Julie Austin was thrilled when she sealed a deal to sell 72,000 of her Swiggies—water bottles that attach to a runner’s wrist—to the organizers of a marathon. She was hoping to make a profit of $54,000 on the order. (Swiggies are sold through distributors in 24 countries.) But as the race day approached, it was clear to the Los Angeles entrepreneur that the factory she had hired in China to make the bottles was moving very slowly. When the plant missed the planned date to ship the Swiggies by boat, she had to arrange for pricey airfreight instead, which cost her $20,000. “I lost a lot of money,” Austin says.
Fortunately, the order did arrive on time and the race organizer placed an order for the next race. But Austin quickly shopped around for a new factory and found one that was more organized. “Any time I had an order, they took care of it promptly,” she says. She still uses that plant today.
Austin’s experience illustrates a big challenge facing U.S. firms that do business in Asia: Finding the right partner—whether that is a co-owner of your business, a manufacturer or a distributor.
It’s not easy to find such partners, even when you are both based in the United States. But when you are looking to form an alliance with someone thousands of miles away, navigating geographic distance, language barriers and cultural differences can require extra effort.
“You have to be very proactive to make sure things do not become problems,” says San Francisco-based Nichol Bradford, CEO of The Willow Group, a transformative technology company. Bradford oversaw operations in China for computer games company Blizzard Entertainment Inc. from 2008 to 2013 and was based in China and Hong Kong. Blizzard Entertainment is the publisher of popular video games in the World of Warcraft® series. It is a division of the Activision Blizzard company, founded in 1991. Activision Blizzard had revenue of $1.04 billion for the second quarter of 2015. “When you get into a problem situation and add a cultural overlay, it is twice as complicated.”
Fortunately, it’s possible to overcome the obstacles by taking the right steps up front. Use these strategies from experts and entrepreneurs who work with partners in Asia to get your partnership right the first time.
No entrepreneur has weeks or months to waste, but when you’re looking for any type of business partner overseas, trying to negotiate a deal too quickly may make potential partners wary. The United States and some other Western countries have what is known as a monochronic culture, notes Evaristo Doria, a member of the faculty at the Institute of International Business at the J. Mack Robinson College of Business at Georgia State University. He also is a co-author of the book Oasis: In Search of Extraordinary Business Growth Overseas. Monochronic culture means we tend to focus on one thing, such as work, at a time—and don’t spend a lot of time at the office building relationships. In contrast, many Asian countries have what is called polychronic culture, he says. Asian business people are comfortable doing more than one thing at a time and may want to take more time to socialize with American business people than Americans are accustomed to before discussing business. “Time is more flexible,” Doria explains. “Things sometimes take more time than is expected.”
As a result, a potential partner in Asia may want to get to know you at a slower pace than a Western partner might—so you need to allow time for this. Christian Sculthorp, an entrepreneur in Toronto, discovered this reality after starting an online health supplement store called Healthy Indonesia with a partner who is a German expatriate living in Indonesia. While they were able to line up Canadian suppliers rapid-fire, it has taken longer with those in Indonesia. “In Indonesia, they usually feel out the person a lot,” he says. “It can be really hard to get to the stage where you are actually buying. On average, it takes about a month for us to get pricing lists and things like that.”
There are many companies, such as Thomson Reuters World-Check, that can help you do international due diligence on a potential partner. Nonetheless, background checks are not a substitute for meeting your overseas collaborators in person or hiring a trusted agent to do so. This is especially important when working with an overseas factory, since any problems your outsourced plant has with quality, on-time delivery, product safety or labor practices could hurt your reputation. Manufacturers you find online may sometimes misrepresent their capabilities.
“Make sure there’s a factory there and they are able to show you the product or products they are going to manufacture for you,” says Eddie Wong, a partner in Friedman LLP, an accounting firm in New York City. Wong leads its Asia practice and advises both Western companies doing business in Asia and middle-market Asian companies expanding into the United States. “If you walk in there, and there are only four people there and only one little machine, you’re going to start wondering how they will be able to do it. The only way they can do it is [to] subcontract the work out to another company, which you may not want them to do. You will lose control of your manufacturing.”
Also make sure a potential manufacturer is in good financial shape. You don’t want to pick one that goes out of business before it delivers your order. “Get a copy of their operating license to see how their credit looks,” Wong says.
If you don’t know what to look for when checking out a factory, hire a professional. That’s what Austin did. Her Hong Kong-based sales manager, whom she met for the first time at a trade show in Hong Kong, also manufactures his own product line and had done extensive research into factories in China. He helped her find the family-run factory she uses now. “Even though they were more expensive than the other factory, for me it was worth it to make sure everything was on time,” Austin says. They also offered documentation showing their plastics were nontoxic and BPA-free, which was important, given that her bottles hold drinking water. “They are sticklers about quality,” she says.
Finding a distributor also requires thorough due diligence. Ask an agent based in the country where you want to sell to find a reputable one for you, recommends Wong. The distributor should ideally be based in the target market where you want to sell, so it is familiar with regional needs and local challenges to getting your product to market. “Don’t hire a firm that is located in the Northeast if they are going to distribute the product in the Southwest in China,” Wong says.
If you speak the language of the country where you will be doing business, you’ll have an edge in finding partners, but it isn’t mandatory. Austin was relieved to find out that the owners of her current factory speak perfect English, which makes it easy to Skype with them. “One of my first manufacturers didn't speak English, so everything had to go through a translator, which held up orders [from] an extra few days to a week,” she says.
Whether you speak to your partners directly or use a translator, you’ll avoid misunderstandings if you understand the cultural nuances around how people say “Yes” and “No” in a particular country—two extremely important words in business. “Different cultures say `No’ in different ways,” Bradford notes. “American business culture has a certain way of saying `No.’ Sometimes Westerners think they heard a `Yes,’ but they’ve been told very clearly, ‘No,’ and they miss it.” Her advice: When doing business in any unfamiliar cultural environment, ask someone who knows the language and culture well to explain the conventions around agreeing to something in business or politely opting out. The clearer your communication is with any partner from the get-go, the stronger your partnership will be in the long run.
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