When Jim Hill was surveying one of numerous industrial zones in China for a client, the road came to an abrupt end beneath him. One minute, he and a driver were traversing a concrete byway, and the next, the beaten path gave way to the natural landscape. Though the former marathon runner was used to treading over surfaces of all sorts, this deviation left him unnerved.
“Driver, is this OK?” he asked nervously, and the navigator offered his assurances until they arrived at their destination just a few miles later.
Since that time, Jim Hill has grown much more comfortable traveling across any expanse while establishing Benesch, Friedlander, Coplan & Aronoff LLP’s foreign presence in Asia. As partner and executive chairman of the Cleveland-based business law firm, he’s had to adapt while following clients who are looking to tap into the expanding market overseas.
But after founding a Shanghai office for Benesch and helping a number of other companies do the same, Hill warns that the thriving Chinese economy does not necessarily translate into a guarantee of success for every business.
“What people come to find is that there will always be an expanding economy in China,” he says. “But it’s not the answer for everything.”
At Benesch, the four-attorney Shanghai office is certainly not the sole contributor of corporate growth, but it has emerged as one of the answers to that question of success. The firm’s annual revenue in 2005 — the same year the group applied for its Chinese legal license — was $46 million. Two years and a number of contacts and clients later, revenue jumped to $61 million.
To determine whether or not overseas expansion might produce such results for your company, Hill says to practice due diligence on the front end. By assembling a group of advisers, assessing the opportunity and setting your itinerary before you even buy a plane ticket, the experience should go much more smoothly — even if the road suddenly ends beneath you.
Before Benesch had established its presence abroad, Hill watched as some clients embarked on a hasty junket to familiarize themselves with China and vet the possibility of their own expansion.
“They looked at some factories, they talked to some people who could potentially distribute their product, they came back, and they didn’t have any idea what to do,” he says. “They were doing it in a very ad hoc way.”
Those clients’ experiences are by no means the exception. The decision to expand into foreign territory is, well, foreign territory for a lot of companies. It’s not something you can simply read up on or assign an internal task force to accomplish. If you’re serious about finding success in China’s relationship-driven culture, you need to tap into the expertise of experienced business leaders who have already been there.
Or, as Hill puts it: “Before you even think about it, you’ve got to assemble a team of advisers.”
Finding savvy guides can certainly be challenging, so start simple. Talk to those around you and ask for their advice.
“You should be talking to people you know in the business community who have a presence in China,” Hill says. “You should find out from them how they’ve gone about doing this.”
You don’t necessarily have to seek guidance from leaders at very similar businesses. Your competitors might be hesitant to share their experiences, after all. Instead, look to complementary industries for advice. Ask your vendors, peers and trusted confidants. Your golf partners may not have expanded their companies abroad, but they may be able to point you toward someone who has.
If your initial queries have all come back cold, Hill suggests looking toward investment firms for advice.
“There are several groups in this country — private equity groups are one classification — that specialize in investing in companies either here or in China,” Hill says. “If I were going to (expand) tomorrow, and I knew nothing about it whatsoever, (I would) talk to those companies and find out who they’ve used as advisers. Some of them may be very high-end, and you may not want to use their advisers, but they can lead you to other advisers as kind of a trail.”
Hill says no matter where you look, don’t rely on self-proclaimed experts.
“Don’t get on the Internet and start looking at people who claim that they’re experts on sourcing or manufacturing or who claim that they have a great relationship with the mayor of this industrial zone,” he says. “The likelihood of that being accurate is probably not that great.”
Your adviser team shouldn’t just comprise outside counsel either. As with any initiative, you need internal support, as well. Look for enthusiastic employees who have a genuine interest in the opportunity.
“It requires a serious commitment,” Hill says, adding that if he were to evaluate the firm’s 300 employees for consideration today, he would seek people who were passionate, committed and who he could allow to spend the time to get the project done right.
Whoever you choose, he says to just make sure that they want to be included in the first place.
“You can’t force people to do stuff,” Hill says. “Anytime you want somebody to start a business initiative, and you pick somebody to lead the initiative who’s not passionate about it, it’s a recipe for failure.”
Assess the opportunity
Hill remembers reading news magazines that touted China as an inevitable stop on the journey toward economic vitality.
“People were saying, ‘Everybody’s going to go over to China,’” he says.
That was five years ago.
Today, while Hill says those predictions weren’t flat-out wrong, he says they weren’t completely true either. The argument for overseas expansion cannot be made based on generalities and must instead be assessed on a case-by-case basis.
If your case in the debate rests solely on labor, for example, then Hill says to save your breath.
“If you’re thinking about going into China as a business, and the only reason you’re going over there is because you think it’s less expensive labor, that’s a mistake,” he says.
While foreign labor is relatively inexpensive when compared domestically, a number of logistical problems have arisen — lack of shipping containers, bottlenecked seaports, to name a few — that can more than offset the savings you’d reap from cheaper wages.
Instead of focusing on labor, Hill points to a number of other areas in which you and your team of advisers should concentrate assessment.
“First of all, part of it’s driven by your competition,” he says. “You should say, ‘What is my competition doing?’”
Hill says that while strategic planning should never be confined within the footprints of your competitors, the movement of that executive down the street is typically a good indicator of the feasibility of expansion abroad.
Once you survey your neighbors, Hill says to look internally and evaluate whether or not you can sell to the overseas market yourself.
“China’s a huge market,” he says. “With approximately 1.3 billion consumers, there’s a lot of potential market share to go around if you’re offering a product or service of value.”
In some cases, selling to the market simply means following your existing customers into that market. The executive team at Benesch, for example, didn’t establish an office in Shanghai just for the sake of establishing a foreign office. It did so only after observing the expansion of a number of clients in the late ’80s and early ’90s.
Ignore such movement, and Hill says you’re going to be met with an uncomfortable ultimatum from your customer base: “You’re either going to come over here, or we’re going to use somebody over here.”
Hill says the key to avoiding this quandary is communication. Keep track of your clients and partners. If they’ve made plans to expand abroad or if they’re simply talking about it, odds are you’re going to want to explore the option, as well.
Ultimately, though, the decision to establish a presence overseas may come down to dollars and cents.
“Can you drive down the cost?” Hill says. “You have to look at your own needs to supply your customer, where your customer is and how quickly you have to supply them. Can you do some manufacturing in China and ship it back here and assemble it? Is it something you can ship on the water? Is it something that you’re shipping air? All those things are a consideration.”
Establish an itinerary
Don’t let reports of frenetic wheelings and dealings in the Asian market fool you. When you cross the Atlantic, Hill says things have a way of slowing down. Meetings suddenly last twice as long. A 30-minute commute suddenly takes an hour or an hour and an half or two hours. And lunch suddenly becomes an all-afternoon affair.
Whatever the reasons for this deceleration in the time continuum — Hill cites cultural custom and overwhelmed infrastructure — the important thing is to plan accordingly. With so little time to spare, it’s imperative to devise your schedule before you even buy your plane ticket.
“You need to really be organized in your thought process before you go over there,” Hill says. “You need to have sat with your advisers and a team in your own business and have thought about what you’re trying to accomplish, who you should be meeting with, what meetings you need to set up in advance.”
If you run a law firm, for example, and are looking to establish a beachhead office, set up meetings with leaders of similarly sized firms in China to discuss options in various regions. If you’re looking to build a factory, review logistics before deciding what industrial zones to tour.
“What’s the highway system like?” Hill says. “What’s the rail system like? What incentives can the local industrial give you if you build in their industrial zone?”
Obviously, such planning doesn’t guarantee definitive results. You may have eight meetings with contacts in numerous office buildings in Shanghai, only to find that your business is better suited for the political climate in Beijing.
The point is, have a solid plan ahead of time.
“Never go over there on an ad hoc basis,” Hill says. “That’s a huge mistake. You should do some of that homework first.”
In a similar vein, you can’t expect to get everything done in your first trip.
“This isn’t just one quick trip,” he says. “It’s not seven days and you’re coming back.”
Overseas expansion is a long and tedious affair. The process isn’t about finding the quick solution. It’s about finding the best solution. If you practice due diligence on the front end and ask for directions before you begin the journey, you should be able to avoid a lot of the obstacles along the way.
“When people are over there and come back and say, ‘I don’t know where to get started,’ the fact is that they should have had a better road map before they went over there of what they wanted to get done,” Hill says. “That’s a matter of meeting with people who are very experienced in doing business in China and doing that work, so when you go over there, your time is very well spent.”
HOW TO REACH: Benesch, Friedlander, Coplan & Aronoff LLP, (216) 363-4500 or www.bfca.com