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What need to know before start business in China?

We just published an interview with Deb Weidenhamer, CEO of Auction Systems, an 18-year-old auction company with $135 million in annual revenue . The company is headquartered in Phoenix, but Weidenhammer opened a branch in Shanghai two years ago. There, her auction business provides an easy route for Western manufacturers to export their goods, or to test market demand and understand pricing. In the following part of the interview, she talks about what it’s like to do business in China, why she spends 15 hours a week learning Mandarin, how she became “Sinicized,” and how it can help other businesses get started in China.

Q: Why did you go to China?

A: I went to China because I was looking for some other opportunities at the time, and the United States seemed to have no such opportunities.

Q: Your original idea was to set up a satellite office to replicate what you did in the United States, that is, to sell the goods that China already has to the Chinese?

Answer: Exactly. But it is selling new goods in China, not second-hand goods.

Q: Why not sell second-hand goods?

A: In China, it’s a huge shame to use second-hand goods, they throw away the used ones. Disposal is very common here. Also, corporate liquidation is humiliating. Just shut it down and maybe make a side agreement in private to get rid of some stuff.

Q: How hard is it to start a business in China?

A: This is a big project. In order to open an office, we had to obtain 18 different approval documents from 18 different government departments. Each document takes anywhere from 15 to 90 days. When we first started holding the auction, we thought that the biggest problem was finding a Chinese manufacturer we could cooperate with, thinking that it would take more time than finding a Chinese buyer. But the opposite is true. There are auction houses in China, and the auctions are mainly works of art, those delicate things in life. But China does not have an auction house for consumer goods. In 2011, our first year of business in China, we achieved US$500,000 at the time, and we expect to achieve US$4.5 million this year. Of this, perhaps 40% will come from selling Western goods to China.

Q: How did you market yourself, like letting American or Danish bicycle makers know that you can sell their products to China without having them go through government formalities?

A: We work with the U.S. Commercial Service, which is part of the Treasury Department, or brief state economic export councils, who communicate with manufacturers looking for export opportunities. We are doing the same with other countries. We’ll explain that auctions are an easy way for companies to test China’s demand for their products without breaking the bank. For a company, considering exporting to China on its own, and finding a suitable distributor may require an investment of more than two hundred thousand dollars. This has discouraged many companies.

Q: Are you exposed to social media in China?

A: All social networks are managed internally by the company. In China, social media is a challenge, and being a trend-setter is not the norm. While most consumers try hard to make others think they are cool, it’s hard to get them to be the first fans on Weibo or WeChat. Because if a company goes out of business, or has a bad reputation for customer service, early followers will worry that the situation will affect them badly. In addition, many Chinese and Western companies pay to buy fans, so new fans feel like they are among a group of forward-thinking social media players, but spending money on product information and advertising can be overwhelming for Chinese consumers. Central to the success of a social media strategy in China is connecting with fans through other topics than the business at hand, which is also in line with the traditional Chinese custom of nurturing relationships rather than just selling to customers. A cute photo of a puppy, for example, leads to thousands of comments, often wrapping around conversations about auctions.

Q: When you came to China, did you speak Mandarin?

Answer: No. I spend 15 hours a week studying Mandarin very seriously. I hired a teacher, who was actually in Canada, to study via Skype. I’m very involved, but it’s a very challenging language. I certainly cannot say that my Mandarin has reached a fluent level. When I do auctions, I have a staff member who is fluent in Mandarin stand on stage with me and read product descriptions aloud. I can speak numbers in Mandarin and I can switch between Chinese and English. It’s very similar to when we auction things in the American Southwest, where we’d be switching back and forth between English and Spanish like this.

Q: Is learning Chinese important for doing business in China?

A: I think the Chinese have an expectation that if you are a dedicated person, if you care about doing business in China, then you will make unremitting efforts to learn Mandarin.

Q: Can a basic understanding of language help you avoid the kinds of mistakes we often hear about?

A: Westerners tend to have such bad experiences because they don’t understand what kind of business is considered a good business in China. When Westerners negotiate, they will hold a win-win mentality. Of course, I’d like to win a little more than your side, but we’ll try to make it a little bit more for both buyers and sellers. The Chinese view a successful negotiation in terms of one side losing and the other winning. Obviously, they hope they can win.

Q: How difficult is this negotiation? How tough are you in dealing with this kind of negotiation?

A: The point is not that the two sides are fair, but that you have to be clear about what kind of result you can accept. If you can’t get such a result, you are willing or even willing to give up the negotiation. I think, you have to change the way of thinking. We call this “sinicization”, and it basically means, think like a Chinese businessman as much as possible and don’t take it for granted. For example, in China, signing a contract often just means the start of negotiations, which has almost become a rule.

Q: In the US it’s the exact opposite.

answer. We’re just getting used to this. So, we will no longer be frustrated by such a process. This is “Sinicization”.

Q: How much time do you spend in China now?

A: About half the time. About 20 weeks a year.

Q: As I recall, you built this company to stay in Phoenix with your husband. How is the situation now?

A: Yeah, it’s kind of ironic to say that. I have to make a confession, I didn’t expect to be in China for so long. But with so many opportunities here, it’s hard not to stay here.



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