Only the brave…or the foolhardy: taking your business to China

China. The land of opportunity. We all know about the size and scale of the Chinese market; the numbers are staggering. I have the good fortune to have started my relationship with China rather young in my career. China, the cordial, smiling, polite teacher that she is, will not think twice about kicking you where it hurts if you let your guard down even for a moment.

I’ll share three stories with you and make of it what you will.

Story 1 – Mr Yes...probably.

The print business in the UK is tough. Margins are tight, inflationary pressure on costs, and the emergence of online meant revenues were declining. Banks were nervous about the sector, and private equity was looking for sharpish exits at time. Not a comforting scenario.

In this climate, I was an executive advisor to the board in business strategy. The solution: outsource all large volume orders, which were not time-sensitive to China, and thereby offer a premium service to European clients who needed quick turnarounds on large volumes.

So we contacted several printing houses in China. Meetings went well. Conference calls were smooth. Confidence grew. The board took a trip out there to see the set-up. A few concerns but nothing too concerning. Spoke to Chinese lawyers and even though a little expensive and paper heavy we built the legal infrastructure to make it all happen.

We got a large order. Not time sensitive. Sent it to our outsourcing partners. Transferred the agreed percentage of the order upfront – maybe around 10%. Timelines were agreed (well at least we thought so). Off we went on our outsourcing miracle that would save the company and secure its future!

Result: delays, more delays, and several reprints later, we get the shipment. It was still sub-standard, a small portion of the goods came out damaged, and as it turned out it ended up costing us about 10% cheaper, but with a tarnished reputation.

What happened: Well, as it transpired over several more orders and after putting in tighter controls over the supply chain and communications, the Chinese were playing a different language game to us. We would ask “can you do this?” They would answer “yes probably.” We would ask “will it be of the required quality (and we would show them plenty of benchmarking)?” They would answer “yes, please do not worry!”

After the fifth order, enough was enough! Five lost customers. Reputation tarnished. And a battered ego later, we threw in the towel with China.

Story 2 – The paper Tiger

In 2010, I had made some money, the strategy house was doing well, and so to diversify I decided to carry out a “buy and build” in the Italian restaurant scene. I wanted to standardise everything! So, I found suppliers. Where, but China – that cruel teacher of seduction, seduced me again with her low prices and sweet nothings. She fed my ego. I knew China. I’d been there, done it, got the t-shirt. This will work. So, I played by the language games. No problem.

The company (on paper) had great pedigree. Established, capitalised, strong management team, good client base, and I was asking them to do nothing they hadn’t done before. I sent my manager out there to “kick the tyres” and do “a once over”. He came back with the boxes ticked. Great. This was going splendidly.

I placed the order. No response. I chased…and chased. They eventually responded. But still no sign of goods. I chased…and chased…chased some more, only to discover that the company was going into liquidation because a senior director (and a Communist party member) had decided he was taking his capital elsewhere! After a internal legal battle, the directors split, liquidating the company and leaving us 'hanging'.

Result: Restaurant openings were delayed, and costs spiralled. In the end we recovered and made some excellent returns upon an exit 3 years later.

Story 3 – The Siren

12 months ago, I began working with the shareholders of a health-tech firm. A small family owned business manufacturing some seriously clever kit. They had great engineers and technicians but no real commercial experience. China. She was calling. Why is this wonderful piece of technology not in every Chinese hospital and research lab, I quizzed?

And so, off I went again to my cruel teacher, thinking this time she’ll surely treat me better. After all, it was 10 years since I first met her, and she had taught me a lot. I was wiser, and somewhat successful. Surely, she’ll respect me this time.

I found several distributors that could potentially channel the technology where it needed to be. We started talking to one such distributor who showed immense interest. So much so that they placed an early order that would have been the largest in the company’s history from a single client. Finally, I thought – China will let me pass!

I flew out to China myself this time. I wanted to see her face to face – Cruella herself, who had given me nothing but heartache. When I got there the meetings went well. They were hospitable. Good interpreters. Showed me around the company, and it all looked good. And yet something did not “feel” right. I knew China. She was difficult. This was too easy. Hardly any knockback on price. Agreed terms that were blatantly in our favour too readily. Uber confident on repeat sales. And even signed the first purchase agreement on the evening of the first day. This was just too good. So good in fact, that it didn't feel good at all.

So, on the next day I began to narrate the endless problems with the software (I even made some up), and the complexities of the product, and how it will require experienced engineers to support the system. Still nothing. Everyone listened carefully, made some notes, and then smiled and accepted everything. They’ll just get on with it they said. 

On the third day I dug deeper. I decided not to meet them for lunch and instead spent the day trawling through the internet finding out about other products they were selling. I spent the whole day searching and found contact details of 3 manufacturers. I called each one. The first order was great. “Very smooth” they all said. But then nothing. “We’ve never heard from them since” one said. But the troubling bit was that when they searched for other distributors, no one really wanted to touch their product – the market had shut its doors on them. Their's was a bad product. Not supported. End users were unhappy. “No thank you, we cannot represent your product here”, a devastating result. All three had the same, or similar enough stories.

What to do?

One big order, and then run the clear risk of nothing again, and lose China forever. Or decline the order and look for someone who can deliver real repeat business?

I came. I smiled (at the siren). And I walked on by.

One day…Cruella will become the fairy Godmother – of that I have no doubt.

Still on the hunt for distributors in the health-tech space.