Fast and furious – Vol. China

Things happen fast in China. If you do not seize the day, somebody else does and make the gain. We Finns tend to think too long and do not grap the opportunities when they are served on the plate.  First we consider whether we are ready for the Chinese market, then we start to make the project plan and soon we realise that our moment has passed.

Lao Tsu once taught “Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.” If you are the first one in the market, you have the advantage of starting from the scratch and make it big. If your idea is great, it can be easily sold. If you wait for too long, somebody else gets to the market first and gains the first mover’s profit.

It is not enough that you have stepped into market with a great product once. “The development develops fast” is definitely the case in China! The government encourages the domestic innovation and invests heavily on science and product development. If you do not come up with new ideas and improve your products in full speed, you soon will be dropped out from the competition.

Confucious said: “When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.” We Finns tend to think for too long and make too detailed project plans that do not allow the adjustments of the steps. Operational environment in China changes rapidly and it is difficult to foresee the exact route to success.  Therefore it is more advisable to jump into competition, keep the goal and agilely change the route if necessary.

I feel the lack of speed of Finns is one of the most problematic issues in sourcing from China as well. We Finns have been taught that customer is always right. In China that does not apply. Finland is a small market and our order quantities are insignificant to Chinese suppliers. We want good quality at small quantity. We are lucky if we find a supplier for required products on those terms and at considerably low cost. However, the suppliers also want to proceed fast. Once you find the supplier that meets your standard, make the deal or you lose it. Once you start hesitating, you may lose your face and end up into unwanted clients’ list.

Finland won the World Championship in ice hockey by playing fast and furious. That is the nature of the game in China as well. Think fast, move fast and make the goal before the competitor does.

Fortune Falls to represent NCO China in Finland

Fortune Falls and NCO China have signed co-operation agreement for representation of NCO China in Finland. Co-operation enables Finnish clients to find an easy solution for setting up and operating their business in China and concentrate on their own core expertise.

NCO China has solid experience on helping international companies with corporate registry, financial management as well as visas, residence permits and work permits. NCO China also offers incubator services in Beijing.

New co-operation between Fortune Falls and NCO China combines complementary China expertise in order to provide the clients in Finland comprehensive China services.

More information:

Johanna Heikkinen, Fortune Falls
Tel. +358 (0)40 543 6118
Email: johanna.heikkinen(at)fortunefalls.fi
www.fortunefalls.fi

OR

Hugo Hollede, NCO China
Tel. +45 3194 6269
Email: hugo(at)ncochina.com
www.ncochina.com

Good, bad China sourcing experts

Sourcing from China is difficult; that is what we are being convinced by the sourcing agents and consultants. There are the language barriers, cultural differences, unreliable suppliers, fluctuation of prices, complex distribution channels, etc. you name it.

Yes, all the above mentioned can be a big challenge for a foreign company not familiar with China market. However, can all this bullying be tactics of sourcing experts to make their clients dependant on their ”expertise”? More I hear the stories of these experts have made themselves irreplaceable to their clients by appealing to the almost impossible conditions in China, more I am convinced that they are not doing their job right. Aren’t we as China experts responsible of finding solutions to overcome the challenges and easen the way of our clients in China?

Sourcing from China requires expertise of local market, that is for sure. However, the procedure of building reliable supply network is not more mystical than in any other country. Language barriers can be solved by using skilled interpreter, reliable suppliers can be found by sorting out the potential suppliers and making a proper factory audit and maybe paying a personal visit to the factory, as well as by investing in the win-win relationship with the supplier.

We keep hearing that all the documents can be faked in China. Yes, they can; I have seen many faked documents, unfortunately. I heard a very clever story from my dear colleague Deze about  how to ensure that the factory is providing correct information on their  capabilities and references of supplying abroad. Zhejiang Tailong Bank (which could be actually an interesting contact  for small Finnish companies targeting China market) came up with an idea to ensure the reliability of the factory:

1. Check the electricity consumption.
2. Check the water consumption.
3. Check the customs duties paid.

Three simple things and you get a lot of information on the factory operations. This is just one simple and practical example of how to make a background check on the potential supplier.  I feel that making China to look like a big and hungry lion’s throat, we fail as China experts. Our job, instead, should be to facilitate our clients to create their own China strategy and become China experts themselves. It is pure lack of self-confidence to scare your clients by telling all the ”horror” stories of China. Instead, as the the China sourcing expert, you should smoothen the way and let your clients learn on the side to become experts themselves.

Year of the Rabbit Forecast – New opportunities arising in clothing sourcing

As a rabbit myself, I have a positive feeling towards the coming year of the rabbit. It seems that during the past few years the clothing industry in China has taken steps that can offer new opportunities for such a small and specific market as Finland.

Though China has suffered from increasing labor costs and fluctuation of raw material costs in the recent year, they have been able to adapt new ways to compete against the lower cost countries. Despite the world recession, China’s clothing exports grew notably last year. China has indeed put more emphasis on design, features and overall quality, in which case the contribution margin can get higher than in cheap bulk production. You may get products cheaper some place else, but can the quality meet the requirements of the end-customers?

I have always said that everything is possible in China. And I still believe it. The consumers in Finland have sneakingly become more considerate buyers. They need to be ensured that their products were made by following the social and green ethics. China has not always been on the top favourites when talking about countries of origin of the clothing and apparels. However, the conditions of the factories and labor in China have improved significantly. There has been a struggle where the strong factories won, the small ones died and the clever ones were standing alongside the battle field.

Now the clever ones have taken a totally new course. They provide things that you can not find in the traditionally considered “cheap production cost” countries. They acquire talents for designing and use carefully selected materials. And yet, everything is still possible at a considerably inexpensive price. Nowadays you may find fabrics made out of soya, hemp and bamboo or even recycled fabrics such as yarn from discarded mineral water bottles and cola bottles (Recycled PET fabric). Chinese have also adapted the expertise in high-tech clothing. The major sportswear brands manufacture activewear made out of innovative fabrics. You may purchase heat-generating jeans, electrical protective clothing, or even environmentally friendly fire protection clothing made of algae.

So what, if you pay 3 € per T-shirt in China instead of 1 € in Bangladesh if you can have it made ethically, environmentally friendly and even for most demanding use. My not-so-secret-anymore dream is that I could collect a bunch of talented and open-minded Finnish fashion designers under one brand name and produce their designs in China for global market. Who knows, maybe I take a jump into new opportunities during the coming year of the rabbit.

All I want for Christmas is money

Or not. Last year was different. I had just started my own business a couple of months ago. My first aim was to make money in any possible way. That is quite understandable as you need to cover all your costs and even make profit at some point. However, you soon notice that you are shooting every where  but your target. No woman is almighty.

What does a China specialist stand for? Is she specialized in Chinese politics or geography? Maybe culture or history? In my case that stands for specialist of China business. However, business itself is also a wide concept that can be divided into little pieces. Without capability or willingness of cutting your expertise in those little pieces, you have nothing concrete to offer and therefore nothing to grasp. That took me a while to realize.

I have recently been looking for new co-operation partners for sourcing activities in China. Though I have a wide network, there are certain areas that I need true professionals to help me with. If an entity approaches me and convinces me that they are capable of doing everything, it is a little hard for me to believe. As I said, no woman is almighty, nor is a man. It just proves me that the entity has not discovered its areas of expertise yet. Give it time to grow and then come back with your offering.

Another learning process this year has been to realize how to talk about the money.  Of course the client needs to know how much your specialized services cost. China is a complex country, though not impossible. Let’s just say, it is entertainingly challenging market. However, as each project is different you first need to make sure you are able to carry it out. As an entrepreneur you also cover all the risks with your financial resources and physical and mental health. Therefore, I have found it necessary first to clarify the big picture and recognise the challenge level of each project. Make sure that I can really carry out the project. Then I can talk about money.

Just recently I have had a great pleasure and priviledge to start collaboration with smart and insightful Chinese woman, Maria Gu. We are working on a new in-depth practical China training concept that inspires the trainees to commit and success in their China operations. Our interaction from the beginning has been really smooth and productive as we both share the same passion and drive to do things right in order to help our customers. There has not been a doubt even once in our minds whether I can trust the other’s motivation and skills. From the beginning we have shared the same interest and spoken the same language. One of the biggest realizations we made was to realize that if you doubt the other’s reliability when you meet for the first time, the trust is already lost trust.

The point between the lines is that once you follow your heart and let the passion in, you find the things that you can truly be the professional in. When you come up with this recognition, you find the people that share the same passion with supplementary knowledge and skills.  With the concrete offering, your heart and soul and reliable partners, you may be sure you provide value added to your clients. Plus; make the money.  ’All you need is just a little patience’ as a famous American rock band sings.

All I want for this Christmas is wisdom and open heart. Let the money come in the New Year.

Financial support for China activities

In Finland, there are numerous organizations that provide financial services for diverse internationalisation objectives of companies. I have recently been working on projects related to the fields of ICT, sourcing and music. Each of these projects have different China goals but yet, they all can receive financial support from different organisations. I have created a list of the organisations that provide financial support to Finnish companies aiming to expand into China. Please, feel free to share your information if I am missing any organisations or other financing opportunities in my list!

Finnpartnership

Finnpartnership can allow a grant type of financial support for commercially feasible operations aimed at long-term economic cooperation in developing countries. Financial support can be granted up to 200 000 €. As China is considered lower middle income country, the grant may basically cover 50 % of the approved incurred costs of small and medium sized companies and 30 % of large companies. The financing can not be allowed for export activities.

More information: finnpartnership.fi

Finnfund – Finnish Fund for Industrial Cooperation Ltd

Finnfund provides long-term funding for promising private projects in developing countries. Apart from co-investing with Finnish companies they can provide financial aid for ventures that use Finnish technology, cooperate with Finnish partners on a long-term basis or generate major environmental or social benefits. Finnfund’s financial instruments include minority equity investments, investment loans, mezzanine financing and a combination of these. During the recent years, China has been one of the most important countries for Finnfund’s activities.

More information: finnfund.fi

Finnvera

Finnvera plc is a specialised financing company owned by the State of Finland. The financing may be provided in the forms of loans, guarantees, venture capital investments and export credit guarantees for operations that meet the criteria of profitability. The guarantees can be granted against political or commercial risks associated with the financing of exports.

More information: Finnvera.fi

Finnish Export Credit Ltd (FEC)

FEC is a subsidiary of Finnvera. It is an internationally notified official Export Credit Agency, which administers the interest equalisation scheme for officially supported export credits and domestic ship financing at Commercial Interest Reference Rate (CIRR). The services of FEC include OECD credits, interest equalisation, funding for export credits, and loans. In China, the interest paid to FEC is exempted from withholding tax.

More information: fec.fi

Centres for Economic Development, Transport and the Environment  (ELY Centers)

ELY Centers provide advice, training and financing for starting and developing exports and improving staff’s capabilities and skills required in internationalization.

More information: ely-keskus.fi

Tekes – the Finnish Funding Agency for Technology and Innovation

Tekes is the main public organization that provides financing for research, development and innovation in Finland. It provides funds for risky projects that benefit the economy and society on a long-term basis. Funding can be granted to companies, universities, research institutions, government organisations, local and regional authorities and other organisations operating in Finland. The funding principles are explained here.

More information: Tekes.fi

Sitra – The Finnish Innovation Fund

Sitra provides corporate funding through its on-going programs, which are focused on new business areas with high risks. The companies must have the opportunity, capacity and will to expand into international markets. Sitra also invests in venture capital funds.

More information: Sitra.fi

Ministry of Employment and the Economy  (MEE)

MEE may grant financial aid for joint export promotion projects to joint ventures that consist of at least four enterprises. The budget of 2010 is € 26,6 million. Aid can be granted up to 50% of eligible costs that are listed in the website of MEE. The aid can also be divided so that the small and medium-sized enterprises participating in the project obtain more aid than large companies.

More information: tem.fi

Finnish Industry Investment Ltd.

Finnish Industry Investment invests in venture capital funds and growth companies in all sectors. It co-invests with private investors both nationally and internationally. The amount of the investment can be  at most half of the capital and ownership.

More information: Teollisuussijoitus.fi

Nopef – Nordic Project Fund

Nopef provides  co-financing for feasibility studies that support export projects and the internationalisazion of small and medium sized companies in Nordic countries. Nopef may contribute with up to 40% to the approved feasibility study costs in connection with international business set up and/or project export.

More information: Nopef.com

Private commercial banks

Private commercial banks may offer loans and other financing services for internationalization purposes of companies. Each of them complies with their own term. More information on the Finnish financial industry can be found on the website of The Federation of Finnish Financial Services.

More information: fba.fi

Export associations

Numerous associations provide grants for export activities. For example, Music Export Finland (Musex) provides financial support for artists that wish to perform in China. Recently, Finland has boosted its operations in the field of cultural exports.

More information: Culturalexports.fi (A list of member associations can be found under “Support network”)

Is it worth to establish a company in China?

I have currently been negotiating on starting an agency for a company that offers services for establishing company in China. But is it a smart move considering the latest news about the foreign firms getting mad and frustrated with China? Is it really worth of establishing presence in such a complex country?

China is indeed highly regulative country and it favors domestic companies. For example, last year the government proposed  a set of policies known as Indigenous innovation Accreditation. Basically it rules that when a new product is introduced to China market, the IPR registration for the product should be done in China before other countries. This raised a fear of technology theft among foreign companies.  Yet, the complaints of foreign companies have concerned the unfair public procurement. Apparently  the government may insert such criteria in public tendering that only domestic companies can fulfill.

Google was one of the first in the line of tired multinational companies. It departed with its search engine from Mainland China to Hong Kong due to a dispute over the censorship. Also Vodafone got tired of government restrictions and sold its share of China Mobile. The CEO of Microsoft, Steve Ballmer, commented that China is getting less interesting market than e.g. India and Indonesia due to its piratism. The CEOs of Siemens and BASF addressed their complaints regarding to unfair discrimination of foreign businesses directly to China’s Prime Minister, Wen Jiabao, this July. Is China’s attitude to international companies as baltic as the latest news let us to understand?

Well, between the less flattering news about China, there has been other type of news as well. Dell is planning to open new manufacturing and sales facilities in Chengu by 2011 in order to expand its operations to further West of China. Nissan is going to almost double its production in China by the end of 2012. Apple just introduced iPad to China and iPhone 4 is going to be next. Apple has informed its going to open up 25 new stores in China by the end of 2011. Oh, and Google did not escape China totally. It still has R&D center in the country, as well as advertising sales offices.

And what about Finnish companies? Finnair was just recently selected the best airlines in China. China is the biggest sole market to Nokia. Software companies have achieved surprising success in China’s large but very competitive market. Tietoviikko reported that Frosmo, which focuses on sales tools of digital content in social networks, had made significant sales to China.com and RenRen.  The company realized soon after entering the challenging market that they need to utilize local experts in order to succeed. Another software company, Rightware, has managed to sell its solutions to China’s Ministry of Industry and Information technology as well as China Mobile. Their success factor seemed to be topnotch expertise in a narrow field and the reputation as reliable and neutral partner.

Despite the struggles with China government, the country is still a very large market embedded with skillful labor and growing consumption. Sourcing is still relatively inexpensive depending on the products and the quality is good. Finnish companies still have good opportunities to succeed in China market if they stay humble, provide high-quality expertise, and learn how to co-operate with the local businesses. China is not going to disappear, it is just a matter how one operates. I am definately still going to continue my negotiations and promote China as a potential destination to Finnish companies.

Sources:

European Chamber, www.europeanchamber.com.cn

Tietoviikko, www.tietoviikko.fi

Others: msnbc.com, Taloussanomat, Tekniikka & Talous

Things to consider when sourcing in China

The reasons for sourcing in China can be numerous. They can be related to e.g. cheaper material and manufacturing costs, access to new technologies or resources not available in the home country, gaining a presence in the sourcing country. What ever the reasons might be, a careful analysis of the sourcing market is recommendable.

Nassimbeni and Sartor (2006) define four elements that should be considered in analysing the characteristics of the supply market.

1. Competitive advantage of the Chinese supply
2. Expertise profile of the local manufacturers
3. Potential customs barriers and constraints
4. Potential infringements of IPR

It is well known that the labour costs as well as in many cases the material costs in China are much less than in Finland. However, the production effectiveness is not as high as in Finland. Yet, higher the quality requirements, higher the production costs. Yet, Chinese manufacturers sometimes tend to increase the prices arbitrarily and appeal for example to ”misunderstanding” during negotiations or some extra costs that just suddenly appeared during the procurement process.  The location of the supplier has a great importance on the overall costs. Regional regulations can vary notably. The infrastructure of China is still somewhat under developed and the distances can be really far.  The procurement process involves many objects that should be considered in such a complex country as China.

Some fields of industries have nowadays very modern and developed production capacities in China. The whole production network is well structured and effective in manufacturing such products as electronics and telecommunications equipment, textile and sports shoes, and chemical products. However, the variety of suppliers is extensive. Unfortunately, I still hear stories that a Finnish company found a supplier in a trade fair and made an order without checking the company’s background first. General information on the supplier is rather easy to gather. An audit visit to the factory is strongly recommendable before manufacturing the sample of the product. Negotiation process may take some time as the Chinese tend to change the terms during the negotiations. And as I have mentioned in my previous blog writing the contracts are mainly guidelines, not to be strictly followed . Therefore, good personal relationship with the supplier can be a great asset in negotiation table.

Though China entered WTO there still might be protectionism in some industries. China has developed its own technical standards that might cause trade barriers for Finnish companies. China is encouraged to use international open standards, but in some industries they have not been adopted. Taxation policies in China can be a hassle. Sometimes the return of value added tax takes a long time causing a trade barrier to the customer. However, this problem only exists among those companies that have official presence in China. Again, when dealing with government officials, good personal relationships help.

Intellectual property rights or its lack is one of the biggest problems in China. Everything can be copied or at least the looks. The IPR legislation in China has been developed tremendously but its enforcement is still somwhat lazy. The trademarks are easily adapted by the Chinese copycats. Therefore, the international trademarks should be registered in China in case the product might be sold in Chinese market as well. It is also the only protection tool against the IPR violation. I think that in the future, the competitive advantage will be created with other things than patents as new products and features are developed faster and faster.

The Federation of Finnish Technology Industries foresees fast growth of industrial production in China and encourages Finnish companies to gain their share of this growth.  For the steel and machinery producers that means increasing manufacturing activities in China market. Logistically it is therefore more beneficial to move the sourcing to China as well. Unit prices in China are remarkably smaller than in Finland, but the better productiveness and quality in Finland diminish the difference in competitiveness. However, I notice that China has improved its production capabilities and more emphasis has put on the quality. To succeed in international market China must follow and adapt best practises and customer expectations.

In summary, I would say that sourcing in China is inevitable. A careful consideration on when, what and with whom the sourcing should be carried out.  Sourcing can be beneficial also for smaller companies as the unit prices are significantly lower than in Finland. And as I always say, build and maintain good personal relationships in China and the luck is on your side.

Sources:

Nassimbeni & Sartor (2006) Sourcing in China.

The Federation of Finnish Technology Industries (2007) Successful supplier 2015 (original title: Menestynyt alihankkija 2015)

Those little white lies

As the warm Summer weather does not support highly analytical and effective brain work, I wanted to write about something less serious. Little white lies it is. I was born and raised in a country where honesty and trustworthiness are highly valued virtues. Of course, as a kid you came up with a little white lies after you had broken the rules, just to avoid nagging and humiliation. Oh how difficult it was to admit to have done something wrong. As I grew up I realised that in most cases it is easier and less embarrassing just to admit you had done something wrong and make up your mistakes.

It was a great astonishment to notice how Chinese people come up with such white lies as I did when I was a kid. I give you a few examples.

1. You ask for the road in Chinese. The person you ask does not have any clue which way you should go to. The reply normally is either ”wo bu shuo yingwen” – I don’t speak English – or the person guides you to go to a totally wrong direction. Both replies are to avoid admitting that the person does not know the correct route.
2. Taxi driver has no idea where to go. He drives anyway. He might stop and ask for the directions from local people but he would not admit you that he does not know the route.  Once friends of my Chinese friend  were in a taxi but the driver had no clue which way to drive to. My Chinese friend tried to guide the driver over the phone telling which directions to go to. The driver got frustrated and said that it is so foggy that he cannot navigate because he cannot see the stars. Actually, this probably was true knowing how many farmers are driving taxis in Beijing nowadays.
3. A Chinese couple had come to visit their daughter in Finland. They rented a car so that they can explore the country of thousands of lakes. However, the police caught them up for speeding. The police asked the monthly income of the couple. In China, if you are rich or belong to higher mid-class you may get a little benefits by police, such as no ticket at all. So the couple said they earn very high income. Unfortunately, in Finland the tickets are written based on the cumulative system. Less you earn, less you pay and other way round… The couple came crying to the embassy when they had to pay the fine. What could you say; the truth would have been enough.
4. When I was working at the embassy of Finland in Beijing, I was also checking out the authenticity and veracity of the visa application documents. In Schengen countries they have a strict rule that all the provided information must be correct in order to receive a Schengen visa. Finland followed this rule very carefully. However, we continuously received applications where housewifes were nominated administration managers and farmers general directors. The companies where they were supposed to work did not even know these persons by names. Again, the visas would have been granted if they just told the truth and not tried to name ”better” positions.
5. One of the phrases in Chinese that I hate the most is ”Cha bu duo” – not lacking much. My little tailor had his own mind and vision. Each time I would draw him pictures and explain how I want my dress cut, buttons done, jacket sewed and each time he would come up with something totally different. His explanation sometimes was that his version was much more beautiful than mine would have been. Or he could just say – cha bu duo. I always told him ”cha bu duo” is not enough and I want my version. He just couldn’t tell me in the beginning that maybe the material is probably not enough or he couldn’t do the right button shape or cutting.

Most of the little white lies are normally explained by the fear of losing face. I don’t get it. Don’t you lose your face by directing a person to walk wrong way, getting high fine by lying your salary or not gaining your visa by giving wrong information? And is cha bu duo enough if you want the exact product? My sense of righteousness is telling me, maintain your face and tell the truth.

The influence of Chinese culture in cross-cultural collaboration

In our previous publication (Hong, J., Heikkinen, J. & Blomqvist K., 2010) we examined the role of culture in university–industry R&D collaboration in China. We conducted an extensive interview round in the fields of ICT and forestry in China and found it evident that guanxi (multi-dimensional concept, roughly understood as personal relationships or connections) is the key influence of Chinese culture. In the beginning of collaboration it is essential to know the right people and have some shared history or background such as former school mate or colleague. Guanxi is a funny concept as you may also utilize your own guanxi’s guanxi for your purposes. That means you may approach easily a person that has personal relationship with your connection.

However, collaboration requires true interest in order to make new guanxi to grow. We defined the true interest in collaboration as “a matched motivation and mutual learning process in terms of producing new ideas and innovation”.  The university researchers emphasized the importance of joint knowledge-creation and innovation rather than using them as cheap labor. Today, we can not avoid the fact, that China has expanding pool of skilled people that could be used for higher purposes than saving costs.  However, when we are talking about knowledge-based collaboration in a relation-oriented and guanxi-based culture as China the new ideas are very difficult to adapt without personal interaction. Written papers and documents are not enough for managing the innovation process from ideas to utilization.

China is really fast changing operational environment. It is difficult to predict what the customers in the future market might want and need. Therefore, we proposed that the companies should involve local stakeholders and customers in the knowledge-based collaboration in order to track the fast changes and pulse of the future markets. Our study proved that guanxi initiates, facilitates and deepens collaboration and knowledge interaction. One should aim to create such guanxi network that enables sustainable collaboration based on mutual interest, trust and commitment.

Though our study was conducted in the context of university-industry collaboration, I can also say based on my own experience that understanding the characteristics of Chinese culture is a fundamental basis for developing guanxi and further successful business in China. It is easier, faster and more cost-effective to get into networks through a person that already is IN rather than start to develop own network. Therefore, it is advisable for companies that aim to get a foothold in China to utilize the services of professionals that already are IN.

Our article “Culture and Knowledge Co-Creation in R&D Collaboration between MNCs and Chinese Universities”  was published in the journal Knowledge and Process Management, Volume 17, Number 2, pp 62-73. It can be found online in Wiley InterScience, www.interscience.wiley.com.