In today’s world, New Zealand businesses are likely to be either doing business in China – or considering the possibility.
Right now there are significant opportunities to trade in both directions. Doing business with China holds lucrative promise – but it’s also beset with pitfalls. In this article I want to outline how NZ businesses - and business people personally - should approach the prospect of trading with China, and avoid the pitfalls.
The first point of embarkation is to understand that there isn’t one China – except in a political sense. Culturally, the nation known as China comprises 1.3 billion people with a range of languages, cultures and religions that shatters the crude stereotypes that have persisted for years. Many “doing-business-in-China” seminars pitch a “one-size-fits-all” approach to the task – which is doomed to fail. If you don’t fully understand the culture and the mentality of the business people across the table from you, you are wise to simply admit it. But better still, you should make the effort to understand the culture of your Chinese counterparts.
To start to do so, you must ask yourself three questions:
- Where am I doing business?
- Who am I dealing with?
- What is their background?
In respect of question one – you may have identified the region you want to trade in. But there are many different “China”s – not just the cultural and political differences between the mainland, Hong Kong and Taiwan. There are significant differences between mainland cultures – north, east, west and south; it’s about mindset, politics, geography, socio-economic structures, religion, and education. The norm in one area may be quite foreign in another. You need to understand the lay of the particular land you are targeting. My best advice: if you identify a region to work with, go there and absorb the culture – or hire someone to work with you who understands the subtleties of the area.
Clarify who you are dealing with. Is it government officials, professionals, general manufacturers or merchants? They all operate in a slightly - or radically - different way, with a different take on the rules of the game (and adherence to them). Understand their way of operating and adjust your moves accordingly.
Why is their background important? The gentleman across the table may be a survivor of China’s Revolution and civil war – he’s navigated a quite treacherous economic and political landscape and will be a seasoned and tough negotiator. Or he may be the product of China’s “one-child” policy, and the scion of a wealthy family, whose outlook on doing business will be quite different to the survivor.
There’s also a tendency to see Chinese business people as unsophisticated. It’s a communist state after all, and we know how plodding and inefficient they are, right? Wrong. The man in the chair opposite has probably had a western education (with solid English) and a lengthy history of working with western firms; if he hasn’t, the assistant at his side, you can bet, will have. They’re comfortable in English and dealing with westerners. Kiwi businesses may have experience of dealing with wealthy migrants in NZ, and the temptation is to think the man in the suit in China is the same. Don’t be fooled; he’s not.
A word on investing. It’s no secret that China is flush with investment money and investors looking to put their money into worthwhile ventures. But this is also an area where the untutored can trip up. Some simple advice:
- Make sure all discussions are confidential and know when the moment is right to talk non-disclosure agreements.
- Know your value proposition: What makes your product or idea attractive? What’s its competitive edge? Is there a steady revenue stream?
- Know the rules: Are there any governing laws which might hinder the investment or the project?
- Don’t rush; the Chinese like to get to know their business partners before cementing the relationship. Build the relationship and share information.
- Read between the lines; in particular, know when “yes” really means “yes”.
- Listen to what your investor is interested in – and have a proposition for each scenario.
- Know and prepare your exit strategy.
- Know the bottom line of what you are willing to give up (share percentage) and how much you need – not want.
- Document discussions - not necessarily in a formal agreement, but in writing so that both sides know where things were left at the last conversation.
- Don’t assume that the other side understood exactly what you meant.
- Record your IP and register it where you can.
In respect of that final point, recent events have shown this is a growing trap – failure to properly secure your IP. Businesses – NZ ones included – have been stung recently by “trade mark trolls”, unscrupulous individuals who register (in China) trade marks for foreign goods being made in China for export, then block the goods from leaving China on the grounds they infringe the Chinese trade mark registration. At huge expense and inconvenience to the manufacturer.
Fortunately, Chinese authorities are focusing on improvements to the Intellectual Property environment and combating corruption, efforts which, in time, may reduce or eliminate the risk. But getting good IP advice around your dealings in China makes sound business sense.
This article first appeared in the Avocado Grower's Association industry magazine, and was written by Johnathan Chen, head of the Asia Division, James & Wells. Based in our Auckland office, Jonathan specialises in searching, prosecuting and drafting of patent applications in relation to mechanical inventions, together with providing infringement and freedom to operate opinions, and general advice on IP strategy and patentability issues. For more information about doing business in Asia or expert IP advice contact Johnathan on Email: firstname.lastname@example.org or Phone: +64 7 957 5660 or 0800 INNOV8.