Opening up shop in China totally different ball game

A mistake people make is planning for the future too much, paying for big premises when they only need a desk. You must have a physical address to register a business, and we started off small.

Quantec executive chairman John Birch Kong-registered holding company which would be the sole shareholder of its WFOE.

“That has a bunch of benefits,” said Birch. “Chinese nationals can be shareholders if we wish them to. It’s regulated under company laws not dissimilar to New Zealand’s. You can have majority board control of decision-making, instead of unanimous, and it’s quite widely accepted in China that Hong Kong companies will be the shareholders of woofies.”

The pair can offer a long list of do’s and don’ts for doing business in China, but acknowledge getting it right is probably easier for a nimble firm with empowered on-the-spot decision-makers than a big corporate sending middle managers there to do basics such as opening a bank account, which can be a challenge in itself.

They found a “solid” distributor for IDP whose territory was tier two and tier three cities, massive enough markets without trying to take on Beijing or Shanghai.

Good legal advice was essential, Birch said. An early sign a relationship is doomed is “they keep talking and the actual transaction never crystallises”.

“Unlike at home, the signing of a contract would appear to be just another phase in the negotiation.”

Claycomb said another essential is a translator who understand the nuances of Chinese communication, which doesn’t mean a Westerner who speaks Chinese. That person should understand the business well.

Birch: “A mistake people make is planning for the future too much, paying for big premises when they only need a desk. You must have a physical address to register a business, and we started off small.”

The pair say China’s business practices are every bit as sophisticated as New Zealand’s — they’re just very different.

They’ve been diligent about protecting Quantec’s science-backed IP.

“Trademarks is a minefield,” said Claycomb. “China is one of the only countries with a first-to-file rule instead of first-to-use.”

Beware also Chinese translation of your brand — from English — and the trademarking of that translation, he said.

Blending of brands was a real issue, said Birch.

“Chinese distributors will develop their own brand to describe the product . . . when the relationship ceases, they can market some other product using that brand. We’ve ensured we have control of any brand that goes on a product with our brand.”

Another business culture shock can be China’s way of pricing.

“Everything is top-down rather than cost-plus pricing,” said Claycomb. “They start with a retail price and everybody gets discounts. If you don’t manage that right you won’t have enough margin after all the discounting which is completely foreign to us but the Chinese distributor’s lifeblood.

“The math they do in their head continues to amaze me.”