Each week, we seek out expert advice to help a small or medium-sized company overcome a key issue .
At the February, 2012, Canada-China Business Forum held in Beijing, Clevest Solutions Inc. signed a $6-million working agreement with a Chinese company that has major contracts to build solar-power infrastructure in China. The deal would see Richmond, B.C.-based Clevest supply its new partner with mobile work-force management software.
Bearing witness to the public ceremony was Prime Minister Stephen Harper, who posed for a photo with Clevest president, chief executive officer and chairman Thomas Ligocki.
A fast-growing business with about 120 employees, Clevest caters exclusively to the utilities industry. Its software products include a suite of operations and management services for so-called smart grids, which gather meter and other information electronically.
Clevest, whose revenues will approach $20-million this year, according to Mr. Ligocki, serves more than 125 customers globally. Since winning its first client in China in 2007, it has signed a total of five deals there, two with the state-owned enterprises that run the country's power industry and three with private companies that serve those utilities.
Mr. Ligocki sees big upside in China, where Clevest is also looking to sell its automatic vehicle-location software, which uses GPS information to track and manage a utility's vehicle fleet.
"The smart grid market is one where the Chinese are looking to make a lot more investment and see a lot more growth," Mr. Ligocki says. "We think that, over the next five to seven years, it's easily a half-a-billion-dollar opportunity just for our software alone."
To keep growing its business in China, Clevest wants to build the strongest possible ties with the country's state-owned utilities. But cultural differences may pose a challenge for the relatively small company.
Having already made about 15 trips to China, Mr. Ligocki has found that state-owned enterprises (SOEs) expect regular visits from top executives. But his busy travel schedule doesn't allow the frequency with which they might like to keep seeing him. He also can't count on future appearances by high-ranking Canadian politicians such as Mr. Harper.
"They want to talk to the ultimate decision-maker," Mr. Ligocki says. "It's not just about establishing a relationship and walking away. It's this constant challenge of they want to see you on a fairly frequent basis to make sure that they are top of mind for our company."
So far, Clevest has decided against opening a Chinese location. "We are a software developer, so a lot of what we do is contained on computer, rather than needing the physical space for manufacturing or meetings," Mr. Ligocki says. Clevest does have employees working in China, and staff from its Canadian headquarters often visit.
Mr. Ligocki would like more transparency from Chinese SOEs when it comes to decision-making, and his company is also wary of others imitating its software.
"How do we make sure that we are a trusted source, so from the Chinese government's perspective, they can trust us?" he asks. "And from our perspective, [how do we make sure] that there are barriers to being displaced after they learn more about the intellectual property that we have to offer?"
The Challenge: How can Clevest build stronger, and comfortable, relations with Chinese state-owned enterprises?
THE EXPERTS WEIGH IN
Stanley Chao, managing director, All In Consulting, Rancho Palos Verdes, Calif.; author of Selling to China: A Guide to Doing Business in China for Small- and Medium-Sized Companies
First, have one person handle China. That person should speak Chinese, that person should understand the culture, and, most important, that person should have worked in China for the past five to 10 years.
Second, have a local office in China with a local representative. They can have more face-to-face time with the customer, they can invoice in Chinese, and they can get paid locally. That's very important for state-owned companies. They want to pay locally; they want to get invoiced locally.
Have a Chinese company name. Translate Clevest into Chinese. Clevest is very difficult to pronounce for Chinese. … Give yourself a Chinese name with Chinese characters...
When you visit the customer, say, "Hey, I want to bring an engineer along. I want to give you a seminar on what's happening in this technology and what our other customers are doing around the world." Be seen as the leader in the technology.
Don't be so pushy about sales. Don't be aggressive about when are they going to buy. Working with Chinese SOEs is going to take a lot of time. … Money is less important for SOEs. To rationalize why they're working with you, with their bosses, with the other ministries, they have to show that you are the best in that technology.
The decision-making process is not like with U.S. companies, where there's one CEO and the CEO says yes or no. It's a majority decision-making process where that state-owned enterprise will go to the local mayor and get some sort of confirmation. That mayor may then talk to someone at the provincial level. That someone at the provincial level may talk to someone in Beijing at the ministry level. So you want to get hooked up to as many people as possible, not just people in the state-owned enterprise.
Chris Griffiths, director, Fine Tune Consulting, Toronto
The fact that he's working with government-owned operations is not a bad thing as far as how the businesses conduct themselves, both with regard to general business practices as well as paying respect to intellectual property ownership. Government utilities in China have a tendency to perform above-board on a more regular basis than a private entity, which may be able to slip off into the night if they're caught not playing by the rules.
The more face-to-face interactions that you can have, the more solid that relationship becomes. And, like any vendor, in spite of the fact that we have great access to technology these days, like video-conferencing and otherwise, I'm in China six or seven times a year because there's nothing more productive and valuable than face-to-face time with the people that you're doing business with.
If he can't formally protect his intellectual property through patents in China, then his best [move] is to make it so easy for those utilities do to business with him that they wouldn't dare bother considering re-creating the technology because it's just too much work and they need to focus on their core business. If it's patentable, then I'd highly recommend achieving a patent in China. It's typically the same or less cost as doing the same in North America.
Having an office [in China] is very expensive. So depending on where the company is at this stage, to have an office in China someone needs to budget somewhere between half a million and three-quarters of a million [dollars] for the first employee from Canada. That's one option. But then sending an employee from Canada to China and having one or two employees has really limited impact because the learning curve is so high.
My personal advice for these occasions is that you really need to find a partner in China. Many legal firms have moved toward saying that wholly owned foreign enterprises, so-called WOFEs, are the way to go. Well, that's the way to go for the large companies because they have the resources and have built up experience in how to manage that.
For a smaller company, having a partner is a potential headache and risk. But not having the resources of a very large company that can run on their own and not understanding all the local regulations and relationships is really also extremely risky. … Finding a reliable and competent partner reduces the risk.
THREE THINGS THE COMPANY COULD DO NOW
Act like a local business
Hire a single point person who has plenty of experience in China and speaks the language, open a Chinese office and take a Chinese company name.
Make lots of connections up the line
Engage officials not just in the state-owed enterprises but at all levels of government.
Consider Chinese patents
If the technology is patentable, take the steps to protect intellectual property.
Special to The Globe and Mail
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