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Midwest International Trade Association

March 19, 2009www.mitaonline.org

How to do business in China:

Without risking reputation, consumer trust or lives of customers

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Jason ChristieEducation• MBA Entrepreneurship (2004) – Leeds @ CU-

Boulder• BSEE (1997) – University of Nebraska – Lincoln• Mandarin Language (1996) – Beijing University

Career• AsiaPacific Access (2004 – Current) – Denver• Centurion Wireless (1997 -2002) - Shanghai

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AsiaPacific Access

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Most of Human HistoryChina was the wealthiest, socially most tranquil, scientifically most advanced and arguably the best governed society on the planet

China is determined to eventually restore itself to these heights

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Many China Challenges

AsiaPacific Access

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How to do business in China without risking reputation, consumer trust, or customer’s lives. AsiaPacific Access

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AgendaDue Diligence• The importance of due diligence in China

Relationships• Developing and maintaining relationships

Quality Ownership• Taking ownership of maintaining quality of your

product or service

Risks• Current business risks in China

Opportunities• Opportunities in China in 2009 and beyond

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Due Diligence

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AsiaPacific Access

doing business in China

China

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AsiaPacific Access

The Race to China

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Due Diligence Pitfall Example

“China Product Development”

• PD is too expensive in USA• Relied on “agent” to find

partner• Relied on “agent” as the

window

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Why is Due Diligence Important?

• So you don’t select the wrong partner

• So you understand local regulations• So you understand the hidden costs• So you understand core

competencies• So you know how to compare quotes• So you know expectations

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Lessons Learned

• Know the capabilities of your partner

• If you go in blindly, expect the cost/time to be 2-3 times

• Do some comparison shopping for quality, capability, and cost

• Plan for the “hidden costs”

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Relationships

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Working in China

You need to know where loyalties lie. AsiaPacific Access

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Relationships Pitfall Example

“The Agent Relationship”• Relied on agent to develop

capability• Never went to China• The agent goes to work for

the competitor

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Why are Relationships Important?

• So you know the people you work with

• So you can have open and constant communication

• So your partner can commit to solving YOUR problems

• So they feel comfortable telling you about THEIR problems

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Lessons Learned• Develop direct relationships• Get to know the people: employees,

managers, vendors, clients, etc. • Be patient! Don’t rush expectations. Take

time to develop the relationships.• Understand that there is a difference in

expectations. • Hire your own help to better understand

expectations, language and culture. The effort will be appreciated!

• Communication- Don’t assume you understand, OR are understood

• Commit to meeting with your Chinese partner often (in person and thru the phone)

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Quality Ownership

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Product & Food Safety

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Quality Ownership Example

•“The Mattel Issue”• Massive toy recall• Negative PR for “Made in

China”• Mattel VP makes public

apology in Beijing

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Quality Concerns“Made in China”

• Why is there an issue?– Excess capacity– Price pressures– Lack of expertise– Minimal enforcement

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Why is taking Quality Ownership Important?

• Product safety for your customers!

• So you know what the certification/compliance issues are.

• So you know what the design issues are.

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New Quality Controls• In 2007 China took drastic steps to

improve quality and protect consumers, including:– launching a landmark product-recall system

– introducing inspection labels on all Chinese food exports.

– new regulations for closer inspection of exports

– creating a “blacklist” of Chinese companies that violate quality and safety regulations

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Quality and China’sReputation

Following in the footsteps of Japan and South Korea, China is planning on a shift to higher-end exports to continue its economic climb and better the lives of its citizens.

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Lessons Learned• Pay attention to details• Negotiate a strong contract• Make sure your design is not an issue• Understand all compliance requirements

and make sure your partner does as well• Dedicate the resources to make sure

compliance is always being met• Be flexible and willing to adapt to changes• Performing due diligence and developing a

relationship will minimize your risk, not eliminate it.

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Current Risks

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Financial Stability

www.cleveland.com

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Exchange Rate• Since 2005, there has been

more than 12% appreciation

RMB/USD Exchange Rates

8.2765 8.0702 7.80517.2946

6.839 6.8

55.5

66.5

77.5

88.5

2005

2006

2007

2008

Curre

nt

2009

(For

ecast)

Year

Rat

e

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Labor

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Intellectual Property

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Environment

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Polluted Waters

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Silent Killer

Pollution causes chronic illness among rural Chinese

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Aging Society

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Who has all the chips?

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Current Opportunities

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AsiaPacific Access

China on the Move

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Opportunities

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Growing Middle ClassPopulation vs. Middle Class

1300

300200

0

200

400

600

800

1000

1200

1400

Billi

ons

China U.S.A China's Middle Class

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Increase in Foreigners

• 300,000 live in China • 25-30M per year enter

China• Many businesses cater to

only this market

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2nd Tier and the West

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New Industries• Service (Banking,

Financial, Consulting, etc.)• Hi-Tech• Agricultural• Environmental Protection• Energy Saving

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Thinking of creating new business or ventures in China?• Go there now• When there: listen,

observe and learn• When ready to do

business: form a network of trusted advisors to help you get things done there

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China: A Work In Progress

• Impossible to grasp the scale of the transformation without seeing it with one’s own eyes

• The physical, economic and social immensity of change is enormous

• Impossible to comprehend the vibrancy, energy and enthusiasm without experiencing it first hand

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Questions to Ask:• Are we committed to the

endeavor?• Are there regulations related to

my product or service?• What other legal regulations are

there?• How will I protect my IP?• How will I manage the people?• How will I manage the quality?AsiaPacific Access

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Q & A

Jason Christiejason@apaccess.com+1.303.800.4542AsiaPacific Access

www.apaccess.com AsiaPacific Access