This article was originally published via Linkedin. See original here.
Taking on a Chinese partner has significant benefits for foreign companies entering the Chinese market but establishing a trusting relationship can take years to develop. Even still, that relationship may not be the right fit for your business model. China has slowly been opening its requirement for 50% local ownership in many sectors and depending on the industry, you can have a Wholly Foreign-Owned Enterprise (WFOE).
However, you still need to open sales channels, find distributors, protect against political risk, deal with inspectors, and more challenges. Below are a few tips to share from years of living in China and conducting regular business missions to the region.
1. Choose a Partner with an Ecosystem
Choosing a partner in China is not only about finding someone you can trust, but also about building a network of partners that bring their own ecosystem of trusted and influential connections to the table. The concept of Guanxi (relationships) should be considered when assessing the best fit. Guanxi is much more applicable to the older generation, but the roots still hold strong when assessing a partner to take on. When evaluating potential partner ships in China, you should ask:
- What experience does this person have?
- Are their connections relevant and influential?
- Does this make my business for or less secure?
In China and developing countries, who you know plays a much larger part in long-term success than in developed countries.
2. Hire a Trusted Agent
When entering the China market, it is essential to have someone in the country that you can trust and rely on. This person(s) or firm may not be a direct participant in your work, but they can bring value in spades through introductions, a network of local contacts and resources, and identifying problem areas you may face. If you don’t have someone, there are plenty of firms that can facilitate condensed relationship building. Firms such as FAO Global specialize in this type of facilitation and can be a vital piece of your overseas strategy.
3. Conduct a Thorough Background Check
Background checks can yield a significant amount of data. Start with local social media and web presence can often establish a baseline. You can then dig deeper and look at credit score, any outstanding legal actions, and negative publicity. Questions to consider:
- Does this person have a history of litigation against partners?
- Are they connected to a competitor?
Finally, you want to conduct leadership mapping to identify who your potential partner is really connected to. This also serves to verify the network ecosystem they claim to bring. Too often, people misrepresent which can lead to lengthy legal battles and costly delays, not to mention wasted efforts.
Final Thoughts
This advice is not exclusive to foreign businesses expanding to China, but also Chinese businesses entering foreign markets, such as the United States. Where there is significant money to be made, you will find corrupt or falsifying individuals. Partners can disagree, contracts can be executed incorrectly, and people can vanish with your cash. Scams like these are all too common and all firms should have a local resource that can guide them through these issues. All businesses want to take a “trust but verify” approach to their international operations. Do not assume anything and accept that things probably are not done the same way in your home country.
Analyst Bio’s
Brandon Hughes: Brandon is the Senior Analyst and Founder of FAO Global. He served as a government adviser and led military teams in Afghanistan, supported peace keeping operations in Europe, led corporate security teams in Las Vegas, and conducted strategic U.S.-China focused research for the prestigious Carnegie Endowment & Asia Society. Brandon leads FAO Global to conduct cross-border international business ventures between the U.S., China, and emerging markets in Asia.
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