Partnering with china6 3-2009#6
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June 3rd 2009 Jerry R. Mitchell 1
Partnering With China for Mutual Benefits
June 3rd 2009 Jerry R. Mitchell 2
It is an honor to be here today, and to spend part of the day among people whose lives and
work are defined by innovation, and collaboration. There has never been a time
when those qualities are in greater demand in America and the world.
June 3rd 2009 Jerry R. Mitchell 3
We are, indeed, operating in a new economy today – one that has its roots in the industrial and information ages, but that is dramatically and fundamentally different. This new era of
global competition is marked by an unprecedented level of interconnectedness
among individuals, businesses and nations… connectedness that extends beyond
telecommunications and the internet.
June 3rd 2009 Jerry R. Mitchell 4
In many industries we find ourselves in a truly global workplace, unconstrained by time zones,
language, physical proximity or traditional corporate boundaries. Our competitors are no longer far removed from us—no matter what
their geographic location.
June 3rd 2009 Jerry R. Mitchell 5
Your presence at this seminar and your involvement are encouraging evidence that
there is a wealth of potential. We must ensure that investment, infrastructure and intellectual
resources are “optimized for innovation”.
June 3rd 2009 Jerry R. Mitchell 6
The era of China as a low-cost, manufacturing-for-export market has come to an end.
June 3rd 2009 Jerry R. Mitchell 7
Companies that integrate China into their global supply chains as a source of competitive advantage are far more successful than
companies that pursue narrower objectives in China
June 3rd 2009 Jerry R. Mitchell 8
Specifically, companies that pursue China as both a growth market and a market for lower-
cost labor and sources, and integrate these operationally, enjoy significantly higher profits
than companies pursuing just one of those objectives.
June 3rd 2009 Jerry R. Mitchell 9
Furthermore, production is not migrating to China only to pursue low costs, but also to
follow manufacturing customers, and to serve the large and growing Chinese domestic market.
June 3rd 2009 Jerry R. Mitchell 10
Companies considering a move into China often initially believe that means setting up their own manufacturing facilities. However, this might be the very last thing to which a company should
allocate its resources.
June 3rd 2009 Jerry R. Mitchell 11
Setting up a manufacturing company and facility is a major investment of time, assets and people.
Though building bricks and mortar in China is not the fundamental objective, it can happen
very quickly that every available resource and relationship is caught up in the construction
project and start-up.
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The likely end-result is a bright, new and expensive manufacturing facility where the
costs are not nearly as low as expected – and no sales. This happens over and over again.
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A company should carefully consider why it thinks it should build a manufacturing facility in
China. Foreign-invested manufacturing companies have a way of turning into replicas of
the home-country’s facilities, complete with exercise equipment, artwork lining the halls and
luxury offices.
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Local Chinese competitors see this behavior and experience relief. They realize immediately that the foreign company is no competitor after all.
They know that given time, the foreign business will die from its own weight.
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This scenario has been replicated over and over again during the last 10 years. Chinese
companies plan for five years, 10 years and 50 years. American companies must adopt this kind
of thinking if they are going to be successful in China.
June 3rd 2009 Jerry R. Mitchell 16
The Secret to Success in China
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Personal relationships are generally not considered the essential business driver by
American business people, especially those from North America.
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A group of total strangers can meet in the morning, discuss what needs to be done and then go out that afternoon and “do a project.”
They will part that evening and possibly never see each other again. Americans can do this. In
China, such a scenario could never play out
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Absolutely no business results will be achieved until after a solid personal relationship has been developed. Whether this takes weeks or years,
the most important thing is that the relationship must be firmly in place before any business
results can be expected.
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The development of good relationships is predicated on the notion of having top talent on
the ground in China that is empathetic to its unique environment.
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Good relationships are not just a Chinese custom. The building process is more a form of
due diligence.
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During this period, the potential Chinese business associate is evaluating every move of the potential new partner to assess his or her
trustworthiness and reactions in certain situations.
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This may be an arduous process, but once established, the relationships will last for a
lifetime. Most importantly, one must note that relationships in Chinese are between people, not
between companies, which can seem very foreign and possibly scary to Westerners.
June 3rd 2009 Jerry R. Mitchell 24
There are at least a thousand ways Americans can get into trouble in China. The best way to
set oneself up for failure is to “just be yourself,” conducting business “as usual.” In practically every component of business behavior, the
customs in China are diametrically opposite of what foreigners instinctively do.
June 3rd 2009 Jerry R. Mitchell 25
Consequently, no Westerner should be permitted to have contact with anyone in China
before some formal cross-cultural training, a mandatory first step to business success in
China.
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Here are a few examples of the challenges Americans can face in China:
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Americans tend to have limited knowledge of other cultures. This can be an obstacle in
concluding deals in China.
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Americans tend to prefer negotiating alone rather than in teams. This can become
overwhelming, especially if the other side has a large team.
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Americans often emphasize the short-term. The Chinese want to know what the long-term
effects will be.
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Americans usually focus on content over relationships. In China, relationships are very
highly valued.
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Americans’ emphasis on legal contracts and constant deference to attorneys are seen as an
insult in China.
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China's changing economy is a threat, but it also is an opportunity. The threat comes from:
June 3rd 2009 Jerry R. Mitchell 33
• An 85-cents-per-hour fully loaded manufacturing cost.
• $10,000-per-year managers' and engineers' salaries.
• Little direct labor wage inflation. • Growing technology expertise. • World-class manufacturing quality in many
industries.• The migration of manufacturing industries to
China; for example, electronics and textiles.
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The opportunity for U.S. businesses comes from China having:
June 3rd 2009 Jerry R. Mitchell 35
• One-quarter of the world's population. • A very high economic growth rate. • A middle class of 100 million that is growing by 1 million per year.
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• A rapidly growing export market for U.S. products. • The largest market in the world for many products including cell phones, low-price TVs, and furniture. • The fastest-growing world market for automotive components and assemblies.
June 3rd 2009 Jerry R. Mitchell 37
Many companies have lost business when their customers moved their entire manufacturing operation to China.
June 3rd 2009 Jerry R. Mitchell 38
Anyone selling to the computer, consumer electronics, clothing, or furniture industries experienced this years ago. Other industries, such as first-tier automotive suppliers, are in
the process of moving some of their production there right now.
June 3rd 2009 Jerry R. Mitchell 39
One stamping house that also designs and manufactures small assemblies of stamped
parts had a primary customer base of automotive suppliers in the U.S., but these
large customers were insisting that the stamping house open a facility in China to
service their facilities that were already there and to ensure that this supplier was getting
the best price.
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The stamping house's solution was to form a strategic partnership in China with a Chinese
stamping house to service automotive companies there and to export to the U.S. some products that required a significant amount of
assembly labor.
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Single-piece stampings continue to be made in the U.S., as are short-run specials and prototypes. The company is beginning to
source its tooling to China.
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U.S. manufacturers' relationships with China don't always have to be in terms of importing,
however.
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There are more opportunities to export to China than most people realize.
June 3rd 2009 Jerry R. Mitchell 44
Some of the U.S. products that are in demand in China are construction products, capital equipment, raw materials, branded
consumer products, and high-tech products.
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China not a threat but an opportunity
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• Initially export to U.S. transplant companies in China• Market full-scale across China with a strategic partner and subcontract add-on products to fill out the product line.
June 3rd 2009 Jerry R. Mitchell 47
For small businesses, strategic alliances are a way to work together with others towards a
common goal while not losing their individuality.
June 3rd 2009 Jerry R. Mitchell 48
Companies participating in alliances report that at much as 18 percent of their revenues come
from their alliances
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Rather than take on the risk and expense that international expansion can demand,
one can enter international markets by finding an appropriate alliance with a
business operating in the marketplace you desire to enter.
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Alliances are formed for joint marketing, joint sales or distribution, joint production, design collaboration, technology licensing,
and research and development.
June 3rd 2009 Jerry R. Mitchell 51
Risk-sharing will feature among the motivations for alliances, but it may not
be as important as gaining access to complementary resources, influencing industry standards or beating rivals in
the rush to market
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The company first invests in an alliance and then has the option either to exit or get more
deeply involved after it sees how the business develops. The cost of entering a
relationship is relatively small in this case, as is the cost of exit; but the value of the option
to grow the relationship may be high.
June 3rd 2009 Jerry R. Mitchell 53
We are in the planning stages of arranging a trip to China to introduce American
Companies to potential business opportunities in multiple cities.
If you are interested please give me your business card or send me an email.
June 3rd 2009 Jerry R. Mitchell 54
Contact information:
Jerry R. Mitchell
Tel: 630 305-0005;
Email: jerry@jerryRmitchellandassoc.com
Website: www.jerryRmitchell.com
Blog: jerrymitchellblog.com
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