for you to know what they are and to follow them. 8. Shut up and get to work. Yes. What else?

Full post as published by China Law Blog on March 10, 2010 (boomark / email).