Finding a Good Partner in China
Julie Austin was thrilled when she sealed a deal to sell 72,000 of her Swiggies—water bottles that attach to a runner’s wrist—to the organizers of a marathon. She was hoping to make a profit of $54,000 on the order. But as race day approached, it was clear to the Los Angeles entrepreneur that the factory she hired in China to make the bottles was moving too slowly. When the plant missed the deadline to ship the Swiggies by boat, she had to arrange for airfreight instead, at a cost of $20,000.
“I lost a lot of money,” Austin said.
Fortunately, the order arrived on time and the race organizer placed an order for the next race. But Austin quickly shopped around for a new factory and found one that was more organized.
“Any time I had an order, they took care of it promptly,” she said of the plant she still uses.
Austin’s experience illustrates a major challenge facing US firms that do business in Asia: finding the right partner—whether that is a co-owner of your business, a manufacturer or a distributor.
It’s not easy to find such partners, even when you are both in the same country. But when you are looking to form an alliance across thousands of miles, navigating geographic distance, language barriers and cultural differences can require extra effort.
“You have to be very proactive to make sure things do not become problems,” said San Francisco-based Nichol Bradford, CEO of The Willow Group, a transformative technology company. “When you get into a problem situation and add a cultural overlay, it is twice as complicated.”
Bradford oversaw operations in China for computer games company Blizzard Entertainment Inc. from 2008 to 2013 and was based in China and Hong Kong. Blizzard Entertainment, the publisher of the World of Warcraft® series, is a division of Activision Blizzard, which was founded in 1991.
Use these strategies from experts and entrepreneurs who work with partners in Asia to get your partnership right the first time.
Build a relationship
No entrepreneur has weeks or months to waste, but when looking for a business partner overseas, trying to negotiate a deal too quickly may make potential partners wary.
The United States and other Western countries have a monochronic culture, noted Evaristo Doria, of the Institute of International Business at the J. Mack Robinson College of Business at Georgia State University. He also is a co-author of Oasis: In Search of Extraordinary Business Growth Overseas. Monochronic culture means Americans tend to focus on one thing, such as work, at a time—and don’t spend a lot of time at the office building relationships.
In contrast, many Asian countries have what is called polychronic culture, he said. Asian business people are comfortable doing multiple things at once and may want to take time to socialize before discussing business.
“Time is more flexible,” Doria explained. “Things sometimes take more time than is expected.”
As a result, a potential partner in Asia may want to get to know an American counterpart at a slower pace than expected—so allot sufficient time for relationship building.
Christian Sculthorp, an entrepreneur in Toronto, encountered the polychromic culture after starting online health supplement store Healthy Indonesia with a German expatriate living in Indonesia. While they were able to line up Canadian suppliers rapid-fire, it took longer with suppliers in Indonesia.
“In Indonesia, they usually feel out the person a lot. It can be really hard to get to the stage where you are actually buying,” Sculthrop said. “On average, it takes about a month for us to get pricing lists and things like that.”
Many companies, such as Thomson Reuters World-Check, can help perform international due diligence on a potential partner. Nonetheless, background checks are not a substitute for meeting overseas collaborators in person or hiring a trusted agent to do so. This is especially important when working with an overseas factory, since problems at the plant with quality, on-time delivery, product safety, or labor practices could hurt the company’s reputation.
“Make sure there’s a factory there and they are able to show you the product or products they are going to manufacture for you,” says Eddie Wong, a partner in Friedman LLP, an accounting firm in New York City. Wong leads its Asia practice and advises Western companies doing business in Asia and middle-market Asian companies expanding into the United States.
“If you walk in there, and there are only four people there and only one little machine, you’re going to start wondering how they will be able to do it,” he said. “The only way they can do it is [to] subcontract the work out to another company, which you may not want them to do. You will lose control of your manufacturing.”
Also make sure a potential manufacturer is in good financial standing, get a copy of its operating license and look at its credit.
Or, hire a professional. That’s what Austin did.
Her sales manager, whom she met for the first time at a trade show in Hong Kong, also manufactures his own product line and had done extensive research into factories in China. He helped her find the family-run factory she uses now.
“Even though they were more expensive than the other factory, for me it was worth it to make sure everything was on time,” Austin said. They also offered documentation showing their plastics were nontoxic and BPA-free, which was important, given that her bottles hold drinking water. “They are sticklers about quality.”
Ask an in-country agent to find a reputable distributer, recommends Wong. The distributor should be based in the target market so it is familiar with regional needs and local challenges.
“Don’t hire a firm that is located in the Northeast if they are going to distribute the product in the Southwest in China,” Wong says.
Bridge the communication gap
Speaking the language is always ideal, but simply understanding the communication nuances can give a businessperson an edge.
“One of my first manufacturers didn’t speak English, so everything had to go through a translator, which held up orders an extra few days to a week,” Austin said.
“Different cultures say ‘no’ in different ways,” Bradford also noted. “American business culture has a certain way of saying ‘no.’ Sometimes Westerners think they heard a ‘yes,’ but they’ve been told very clearly, ‘no,’ and they miss it.”
Her advice: When doing business in any unfamiliar cultural environment, ask someone who knows the language and culture to explain the conventions around agreeing to something in business or politely opting out. The clearer the communication with a partner, the stronger the partnership will be.