DiligenceChina

Editor’s note: DiligenceChina.com and ChineseNegotiation.com are both presently unavailable in Mainland China since they are being “blocked” by the Chinese firewall. In all likelihood the problem is related to other sites’ sharing the same commercial server or some kind of technical issue. The editors have only limited access to the backend of the sites, so updates and new postings will be even less frequent than usual. We appreciate your patience and support during this time.

The owner of the café has just come over with my diet coke. I restrain myself from complaining about the music – it’s just a touch too loud, but that’s one of the crosses we expats have to bear in Shanghai these days. Standards are rising steadily, but expectations are moving into warp speed.

It’s hard to know who is pickier lately. While the demands of expats are moving rapidly into line with international standards, the expectations of MWMs (Mainlanders With Money) are shooting up even faster.

Images of monied Chinese elites falling all over themselves in a rush to fork over big piles of cash for name-brand luxury items always played better overseas. Marketers in China told tales of woe – either there was no demand at all or their target customers had the resources to shop in HK (or Paris). The true holy grail of the China market has always been the middle class, and over the last few years the number of super-consumers in urban areas hasn’t disappointed. Not only big commercial centers like Shanghai and Shenzhen are getting broadly wealthier, but every township, village and settlement on the coast seems to be booming at the top half of the demographic.

International businesses looking to slip into the China party now had better adjust to a new breed of picky, hypercritical customer: middle class Chinese. These folks have been on the margin of Chinese society for a long time, but now they are moving to the forefront and having their say. Rights, freedom and representation? Nah. No thanks. Selection, service and value? That’s more like it.

There was a time when all an importer had to do was localize the brand image, get a good Chinese name and sell his soul for a distribution deal. Now things are a bit less simple. Chinese consumers will slice and dice your product or service for seemingly simple insignificant reasons – or for none at all. Middle class Chinese consumers are as fickle and irrational as middle class buyers in the US or Europe. Zao gao!

A new site devoted to Expat Financial Planning in China. Who said we don’t know how to party at DC?

ChinaFinancialPlanning.com

http://www.chinafinancialplanning.com

Sometimes a little prep can be dangerous. Since more and more Americans are actually preparing for negotiations in China, here’s a suggestion: Check the expiration dates on your reference material. Something’s happening in China Inc that is making a lot of otherwise outstanding business writing outdated and dangerous.

Chinese businessmen are developing a generation gap, and anyone over 35 or 40 is going to make deals and do business completely differently from a guy in his early – mid 30s.

The younger generation who had a lot more exposure to international deal-making, and have witnessed the march of the MNCs into Shanghai and Shenzhen (and Beijing, Tianjin, Guangzhou etc.) are coming of age professionally. These guys are technocrats who probably don’t have much in the way of family or political connections. They weren’t a big factor 5 years ago, because they were too young and probably still hopping from job to job. Well, they’ve stepped up, settled down and have lots of responsibility now. The international system has worked out just fine for them. They are down with the plan, understand the rules and want to make the process work for them (again and again).

The older guys are still calling the shots using the old playbook. Fine people, and they mean well. Great with kids. But they don’t know from cooperation or long term business with strangers. This demographic is slicker and sound better than they did in the old days — and it is possible to do significant business with them. But these men were a transitional management team that operated between the opening of China’s economy and the development of a mature market system (ie: now). They grew up in the old system - where they were taught and trained by pre-reform appointees.

If you approach this older generation with the ‘win-win, let’s all work together to make the pie bigger’ line, you are going to encounter serious trust issues. The expensive, bad kind of trust issues. You have to make sure that you are building serious controls and feedback loops into the contract and the formal operating plan. (Yes, you need a formal operating plan.) That includes HR and Finance. And Sales. You get the idea.

But you have to be careful when acting like a hard-ass on control issues with the young guys because they KNOW it’s a hot-button issue for you and they’ll use it to club you to death on things like finance terms and low-low sales goals. When you go up against these guys, save the control stuff for later stages. Go for performance measures first. When they protest that the numbers are too high offer them technical assistance – in the form of your brilliant system of feedback and internal controls. Sell it as a management secret.

The real problem comes when both types of guy are at the same meeting. But that’s for another day.

Have fun out there.

What’s old is what’s new in China management for MNCs. China has moved from enigmatic splotch on the map between Europe and Japan to Center of the Universe so quickly that C-Level bosses and HQ staffers have barely had time to update their misconceptions about operating here. Decision-makers and policy-enforcers in NY and Frankfurt have learned everything they know about China from Time and the IHT. As the media chased fads and built up their own images of China’s economy – so evolved the notion of China management in the minds of the firm’s home office.

Managing expectations from HQ – new execs big challenge in China.

New top managers in China are starting to understand that HQ is a significant bottleneck. This is especially true of the new type of “global” manager who may be transferring in from Mumbai or South Africa. HQ sends this kind of top manager to the expensive cultural orientation training sessions – but those same home-office honchos with the first and last say on China policy haven’t gone themselves. Ex-pat managers are expected to “China-up” their management techniques and get results comparable to back home – using SOP (standard operating procedures) and strategies that don’t exactly fit in with China.

What can a senior China Ex-pat boss do to help HQ get a clue?
Two options:

1) Control expectations in the short term.
2) Control expectations in the long term.

Short Term tactics for managing HQ
Jawbone, write a report, send Chinese staff home to train, be direct and reactive. This number is unrealistic, we need to reassess that. Works best if you propose specific solutions – even to the really vague issues. (The entire HR situation, for example.) Get estimates on things like training, replacement parts, software, new equipment, etc. that can be priced. Then offer to consult directly with the company’s global supplier of that service. They make GREAT allies in getting HQ to spend money.

Long Term tactics for managing HQ
Get them over here and pitch a revised business plan. Not just over here for a weekend junket – and your business plan has to have weight. Remember – the idea here is to move the goal-post, not just call the play. If your company has annual sales, HR or management conferences, then this is a perfect venue. Key: Don’t try to sell them on your China solution at the first meet. Try to sell them on China as a place they should visit often. Everyone always loves their first China trip but the more time they spend in China, the more sympathetic they will be to your issues and ideas.