Part 8 – Local Chinese Consultants and Service Providers

One of the trickiest parts about doing due diligence on consultants or individuals in China is trying to figure out who is who and where they are from. There was a time when someone born in China was Chinese and someone born in the US was American, but those clear-cut distinctions are relics of a simpler, pre-China-boom era.

Let's clear the air and get a few things straight right off the bat:

1) Shanghai Chinese are the best operators in Shanghai . Beijing Chinese are the best operators in Beijing . The distinctions aren't huge, and a Shanghai person is not necessarily at a significant disadvantage when doing work in Beijing . It probably doesn't much matter at all. But regionalism exists in China and everyone has a home-court advantage to some degree. Don't let anyone try to convince you of anything different.

2) Right now, the most highly demanded (and thus most expensive) category in the managerial marketplace is mainland-born Chinese with overseas experience – commonly referred to as Returnees or HaiGui. The ideal profile is of someone who was born and raised in Beijing or Shanghai , educated in the US and worked for a multinational (in an overseas office) for 5+ years before returning to China . Lately more and more people are fitting this profile. In fact, a SUSPICIOUSLY large amount of people are fitting this profile. Be extremely careful about those due diligence questions before paying a premium for “returnees”. Find out if they grew up in the mainland or merely have distant roots here. Also, look out for locals who spend a semester at an ESL program in Ohio who try to parlay that into significant business experience on their resume.

3) People have been known to take liberties with their personal histories. Pin down potential partners and service providers on their origins. Locals can acquire overseas passports (Australian, Canadian and even US can be obtained relatively easily with large property or business investments) and then try to pass themselves off as “multicultural”. Judge this carefully. People who lose track of their own history have been known to lose track of other things as well.

4) American Born Chinese (ABC or HuaQiao) used to say that “they have a foot in two boats”. The problem is that your boat is almost always going to move in a different direction and at a different speed from the other boat. ABCs can make great hires and effective consultants and partners – but the experienced ones will make it clear to you very early just whose boat they are in. When you are negotiating in China , the last thing you want is a consultant with a balanced viewpoint. You want someone representing YOU and your selfish, one-sided interests.

5) Be careful of people from “Greater China” (HK, Taiwan , Singapore ) or others of dubious or tenuous connections with the mainland. These people can be truly knowledgeable and add tremendous value – but they are not locals, and you should be wary of those that try to represent themselves as such. The real danger here is that locals will pressure them to get their western clients to pay more or get less to prove that they are “really Chinese”. Happens often.

So should you hire local consultants and partners? Locals can deliver things that expats simply can't. If they have the network you need and the soft-skills you want, local consultants can make a great addition to your team of China-based professionals. But there are a few due diligence issues that apply to this kind of arrangement.

International experience. This is absolutely key. Make sure that your local consultant or partner has real international experience. This means with other westerners – not with Chinese representatives of a MNCs Shanghai office. You should also check if the individual you are speaking with has the experience, or he worked for another firm that did. Get very specific, and make sure you are 100% clear about each answer. This point has been known to get particularly vague. Nail down a clear history about your potential partner's international experience. Make sure you get references – of people that match your demographic and professional profile.

Who is doing the work? We know of one US hi-tech company that was speaking with a potential partner just outside of Shanghai . They were impressed to read the collection of CVs describing engineers and technicians who were going to be in charge of their project in China . It was almost as though they were written with the US company's precise needs in mind. In fact, they were. None of these people actually worked for the Chinese company yet – the resumes were “borrowed” from a contact at an executive search firm. The local firm was going to start looking for engineers after the client signed the contract. Fortunately for the US firm, it never progressed that far. When doing due diligence in China , don't be afraid to ask the naïve questions – like “do you have the staff who can do what you say they can?”

Service attitude . Until recently, the service sector was not terribly important in China . Real business was about manufacturing, and service was just an inconvenient and unprofitable means by which to sell production. That attitude is changing fast, but many businessmen in China still see services as a loss-leader for selling some kind of product.
Be wary of consultants and service providers who solve business problems by selling you things you may not need.

Specialist or generalist? Traditional Chinese businesspeople don't see the virtue in specialization. Many consultants in China won't say “no” to a single opportunity, regardless of their ability to competently handle the job. Instead, they'll learn by doing, and whatever mistakes they make will help them in the future. You, however, are screwed. Judge a consultant by his proposed solution to your problem. Make sure they are providing value-added answers. The last thing you want is a consultant who will follow your instructions to the letter, even when he knows it's ineffective or counterproductive to do so. Find a specialist who has handled your kind of transaction for your kind of company.

Outsourcing & project management . Remember the kid's game of “telephone”, where you whisper a message to the first player, who whispers it to the next person, and so on until the end when the last person states the new, completely transformed message, and everyone laughs and laughs and then has cake? Well, it's not quite as funny when it is your business that is being passe d d own the line. Project management is fine. An expensive, protracted game of telephone is not. When local consultants take jobs they can't handle, there are two options: 1) Apologize and return the deposit to you, admitting to the humiliating fact that they misrepresented themselves, or 2) Find a former classmate or associate who maybe, kind of, sort of understands what the original client might want. Guess which one happens more often.

Cost breakdowns and packages . When you think you have narrowed the fiel d d own to two or three potential service providers, ask for a detailed cost breakdown. You are looking for two things. 1) Is the final price in line with the general market? Too high, and you are probably paying too much. But too low may also be a problem. The work may be low-quality, the real intention may be to steer you to other expensive products or services, or the consultant in question doesn't have any experience. 2) Level of detail and transparency. There should be some form of itemization or standard – either a cost per transaction, customer, man-hour, etc. A Chinese consultant with international experience will know how to break down costs in a way that makes his business clear to you. If not, keep looking.

Final advice:

When dealing with local consultants and service providers, references are key. Make sure you are getting current, actual references from people who are in your situation. A reference from a Chinese-speaking resident of Shanghai is worthless to you if you don't speak Chinese and plan on running your business from Seattle . When doing your due diligence on locals, don't be afraid to ask basic questions. In fact, you are advised to ask the same question several different times throughout your due diligence process. If anything is every unclear or contradictory be concerned. Don't proceed until you are satisfied that you have a complete understanding of the situation.

Local consultants are getting better and better, and there have been many success stories in the recent past. But China doesn't have a strong history of service companies, and you have to be extremely careful. Remember – incompetence and inexperience are just as dangerous to you as dishonesty. Check everything three times.

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