Make sure intellectual property protection, banking ideas measure up before jumping in.
TROY, Mich. — When heading overseas to expand business, there's much more to consider than where a facility will be located and whom to contract with to distribute parts. Intellectual property must be protected, measures must be taken to insure the business and customs should be well understood.
And before heading overseas for the first trip, it is important to know what you want to set up when you get there.
"The bottom line is you know what you want to do. What is your plan? What is your object? What is your product?" asks Shusheng Wang, senior attorney at Butzel Long, who spoke at GlobalAutoIndustry.com's recent seminar on doing business in China.William Zielke, director of Asia Development Capital LLC, says a lot of people plan to head overseas without identifying their objective, which is mistake No. 1.
"You'd be surprised at the number of people who really don't know why they want to go to China," he says. "Sometimes success is knowing when not to go."
For example, he states that only 20 percent of total or partial foreign acquisitions of companies there meet or exceed their plans.
Thirty percent partially meet their goals and 50 percent fail. "The price of success in China is really high," Zielke notes. "The cost of failure is just unacceptable."
Getting started with a plan and objective also means deciding what type of model to follow, such as a representative office, a joint venture or a wholly foreign-owned enterprise, Wang says. Once the business plan has been started, the overall China strategy can develop.
And while developing that strategy, implement ways to protect intellectual property (IP) and keep the business safe, because taking only a few ideas into China, or any other country, won't make the business appealing to those you want to work with."If you don't come with good stuff, why would we do business with you?" asks Gordon Housworth with Intellectual Capital Group.
IP risk is not related to one country, but rather to any asset. "There is no such thing as a risky nation or a risky country. If an asset is worthy to protect, it must be protected at every point on the supply chain," Housworth continues.
There is a four-tier model of IP violation, starting with simple piracy, copying with no effort to hide the piracy, followed by substitute product, in which the stolen IP is used to create a "no name" or "other name" product competing with legitimate offerings.
The other two tiers are "badged" substitute, in which pirated or stolen IP is used to create products that "masquerade" as a legitimate offering, and supplier substitution, in which the original supplier is forced out of the market and the copier takes over.
Taking control back
"You don't want to be seen as the target of first choice," Housworth says. To avoid this, he adds, defend, defer and deflect.
Knowing the banking system in China also is key to keeping a leash on business plans. After all, why do business if the ability to be paid falls through?
Alfred Ho, vice president and director of China Advisory Service with National City Bank, says currency cannot be sent outside of China, so it is imperative to make sure a company has a foreign exchange license through the State Administration of Foreign Exchange (SAFE), "meaning, 'Do you have the ability to pay me?'"The banking system is set up with four state-controlled commercial banks commonly referred to as the Big Four, 12 joint stock commercial banks, hundreds of city commercial and development banks, multiple foreign banks and other smaller cooperatives and finance companies. None of these is without problems, however.
Nonperforming loans, for example, are the biggest problems for the Big Four, while Ho says even locals don't usually bank with city commercial and development banks. Other types of banks are phasing out in market share. With this uneasiness in banking, Ho states that it is necessary to have plans in place.
"Politics and economics in a country like China are especially entwined, and your strategy has to account for that. If this happens in China, how do I plan for that?" he explains. Having an early warning system in place if certain events transpire or don't occur will benefit a business. "You have to have more than a Plan A and a Plan B. You have to have a Plan E – exit."Keeping these ideas and others shared on various topics will help c.ompanies begin the process of going overseas. The seminar also featured presentations on culture by In Other Words Language Service, tax planning and setting up operations by Butzel Long, financing projects by IFC/World Bank, supplier selection and sourcing by Global Trade Development Group, legal challenges by law firm Baker & McKenzie, recruiting by Tier One Executive Search and China's economy by J.D. Power and Associates. It was the 11th seminar in a series the company is presenting on doing business in China.
GlobalAutoIndustry.com is hosting a presentation on May 16 titled, "India: Leading Offshore Center or Upcoming Manufacturer Power?"
For more seminar information, visit www.globalautoindustry.com.
