Braving the beast to do business on the mainland
Lunar New Year is a time for lai see, feasts, mahjong and amusing stories.
Here are a couple of recent tales from friends competing in the ever-growing mainland retail market that no serious corporate dare ignore. Both are about clothing brands that most women have heard of and women like me cannot afford.
It's not hard to imagine the headaches businesses face when setting out to cash in on the mainland's nouveau riche who flock to shops in Shanghai and Beijing.
That's why 'Corporate A' spent a fortune on research, networking and consultants to ensure a smooth launch of its first mainland store.
Gaining a business licence is essential and one of the main items in the application is the business description which, for those in the retail industry, means listing everything you are going to sell.
On the advice of the consultancy, Corporate A drew up a meticulous list - skirts, dresses, evening gowns, blouses, shirts, jackets, blazers, shorts, trousers, briefs, bras, belts, bags, purses, bracelets, necklaces, rings, earrings ... the description went on and on for pages.
Then one day an official arrived to do a routine check. He browsed through the shop and stopped at a counter where accessories were on display. Pointing to a sparkly leather piece, he asked: 'What is that?'
'It's a belt,' answered the shop manager.
'That's not covered by your licence,' said the official.
'Sir, there must be some misunderstanding. Our licence does cover the sale of belts,' argued the manager.
The official then pointed to a piece of jewellery on the belt and asked: 'What is that?'
'It's coral,' said the manager.
'Your licence does not cover the sale of sea creatures,' the official solemnly announced.
The belt was confiscated and the company was given a warning. Nobody knows where the belt ended up and the manager does not know how to get it back. All she knows is that the designer piece could easily be sold for thousands of yuan online.
'Corporate B' had the advantage of learning from Corporate A's experience. The business description list it provided for the licence application filled a box file. But it experienced headaches nonetheless.
Luxury shops are renowned for not only their top-of-the-range items but also their service. Elegant and well-trained sales staff are part of the brand. That's why they handpick staff with the right looks and manner; educate them about service and products, and secure their loyalty as well as performance with pride and pay.
That's what Corporate B had been doing around the world. That would be the case on the mainland, they assumed. But they were wrong.
Instead, they were told they would have to accept staff chosen by so-called foreign enterprise human resources companies. 'Ask for a new one if you are not happy with this one,' they were told.
This situation has arisen because the mainland adopted a labour law in January 2008 that has tilted the balance of power from employers to employees, providing the latter with greater job security.
Add to this the lack of loyalty and high turnover rate in the mainland job market and hiring dozens of sales staff this way can result in a nightmare of endless legal wrangles. 'Trust us, that's something you never want to get into,' said Corporate B's foreign consultant. If you 'outsource' the human resources department, you are no longer the employer, it warned.
However, after much wrangling over the employment culture, Corporate B gave in. The sales girls arrived, the shop was opened and the money flooded in.
But as sales went up, so too did the complaints. Sales girls in signature custom wear were seen around the corner from the shop, gossiping, squabbling and smoking.
'To us, that is an insult,' complained one diehard customer.
Warnings were made, but the complaints continued. Girls were sent away and a new batch arrived, but still the complaints continued.
To these stories, I'd like to add an old tale from a former chairman of Tsingtao Brewery.
Years ago, when the brewery began its expansion drive, it bought some factories at dirt cheap prices. One of them was the producer of a local brand Xiongji (rooster) beer in Shanxi.
Tsingtao's management expected this to be a simple job because the acquisition was in line with central government policy; the factory was in dire financial straits and the purchase would save a thousand jobs. But it wasn't that easy.
The team sent there was not able to secure any official documents, be it the business registration, or water and electricity bills. Production ground to a halt.
The chairman then had a lengthy meeting with the local authority. A week later, a van full of officials arrived with the much-needed official stamps. Production soon resumed. What magic did the chairman conjure up? 'I switched the brand back to Xiongji from Tsingtao,' he said.
This is the reality of the mainland retail market behind the mouth-watering numbers. It's about a confusing system, poor rule of law, choking regional protectionism and different work ethics.
In the coming Five Year Plan - the blueprint of China's economic development between 2012 and 2017 - Beijing is to address some of these issues in an attempt to boost its internal market to correct the country's over-reliance on exports.
Yet, none of these problems has a quick fix. To steer through this jungle, multinationals continue to rely on expensive consultants while local corporates use guanxi (favours to friends and family) and bribes.
To small and medium overseas enterprises, such resources are beyond reach. Local intelligence and resources provide the only assistance. So, how do the Hong Kong authorities help out? The answer has not been encouraging. Let's discuss that in the columns to come.