Partners for your China Success: The right partners and service providers can mean the difference between success and failure for westerners entering the China market. Whether you choose a local partner, a an expat, or a JV, you still have to do your due diligence.
Diligence China: Started by expats living and working in Shanghai, DiligenceChina's mission is to pre-screen reliable, trustworthy partners and service providers.
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Due Diligence for China-based Service Providers, Consultants and Partners
Part 7 – Small & Medium Sized Expat Service Firms
One of the more interesting developments in the Chinese business environment over the last few years is the emergence of expat-run consultancies catering to the international market. These are usually small boutique shops that specialize in helping other expats or small-medium sized international firms perform specific business functions in China .
The Expat-run consultancies are a mixed bag in Shanghai , Beijing and Shenzhen. The positive aspects of working with “foreigners” are that you get the skills, talent, and backgrounds you are used to. When you find the right partner or service provider, it is definitely the best of both worlds. He understands China in the way you need to understand China – from an international business perspective. They definitely “get” your situation, and will deliver services and products in a way that makes sense to you, at a level of quality you are accustomed to.
Is there a downside? There can be. Expat consultants can also be the WORST of both worlds. They can lack the basic competences and skills you need, while also charging you more then the locals and mucking up your business in the meantime. You should be particularly wary of the “friendly white face” fronting a Chinese operation. You don't run into this TOO often in Shanghai anymore, but it is still worth being on the lookout. More common is the western boss who is running an office full of low-paid Chinese workers – but charging you western rates. Always know who is really doing the work.
Types of Business Services
Expat Consultants come in three main varieties. Business Entry firms, BPOs, and Service companies
Business Entry firms will help you get established. Because standard biz-entry firms help you register, many of theses companies are aligned with local partners or JV partners. As with other business entry firms in China , you are paying for their specialized knowledge. If you are just having someone do paperwork for you, you probably should not be paying much more than the filing fees and any reputable firm should be able to handle your needs. If you are paying extra for expat service, you must make sure they are really adding value. Make your decisions based on what specialty is most useful to you. Expat firms with competences in business planning, market research, value-added sourcing or HR may be worth the premium price.
BPOs – Business Process Outsourcers . BPOs are an increasingly popular option for foreign invested businesses in China . These operations will manage your payroll, finances, recruiting, assessment, training, and many other non-core business functions. Outsourcing used to be only for manufacturing, but now has migrated to high level services and business functions. A BPO will run a piece of your business on a long term basis. Since these kinds of companies are management intensive and require very high levels of service, many expats like to turn to other overseas outfits.
Service Companies. Expats have been competing at the high-end of the service market for some time now, and the trend is growing. You can now find advisers, designers, and experts of every stripe in the big cities. Lawyers (illegal for most to practice, but they can give advice), website designers, accountants, market researchers, trainers, coachers, and just about anything else you have a professional need for. Do the due diligence and ask for samples and references, of course. Many successful foreign businesses swear by this segment of the market.
Due Diligence Issues
The big issues are Skills & Competences , Management Ability and Company Structure .
Competence & Skills: Do they have the skills you need, or are they just friendly white-guys that make you feel safe and secure? Remember – their bread & butter is selling to newcomers like you, so don't trust that warm, fuzzy feeling too much. Make sure they have the skills, training and experience you need. The reason to pay extra for an expat firm is the quality of the final product, and the value-added problem-solving and creative skills. See samples of all creative work, and try to find out who will be doing the technical stuff. Are they delegating menial tasks to highly trained locals while guiding your project, doing every detail themselves, or selling you while running a hi-tech sweatshop? Find out early.
Management Ability Are they talented professionals who have no idea how to manage – anywhere? Is this their first business? What will happen when they get busier? What will happen if the owner gets sidelined – by a big project or by a big bus? Do they have a deep bench, or is your whole project in the hands of one person? What happens if he gets really busy in the next 6 months? What happens if his staff triples in the next 6 months? Does this guy strike you as capable of managing a staff , growing a business, dealing with day-to-day ops AND doing a 1 st Class job on your project? If something has to slide, it may be YOUR business – not his. If you can't trust his management abilities, then you can't trust his skills. That includes TIME management, HR skills, and organizational ability. If your man is late, can't find files and complains about staff turnover at his own shop, you may want to check back after he pulls his act together a little.
Structure There's nothing with hiring a freelancer to take care of specific tasks, but that is different from a consultant who can represent your interests to the government suppliers and potential partners or customers. Don't hire freelancers when you need a consultant. If he doesn't have a legal structure, facilities and a support staff , then you are asking for trouble when you have him represent you. A basic minimum is access to an office, a corporate structure in HK, and a Chinese-speaking assistant. More appropriate is a certified Chinese company, his own facilities, one or more partners who can undertake your project's management when your contact is unavailable, and a dedicated, professional staff . In China , putting together professionally printed cards, a phone number and a grown-up email address all take only minimal effort. You should NOT be dealing with amateurs in this market. The stakes are simply too high.
Due Diligence questions for SME expat consultants:
Where did they get management experience? (I.e.: Did they learn to manage in China , where the bar is pretty low, or did they cut their teeth in a western business center?)
Where did they get their technical training and experience?
Why are they in China ?
How fast are they growing?
What are the most jobs they've handled at one time?
What if they get too busy in the next 3 months?
How do they market?
What if they get too busy?
Who does the actual work?
How do they train their staff ?
Is their talent on- staff , or freelance?
Do they have a network of cooperative companies?
What if you ask for something they can't do?
Who's their largest client?
Are they licensed or certified? Where? For how long?
Do they have any partners?
Is the company in their names, or in somebody's wife's name? (Sounds like a joke, but it's not. It happens often. Usually there are no problems, but if you have to tell a supplier that you can't pay him because your accountant is splitting up with his wife, it gets pretty unfunny pretty fast.)
