Dogs and Lawyers Not Allowed
June 20th, 2008 | by This is China! |I recently had a conversation with a Chinese friend about why Chinese don’t use consultants and lawyers, especially in areas such as market research or company set-up. Her thought was that the average Chinese business person didn’t know how to use consultants and lawyers. My point was that the average Chinese business person didn’t think he needed consultants and lawyers, a perception compounded by the fact that consultants and lawyers tend to cost more than Chinese companies are willing to pay (that is, they’re willing to pay ZERO).
I insisted that Chinese drive their business plans through geography and guanxi – special relationships of mutual obligation; especially those just starting out – and most especially those in smaller cities and/or who are in the interior of China. Geographically, Chinese are still limited to the economies of scale their local town has carved for itself. Hence, you have in China the Plastics Capital Cixi (Zhejiang Province), the Furniture Capital Dongguan (Guangdong Province), and the toilet bowl capital Xiamen (Fujian Province). Historically, a lack of infrastructure that eases commerce between cities and that strengthens supply chains forced Chinese cities to become centers of specialty manufactures, much like Detroit and the automobile industry.
Further, a lack of capital and a plethora of relationships – friends and family – makes developing a cottage business easier: why go out and hire someone to tell you what in China to manufacture and where to manufacture it when your hometown is already making a name for itself in an industry flooded with capital and your Uncle Zhang is already in the business. Add to this the Chinese propensity for families to combine individual contributions into sizable investment bases and one effectively eliminates the need at the start-up level for a multitude of Western-style institutions: consultants, lawyers and banks. Besides which, institutions in China have never historically done much to help out the little guy in China.
I did suggest to my friend, though, that in China the larger privately owned companies like a Lenovo and a Haier do use outside professional help in their quest to develop and be accepted as international brands. Even State Owned Enterprises (SOEs) that wanted to professionalize their business practices used outsiders to transform the way they do business.
And now that Chinese businesses are developing products and content of their own, they are much more prone than in the past to sue other Chinese parties. Enter the lawyers.
My friend was not totally convinced by my argument, holding the line that ultimately, Chinese businesses were just cheap and preferred to do things themselves their way. The Chinese Way.
4 Responses to “Dogs and Lawyers Not Allowed”
By Allroads on Jun 21, 2008 | Reply
Bill -
This is a conversation I had a lot when I was first starting in Shanghai while selling consulting valuation services to Chinese & Foreign firms.
Outside of the hurdles you present, I also think that the concept of face plays a large part in this - and doubly so if you are selling to an entrepreneur
The thesis is simple.
How in the world is an outsider going to come into my company and tell me what is wrong with it, and how to go about fixing the problems? more importantly, what will people think of me and my abilities?
For the part of my former company, we were very successful in this area actually, but it wasn’t because people wanted us there. It was because they had to have our reports before they could IPO in HK (Section 5)
Without that, we would have failed to exist, and I know of several large firms who would fail were it not for their foreign clients subsidizing the losses
Hope all is well
r
By This is China! on Jun 23, 2008 | Reply
Rich;
You’re point is very well taken. How, I can see a Chinese businessman saying, in the world is a foreign firm going to know more about doing business in China than a Chinese? I think it’s the objectivity part that local businesses miss out on; that and, as you say, the loss of face from the perception that the local businessman doesn’t know his own business. Hence, the local businessman’s prediliction for grasping at any deal that comes his way as a primary means of developing his enterprise. Nothing logical about the approach, objective about the planning or the marketplace; might as well go to Macau with the investment capital!
By the tank man on Jun 24, 2008 | Reply
Thank God, Bill. You don’t have to worry
about that.You are not selling anything to Chinese companies or entrepreneurs anyway.
But that’s really the case in China now.When Chinese people are about to take the risk of running a private business here in this country, they are either some big shot’s cousin or concubine ,which means they are enjoying lots of privileges or simply they have been very experienced and sophisticated
in the industry they are operating the business in. they don’t quite care much about
experts like you and Rich’s ideas. at the same time, for people like me what are dreaming of getting rich overnight would flock to any business which we think are profitable but needs low direct private investment, would never think of consulting people like you .We think you guys must charge pretty high!
By Beefeater on Jul 1, 2008 | Reply
I think your friend and you are both onto something. Corporate / commercial lawyers add value two ways: they protect their client from risk by making sure that contracts say what they ought to (and negotiating this with counterparties), and they contribute the practical business understanding that comes from doing many deals in a given sector (I’d include expert advice such as tax advice broadly within this second heading).
Before a client can benefit from these he needs to believe (i)that his written contract is the final record of the transaction and offers him the best way out if something goes wrong; and (ii) that it’s worth hiring an expert to tell him how other people in the same line of business as him do things.
Most Chinese entrepreneurs don’t accept these propositions, so they don’t see the point of lawyers. Plus, lawyers cost money, and as you said, that’s something that makes the average successful PRC entrepreneur come out in a cold sweat.