First of all: please excuse us for not updating the site recently. We decided it needed a make-over but we got stuck in trying to make up our mind about what to do. To make a long story short: we look forward to picking things up soon! In the meantime Klaus-Dieter Hanke came up with an excellent service for those who are looking for Professional Help Importing China Products, and he asked us if we wanted to share it with our visitors. Because we believe exchanging information between our two target audiences might spell success, we sincerely hope you will benefit from this affiliate style plug. Take a minute to read the pitch, and be sure to let us know what you think of the Member Community if you decide to join!

If you want to import products from China and are facing one or more of the following problems:

- You want to import brand name products (often fakes) that you are not allowed to import
- You already have an existing business and want to import your products by yourself to cut out the middleman but don’t know how to find the right suppliers
- You know search engines like Alibaba , Global Sources etc., but may not trust their selection and get stuck
- You don’t know how to approach suppliers efficiently and how to ask the right questions to get results
- You don’t want to invest your money in expensive Far East Business Trips but need somebody of your confidence to do your job in China instead
- You know that you may be in trouble if you don’t have a quality control system in place, but don’t know how to solve that problem
- You really want to make money from your importing, but lack the knowledge to do it successfully and don’t know whom to ask for help
- You need assistance during your first import activities but are all alone by yourself
- Since you are lacking the knowledge, you may be too naive in your dealings with experienced Chinese companies and may be ripped off without even knowing it

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- Import strategies assessment for individual customers
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- Help with finding suitable and reliable suppliers in China
- Help with negotiating prices and terms
- Help with establishing direct communications between customers and suppliers in China
- Help with setting up a reliable quality control management
- Receive instant advice using their secure live-chat box for private communication with members
- Engage with other members, asking questions, sharing ideas, and building on everybody else’s experience and expertise in their WebMediaBiz Forum
- Access to fixed fee inspection services (w/o any extra travel or accommodation charges) covering whole China. Controlled by experienced European management. Service can be booked online from anywhere in the world.
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Get IT involved early

Information Technology will play a critical role in a successful C-SOX implementation, so it is important that the IT organization understands how they will support this project. The Basic Standard for Enterprise Internal Control specifically mandates the use of IT to reduce risk and increase transparency in organizations, and successful Chinese companies will make the best use of technology resources.  Embedded controls within information systems will increase compliance efficiency and improve the control structures which have been defined by the business.

The IT organization will have two roles to play in a C-SOX implementation. The first is to define their own internal controls and understand what tools are needed to manage any risks. The second role is to provide support to the rest of the organization and make sure the company’s IT infrastructure is up-to-date and meets the requirements of the business.
Most IT organizations are used to complex implementations and will make good partners for the C-SOX project. The key is to get the IT organization’s “buy in” as a stakeholder and not just as a support service for the project.

Choose a Partner

Implementing C-SOX may require companies in China to seek outside help and expertise. In choosing a partner, make sure to look for a successful track record of complex projects and knowledge of internal control processes. It is also beneficial to work with a company that has experience in designing and implementing human resources strategies such as executive compensation, performance management and learning strategy. These companies can provide valuable advisory services in some of the more sensitive areas of C-SOX. Most of the major consulting, accounting and advisory firms will have relevant experience in implementing similar projects overseas. This is beneficial to Chinese companies who can therefore learn from the international experience of their peers.

A best practice is to use external experts rather than pushing responsibilities onto other internal resources during the initial stages of the C-SOX project. This can provide an effective and independent design of internal controls and adequately test the controls and processes for highest impact.

Conclusion

Starting the C-SOX compliance process does not have to be difficult. A high level of visibility and support from the executive team will provide the urgency needed to quick start rolling out training programs and gathering internal resources. Putting these foundations in place early removes time pressure from the compliance project and will give the company a strong basis in risk management and internal controls going forward. In particular, making the effort to develop a culture of risk awareness will pay off through better existing processes, reduction of errors, and increased employee engagement. Companies that begin now will see improving margins, increases in efficiency and growing market respect.

The Basic Standard for Enterprise Internal Control is still evolving and final implementation guidelines are not yet available. However, Chinese companies should take advantage of this time to seek the benefits to improved risk management and internal control systems.

Alex Raymond is based in Beijing and is the Founder and CEO of Vast Talent, a company that specializes in compliance and performance management tools. Vast Talent was the first company to launch a compliance system specifically designed to meet the needs of C-SOX.

This is the third and final part of “Getting a Head Start on Your C-SOX Compliance Project in China”.

China continues to emerge on the world stage as an economic powerhouse, projected to be the world’s fourth largest economy within two years. U.S. companies, especially small to medium enterprises (SMEs), stand to benefit significantly from this growth, assuming that they are prepared to enter this highly competitive environment filled with considerable but manageable risks. Nearly 97 percent of all U.S. exports originate from SMEs—companies with fewer than 500 employees (International Trade Administration, 2006).

To enhance their chances of success, SME decision makers must understand Chinese cultures, business norms, and values, and be willing and able to adapt quickly to always-changing markets. This article should help you participate in the world’s fastest growing economy with its ever-increasing demands for premium quality goods and services. You will need to deal with the following questions:

 • Can you conduct industry analysis, competitive insights, and cultural intelligence as China evolves, and as marketing communications information moves instantly to your customers via digital word of mouth?

• How will your analytics identify and measure qualitative insights? For example, why is a company like Starbucks successful in a country where everyone drinks gallons of tea and has for thousands of years? Starbucks’ China president says it has “the potential to become the biggest market…outside the U.S.,” noting that “the Starbucks experience” is creating a home away from home for those who have increasing disposable income and are looking for “more of a leisure lifestyle” (Doctoroff, 2005).

Chinese Market Challenges

One of the most critical issues facing U.S. companies in China is how to manage the shift into broader market segments beyond the cutthroat competitive affluent markets in the largest cities such as Beijing, Shanghai, and Guangdong. Rapidly rising demand is spreading to hundreds of second tier cities, as increasing numbers of consumers have Wharton School projected that more than half of affluent households will reside outside of the top 40 cities by the end of 2008 (Boston Consulting Group, 2006). Reaching them with extended marketing communications (marcom) activities, especially distribution, is the key to sustained growth. In several industries, distribution networks are considered intellectual property.

“China’s Untapped Second Cities” (Pohle, 2008) found that 300 cities with fewer than 6 million residents represent 53 percent of China’s urban population and 64 percent of gross domestic product, with the consumer market growing at 15 percent per year collectively. Nearly 60 percent of these second and third tier cities are conveniently located near coastal provinces with excellent transportation and communication systems.

The Chinese characters in figure 1 each represent the challenges within the Chinese market: identify sources, create knowledge, and analyze to provide the power to act in the market. After conducting comprehensive research and analysis, your China analytics toolkit must integrate crafting corporate strategies with cross-cultural awareness, and continually adapt your marketing mix as required in and across markets.

Cultural Adaptations

You need to train yourself and prepare C-level clients to deal with leadership and management styles and decision making processes where Chinese executives:

1. Believe that human relations, correct behavior, and social image are paramount.
2. Value humility and modesty.
3. Thrive in an authoritarian and Confucian culture.

You must reconcile these traditional norms with your own cultural perspective to develop a pragmatic culture of success that permeates your investigation. This also helps you understand the factual and interpretive knowledge and integrate it with the cultural awareness gained by China country desk officers in the U.S. Agriculture and Commerce Departments. The discipline of developing this process will challenge your cultural orientation and the underlying assumptions of your operations and marketing communications activities.

The diagrams in figure 2 define the known and unknown marketing elements and the elements that will require adaptation. Adaptation is the most critical concept, and your willingness to adapt your entire approach is a crucial attitude for sustainable growth. White-water rafting is an excellent analogy for strategic planning. Marketing communications activities and teamwork can be represented by the Chinese character Tao (a constant flow of information) and environs intelligence (surroundings + environment) to adjust to constantly and rapidly changing situations.

Your “Dragon” Analytics Toolkit defines and balances your immediate needs and helps you to acquire long-term competitive and cultural insights (see reference list). When integrating these and other ideas with the concepts of international marketing, be very aware of your reasoning processes, and consider how you will make judgments and reach conclusions. Enhance your skill sets to include cultural intelligence, marketing communications acumen, and strategic early warning to create a DEWS (Dragon Early Warning System).

Paying your DEWS (pun intended) will enhance your understanding of and ability to determine the success factors required to adjust and position your clients’ brand identity and Western approaches to marketing communication activities along the dynamic continuum between Chinese preferences and purchasing behaviors. The guiding principle for adaptation is integrating oneself into the new environs. We must constantly be aware of and correct our self reference criteria (SRC), the unconscious tendency to refer to one’s own cultural values and norms when observing and evaluating situations and activities in another cultural environ. (See Sidebar 1.)

Sidebar 1

Cultural Insights and International Marketing

From an international marketing perspective, here’s a working definition of culture:

Culture is the learned ways of group living, and the group’s and its members’ responses to various internal and external stimuli.

Your DEWS should identify which elements have the greatest influence on specific consumer attitudes and concomitant purchases.

The two types of cultural knowledge are factual and interpretive. Factual cultural knowledge is obvious and must be learned. Different meanings of color, tastes, and behaviors are facts that we can anticipate, analyze, and understand. Interpretive cultural knowledge is the ability to investigate, comprehend, and appreciate the unseen nuances of different norms, traits, beliefs, values, and patterns.

What’s critical to your investigation is to look below the waterline of the cultural iceberg to discover foundations and insights, such as the concept of self, how one survives and thrives, courtship, concepts of time, problem solving, work incentives, and communication patterns in social and business context, among others. Through this effort you are enhancing your competitive intelligence skill set and becoming a novice cultural anthropologist who observes behaviors without judgment.

Cultural imperatives and elements of cohesion are the Chinese bulwark against uncertainty. (See Sidebar 1.) They fuel a fiercely protective consumption that is future focused and stability minded, especially in the extended family household.

Clarity begins with answering insight questions like why is a man willing to spend a year’s income on a new car, and why do children love to learn school subjects on electronic devices rather than from standard books? Compelling Insights help resolve the conflicts of Chinese society – bold projection and anxious protection. Your deep understanding of these conflicts will help establish an empathetic bond with consumers, sowing the seeds to create and enhance long-term loyalty.

Another critical example, according to Tom Doctoroff, requires deep appreciation: modern Chinese women must balance three polarizing forces. Their culture mandates them to hold up half of the sky, nurture their family, and deal with a growing desire to be individualists (Doctoroff, 2005). How will you reach them as consumers?

Case Study

Brand Loyalty

Following up on the senior vice president’s comment about being “branded,” we are faced with a very challenging issue for analytics that address brand loyalty. This new behavioral concept competes directly with well-trained merchandisers offering less expensive brands. I recently posed these questions to a multibillion-dollar U.S. fruit trade association expanding in China:

• How has the erosion of branding preference and false labeling been addressed during lack of seasonal availability in the market?
• What are the success metrics of previous non-point of sale media campaigns, how were they achieved, and how were funds allocated to public relations and advertising?
• Are your brand vision and marketing communications campaign integrated, compelling, and consistent and relevant to consumers?
• Does its health component elegantly fuse the fruits’ differentiation and the buyers’ underlying needs?
• Does the message appeal to children, youth, and their mothers; and can it be heard above the noise of other campaigns?
• Is the campaign using digital/mobile communications?

There is tremendous confusion in the marketplace with the explosion of media genre, lifestyle choices, brand opportunities, and product selections. Your DEWS must address the confusion with brand strategies positioned accurately, presenting transparent integration of value-added propositions, selling points, and cultural insights to capture their mind share.

You will face numerous cross-cultural challenges, including the following:

• Building relationships and gaining trust
• Finding and keeping managerial and executive talent.
• Barbed-wire national and provincial bureaucracies.
• Lack of intellectual property rights protection.
• Cutthroat domestic and international competition.
• Dramatic and dynamic changes in the markets affecting your international strategic planning and marcom implementation.

China’s Information Structure

The consumer research industry is quickly developing in China as executives become willing to invest to obtain a better understanding of the numerous and highly differentiated markets. However, it is still fragmented, with a few large domestic players and a plethora of boutique operators. The value of premium-quality investigative market research is growing, especially as competition drastically intensifies. Chinese providers are becoming more systematic and professional—a trend that should continue.

Subtle cultural differences will most likely result in the interpretations of responses during interviews. For example, company representatives are more reluctant to speak negatively of their companies or positively of their competitors, and often make claims with no rational basis. Interviewers must have firsthand experience with primary research, be able to read between the cultural lines and geographical differences, ask questions that solicit concrete answers, and  ystematically cross-check, validate, and triangulate. As Matt Fish wrote, “usually over 80% of credible data comes from primary research” (Fish, 2004).

Business-to-business research is well developed, with a wide range of very credible international and domestic providers who use well-established methods including focus groups, polling, and test-response. The performance of domestic companies is improving, and they are gaining a greater share of the market.

Digital Communications: The E-Dragon

China’s research and marketing communications environments are undergoing dramatic changes resulting from the mobile digital revolution, a dynamic force that connects the E-Dragon. Electronic or digital word-of-mouth is an incredibly powerful phenomenon and probably a disruptive innovation that the Western advertising industry is only beginning to understand in China.

Ogilvy’s China Digital Watch site covers a wide range of digital media: display advertising, search and keyword marketing, Internet video advertising, mobile Internet, music marketing, out-of-home display market, 2-D barcodes, online games, virtual worlds, gadgets, widgets, and just about anything else found incubating and growing at the convergence of  marketing communications and technology.

In April, I searched on “competitive intelligence” in Baidu, Google’s top Chinese competitor, and received more than 75,000 hits, including most of SCIP’s books, tools, and research documents in the first hundred. As the Chinese continue to build and geographically expand this infrastructure, they will access instantly what the world offers.

Our First Steps on the Silk Road

As we take our first steps, we have been given an incredibly rare marketing gift: 10 to 12 million Chinese enter the ever-growing middle classes every year. Opportunities are vast for culturally sensitive marketers and competitive intelligence practitioners who discover qualitative insights about consumers’ desires. The Silk Road is open for those with courage, long-term investment, and respect for the cultural diversity of the Middle Kingdom. Be prepared to accept the China challenge!

David DeChant, Vision Quest Intelligence, LLC
(1410) 428-2866

What will be the role for international entrepreneurs in China’s emerging 2-track economy?

China’s economic development is being pulled in two diverging directions as Beijing struggles to steer a course through this global recession. On one hand, collapsing international demand for Chinese exports has led policy-makers to stimulate the domestic economy with a massive state-directed infrastructure and employment-oriented spending programs. On the other hand, rational leaders know that they can’t simply write off the external economy that has underpinned China’s stunning success over the last decade.

The result is that China will transition to a new 2-track solution that attempts to chart a middle course – a carefully orchestrated set of domestic policies existing in harmony with a vibrant international, market-driven economy.

The question for international managers in China is – where does your business fit in, and how should you guide your company’s development to take advantage of the new economic reality?

2 big trends are shaping China’s future economic development:

State-driven domestic economy

Infrastructure, development of China’s interior and employment-oriented regulations are the hallmarks of Beijing’s new economic policies. The Big Stim is just the beginning of a long term effort by policy-makers to take new control over China’s wild economy. State planning is in (again); anything-goes free market entrepreneurialism is out. While this doesn’t necessarily exclude international businesses, it definitely means that we will all be playing by new – and not particularly level – set of rules and regs. Even private businesses will be expected to play a policy role.

Privatized, internationalized international economy

The external economy has played a huge role in China’s development – especially over the last decade – and no one is ready to close the door on global trade and foreign investment just yet. There will be plenty of room in the new China for internationally-minded managers who can facilitate the movement of investment inward – or help ambitious Chinese corporates set up new facilities abroad. Beijing will always be enthusiastic about keeping Chinese factories busy with overseas manufacturing orders, but the prognosis for international demand picking up to 2007 levels is not good.

What should international managers in China do to survive and prosper from the next phase in China’s economic development?

1) Make your choice and place your bets. There was a time you could stake out a position by just finding bits of the market that were underserved. International marketers hung up a shingle and waited for clients and customers to show up. International managers in China used to describe their business models with phrases like “organic development” and “localizing overseas models”. No more. There’s simply too much competition and too little demand to try to be all things to all people. Chinese domestic markets and multinational markets have diverged, and you try to serve both at your own peril.

2) No more 1st mover advantage. Chinese partners and clients have a deeper appreciation of ‘new and improved’ than other actors. Chinese deal-makers operate under the assumption that there was always a new and potentially better opportunity just beyond the horizon. When YOU were that new player things were just dandy. Now, however, the new guy is a revitalized Chinese entity (very possibly a State owned one) or an innovative foreign invested company that is just entering the market. Brand loyalty has to be earned everywhere, but in China it is a daily affair. Businesses that rely on last year’s models are going to find themselves out-dated in a hurry.

3) Make trends your friends. China has a new position in the global economy, and you want to position yourself for maximum benefit. The new Chinese mega-trends are the middle-class domestic markets, Chinese firms expanding internationally and new foreign direct investment by Western firms searching for fresh markets. Manufacturing models are out, service industries are in.

Andrew Hupert, ChinaSolved

The Beijing Olympics have had a great impact on the city of Beijing, where a large infrastructure refurbishment initiative, fresh developments and a massive English language training campaign have been some of the elements of a drastic change and an amazing source of business opportunities for both local and foreign companies. Shanghai, with its upcoming Universal Exposition in 2010 is going through the same face-list, with the replenishment of the famous bund area, the accelerated infrastructure changes much needed to ease the megalopolis congestion problem and much more. Commercial opportunities are as well rising fast toward the May opening of the Exposition; opportunities that are being seized by both for local and foreign companies.

I have anticipated a rise in solicitaton from pavilion ran countries. Tendering processes are going on in most country having a pavilion presence, and many overseas third parties have, and still are, gotten in touch with me for solutions in search and selection of the pavilion staff, but most importantly staffing, enabling each pavilion to legally employ staff, local Chinese or foreign nationals, without having to establish a legal corporate entity in China. My firm being fully licensed and resourced for both activities it is of course a solution that we are capable of handling.

However what was not anticipated is the rise in solicitation from overseas SMEs.

Some the challenges faced by SMEs, while trying to seize their share of the tremendous financial and marketing opportunity the Exposition yields, can be briefly summarized as such:

• No local contact / connection in China
• No interest in forking out the additional cost, not to mention the lengthy process, of setting up a corporate legal entity for the limited duration of the Exposition (6 months)
• how to source bilingual and qualified employees locally
• how to legally employ local and eventually foreign national staffs during the Exposition period
• …

The opportunities are there, the challenges as well, but most importantly, solutions exist. Solutions that are legal, hassle free and well… affordable.

When you are operating an overseas SME, with a limited margin for error or financial flexibility, the process of establishing a commercial or operational presence in China can be seen as a daunting task. Entrusting a local business partner becomes therefore a viable solution, as you can stress-free focus on what you do best, that is sell and promote your products/services, while the local partner handles the “Chinese” side of things, like recruitment, employment, payroll, labor law compliance and so on, on your behalf.

Before signing up with a staffing company a few essential points are to be kept in mind:

• Do your research and make sure the firm you are engaging yourself with is LEGALLY LICENSED… that make sense, in the west at least, but I can guarantee you that a casual “sure, I can help” answer, here, is not what you should expect.
• Make sure they do have experience and references available for their staffing activities…
• Compare prices, as tariffs for staffing solutions can go from a few thousand US Dollars to a few hundred Chinese RMB from a firm to another, per month, for pretty much the same service level…
• Make sure that the firm has the INTERNAL resources to provide you with a pro-active and professional service. Too many firms around will be happy to take your money but will outsource payroll, contracts, … In China, quality is not always here while dealing with third parties suppliers…
• Foreign staffing firm versus Chinese firm? This is entirely your choice… but bear in mind that a foreign firm does not necessarily have the flexibility a local firm can have in terms of terms of quick fixes and might not be able to provide additional services like last minute lodging, visa and such… In addition, a foreign firm might have larger overheads and as such that might impact the quote you received.
• Finally, trust your guts. If the few emails you exchanged gave you a somewhat dodgy feeling or your primary contact gives of the sense of being “lost in Translation” at every phone conversation … walk away…

…or better, call me!…

Patrick O. Courtois is the Director of Operations at DaCare Executive Search, a leading executive search and HR services consultancy, based in the heart of Shanghai, China. (http://www.dacare.com/). Patrick has extensive management consulting experience in Asia, as well as European markets. With a current focus in executive talent sourcing in Greater China, Patrick engages with multinational clients in professional services, hi-tech communications and industrial manufacturing. Visit Patrick’s HR blog at http://hrshanghai.blogspot.com/.

Getting started: executive sponsorship

The most important criterion for success of the C-SOX compliance project is to ensure the attention and support of the entire organization.  Although responsibility for risk management and compliance ultimately sits with the CEO and Board of Directors, forward-thinking companies will push responsibility to various parts of the organization.  C-SOX projects require participation from many levels of an organization, and for compliance projects to succeed, companies in China must make their staff an active participant on the integrated project team.  People need to prepare materials for compliance consultants or auditors, and companies must commit staff and resources to make efficient use of outside consultants.

Chinese Companies operating as industry leaders are aware of the benefits of C-SOX compliance in improving their business results.   Firms limiting C-SOX projects to a small group of senior management, auditors, and the board of directors will fail to reap the intended benefits and will have higher costs in their implementation project.

Industry leaders involve much of the organization in their C-SOX implementation process and go beyond the minimum requirements imposed by the Basic Standard for Enterprise Internal Control to improve operating results while introducing business improvements throughout the organization.

Management will need to be visible in its support for C-SOX and ensure that a sense of urgency is felt across all offices and regions.  This means creating a project team with adequate representation from the entire business, and one with the political clout required to overcome institutional resistance to change.

Mapping the Organization – focus on Roles and Responsibilities

To start the C-SOX implementation, a clear picture of the organization is required.  This means understanding employees’ roles and responsibilities in detail and creating the organizational structure (if one doesn’t already exist).  This organizational map should show job roles, authority levels, decision-making capability, reporting structures and other relevant attributes.  This will be the foundation for the internal control framework, which relies on employees executing their responsibilities throughout the organization.

The organizational map will drive the definition of policies, processes and procedures and the analysis of control points.  Furthermore, this map will assist management in determining compensation, rewards and disciplines related to internal control, as mandated by the regulation.   The organization map is an evolving document which will need to be revisited frequently to stay current.  Creating and managing the organizational map is usually the remit of the Human Resources department.

Develop Awareness through Training

One of the biggest challenges in effectively C-SOX implementation is making sure that risk management and internal controls are taken seriously by the entire organization, not just top management or the finance department. 
The Basic Standard for Enterprise Internal Control will require a mindset change for many companies in China because they do not currently take a systematic view of operational risk and they may not have the human resources needed to properly implement desired controls.  Companies should therefore invest in training and education to increase the level of risk awareness.

To effectively create a corporate culture where risks are identified and properly managed, all three types of training have to take place, and management has to be willing to sponsor and fund the training.  This means not only holding training classes, but also assessing knowledge and skills of the participants, reinforcing key messages and behaviors and keeping risk as a top priority for the business.

Broad-based employee training is a low-cost, high-impact way to get started with C-SOX.  By providing training to all employees, companies will create awareness of risk management and internal controls and facilitate later programs and actions.

Alex Raymond is based in Beijing and is the Founder and CEO of Vast Talent, a company that specializes in compliance and performance management tools.  Vast Talent was the first company to launch a compliance system specifically designed to meet the needs of C-SOX.

This is the second part of “Getting a Head Start on Your C-SOX Compliance Project in China”, next week we will publish the third part.

Within a two-minute walk from my apartment in Shenzhen, there is ample evidence that intellectual property, particularly American, is not very well-protected in China. Nighttimes, three different vendors set up their folding tables on the main street with pirate DVDs by the carton-full, including many of the latest Hollywood releases. Cost: RMB5 each, or 73 cents each.

A little further west at the main intersection, a huge new superstore is under construction. The four-story-high signs proclaim it’s Shenzhen’s new “Official NBA Store”. But, when I emailed a friend who is one of the top executives at the NBA headquarters in New York, intending to congratulate them on their expansion in China, he emailed back to say that the NBA has no such project underway in Shenzhen. In other words, some other group is going to try to hijack the NBA logo (and most likely, when the store opens, NBA merchandise as well) and pass itself off as the genuine article, presumably making a killing along the way in basketball-crazy China.

So far so ordinary, right? Everyone knows that China is a paradise for counterfeiters and IP thieves, right?

Well, as is often the case in China, things are not quite as malign as they appear from the outside, in the minds of Western critics. Slowly but surely, China is taking the right steps to build a legal framework through which intellectual property – including foreign IP — can be protected in court. *

This is very good news for all of us in the private equity and investment banking industries in China. Improved enforcement will help bring China into closer accord with the rest of the developed world in terms of IP protection. In many successful companies, intangible assets, including IP, are the most valuable item on the balance sheet. So, protecting IP is commensurate with protecting the value of a business, and so the financial interest of investors.

There’s another key reason: some of the best private Chinese companies are developing their own successful brands in the Chinese domestic market. These Chinese brand-leaders are among the best opportunities for private equity investment, not just in China, but anywhere in the world. They face the same threats in China as foreign companies whose IP is being stolen. As the IP legal system develops, China’s own emerging brands will find it easier to defend their position in the domestic market, and shut down competitors who are ripping them off.

One telling data point: perhaps the fastest-growing area of Chinese law – measured by billable hours among well-qualified lawyers – is in intellectual property. That’s because it’s getting much easier for companies to prevail in court against those who appropriate their logos, trademarks, designs, patents and other intellectual property.

The court system is more and more responsive to such claims of IP theft. So, with increasing regularity, Western companies are taking action in Chinese courts. This is, without question, a positive development, and one that points the way toward a future where IP protection is more strenuously and uniformly enforced across China.

The legal system is still evolving. At the moment, damage awards for the victor in an IP infringement case are not very high, often no more than RMB500,000 ($73,000), which is not going to be enough to discourage many of the larger-sized businesses in China that are producing and selling products that obviously rip off other companies’ IP. But, there’s often more at stake here than just the damage award. Litigation in China, as elsewhere, is costly. The victor in an IP case, in addition to the damages, will often also be awarded legal costs, meaning they can reclaim their entire legal fees from the company they’ve just defeated in cost.

This is the real sting in the tail. Legal fees can easily reach amounts 10-20 times higher than the maximum damages. So, the victor can ultimately collect tens of millions of renminbi from the loser. In addition, of course, the losers have to swallow their own legal fees, which can be no less sizable. That sort of cumulative penalty (damages+own costs+victor’s costs) is enough to inflict a lot of pain on a company that is prospering by stealing someone else’s IP. Now, sure, collecting on a large monetary judgment in China can be a challenge. But, if the losing Chinese company is large enough, it’s hard for them to escape paying. They can’t just close up shop, and start again under another name.

As China’s economy continues to grow robustly, more companies (including those whose success is predicated on stealing others’ IP) reach a size where they are too large and too well-established to escape the effects of such a punitive judgment. Result: some of the worst and largest IP offenders will be the first to suffer, made to bear heavy costs, or forced out of business.

Now, of course, it’s likely going to be a very long time before the pirate DVD street vendors are put out of business. It’s not often discussed, but other countries, including the US, have similar sorts of opportunistic businessmen. I’ve been to areas of Los Angeles – usually not the nicest ones – and found guys on the street selling pirate DVDs of the latest Hollywood movies owned by studios that are headquartered less than 10 miles away. If the US can’t shut these operators down, it’s unrealistic to ask China to.

But, the legal remedies now available – and I expect them to get even more extensive and water-tight over time –allow companies in China to act against the biggest IP thieves who do the most financial damage. This will benefit both foreign and the domestic Chinese companies now investing heavily to build their own brands and unique IP. A category of private equity investors in China will be winners also – those that back the companies now developing the brands that will one day dominate China. 

Peter Fuhrman, Chairman & Managing Partner of China First Capital, Ltd. China First Capital, Ltd. is the only international boutique investment bank in China that works exclusively for Chinese SME companies, helping them access capital markets and institutional investment (from Private Equity and Venture Capital firms) during the years leading to a successful IPO.

* I am once again indebted to Luo Ke, of Fangda Partners, and Elliott Chen of Junzejun, for sharing insights, perspective, legal knowledge. Every discussion I have with them is a joy. They always seem to provide the impetus for a blog post.

A majority of western business people who have business in China or with Chinese companies have worked with an interpreter. Most often, the interpreter will be a native of China. This can be helpful or problematic depending on how you handle your communications. There are a few things you can do to avoid problems and help your interpreter. 

Choose a Local Person Whenever Possible

Regional usage, grammar, and pronunciation vary widely. A group of Chinese students I taught some years ago used English as their common language because they were from different regions of the country and had great trouble understanding each other’s spoken Chinese.

Regional difference in American English exist, but we can usually understand each other. The variations between British and American English are another matter entirely.

If your business is in Dalian, bringing a co-worker from Hong Kong to interpret would be ill-advised but could work out well if your business is in Xiamen. Likewise, if your business is in Shanghai, an interpreter from Beijing would be less desirable than someone from Shanghai.

Test Your Interpreter’s Vocabulary

For escort interpreters, basic understanding of the languages is fine. For business discussions, you should insist on someone familiar with the vocabulary, terminology, and usage in your market sector. Commodities trading is rather different than furniture manufacturing. Right?

Make Sure Your Interpreter is Really an Interpreter

Often times, a person with language skills is expected to be able to interpret. Not so! Effective interpreting requires the person be able to step aside and only render what is said by the parties involved. The consequences can be merely inconvenient or they can be life-threatening.

Years ago, I had arranged for a professor from China to teach a series of classes in the US. He did not speak English. I arranged for an interpreter from the same region in China as the professor. The interpreter was studying for his Ph.D in the US and had taught English in China. I’d worked with him on a couple of other projects and found him capable, or so I thought.

Class started. The professor finished the first part of his presentation and invited the students to ask questions. True to American culture, the students were all eager to ask questions.

To my shock and surprise, the interpreter did not translate. He began answering the first student’s question! The professor seemed puzzled but smiled patiently as he waited for what to him must have seemed a lengthy and involved question. I waited for a pause and politely asked the interpreter to render the question in Chinese for the professor.

After reminding the interpreter several times, I asked for a short break, took the interpreter aside and told him pointedly that whether or not he could give an answer was irrelevant. The questions were intended for the professor; and he was expected to interpret, not take over the class. As soon as the first session was completed, I quickly arranged for a different interpreter.

This was inconvenient. Had it been a law enforcement or medical treatment situation, this sort of behavior from an interpreter could have cost someone their life. In other situations, the interpreter and the interpreter’s agency could be held liable for monetary or physical damages.

A professional interpreter will avoid participating in your conversation, may lower their gaze, and may avoid eye contact while interpreting. He or she will stand or sit close to you and behind you; never getting between you and the other party. In certain situations, a professional interpreter may make an “I’m interpreting now” announcement in both languages. This may seem odd, but it lets everyone know clearly that whatever is being said, the words do not belong to the interpreter.

8 Tips for Helping Your Interpreter with Simultaneous Interpreting

Mostly, just be considerate and remember that your interpreter is a person. Human beings get tired, hungry and thirsty. An adept professional can make simultaneous interpreting for several people seem easy. It’s not.

1. Speak clearly at normal volume and moderate speed.
If you speak too softly or too quickly, your interpreter may not be able to hear you. Don’t shout or speak too loudly either, unless you are deliberately shouting at the other person.

2. Pause frequently.
Express a logical idea, then pause to give the interpreter a chance to relay it. Don’t let your interpreter make you or the other person wait for several sentences. The long wait-times become annoying very quickly and completely disable interactive communication.

3. Keep your meaning clear.
Be clear about your meaning and your intent. Your interpreter should not have to guess what you meant. The more clearly you communicate, the easier it is to interpret for you. If something you said is not clear to the other person, it’s not up to the interpreter to clarify (unless asked); you need to take that responsibility. If something is not clear to the interpreter, it’s the interpreter’s job to ask you for brief clarification.

4. Use complete phrases and simple sentences.
Partial phrases, snippets, and culturally-based references are extremely difficult to interpret. Avoid slang and common sayings, even when using them might seem to you to be an easier way to make your point.

5. Use common, standard language.
Your interpreter is not a native speaker of at least one of the languages being used. He or she may not fully understand or be able to convey all the subtleties the language allows.

6. Give your interpreter a chance to prepare.
This may include some reading material or a brief discussion of the topics to be discussed in your meetings so he or she can review the required vocabulary in your specific context.

7. Let your interpreter rest.
Arrange your meetings in short blocks with breaks in between or arrange for more than one interpreter. As a general rule, don’t ask one person to provide more than two hours of simultaneous interpreting or four hours of escort interpreting.

8. Give your interpreter a chance to eat.
Business meetings are often held over lunch or dinner. These can be difficult situations for an interpreter, especially for one who expects to eat anything. You can take a bite while another person is speaking; but unless you have more than one, there is no pause for your interpreter. Arrange time for your interpreter to eat BEFORE your business meal. That way, your interpreter is not being asked to watch everyone else eat while he or she goes hungry.

These suggestions can help, but there is no one single solution for everyone. Each situation and each person is different. What you may find are helpful suggestions from your interpreter, another person would consider interference. If you make your expectations and boundaries clear, you can develop an effective working relationship with your interpreter.

Terri Morgan, Wudang Research Association

Chinese employees are often accused of not being willing to take risks and therefore fail to be innovative. And yet, many firms in China are trying to do new things and therefore require innovation. In my view, risk-taking behaviour in China is quite similar to other countries. I believe the reason that China has the reputation of not taking risks is because of a few cultural patterns. One is the fact that Chinese employees are generally not very quick to speak up. Westerners often see this behaviour as a sign of fear. I think however, it is more about caution and a very strong desire to get something “just right.” Getting something right is more important to most Chinese than being first.

The following two sayings are often used to show an apparent difference between Westerners and Chinese. “The early bird gets the worm” is a Western proverb that is taught to Western children from a very young age. The idea is that you are better off in life if you try something early. On the other hand, the Chinese proverb “Qiang da chu tou niao” (“The first bird out gets shot.”) implies a need to be cautious. But as noted, this does not mean that being early is unimportant. Rather, in my opinion, being early is secondary to being right. Furthermore, as I have written in earlier columns, Chinese employees tend to be deep thinkers and will do more preparation than Westerners before stating a position or taking a risk. Chinese also tend to see some Westerners as too fast-talking and too fast-acting. Most people in the world, including Americans, believe the current world economic crisis is the result of American investment bankers taking risks that they should not have.

Next to consider is the Chinese concept of “tao guang yang hui”, (hiding your capabilities) especially in State Owned Enterprises. While we do not see this often in private firms today, it is still quite common in SOEs. The more you show of yourself, the more likelihood that there will be a mistake. While this is a very old Chinese concept, it is still sometimes seen today as an example of why Chinese employees will not take risks.

During the past ten years or so, a sub-culture has arisen in China businesses, especially in multi-national firms. These people, mostly the younger population of workers, have become very westernized in their thinking. These people see the need for more innovation and risk-taking. Not encumbered by past history, but rather encouraged by their Western-thinking bosses to take risks, they are less afraid of failure than their predecessors. This is a good sign for China.

What Can be Done to Improve Innovation and Risk-Taking in Your Firm?

China is becoming more innovative than before. But leaders cannot allow too much time to pass before innovation and risk-taking are a significant part of the business culture. Here are a few best practices that will work in China.

• Make it clear that innovation is a requirement. Put innovation and risk-taking competencies as part of everyone’s development plans.
• Hire people who are risk-takers. Train your human resources staff to look for examples of innovation and risk-taking in the new hire interview. The presence of these competencies for a high tech firm is more important than the school that the candidate attended or the companies he or she worked for before.
• Reward people for innovations. I am not only talking about payments for patents of royalty payments. I am referring to a special program that empowers managers to grant bonuses to employees who take calculated risks, whether or not they bear fruit.
• Comfort people to know that there is no penalty for a mistake if made while trying to be innovative.
• Encourage the newest employees to take risks and to not feel shame if they do something wrong.

I have no doubt that the perceived lack of innovativeness in China will soon be a thing of the past. I remember very clearly when, forty years ago, as Japan was rebuilding its country and on the road to becoming an economic superpower, the idea of something with the label “Made in Japan” was a joke. It meant that the product was probably cheap, poorly made, and copied from somewhere else. Today, Japan is among the leaders in innovation from automobiles to appliances to high tech gadgetry. There is no question that the same fate will hold true for China. Until we are there however, it is the job of the business leader to prompt employees with the right programs and incentives to get there as quickly as possible. This will only help your company to be more successful and will guarantee your success as a leader.

Frank Gallo, Calypso Consulting

Introduction

China’s Basic Standard for Enterprise Internal Control (“C-SOX”) comes into effect soon and many companies are therefore starting to implement this regulation. While the prospect of adopting new corporate governance and risk management standard may seem daunting, there are some simple steps that companies can take to get a head start on the project. Companies that start implementing C-SOX early will gain competitive advantage and save significant money and resources over the long run. The keys to a successful implementation are to enlist the support of the entire organization, and to set out a reasonable strategy and timeframe for the project.

This series of articles will show how you can get started with the C-SOX now and get the most out of it. First, we will start with an overview of the new regulation and how it will impact companies in China. Part 2 will discuss how to get started with the project and Part 3 will identify more internal and external partners who can help make your C-SOX project a successful one.

Overview of the Basic Standard for Enterprise Internal Control (C-SOX) in China

The Basic Standard for Enterprise Internal Control was announced in 2008 and by the Ministry of Finance, China Securities Regulatory Commission, the National Audit Office, China Banking Regulatory Commission and China Insurance Regulatory Commission. The purpose of the new regulation is to increase the effectiveness of internal controls in listed Chinese companies, thus reducing risks for companies and their stakeholders.

The new regulations requires Chinese companies Shanghai or Shenzhen exchanges to conduct self-evaluations of their internal controls, report annually on internal controls and audit the effectiveness of their internal controls. The Basic Standard will apply to over 900 Chinese companies listed on the Shanghai Stock Exchange and about 800 companies listed on the Shenzhen Stock Exchange.

The purpose of assessing the internal controls and corporate governance is to obtain sufficient knowledge of the control environment to understand the management’s attitudes, awareness and actions concerning the factors of the control environment.

Implementing C-SOX is a change management initiative that can have a significant positive impact on the company. However, in order to do so, companies in China must take certain steps and make sure they have a clear strategy.

Alex Raymond is based in Beijing and is the Founder and CEO of Vast Talent, a company that specializes in compliance and performance management tools.  Vast Talent was the first company to launch a compliance system specifically designed to meet the needs of C-SOX.

This is the first part of “Getting a Head Start on Your C-SOX Compliance Project in China”, next week we will publish the second part.