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Once upon a time Mr. Mayo, a smart businessman, heading a three family generation old European company producing deep-frozen French Fries & other iced up delicacies decided that the time was ripe to head for China.

So by the middle of the 1st decade of the 21st century his entrepreneurial spirit brought him to the “mysterious” Far East.

His findings were astonishing to say the least: He discovered that the largest multi-national fast food restaurants had set up shop far ahead of him, that some of those chains had hundreds of outlets spread all over the country, that the young Chinese loved fries “almost” as much as rice. And that ..…..,That definitely meant that his deep-frozen fries should certainly be in demand.

He temporarily hired a Mr. Yang, a thirty something year old, as his consultant to further discover the potential of his fries in the Middle Kingdom. Quickly the wildest estimates hit the Excel sheet far exceeding the conservative estimates Mr. Mayo could have dreamed up & it quickly became fact that selling to China was a must. His company would quickly show a return to the family shareholders far surpassing the 3-5% growth they saw in their customary markets.

Unfortunately the lack of enough cold storage, and therefore the prohibitive cost of the small shipments, “taxing” import procedures, messy logistics to move cold containers around the country, quickly made him realize that to reach the end-users he had to build a production facility in China.

It was decided to build a brand new factory at a cost of Euro 2.5 million & headed by Mr. Yang, whom Mr. Mayo had come to trust fully as his new found son. Shandong was chosen as the perfect location. This made sense because it looked like potato paradise: Different varieties were available within a 400 km radius. Farmers were eager to sell and this at very interesting prices.

Sadly many of the potatoes that reached the production site had turned starchy & were no longer the quality that would provide a superior French fry to whom his European customers had become accustomed.

So Mr. Yang proposed to start importing European potatoes instead, which could be further processed into a likeable fry.

Mr. Mayo had got accustomed to Mr. Yang’s business acumen & decided on the spot that this should be the way to go.

Potatoes were imported in bulk & processed into the perfect fry.

The factory seemed to operate perfectly & Mr. Mayo would visit it at regular three monthly intervals. Mr. Yang always at the ready to pick him up at the airport & on the way to the factory explain to him how some of the imported potatoes would inexplicably rot & could not be used any longer in the production process.

Sales generated enough income to break even in the second year, as was planned. Mr Mayo couldn’t have been happier.

Till one day on his return to China, Mr. Yang met him at the airport and handed Mr. Mayo the keys of the car &….factory. He didn’t want any longer to run the operations because he was in need of a well deserved break. All the protests & pleads of Mr. Mayo were brushed aside and Mr. Yang left him there in the middle of the Airport parking lot.

Shaken by the sudden departure of his most trusted staff, he headed for the factory, wondering why Mr. Yang couldn’t have informed him earlier.

The truth however was going to hurt him more than he could ever imagine.

At the factory entrance, the place looked desolated, no guards at the gate, no trucks on the parking lot, no familiar sweat smell of cooking oil in the air. It even seemed that the cold storage area seemed to be missing…. Wrenching himself through the half opened gateway, he walked into the offices…..Desks, computers, cabinets, …. all had gone.

Rushing to the production site, he slide open the main door, only to hear the sound echo off the walls of huge workshop several times over.

All equipment had evaporated. Outside there were only traces on the ground where the huge cold storage units once were.

He couldn’t believe his eyes. Since he never had driven himself to the site he quickly hoped that this would be the wrong address, the wrong location in the industrial park. Sadly enough he was at the correct co-ordinates. Anxiously calling Mr. Yang’s phone number was of no use either.  That phone number would remain switched off forever. The same happened to the other phone numbers of staff he had kept in his mobile’s memory.

A quick call to home was kind of useless too. Now everyone over there was in a panic as well. A walk into the police station (public security bureau) of the city nearby ended up into nothing. There nobody spoke English & he couldn’t speak a word of Chinese. Frustrated he left to sob on his own & inexplicably he flew back to Europe only to return 1 month later, together with his son. And this on the advice of his family lawyer.

Needles to say nothing had changed.

With a translator on hand they went to the police station, where the officer in charge requested proof of company ownership, which they couldn’t show ‘cause all paper work had disappeared with the equipment. When the officer asked proof of theft from the Public Security, nothing could be shown except an empty factory, but only if the officer would be willing to go with them. The answer to when this vicious act should have precisely taken place got also no clear-cut reply. Finally asking, who in Mr. Mayo’s opinion, was behind the pilfering on the factory floor, Mr. Mayo exploded “Mr. Yang, Mr. Yang!”

On this the officer requested Mr. Yang’s address, copy of ID card & phone number. Only for both son & father to reply with a sight and a desperate look up into the air.

This was kind of the end of the road for the officer who had finally lost patience with those crazy foreigners who could not give any answer with clear proof or certitude.

A trip to the bank ended in further disappointment. A kind bank employee informed them that the company’s bank accounts were empty.

Further investigation revealed that the so-called “rotten” potatoes actually were not that rotten at all but ended up in the production & were sold off the company records.

We leave it up to your imagination what Mr. Yang is doing now.

What’s the moral of this story ?

Get your act together from the very beginning:

  • Implement the same internal procedures in China similar to those at your HQ
  • Make copies of ID cards & counter check if those cards are not fake.
  • Check if the living addresses of your senior staff matches what is mentioned on their CV/ contracts.
  • Make sure you’ve copies of all vital documents of your Chinese entity.
  •  Handle the company stamps yourself & if not possible make sure you’ve a third independent party who can handle those. (e.g. an accounting firm, law firm that YOU appoint)
  • Better still have at least one staff of HQ permanently based in your Chinese entity. Might cost more, but at least this decision will not chop off a number of years of your life.
  • When operating in China, learn to think out of the box & try to keep at bay your biased cultural heritage.
  • Remember that Chinese staff our not worse than any other employee around the world, but give someone an open invitation to become creative and it will be taken.
  • Don’t feel sorry if you’ve been cheated, most probably the opportunity was created by you.
  • Enjoy China business. You’ll be surprised how rewarding it can be as long as you play it smart and not like a dumb new kid on the block.

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A couple of years ago a European paint manufacturer, (let’s call them Alfa Paint) set up shop in The Middle Kingdom. Although the company’s price was at least 70% higher than the local equivalent, customers still took notice. 

As Chinese home ownership was growing fast, business boomed. Smart Marketing strategies, specifically fine-tuned to the Chinese proud homeowners, created such a buzzzzz, that distributors and Do It Yourself chains were almost literally fighting to get the Alfa-Paint brand on their racks.

A text book Pull-Push effect was created in a matter of months.

Pots and cans filled with the colors of the rainbow flew off the production line.

Production couldn’t keep pace with demand. Soon more staff were hired and the production lines expanded. For the shareholders of Alfa Paint  the Chinese Miracle was real!

Admiring the success of the European brand, their Chinese counterparts got into the action too. One of them took a huge shortcut & decided that the best way to get a piece of the pie was to Copy Comform the packaging & brand while filling up the tins with a local brew of paint. Let’s call them Alfa Paynt

Since Alfa Paynt was only a local player, their products only got onto the shelfs in their home province. For their scale of operation they did a brisk business.paint bubble2 And with a discounted price of 50% compared to Alfa Paint, shops and distributors were happy to buy from Alfa Paynt.

But since Alfa Paint’s business was growing with leaps and bounds, their Fat Managers didn’t really care. The overseas shareholders, enboldened by the results were pushing them to take more market share, discover new venues to sell and make Alfa Paint an household name.

Basically there was no time to worry about Alfa Paynt & anyways it appeared to be a small player who didn’t have the financial arm to break into the whole market in a big way.cartoon Paint

Some Alfa Paint managers considered them an annoyance, others were openly proud that their brand was being copied, Alfa Paint R&D managers had tested Alfa Paynt’s product & was found inferior.

They knew that a time would come where customer complaints would grow and Suppliers would not want to deal with the copy cat product & go for the real Alfa Paint. Nobody in Alfa Paint even made the effort to find out who was distributing or manufacturing the Alfa Paynt….

The Alfa Paint factory was running with a staff of around 500 when new government regulations came into effect on the content of the paint’s ingredients & which ones would be blacklisted by the end of the year.

For Alfa Paint this wasn’t too much of a problem as those were also in line with the components used in Europe. Alfa Paint was ready to switch at a moment’s notice . The company, always having been a proud proponent of protecting the environment adjusted the production, months before the government’s deadline.

Alfa Paynt however wasn’t so fortunate or were ignorant of the new guidelines, or….. Anyways, they just continued what they’d been doing. Why change the winning formula ?

A couple of months into the new year, shit hit the fan. A spot check was done in a large DIY shop & samples of the cans labeled with Alfa Paint were taken to an independent AQSIQ laboratory for testing of product quality. AQSIQ = Administration of Quality Supervision, Inspection and Quarantine).

Within days Alfa Paint’s General Manager was informed that their product was not conform with the new regulations & the factory was requested to close down. At the same time all products taken from the racks (all over China !) and a country wide announcement was made that Alfa Paint’s products were harmful to humans. Sales stopped immediately. The China dream turned into a nightmare for the Shareholders.

Now 1 year later the factory is still closed as Alfa Paint has to proof that Alfa Paynt is the culprit. And 500 staff are still temporarily unemployed.

Lesson of the day: If you know your product is being copied, act as quickly as possible. Inform Chinese authorities of the situation. But don’t be complacent. Don’t waste precious time. Know what is going on in the market, because sales figures are only part of the equation.

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