Is it non-news, bad news, or the apocalypse?

Somewhere between denial and panic lies the middle course to good crisis management. International managers in China need to keep their wits about them, because there’s a good chance that everyone else might be a tad skittish these days. That includes clients, competitors and employees.

Smart managers will be very calm, very reassuring, and VERY QUIET. This is no time for foolish chatter.

Job #1 is to fight off the urge to panic or make sudden moves. This may be the end of the world, or it may be nothing. The odds are that it’s something in between.

Next – reassure your people. Just because YOU know enough to take this mornings’ economic news in stride doesn’t mean that your team does. The last time the Chinese stock market took a hit like this was when Deng died. Some of your co-workers and staff have lost money – and maybe their families have as well. Step up and be a leader. Tell them that they still have jobs and that the company is secure and that you are all in this together. Even if they don’t ask you, they all suspect that ex-pats are going to leave when things get tough in China. Guard your words and remember that many of the people you work with have never known anything but economic boom. Your organization needs you to be a rock right now.

Develop a strategy. You probably don’t have much exposure to the domestic stock market, but lot’s of people you know and work with do. That includes clients and buyers. There’s a good chance they feel a little poorer today than they did yesterday. If the market keeps going down, their ability to place orders and pay debts may be affected. This is a good time to QUIETLY examine your accounts receivable and pay a little more attention to incoming orders. This definitely isn’t a good time to get lax about granting liberal credit terms to new or risky clients.

Look for signs. As of 8:00 AM on Tues., Feb 28 the underlying causes of yesterday’s stock market behavior were still less than 100% clear. If it’s simply a technical correction in the domestic Chinese market, then you probably don’t have much to worry about. If the US economy is really performing poorly and a recession is coming, then that is a much more significant problem. In the coming days and weeks we will all be trying to figure out what the ramifications on our business will be. Review your basic business model, and try to come up with sensible options for the whole range of economic scenarios.

Keep channels of communication open. Hopefully, everything will be just rosy by the close of business today and we’ll just laugh off our moment or two of panic and nervousness. But just in case this is the start of tough times, you need to manage the situation carefully. Remember all of those lessons and case studies in “crisis management” you’ve looked at. Talk to your team to let them know you plan on staying in town and keeping the doors open. Be steady, be up-beat and be honest. The worst thing you can do right now is to spread panic among your own people.

Look for a silver lining. If bad times are coming, they will hit everyone – including clients, staff and competitors. During tough times, new opportunities arise just as others disappear. Just because the environment changes doesn’t mean you can’t prosper. Read this article on managing during tough times. (http://www.diligencechina.com/blog/?p=136)

If you aren’t paying your China sales people some form of performance-based compensation, you are going to find it increasingly difficult to attract and retain the best people. Straight commission is one of the most effective pay-for-performance plans, but many ex-pat managers are reluctant to start one – or have been having disappointing results with the plan they have.

There are alternatives…

The underlying concept that makes commission and other performance-based pay plans so powerful is that you are harnessing your team’s basic instincts to motivate them to do what you want. They work as well in China as anywhere else – but you have to structure them properly.

Pay for the performance you want.

That’s the basic requirement of any performance-based plan. You have to identify the specific behaviors you want to encourage, and sometimes this can be trickier than you think it should be. Some firms need repeat business; others want to attract new customers. Do you want to emphasize a new product line or a high-profit service? If you pay a blanket percentage on ALL sales revenue, there is a good chance that your team will focus all its energy on the easiest sale. Try varying the compensation plan to encourage SPECIFIC types of performance and sales.

First-Renmenbi Plans – Right for you?

Most commission plans are triggered by the first rmb of sales – but that doesn’t have to be your only option. I recently worked with an MD of a famous brand who complained that his sales team was lazy and unresponsive in spite of their high monthly commission checks. It turned out that a lot of business was “walking in the door” because of the brand’s well-known name, and the team was simply writing orders and servicing client needs. Possible solutions were to separate ‘house accounts’ from the regular pool of commission-qualifying business, or to exclude repeat business from commissions – but both of these plans would have undesirable side effects (namely – poor service for the most profitable clients!). Instead, we recommended a ‘hurdle rate’ for commission qualifying accounts. The firs rmb 150,000 in monthly sales were low-commission, while anything above that was rewarded at a higher rate. This effectively solved the problem, since salesmen worked hard to secure bigger overall sales and didn’t neglect regular accounts.

Pay for loyalty.

Who says you can’t buy loyalty? Sales managers do it all the time. Simply raise the commission rate over time. 2% for the first year your salesman is working at your firm, 3% for year 2 and 3.5% after that. You’ll make the numbers work for your situation, but you can see how this type of program will help to retain key sales people in the long term. Since that’s a big issue in China right now, it’s worth examining to see if you can make this kind of plan work for you.

Tie compensation to management involvement.

Your problem is that you don’t have enough experienced managers helping you develop your new hires. Your salesman’s problem is that he only gets paid for his performance. How can you meet both challenges at the same time? Pay your experienced salesmen for training, coaching and supervising new hires. Give your old-hands a better title and a moderate bump in base salary – but also pay them an “over-ride” or small commission on the sales of their team. You’ll find that not only are you getting help training the newbies, but your experienced team members are starting to act a lot more like middle managers.

These are just a few ideas for innovative performance-based compensation plans targeting your sales team. Every organization is unique, and it requires analysis and a solid understanding of management goals to develop an effective systems. There are, however, 3 rules that should be true for ALL compensation plans:

1) Simple and transparent. People have to trust that management isn’t using variable compensation plans to cheat them. Keep exclusions, exceptions, conditions and other tricky rules to a minimum.
2) Consistent and stable. They can’t change every month. If you want to try out a new system or focus on a short-term goal, use temporary sales contests or make it clear that a compensation program is short-term. If you change the rules of the game too often, your people will stop playing for you.
3) Pay on time. The only thing worse than having NO commission program is having one that people don’t believe in. Make it clear WHEN your people get paid – after the contract is booked, after money is collected or quarterly. Once you have established the rules, FOLLOW THEM. Don’t give your own sales people reason to distrust you.

I recently read an article which stated that salesmen who receive regular coaching perform almost 20% better than those salesmen who don’t receive attention.

Is it because coaching really helps?
Or because it is easier to coach those members of our sales team who are already successful and responsive?

The answer SHOULD be that good managers are boosting their team’s sales performance through consistent, aggressive coaching and development. But we all know that China is an easy place to overlook things. Chinese sales & customer service people take a much lower profile than their western counterparts, and managers who aren’t careful may find that their team’s headcount is outpacing their ability to get to know everyone’s strengths and weaknesses.

Start the new year with a solid resolution to use training and coaching as a management development tool in your sales, marketing and customer service departments. As your business grows, it becomes more of a challenge to maintain strong personal relationships with new hires, and this can eventually put a strain on your organization.

In China, pre-sales coaching is more important than it is back home. In the west, we tend to pre-sales coaching as a time management issue. New salesmen have to be encouraged to make cold-calls and each out to new prospects. In China, however, you may have to work with new hires on the basics of the sales cycles, and the underlying logic of the sales process itself. Many Chinese salesmen still see the sales function as a passive, customer-service oriented activity. They may need guidance and training to prepare them for more value-added, proactive selling.

Be creative when coaching Chinese sales and customer service representatives – and don’t forget about local customs and attitudes. Chinese salesmen like building relationships – so make sure that they are guiding those relationships towards transactions. There is nothing wrong with building up networks and relationships, but you have to show them how to build these connections into real sales.

Consider killing two birds with one stone by delegating part of your coaching role to more experienced team members who you are grooming to take on more responsible management roles. Assign those up & coming sales managers and supervisors the task of working with their new hires and under-performing colleagues on a regular basis.

As teams grow, good professional relationships sometimes suffer. You will probably continue to enjoy good, open communications with your company veterans, but don’t overlook the more recent hires. They are just as important to your company – and have to be developed through a steady, systematic process of training and coaching.

Branding and sales go hand in hand, and that can cause headaches for China-based international managers. Your team may not be as familiar with the subtleties of branding as they seem to be – and may be working with a much looser definition of your company’s product offering then you would like. This can lead to disappointment and distrust down the road.

China-based companies that plan on expanding in the new year should revisit the basic notion of “product offering” and fine-tune their brand identity around that. In the early stages of your organization’s development or localization to the China market, flexibility and experimentation were good things. If you have been on the ground for more than a year, however, you and your team should be able to give fairly specific descriptions about your product offerings. Too much latitude or vague descriptions make your company seem flaky and amateurish. As competition in the big cities intensifies, buyers are coming to expect high standards across the entire range of the transaction. There was a time when buyers in China were willing to settle for suppliers who could deliver a high-quality core product and then “give it their best shot” on peripherals items and services. Nowadays, you may find that you are shooting yourself in the foot over non-core businesses that your company doesn’t even really want to be involved in.

Chinese salesmen have a tendency to make overly broad promises – particularly early in the conversation. There is a traditional aversion to contradicting or disappointing prospects, which is strongly linked to the Chinese habit of “selling up” or treating the prospect as a social superior. They basically tell the client what they THINK he wants to hear, and don’t really expect to be asked to make good on their promises. This causes problems later in the sales process when the client feels disappointed, misunderstood or cheated. Buyers in China value honesty and integrity (precisely because it is so hard to come by), and are actively looking for indications that a firm is not being straight with them. Young salesmen in China think they are building a professional relationship by promising clients the moon, but are actually alienating prospects and driving business away.

Make sure your entire team understands not only what your specialty is, but why you have chosen it. Unless your entire organization is clear about how branding and limits to your product offering connect, your company may be sending out mixed messages. Sales, customer service, operations and back-office people all have to share a unified, crystal clear description about your product offering and brand message.

A lot of China-based international managers have stayed in town to take care of long-overlooked projects and catch up on their To Do list. If strategic planning and competitive analysis are languishing towards the bottom – right after catching up on 25 weeks of ChinesePod downloads and reorganizing your photos from the Christmas holiday, then I’ve caught you just in time.

There’s good news and bad news about your competitive environment in 07.

The good news. Your local competition is starting to look less effective in this market. Chinese buyers are getting more sophisticated and their demands are outpacing the abilities of local price-cutters. MNCs and foreign buyers are learning that A) you get what you pay for in China, and B) there is a pretty broad range of options. Chinese sales teams traditionally operate on the assumption that they won’t get any repeat business, but now they seem to be having trouble landing those initial deals as well. I am getting more and more calls from local sales managers and MDs asking for help with negotiation skills and basic sales training for their Chinese sales teams. The negotiating part is interesting – Chinese deal-makers used to consider that one of their natural advantages. Many local managers are learning about one of the big problems with price-cutting: the market gets used to it fast, and still demands high quality goods and services.

The bad news. You are about to start facing new competition that is much more formidable. There will be fewer of them, but they will have skills, abilities, and systems that will seem very familiar – because they are the same people you went to school with and worked with at your first jobs. You were the brave trailblazers who came to China when it was still risky, but now that you’ve done the work of educating the marketplace and training the staffs, other international players are planning on waltzing in and eating your lunch. China is no longer an option for companies with serious expansion plans. This is the best, biggest market in town. Everyone is coming.

More bad news. Locals and locally based JVs are getting better. Not all of them. A lot are already busted or will get swallowed up in the Darwinian feeding frenzy that is already unfolding. But the few that remain standing are gong to be MUCH more formidable than the first incarnation of light-weight wannabes.

The competitors you face going forward will look and perform a lot like you do. Your advantage is no longer QUALITY, ABILITY or SKILL. It’s timing and market knowledge. The problem is that it won’t last forever.

Here’s a quick & dirty action plan for the coming year:

1) Make your best day the new standard. Standards slip in China. Make sure yours are still high. Don’t fall into the Chinese trap of absentee ownership. Engage with your own team every day, and let them know you know what’s really going on.

2) Systems count. Make sure yours are consistent, efficient, and replicable. Train, measure and get feedback. Yeah, it’s boring – but just about all of those guys who used to tell you that they do their best work making connections at clubs and parties are going broke now.

3) Get big. Scale is your friend, and time is NOT on your side. Build out your brand. New branches, new products – whatever your expansion plans are, execute NOW, and do it right. This may be your last chance.

You’ve got a window of opportunity here as foreigners dither & blunder and locals try to tell themselves that 4,000 years of glorious history are more significant than the last 6 months of weak profits. But it won’t last forever. The China market is still up for grabs, and the game is yours to win or lose. But the time to make your move is NOW.

Good luck in the new year.

I can’t be the only one who sees the irony of 2007 being Year of the Pig. Ok. I’m not going to dwell on it – cuz it’s gonna get old FAST.

2006 was a strong year, but there are a few things that can go wrong in 07 that shouldn’t take us by surprise. Use the next week of down-time to review your business plans and hone your strategy for the coming year.

Hint: COSTS (especially HR) was the killer in 06, but COMPETITION is the scary monster in the closet this year.

Let’s start with the bad news:

The stock market could blow out, US demand could dip, and the big business centers are getting mighty pricey. Use the holiday pause to test your business models. What if demand drops by 50% (domestic market crash, US recession, Inflation…)? What if demand pops up by 50%? Good managers understand that a plan that overshoots is no better than one that under performs. You may not be able to control the environment, but you can anticipate and plan for possible changes. 07 might give us all a dose of whiplash – high growth at the start followed by a nasty downturn in sales.
HINT: Develop a plan for benefiting from other people’s misery.

Competition is getting intense as multiple MNC players and sharper locals continue fighting for a limited pool of free-spending Chuppies. The quality of the competition is getting better in 2 ways: More foreign competitors are learning China, and more local competitors are learning about modern international management. I do a lot of sales-training work in the high-end real estate sector, which is a great indicator of the general market trend. A few years ago there were only one or two prestigous boutique agencies that could actually deliver service that matched their prices, and a handful of serviced buildings suitable for big-spending ex-pat families. Now the US$5,000+/mo market is flooded with ambitious, aggressive agencies — and customers are getting very choosey. Headline numbers about aggregate spending are impressive, but old leaders are feeling pain as their pie gets cut into more and more pieces. That same story will be playing out all over China in 2007.

HR is still a nightmare, and the solution is NOT about putting more untrained butts in seats. Less will be more in 07, and international managers are going to learn to focus their energies on coaching & developing a few star employees rather than trying to herd gangs of green grads. China sales people will be in high demand, and good Chinese sales managers will be pretty much impossible to locate and hold on to unless you have a plan. It goes without saying that you will be spending big in 07 – but make sure you are spending wisely. High base salaries and generous commission rates have a way of backfiring on ex-pat managers. Instead of firing up the competitive spirit, they sometime turn high-potential salesmen into fat, lazy, self-important whiners. Remember that when you are hiring, as well. You may be buying someone else’s high-priced management mistake. Be careful.

Smart international managers and owners are going to focus on processes, systems and customer service in 07 — and bang the drum on their brands while people are still able to hear it. If you don’t have a rock-solid expansion plan in the works, get it together now. Shanghai-based outfits like Element Fresh and Blue Frog have gotten religious about leveraging their good brand names, and they should be the models for every service business in China. It starts with a good product, then builds with effective, tight systems and leads to highly regarded, cool brands. If you try doing that in reverse it simply doesn’t work.

Some of these problems will self-correct, but not if you are distracted or taken by surprise. Grab your best people and work out a plan for their careers. Make sure your staff doesn’t bloat early in 07 as the economy keeps rolling and sales pour in as if by magic. It’s a boom-town market. When the correction comes, your sales will vanish overnight — but your big headcounts, high rents and expensive payrolls will be with you for a long time.

Pigs can make you money when you are growing them and when you are cutting them up. This year will see a lot of fast growth at the beginning, but we may be in for some bloody times later. Make sure you have the right plans and tools for both.

The Fire Dog humps his last leg on Feb 17 as the Golden Pig snuffles onto the scene this Sunday the 18th. For those of you with a calendar and a sense of humor, China businesses are supposed to stay fully staffed up to and including this Saturday – though trains and planes are already said to be getting crowded. The I-Ching says the holiday will last one week, but these things are known to be opened to interpretation.

Did we learn anything interesting last year?

2006 was a busy one – that much is certain. Significant changes took place, though some were hard to pinpoint on the calendar. First the good news:

Last year China managers stopped worrying about structural issues like how to get organizations set up, and started focusing on operational issues like profitability, expansion and HR. International managers were as stressed and overworked as ever in 06, but this past year they were driven crazy by concerns about top line sales and bottom line profits – not just factory operations, regulatory vagaries and QC challenges.

China put the finishing touches on its WTO commitment – or at least called the job done after reaching a solid 80-something% completion rate. Banks and brokerages were the last big players waiting for official permission to enter the market, and it looks like they got the definite-probably-should-be-ok at the end of 06. The last year brought lots of refinements and progress to legal codes and procedures in general, thus removing a little more uncertainty from Chinese commerce. Yes, Virginia, there is a legal code. Now we have to figure out what it is how and how to use it. You know the drill- here.

Business was good. 2004 & 5 have already faded into the hoary mists of time, but there once were doubts about the viability of China business for foreign invested firms. 06 confirmed MNCs (multinational corporations) as one of the dominant models of business – with new & improved SOE (State Owned Enterprises) as the other partner in New China’s prosperity. Starbucks became the darling of the international business media and China’s Big Banks dazzled financial types. Independent private businesses and entrepreneurial start-ups showed up for the dance but spent most of the year acting coy around the VC punch bowl. We’ll have to wait until next year to find out if they’ve got any fancy moves or just came along for the ride. In China06, bigger was better, biggest was best.

Harmony was the 06 theme as growing markets, rising stock prices and absence of natural disasters (mostly) kept the good times rolling at a fast but controlled pace. The government tried talking down various over-heating markets, economists were grave and concerned (there’s a shock) and CEOs were cautiously optimistic. All-in-all, 06 was a Best Case Scenario year, and we all have reason to feel confident that the good times will continue — and that the forces of doom, economic cycles, and gravity have been banished from the land forever and ever.

BUT just in case you were in the mood for a little reality — a few seeds were planted in 06 that may sprout some trouble for international managers in the new year.

Smart China managers (are there any other kind?) already have a pretty good idea about what their big headaches will be as the Golden Pig starts a-wallowin’. Sales, Marketing, HR & Cost controls – and no, those aren’t 4 unrelated problems – are going to test old and new hands alike. In 06, Shanghai went from being merely expensive to pushing the limits of feasibility. HR skills rose – but not nearly as fast as salaries, rents and other ROI-busting expense levels. Everyone started looking for the outlying provinces to fill out the ranks of entry-level managers, and it worked to some degree – but there simply aren’t enough skilled and/or experienced people to fill those increasingly expensive seats. Just a few years ago, 5,000 rmb per month had top-tier grads with solid multinational experience throwing elbows and making promises. Now offers of 20,000 aren’t getting calls returned. Senior ex-pat managers are still searching for the magic formula, but all we really figured in 06 out was that pricey HK transplants, returnees and ABCs weren’t it.

Prosperity in 06 also papered over one of the big cracks in the foundation of China’s economic future – lack of innovation and brand-building. 06 saw lots of international patents getting filed – but they were mostly for technical refinements and manufacturing-related processes. In the early days of China’s boom, deep thinkers postulated that growing markets and increased international exposure would unlock the creative potential bubbling and seething just beneath the surface of China’s best and brightest. Unless overpriced Green Tea Frappacino’s at Starbucks count, 06 was a yawner when it came to innovation.

Second tier cities developed a lot faster than anyone thought they would – but for the first time marketers started wondering aloud if China’s Magical Mystical Middle Class might not be a bit smaller than everybody thought. Economic planners convinced themselves that coastal prosperity would spill over to the rest of the country – but 06 showed that the big 3 business centers acted more like a sponge that absorbed high-potential resources away from the country-side.

A toppy stock market kept new cars on the road and yuppie butts in restaurant seats, and we all let the year close feeling pretty damned happy with ourselves. The next post will take a look forward at some of the challenges facing ex-pat managers in 07.

When I first started my career, I was one of 12 salesmen working at a distributor. We were a wholesaler that bought in bulk from manufacturers and sold to retailers. The business was owned by Artie and Bernie, two old-school sales-guys who eventually took on management roles – but they never really outgrew their sales roots. Not a single day passed without each employee of the company having some kind of interaction with Artie or Bernie. This was their business, and everyone knew it.

Artie and Bernie weren’t sweet guys, they weren’t rocket scientists – hell, they weren’t even particularly talented managers. But they knew that if their business was going to be a success then they had to keep an eye on the little things. If any of us sales guys lost a client, we know that there was a very good chance that Artie (the tough one) was going to find out. It was hard to get used to at first, but it quickly became part of the background noise at the company – and we all learned that we were held accountable.

This hands-on style of management stands in stark contrast to the typical Chinese style of quasi-absentee owner. Even if the Big Boss is in the same building, there’s a very good chance he doesn’t want to dirty his hands with day-to-day operational issues. This is as true in a retail or commercial business as in a factory.

Now I’m all for Chain of Command. As businesses expand, owners should appoint senior managers, who should in turn hire and train middle-managers who should be given responsibility to make decisions and oversee routine operations. Problems develop when the top of the command structure is missing, distracted, or unclear. That kind of murky leadership quickly works its way through the system until you get front-line people resorting to safe responses – like “mei-you ban-fa” (nothing can be done) and “I can’t help you and I don’t know who can”. That’s when customer service drops through the floor and customers quietly decide to take their business elsewhere.

Now, here’s the catch for international managers in China: You may be practicing traditional Chinese management without even knowing it. The ‘mei-you ban-fa’ approach to customer service is still around – it has just taken on different forms. “Company policy”, “boss is traveling”, “submit a proposal”, “no response from HQ yet”, “that’s not the way we do it here” are all modern examples of the old-style ‘mei-you ban-fa’ management of the bad-old days.

That’s not your company, is it? Of course not. You KNOW you don’t have bad customer service, because you NEVER hear complaints from your clients and front-line staff. But wait a minute – uncomplaining customers and quite staffs might be a symptom of bad customer service. Outraged customers will always find a way to get their message across – but mildly disappointed buyers will simply go elsewhere.

The ‘mei-you ban-fa’ approach to customer service is deeply ingrained in the DNA of Chinese business, and it becomes the default mode of management in the absence of more aggressive, proactive systems. It’s up to you to monitor your front-line people who are transacting with clients, buyers, suppliers and the general public. In the west, people tend to be a bit more outspoken (ok, MUCH more outspoken), and it is much easier to pick up on attitudes and environmental shifts. In China, top managers have to put systems in place to illicit information from lower level staff. You have to build a SYSTEM for gauging client and market reactions to your business.

Forget about simply glancing at top-line sales. First, it tends to go up in a market boom no matter what you do - and second, it is backwards looking. By the time you notice a significant trend your business could already be in trouble.

Try finding a safe, non-threatening way to talk to your staff about the state of business. These are some effective questions to ask:

“Are we seeing more repeat business or more first-time business this month?”
“Are people asking for any products or services that we don’t offer yet?”
“Do our clients think we are cheap or expensive compared to our competition?”

Another good approach to get staff to open up with thoughts and suggestions about customer service is to see how your own staff rates you against the competition or the market in general. In China, you will have to begin the conversation by talking about how wonderful everything is. But if you gently ease in to ways to make your company even MORE wonderful, you might gradually move towards some very useful information and opinions. Your staff can be a bunch of cowering automatons — or a team of knowledgeable, powerful resources. If you want to develop them as a source of business intelligence, you will have to take the first few steps yourself.

5 things your company should know about 5 competitors.
Chinese staff & workers say: Relationships count.
Customer Service must be your Competitive Advantage

I recently went to SNAP Printing again. In case you don’t know SNAP, they are an Australian chain of print shops – similar to Kinkos or Sir Speedy in the US. They are very expensive - even by Shanghai standards. They don’t give discounts, their new location is too far from my office, and their sales people – while outstanding and extremely competent – speak only the most rudimentary English. Why do I keep going back there? Because they get the job done the way it is supposed to get done, and finish when they say they will.

My question is this: Why hasn’t their business model been adapted by a local operator?

I’ve tried working with independent local printers before, and found them to be wholly unsuitable for my business needs. The shops were messy, customer service inconsistent, their operations chaotic, and the equipment was outdated. They simply did not give me confidence, so I took my business elsewhere – even though it was more expensive.

What do local Chinese SMEs have to do to start competing effectively with international chains and start-ups that seem to be taking business at will in their own backyard?

Successful service models depends on 5 factors

Brand – Users have to be able to identify the company with the service, and remember the name when they need them. Branding still seems to be a mystery to many local competitors – though local customers have no such confusion about the concept. The irony of China branding is that some of the most foreign and iconoclastic brands – like Ikea and Apple – are among the most successful. Don’t be afraid to infuse your brand with a little personality.

People – Service companies are just that – service. It is more than just a staffing issue. A service company depends on its front-line people to add value and act as an interface between clients and company operations. Selection, training and constant management are the three links in the service company chain, and they all have to be strong. Skimp here, and you’ll pay for it in spades.

Quality Control—QC is particularly tricky in the service sector, but it’s also mission critical. A bad part can be replaced – a poor performance can not be. One bad experience can destroy a service firm’s reputation. Manage close and assume nothing!

Organization – Systems are the great strength or deadly weakness of service businesses. If service is inconsistent or sloppy, then nothing else will make up for it. But if systems are too stringent and restrictive, users won’t perceive value.

Branch model – Service companies have to be scalable to be successful. The most obvious examples are Starbucks and McDonalds, which leverage the power of their networks to deliver value. This may very well be the key to the success or failure of service providers. Service companies grow or die. Make sure you have a plan for success.

International managers in the service industry laugh off the idea of home-grown competition because ‘all locals know how to do is compete on price’. That may be true – for now. But China has a long history of success in certain types of service industries (restaurants, tailoring, design…) and it’s only a matter of time before some well-financed returnee starts figuring out that the MNC service supply-chain is under-served and potentially lucrative. Right now all the hot young Chinese entrepreneurs seem to be too busy with sexy internet and hi-tech telecom projects to worry about managing a chain of service-oriented businesses. But the potential profits are going to be hard to ignore forever.

Small and medium international businesses in China should review their competitive environment regularly and identify their core strengths. Then they need to focus on delivering consistent value and rolling out a recognizable brand before international AND local competitors stake out their position. Service companies need to be scalable to survive in the long term. Right now, local Chinese companies aren’t effective competitors, but that will almost certainly start changing very soon. International managers would be well advised to make hay while the sun is shining, because customer mind-share is already starting to get as crowded as Nanjing Xi Lu at rush hour.

I was conducting a workshop on negotiating high-level sales recently in Shanghai. Most of the participants were Chinese salesmen with 3 – 5 years experience. They were successful, respected and in the process of being groomed by their MNC employer for bigger management and leadership roles. But as I was talking to them about taking time to understand the counter-party’s point of view and goal systems, I got a face full of The Stare that indicates something has gone terribly, terribly wrong.

If you are new to China and you are on the receiving end of your first Stare, you may think you have made someone angry…or embarrassed…or confused…or said something stupid…or insulting. And you may be right. Or you might be wrong. You’ll never know – that’s the whole point of The Stare. It’s a semi-conscious behavioral technique intended to mask emotion and block all transmission. Think of it as more of a screen saver than a warning message. The Stare people aren’t necessarily angry – though they might be. They are simply blanking out on you until they have a prepared a more controlled, constructive response – or are waiting for someone else to step up and do it.

As a trained negotiator, I have learned a technique of my own for dealing with rough spots in negotiations. I shut up and go into the “unthreatening listener” pose. They teach this. Relaxed stance facing the counter-party, head cocked slightly to the side, arms open, a slight smile (no teeth showing) and an attitude of PATIENCE. The idea is to create a psychological space for the other person to speak, and hopefully volunteer information that could be useful. (As most good salesmen know, that silence is also INCREDIBLY HIGH PRESSURE. Zig Ziglar, the guru of old-school sales training once said that you should ask your client to sign the deal and then SHUT UP. The first one to talk would end up owning the product.)

So there we were – Staring and Silencing. Both waiting for the other side to quit being jerks and start cooperating. Now, the difference between East and West is that The Stare is self-reinforcing, where-as The Silence is not. So I took the initiative and asked them how they usually handled negotiations with Chinese counter-parties.

Some SAID the right things – to me – about being proactive and building a trusting environment for Win-Win negotiations, yada yada yada. But as we got further into the conversation, it became clear that they were still rooted in old-style relationship building (which is OK), and WAITING FOR THE BUYER TO MAKE THE FIRST OFFER – WHICH IS NOT OK!!! Then they start cutting price.

Are they doing any REAL negotiating – demonstrating creative problem solving and finding new ways to compromise and achieve their goals? Yes they are – with their managers and bosses! When they come back from a “negotiating session” and explain to YOU why it is important to cut prices and give away services. That’s when the fancy negotiating techniques see the light of day.

Many Chinese negotiators still feel that they are placing themselves at a disadvantage by offering price and deal terms. It is still common for them to build relationships until the buyer feels comfortable enough to illicit an initial offer and then begin an endless cycle of price cuts and free services.

How can you get your sales people to really negotiate better? It’s a matter of coaching. Try these simple techniques to start with:

• Have them articulate the goals of each deal BEFORE they engage the client or counter-party. Get them to be specific about the goals of your side and the counter-party’s side. Go beyond just price, and include schedule, services, guarantees and follow-up business. Make them frame best case, most likely, and worst case scenarios.

• Determine when deal-killing points should be dealt with. (Chinese tend to identify deal-killers early but address them LAST – feeling that the other side will be more flexible if every other point is agreed upon. Western negotiators tend to deal with deal-killers early – since there is no point in wasting time on minor issues if there is no ‘meeting of the minds’.)

• Have two price floors. One to sign the contract – the other to pay the salesman. In other words, let your salesmen decide how important a deal really is. If they think that there are good reasons to pursue the contract to the very limits of profitability, then they can sacrifice their own bonus or commission. Likewise, if they are able to bring in a high-value, high-profit contract, you should be compensating them accordingly.

There are no magic bullets in China sales, but there are plenty of invisibility cloaks. Don’t let your sales team make YOU their primary negotiating target. Coach them on proper technique BEFORE and DURING the negotiation. If you try to do it AFTER they come to you with a low-ball offer, you are not teaching them anything – they are showing you!