Success in China For Less: Don't Rent Office Space in Beijing

TCBN: Dr. Tim Weckesser is President of Sino Consulting, a firm that represents US capital equipment and specialty components for industrial applications to Chinese customers. Over the years, he has worked with such companies as Kodak, Alcatel, Unisys, Teleflex, and Rockwell as they developed a customer base in the PRC. 

So Tim, I want to see if you can offer advice for companies still in US not penetrating in China market yet. They’re trying to ask themselves “Am I ready to support doing business in that market?” For the type of companies that you work with in capital equipment side, what do you find to be the key points of readiness for clients to be sure they can hit the market correctly?

WECKESSER: Right, that’s actually a really good question, and over the years we’ve developed criteria that we look for in companies. First of all, the company has to have a product that’s fairly well differentiated in the market. If a company has a product that is something more on the commodity end, rather than the highly differentiated end, it’s, frankly, going to have a hard time in China. 20 years ago – no, you could sell anything in China. You can’t do it anymore. 

What we look for in capital equipment niche products that have a fairly defined competitive universe that is maybe half a dozen companies. They’re are making something that is highly engineered or difficult to make, that China is either not yet making or doesn’t make in sufficient quantity. 

China is a high tech market now. It’s not 20 years ago, even 10 years ago, you could sell a lot of stuff you can’t sell today. What we do with clients that is once we believe there’s a market there and start to sell products we continue monitor the market and monitor domestic producers to see how close they’re getting in competition. 

TCBN: Let’s talk about that, the need for added value in differentiation. Even if you’re not a commodity product, there are good companies around the world. Everybody’s fighting for a piece of China market consumption, if you will. There’s still that challenge of making call to customer and stand out, get the time of day, get their share of mind. Can the product stand on its own or is it something people have to understand: the timing and the cycle it takes to get a sale completed in China?

WECKESSER: We normally think it’s going to take a year to get a very, very nice product. There are promotional things you can do. There are a couple of standard in China. One is what’s called the showcase. If you’re new to the market you need to find a potential buyer that would be interested that you would solve a problem for. Provide the product basically at cost and help them get it up and operating so that you provide quota as showcase other companies can see in China. This is a very common strategy, and it’s widely accepted and sort of liked in China. Other Chinese companies will look at that showcase, and you go to tradeshows and say already have an installation in X. You can also advertise in the trade magazines, which is quite inexpensive to do, compared to the United States.

And at the same time, you have to be selling something that’s good. You have to have a quality product that solves a problem for the Chinese. And then you can get it done.

TCBN: Tim, I wanted to know, from your perspective, what companies don’t expect they need to be ready for, in terms of resources, to support the China market, that you find you’re continually have to give advice and counsel on so they can support market correctly?

WECKESSER: You really have to support the market in the same way you’d support it here. Whatever you have in place here you need to have in place in China. Or some reasonable way to respond to after sales problems, services, first installation, and then after sales maintenance or service if needed. If you don’t have that capability, the capability in place somehow – it can be contractual. You don’t have to have your own outfit there. You can contract it to engineering firm, or whatever, as long as they’re well trained and they know what they’re doing. You have to have the capability somewhere available.

TCBN: In terms of physical presence for company, if a market grows to a point where they feel they want to have their own staff on the ground, if you will, there’s a choice to be made about location. A lot of people read mostly articles about Shanghai, Hong Kong, Beijing, but that isn’t necessarily isn’t where you need to base yourself for business or in supportive business. I know you have direct experience with your own firm about being in alternative cities both in terms of cost and quality of staff. I wonder if you could offer some advice about that to people considering establishing a presence in China.

WECKESSER: Yeah, that’s a big, big question. If you need to be in the supply chain, then you need to be located where those are available. If you need to be right next to your customers then that often will determine where you are. We generally would advise companies - little market companies especially, I’m talking about - against setting up a manufacturing operation or processing operation in a city like Shanghai or Beijing. The costs are too high, turnover of staff is very high, expenses for staff is much higher than elsewhere. 

So we generally look for areas, if you felt you had to be in middle China around Shanghai, then we would look in the circle from Ningbo in the south up through Hangzhou, Suzhou, Wuxi, Changzhou, Nanjing – up in that area. All highly, highly developed, and there even can be problems there with hiring and retaining people. That’s a problem you’re going to face anywhere in China. 

We actually have an office; we’re a little bit different. We have an office way out in Shandong province, in Weihai. It’s a beautiful resort town actually. The reason we’re doing that - we’ve had it for years, we’ve got a full staff there, and it’s extremely stable. Devoted staff, very strong skilled staff. The reason we can do that is because that this staff is almost never there. They’re there only to process papers. We only have one or two people in the office that process orders and so on. Everybody else is out on the road. People do not come to us, we go to them. Now, would it be different if we were in Beijing? Probably. There would be a difference, because we could then invite people to our offices when they were in town. They’re in town more often. There’d be more interaction. But we’ve not done it and we have done extremely well with that strategy. So far so good! 

Summary: if you don’t have to be in Beijing or Shanghai, to me, you should try to avoid it. You should try to look for some of the lesser known cities or some of the inland cities. There’s a great deal of incentives for growing inland as the government’s trying to push development inland. There’s good reasons to take a look there. Our base, one of our big business in Tianjin, which is the port city for Beijing, there’s huge development going on there, as you know Michael, it’s going to be the next Pudong, called the binhaiqu area there. But you know, Tianjin is the size of New York City, and I would bet you most Americans never heard of it! The pay levels and pay grade there are significantly lower than Beijing or Shanghai, and they’ve got a hundred higher educational institutions. It’s first class. The turnover’s much lower, and so on. That’s an example of a coastal city still with lots of development left, and there’s more examples.

TCBN: Appreciate having time to day to speak with us about your experiences and opinions on the China market, Tim.

WECKESSSER: My pleasure, Michael, any time. Really appreciate it.

TCBN: Thanks very much.




Dr. Weckesser co-founded SCI in 1988 and has overseen SCI's development into an internationally recognized consulting firm providing strategic market entry services to companies. The company has completed over 400 assignments for some 100 clients, and Dr. Weckesser was recently awarded Tianjin's 2003 Haihe River Prize for his long term contributions to Tianjin's development. He was also recently appointed as Economic Consultant to the Tianjin Free Trade Zone and Tianjin Airport Industrial Park. See more at http://www.s-c-i.com.