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SURVIVING A START-UP IN
CHINA
Part IV
(Or, “It’s Getting Better All The Time!”)
SKIP NELSON
ADS-B TECHNOLOGIES
www.ads-b.com
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BUSINESS PROFILE
2004
ANCHORAGE
Exports ADS-B hardware & software to China
2007
BEIJING and HONG KONG
Garmin Avionics distributor for China
Avionics Component manufacturer for
2008
HONG KONG
Exports General Aviation Aircraft to China
Builds GA infrastructure in Asia
2011
HONG KONG, TAIPEI & GUANGZHOU
New Joint Ventures to market avionics and
Build General Aviation infrastructure in China
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CHINA EXPERIENCE
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Since 2004, 44 trips to China
78% Export to China, 22% Chinese manufacturing
for sale in U.S.
~ $6.6M in air traffic control, avionics and aircraft
sales last 3 years
Permanent offices in Beijing, Hong Kong &
Guangzhou
22clients: 7 government, 15 private
Most of our work is in Central and Western China
New business in Taiwan & Hong Kong
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What’s ADS-B?
Automatic Dependent Surveillance - Broadcast
The aircraft get their position
from the GNSS constellation
Then they simultaneously broadcast
their position and other data to
any aircraft, or ground station
equipped to receive it
Ground Stations then transmit the aircraft’s position to Air Traffic Control
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I know it’s cliché, but to do Business in
China, FIRST, You Have To Understand
China…
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CHINA SUPERLATIVES
 It’s BIG!
1.3 Billion people (1/5th of the World’s population)
 It’s SAFE
Extremely low rate of Crimes Against Foreigners
 It’s FRIENDLY
As in, they are genuinely fond of Americans!
 It’s definitely OPEN FOR BUSINESS!
China has had the World’s largest Gross Domestic Product (GDP) in all
but 226 years out of the past 2,000 years. Right now, they have more than
$1 Trillion USD available to buy foreign products and services
(China's GDP is only about $3.5 Trillion, compared to the US GDP of about
$14 Trillion – but, China’s GDP is growing 4 times as fast!)
CHINA MYTHS
AND MISCONCEPTIONS…
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Myth #1
China is a Third World country with crowded streets, dilapidated
infrastructure, a lot of bicycles and people in Mao Jackets.
- BUSTED! Not even close. Even in rural areas, you’ll see modern new
roads, bridges and communications infrastructure. The quality
and scope of China’s Internet and cell phone connectivity are
legendary. Several of the most dramatic modern cityscapes in
the world can be seen in China and Dior and Calvin Klein are
seen far more often than Mao!
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Myth #2
The Chinese Central Government (aka’ The Communist Party) is
very visible and heavy-handed.
- BUSTED! Nope! Forget everything you learned about China prior to 1985 This is, and always has been a country of aggressive
independent individuals and good businessmen. Think “single
party system” rather than “communism” and you’ll be more
comfortable. Provincial governments now operate somewhat
like State governments in the U.S. Best technique: Ignore
politics and deal with the people (that’s what the Central
Government has learned to do…)
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Myth #3
The average Chinese doesn’t like Americans and can be
quite difficult to deal with (aka’ enigmatic).
- BUSTED! Way off the mark! - Of all the countries I’ve visited
during the last 40 years, China is probably one of the
most outgoing and friendly toward Americans. The
average Chinese remembers our help in WWII and
seems to take genuine pride in the commercial and
intellectual contributions China has made to the U.S.
during the past 25 years.
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Myth #4
It’s a lot cheaper to manufacturer your “stuff” in China.
- Not necessarily … Historically, it was always cheaper to make things in China if:
•
•
•
They were high volume, labor intensive, used local materials and were
relatively low tech
Manufacturing involved OSHA or EPA issues (not very ethical – huh?)
They were being sold in China or other Asian markets
Today, some of the former advantages of cheap labor and loose
environmental standards have been erased by demands for higher
wages and Provincial concerns with the quality of life. On the other
hand, China’s growing high-tech infrastructure is now able to
compete with Taiwan & Japan on things like printed circuit boards
and microcomponent manufacturing.
And where do the Chinese go for their “cheap” goods?
Vietnam & Malaysia, or course..!
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Myth #5
Corruption is quite common and/or, the Chinese will
steal your “stuff”.
- Well, sort of…
Yeah, and so will most countries if you give them half a chance!
The Government is leveling the playing field by instituting some
strong new anti-corruption rules. Your biggest problem may
actually be other foreigners that support corruption as a
competitive tool. Your best defense is to:
1.
2.
3.
Know your Client
Isolate, compartmentalize and/or protect your Intellectual Property
Deal fairly with your Customer (aka’ don’t give them a reason to rip
you off) and he’ll probably treat you the same
Hong Kong is a model for official honesty and clean government, due largely to the effective
oversight of its Independent Commission Against Corruption (ICAC). On the street however,
many Chinese joke that the acronym actually stands for
“Interfering [with] Chinese Ancient Customs” !
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Myth #6
China is a wide open, Billion Person Market (aka’ “wow – It’ll be
easy to sell a lot of stuff here”…
- Maybe, but don’t give up your
day job just yet..!
Yes, that means nearly a billion consumers, but don’t forget that
there are also at least 50 million very aggressive domestic
entrepreneurs working in the same market.
Do not underestimate the local competition!
• They learn very fast (Okay, so maybe they copy a few things!)
• They prefer to deal only with people they know (Like other Chinese)
• And after all – What part of, “Hey - they’ve been doing this for 4,000
years don’t you understand?!
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GETTING
STARTED
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FIRST, YOU HAVE TO ASK YOURSELF….
1.
2.
3.
4.
What’s your strategy? – Merely selling
“America” is very Old School!
How are you going to handle your business in
China – Business-to-Business, wait for them to
come to you, or through an AGENT?
How are you going to find a reputable Agent?
Do you have the patience to do business the
“Chinese Way”?
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BUILD YOUR NETWORK
1.
2.
3.
4.
5.
Alaska Export Assistance Center
U.S. Commercial Service in China
Alaska World Trade Center
Attend a trade fair, or professional
meeting in China
Network through other people doing
business in China
Don’t even think about going in cold!
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OTHER POINTS OF CONTACT
Professional organizations – especially
those that have full-time reps in China
(OGP, for example)
 Other U.S. government agencies (FAA,
USDA, etc) that have offices in China
 U.S. – China Chamber of Commerce
 www.usccc.org
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“AGENTS”
(A Necessary Evil)
1.
2.
3.
RULE #1: It’s virtually impossible to do business in China
without a good Agent.
RULE # 2: The majority of the agents you’ll encounter will
have only one significant skill: They are bilingual. (“I
speak Chinese, therefore I am a China Expert…”)
Get to know your agent before you sign anything:
a.
b.
c.
d.
e.
How long has he worked in the field?
Who does he know, what is his experience?
Is the U.S. Commercial Service familiar with him?
Has he traveled to the U.S.?
Is he Chinese-American, Chinese, Taiwanese, or Singaporean?
TRADE SHOWS
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TRADE SHOWS & FORUMS
1.
2.
If you find the right one, they are an excellent way to
meet an Agent and begin to create your network in
China! (But a good forum is hard to find)
Virtually every industry has at least one reputable
Trade Show in China each year
a.
b.
c.
3.
Check with the U.S. Commercial Service
How many years have they been operating?
How many exhibitors, speakers, etc?
Beware of “Forums”!
a.
b.
c.
They can be little more than a disguised pitch for an individual
Agent
What is the ratio of foreigners to Chinese decision-makers ?? If
the ratio is >1 on 1, then you’re just talking to yourself!
Chose a Forum that will be held in a city close to your potential
market – travel is expensive for the Chinese
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CLOSING THE DEAL IN
CHINA
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GUANXI
Guanxi means “connections” – It’s not what you know, but
who you know that really opens doors in China!
Building a good network of friends will help you avoid
hearing, “Yan jiu, yan jiu” – Let us consider for a moment…,
or “Mei yo” – There isn’t any
Guanxi is not bribery, even though it might involve taking an
official out to lunch, or offering small gifts on special
occasions (such as Lunar New Year)
Guanxi takes patience and perseverance
(Something most Americans are not too good at!)
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THE “CHINESE WAY”
Social Contact
30% - 50% of your time. 25% of marketing expense
Informal Agreements
The “Agreement to Agree” starts the real negotiation
Formal Contracts
Things will change up to the very last moment!
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In other words:
Eat lots of lunches…
Drink lots of tea.
… and then it’s Contract Time!
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NEGOTIATING
Know your product, your prices and
your competition cold!
 Expect many rounds of negotiation
 Last minute “Discount” is expected
 Know Export Controls & End Users
 Know Import Duties and Regulations
 Be very careful with Joint Ventures!
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Remember: The Chinese have been perfecting their
business skills for more than 3,000 years…
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SPEED BUMPS
The correct people are hard to find!
 Travel is becoming more expensive
 Up 60% in the last 2years
 Access is not balanced
 The Exchange Rate can fool you
 Frustration with business methods
 The language barrier !
 Jet lag, airport hassles, etc
 And the biggest problem: Shopping!
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问题？
(Questions?)
SKIP NELSON
ADS-B TECHNOLOGIES
(907) 258-2372
www.ads-b.com
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China has had the World’s largest Gross Domestic Product (GDP) in all but 225 years out of the past 2,000 years
China's GDP is about $3.5 Trillion, and the US GDP is about $14 Trillion
Their $550B bailout = 14%, ours is ~5% Theirs is going into technology & infrastructure, ours is restoring failing
financial institutions
China's central bank reserves are 987 billion as of November 2008
The country's annual trade surplus or the amount exports exceed imports ballooned to $262.2 billion, up 47.7 percent
from 2006
Exports in the 1st qtr 2008 amounted to 424.6 billion U.S. dollars, up 21.5 percent, or 6 percentage points less than a
year earlier. Imports were 366.6 billion U.S. dollars, up 27.9 percent, or 8.8 percentage points more than a year earlier.
I watched the Yuan gain almost 20% against the Dollar since 2005.
The US initially welcomed China's July 2005 decision to remove the peg tying the value of the yuan to the US dollar and
link the yuan instead to a vaguely defined basket of currencies. Pressure soon grew in Washington, however, for a faster
rate of appreciation as the US trade deficit with China continued to mount, sucking ever-more dollars into the Chinese
treasury.
When I started in China the Dollar was 8.2 Yuan, The currency hit a record high of 6.8099 on September 23.
There is some indication that the Yuan may be weakened
In September, China surpassed Japan to become the biggest foreign holder of US Treasury debt, with a total of $585
billion. China's $2 trillion in foreign-exchange reserves (the world's largest, followed by Japan's $1 trillion), are primarily
invested in relatively low-yielding US government debt and the until recently considered safe debt of Fannie Mae and
Freddie Mac, the two mortgage-finance companies taken over by the US government three months ago.
Statistics that say the U.S. is producing 70,000 engineers a year vs. 350,000 from India and 600,000 from China
aren't valid, the Duke team says. We're actually graduating more engineers than India, and the Chinese numbers
aren't quite what they seem. In short, America is far ahead by almost any measure, and we're a long way from
losing our edge.
Actually - We found that the U.S. was graduating 222,335 engineers, vs. 215,000 from India. The closest
comparable number reported by China is 644,106, but it includes additional majors. Looking strictly at four-year
degrees and without considering accreditation or quality, the U.S. graduated 137,437 engineers, vs. 112,000 from
India. China reported 351,537 under a broader category. All of these numbers include information technology
and related majors
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One in a million = 1,300 like you in China and 1,100 like you in India
1.3 billion people (1/5 of the world’s population)
You can encounter the entire population of North America ( 330M) within a day’s drive of Shanghai
[US = 305M), Mexico = 106M US is the 3rd largest country on earth
PC Board Assembly & Final Packaging
Full Box build for Electronics & Commercial Applications
Fabrication of Metal & Plastic Molding Parts & Assemblies
Cable and Harness Assembly and other Value-Added Assemblies
General Assembly for Business-to-Business & Retail Applications
Standardized & Customized Components, Parts and Assemblies
Here are some examples of benefits of manufacturing in China:
Reduction in Direct Labor, Material, and Overhead Cost
Reduction in Indirect Engineering, Marketing, Financial Labor & Transactional Cost
Simplify supply chain logistics & service to your Asia customers
Center for Material Sourcing throughout Asia for Domestic and China Production
Fast-turnaround of Low Cost Tooling & Fixtures
Currency Transaction Flexibility between Multi-National Countries
Knowledge of Emerging Local Chinese and Asian Markets