Posted by Elena Luk'yanenko
Elena Luk'yanenko
Elena has more than five years of experience in international marketing providing services for the foreign com...
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on Monday, 01 February 2010
in Business in China

How (Not) to Choose a Partner in China (Part 3)

The Returnee

Many foreign companies think that if they hire someone with the same passport as them and speak the same language, that this will make their life easier in China. Since sending an expat is very expensive, many times a Chinese returnee, someone who was born and/or educated overseas is hired.

Overseas companies think that the returnee has several advantages:
  • He is cheaper, especially compared to an expat with a family with a few children who all need international education, which is extremely expensive.
  • He knows the Chinese language and the culture, which help him and his family settle in much quicker than a foreigner.
  • He knows the western style of thinking and can bridge the culture difference.
  • He might be more respected by local Chinese who will appreciate his achievements.
  • He should have similar moral standards to the country he was educated in.
Unfortunately most of these assumptions are not always true. If he was educated overseas he might lack a high level of Chinese that people who went through the Chinese education system have, and local Chinese will pick up his dialect or slight foreign accent immediately. Also in many cases the locals Chinese feel that the “returnee” is looking down at them since he “made it” overseas and they didn’t. This creates antagonism and a bad atmosphere.
If he does have high moral standards, it will not take long until his friends, family and forces in the market will teach him everything he missed and teach him how to do business in China the Chinese way. So you end up with a manager with Chinese ethics but with much more sophistication since he also knows very well the western codes and how to maneuver them for his benefit.

Also the years he spent overseas means he is lacking years of experience in the local business arena which put him at the same disadvantage a foreign expat would have.

In many cases the returnee’s only asset is his communication skills and passport but he doesn’t have professional experience in the relevant industry.

We had a very interesting example of an overseas company hiring a Chinese person who studied overseas for 9 years to do a study of how to improve their business in China. The guy actually never worked in China in his life but still wrote a very nice and long report. The bottom line was “if you hire me to do the job, I will save your company” and so they did.

In less than a year, the new returnee managed to destroy the company in every aspect of the business. Firstly it happened because he didn’t know how to run a company in China especially in that particularly industry. Secondly he felt he needed to keep all of his family and friends very happy and he used his position to do it in a very extreme way; the number of employees in the company jumped from 50 to 100 and you could find in every department friends and family of the new GM. Also the whole business model had been changed in such a way to benefit mainly our new GM and his friends and family but not the foreign company.

It is very important to evaluate the “returnee” in the same way you evaluate other local manger, meaning he has to have enough experience in doing business in China in the relevant industry. If he has experience in the same industry overseas it is even better but taking someone to work for you just because he speaks Chinese, looks Chinese or lives in China is definitely not enough.

Singapore, Hong Kong, Taiwan, Malaysia

Some overseas companies believe that if they choose a manager that looks Chinese and might even speak the language he will have the same advantages as described for the returnee. Therefore some of them choose managers from Hong Kong, Singapore, Taiwan or Malaysia, mainly because the communication with these managers is easier since they all speak English.

Here again these assumptions are wrong; a manger from any of these countries, even if he is of Chinese origin, is perceived by the locals as a foreigner or in many cases even worse. The differences in the Chinese dialects are recognized immediately and the mentality difference is still a major obstacle despite the fact that they are all Asians.

Singaporean, Taiwanese and Hong Kong managers are known for being very tough and demanding which is sometimes needed for managing the company properly but it definitely will not add to the harmony and happiness of the employees. They will do anything possible to sabotage the manager’s work which will make his life much harder.

Also a manager from these countries will expect to earn similar salaries as a foreign expat so not much money is saved here as well.
Here again, the manager should have the right qualifications for the job with enough experience in the relevant industry. The fact that he is Asian or even speaks the language and has the same origin should not be the major reason for hiring that person.

The Foreign Manager

Many companies try to avoid relocating an expat by hiring a foreigner who already is  living in China and have established some contacts in China. This could be a good idea, but if someone is hired due to any of the following reason it could be a big mistake:
  • The candidate speaks Chinese well.
  • The candidate has been in China many years.
  • The candidate is married to a Chinese lady.
  • The candidate was a diplomat working in China.
  • The candidate has a university degree (MBA, Law, or Accounting) in China.
  • The candidate was a lecturer and expert on Chinese culture.
None of these reasons are enough to make someone a good manager in China. All of the above can be very useful if it comes on top of a relevant experience and good references in the relevant industry and the business world.

We met a foreign CFO that was hired especially because he spoke fluent Chinese, was married to a Chinese lady and lived and worked in China for many years.

When we did a financial audit for this company, we were shocked to learn that this CFO had no idea what was going on in his financial department; his 3 employees managed to mislead him for a while and managed to hide valuable information from him that caused a financial disaster for the company.

The only thing he was able to do was to stop payments which got the company in trouble with the tax authority not to mention all the suppliers and employees that did not get what they deserved.

This taught us that even for someone that seems to be perfect for the job you need to do a reference check if he has the proper experience to cope with the challenges he will face.

Where is the Sense?

It is very important to say here that I truly believe that most of the local Chinese partners of the foreign companies did not have any intention to rip off the foreign partner and they truly believed that they could conduct good business together.

In many cases the local partner that was chosen did not have the experience and the relevant knowledge for doing that particular business for the foreign client.
Frequently, the local partner manages the business in a dissatisfactory way because he doesn’t know how to do otherwise.

In other cases his friends and family or the market forces (distributor, agents, resellers) teach him how to make money even if the business for the foreign company is not going so well, so most Chinese business people are very entrepreneurial at setting up their own side business very quickly.

In most cases the overseas company has no means to check this and even if they do they are still too dependent on their one “trustworthy” parent in China.

We found it very hard to show the foreign clients something that they refuse to see even if all the facts are there, and even if they see it they are afraid to change anything because they are afraid to risk ruining the very little that was achieved already.

The problem is the more you wait, the harder it is to replace the unsuitable partner and most companies will hate the idea of starting all over again with a new partner.

So, how do you choose your partner in China, after all?

In the next post I will describe a few ways that can help you to better choose a partner in China.
Arie Schreier has been living in China for a total of six years, four of which have been spent living and working in Shanghai as a COO and Sales Director at PTL Group. You may contact him by sending him email.
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