Episode 51 – Kristina Koehler-Coluccia (China Market Intelligence)

This podcast audio has been transcribed by an automatic transcriber.

Fred Rocafort  0:00 

We dedicate this episode to the memory of Andrés Monereo Belasco, who passed away on Good Friday in Madrid, Spain. Andrés was the founding partner of Monereo Meyer Abogados, s Spanish law firm with which Harris Sliwoski has a close partnership. In November 2019, I had the privilege of joining Andrés on two panels, one in Barcelona and one in Madrid, where we discussed business opportunities in the United States for Spanish companies. We were planning a series of follow up events here in the United States, when the Covid 19 pandemic broke out of the many things that I looked forward to after the end of the current pandemic, was the chance to retake those plans and host and host Andrés and our Monereo Meyer colleagues here in America. Well, I remain hopeful that we will soon be able to reunite with our colleagues. Andrés’ absence will be deeply felt by all his loss is yet another reminder to appreciate every moment we get to spend with those whose company we value. Rest in peace, don Andrés.

 

Global law and global business go hand in hand, but never seem to keep pace with each other. The importance on the global stage of developing and developed nations waxes and wanes, while consumption and interconnectedness steadily increase all the while laws and regulations change incessantly requiring businesses to stay nimble. But how do we make sense of it all? Welcome to Global Law and Business hosted by Harris Sliwoski International Business attorneys. I’m Fred Rocafort

 

Jonathan Bench  1:35 

and I’m Jonathan Bench. Every week, we take a targeted look at legal and economic developments in locales around the world as we try to decipher global trends in law and business with the help of international experts. We cover continents, countries, regimes, governance, finance, legal developments, and whatever is trending on Twitter. We cover the important the seemingly unimportant, the relatively simple and the complex.

 

Fred Rocafort  2:00 

We hope you enjoy today’s podcast. Please connect with us on social media to comment and suggest future topics and guests.

 

Jonathan Bench  2:20 

Today we are joined by Kristina Koehler Coluccia, a leading expert on inbound investment to China with Woodburn Accountants and Advisers, where she is the head of business advisory services. Kristina is based in Hong Kong and has 17 years of experience in Corporate Services and compliance in China. She is an expert speaker and author of hundreds of publications on investment into China. Christina has worked with over 500 international companies across industries and sectors on their market strategy, implementation and growth in China. She is the creator of the China roadmap method. Kristina, welcome to Harris Sliwoski Global Law and Business.

 

Kristina Koehler-Coluccia  2:54 

Thank you very much for having me.

 

Fred Rocafort  2:56 

Kristina, Jonathan got started with a an overview of your experience. But I was hoping you could tell us a little bit more specifically how it is that you you got to China. And tell us about Woodburners work in China as well, please.

 

Kristina Koehler-Coluccia  3:11 

So to give you the story, I’d have to really try back to the beginnings of my career. I went to Duke University and my senior year, I went home to Hong Kong for Christmas. And my brother offered me a job in the family business. And I got really excited because it meant that I didn’t have to do interviews, I didn’t have to look for a job. It was something that was very easy coming to me. And I I said yes I do it not knowing at all what I was going to get myself into. My father actually was not happy about me joining straight up after graduation. So there was a bit of conflict there at that moment. But somehow my brother convinced him. And then in August 2003, I joined the family business, which has changed tremendously over the last 30 odd years where my dad arrived in Hong Kong in the late 60s, he set up a trade agency company. And that evolved over the years into a corporate services firm, which then I joined into in August 2003. And on the first day of the job, my brother said to me, we’re looking to open up a subsidiary in Shanghai, in January 2004. You’re moving over. I said great. Fabulous, didn’t know what I was getting myself into. And he said, You got five months now to learn about all the legalities, the tax issues, everything a Corporate Services advisor would need to know in order to establish a company in China, and we’re gonna use our own company as the guinea pig as the test run to actually incorporate our company. So 17 years later. I’m still working in the family business with our old firm. We actually did sell it in October 2000 In 15, we sold it to CSC, which is one of the largest corporate service providers in the US. And then my brother and I stayed on for about two years. And then and then we left and we were able to get out a run on compete and startup Woodburn fresh. So Woodburn in itself is a relatively new entity, it’s a new organization, I consider it a boutique firm. It’s headquartered out of Hong Kong, we bought the Shanghai subsidiary, very small management consulting firm, advising purely foreign investors on entering the Hong Kong and Chinese market. So that’s our niche doesn’t really matter on the sector or the industry, because ultimately, the processes are the same, although there might be slight differences, but in terms of the services that we do is everything from investment advisory, incorporation, accounting, tax payroll, all the administrative and compliance functions.

 

Jonathan Bench  6:02 

So it was interesting that you said, I’m a corporate attorney. And so I always think about the non competes right. So I would have asked you about that if you hadn’t mentioned it, right. I said, Well, if you sold and were you under the non compete and and how long was it, and I would have just done the lawyer thing and just keep asking you questions until you told me that it’s none of my business, which happens to me actually, quite frequently in conversations with people where they’re like, you can’t ask me that. I’m like, but but I’m, I’m a lawyer, I just ask questions. That’s, that’s all I do have to find out what I want to know.

 

Kristina Koehler-Coluccia  6:32 

I bring it up automatically, because that’s usually the first thing people ask is, how did you get back in the business? Right, so yeah, I mean, we were able to get out of our non compete and start, basically.

 

Jonathan Bench  6:44 

So we are very interested in in what is going on in China. From your perspective. You know, Fred, and I do a lot of China work inbound and outbound. But we’re based in the US, for reasons that we’re lawyers, and China doesn’t really like foreign lawyers. So it it’s to some extent, it’s, it’s probably safer for us to stay stateside. And we can be a little more forceful about the way we advise companies. And last, I don’t know, we don’t have to hedge ourselves as much. Right? So we want to hear what’s going on in China. From your perspective. Are you companies leaving? Are they coming in, you know, those trends that you’re seeing? And and do you see differences in the way developed nations are engaging with China from a business perspective and developing nations? So really curious to hear just kind of your, your overview on the anecdotes you’re, you’re hearing and seeing.

 

Kristina Koehler-Coluccia  7:31 

So I think, from my perspective, I can only really look at the clients that I have. And I’ve been extremely fortunate in the last three years to have zero of my existing clients in China exit. So they’ve all stayed even with COVID. they’ve stayed, and they’re prospering. However, if I talk to friends of mine that are in legal profession, or that are in competing Corporate Services firm, they will say that a certain percentage of their clients are exiting the market. And prior to COVID, I would have maybe one or two liquidations per year. And generally, it was really because either the company didn’t have a good strategy plan for the market. And they couldn’t execute that very well. Or really, there was just no, there was zero opportunity for their product or their service. So that those were usually the two reasons why they would want to liquidate, obviously, with COVID and we have to talk about it, because I think, you know, its current affairs, I think that did cause a lot of companies to decide to exit the market, just from a financial and investment capital perspective. They couldn’t manage to keep that entity running. And again, like I said, fortunately for me, I just haven’t, I haven’t seen that at all with my clients. And, again, with my clients, everybody was able to maintain staff levels and headcount. Only one client had to reduce salary levels to be able to maintain themselves. So you know, I think there’s a balance and I’m particularly because my focus is really on bringing companies into China. And I don’t do very much of the outbound or liquidation work. I don’t see this on a day to day basis, although I know it’s happening. I don’t know what the extent of it is. And then just generally, I mean, people are wanting to go to China I mean, since November 2020 projects have been greenlit people are raring to go. They want to have their establishments done, they’re ready to hire people. They’re trying to investigate ways of creating certain business models with or without having an entity on the ground. There’s there just is a lot of interest. And it’s peaking which is great because I did have a period from January to November which was very quiet and there was a lot of negativity around China, especially due to COVID He’s getting a lot of backlash and negative comments about about the region. So it’s very optimistic for me now to see companies going in and actually executing their strategy plans.

 

Fred Rocafort  10:13 

Do you think that this interest that you are observing, do you think it might have something to do with a perception by by some international businesses that China has done a decent job of containing COVID as opposed to other countries, but more broadly, that COVID has allowed China to demonstrate a certain resiliency, a certain almost indispensable nature to the world economy, where companies are going back to the drawing board and saying, look, if anything, we’re coming out of this crisis, thinking that China is we’re just, there’s just no avoiding it. Do you think there’s some of that going on behind the decision making that businesses are undertaking?

 

Kristina Koehler-Coluccia  11:03 

Yeah, I mean, when I look at the companies that I’m speaking to, right, they’re all internationally oriented companies. So most of them are already doing some type of export business. And when you’re looking at export business, you know, where are you going to export to right now, the UK is a disaster with Brexit. When I talk to clients in the UK, they’re spending two three months dealing on shipments on customs regulations on paperwork. And a lot of UK companies are thinking about setting up entities within the EU to manage their transactions. You know, where does it seem easier right now, it just, it just seems a lot easier in China. And there’s two things I want to say this, because you were mentioning a little bit about the COVID thing. I mean, I had the experience on just actual feedbacks on my newsletters and whatnot, where people were very rude, very negative, towards the Chinese towards the Chinese culture, towards China, in general, towards doing business in China. So COVID has brought in, in the emotional and psychological element that is restricting people from going into China. And on the other side, I think people are realizing if they want to survive in today’s time, China is the only white market right now growing. I mean, it was well in 2.3%. In 2020, they’re predicting through the 14 five year plan, now they’re predicting a growth rate of 6%. In 2021, we’re also going to see that, you know, in order to survive, and or even just simply to grow, China’s the market to grow in. And I’m not talking about now a population of 1.4 billion, you know, how many clients do you need to survive? Right? How many? How many pieces of product Do you need to sell, who’s going to buy those, it’s the Chinese. So you can take the point of view that, you know, you don’t believe in China and what they’re doing ethically and whatnot. But it’s the place where people are going to buy your goods, buy your services, you’ve got to have the right strategy in place to do it. But at least it’s going to help you either survive or at least grow. And I think this is what people are realizing since November, is that, okay, we’ve been able to survive in our head office, we’ve been able to manage and become stable. What is the one place where we can think in the next year in the next 12 months? You know, where we can grow? For me the market is China. I mean, I don’t say this because my business is there. That’s actually I truly believe that I think there’s no other nation where you can make an investment and you’ll have a return on investment. Right now. Yeah, I think that’s that’s predominantly decision making. But you know, there’s always this emotional component that I don’t want to I don’t want to hide away from because it is a it is one of the components that is preventing people from going into China, you know, people know, they’ve got to go there. And on the other side, they don’t want to either because of ethical issues or fear, or, you know, another big issue is border controls right now, they can’t travel there. So they’re not comfortable making that investment, etc. So it’s two sides of the coin really.

 

Fred Rocafort  14:17 

Picking up on this point about the for lack of a better term, perhaps let’s call it anti China sentiment. It’s interesting. You bring that up. We I mean, Jonathan and I are both avid consumers of China content. We, we take certain things for granted. I think it’s fair to say when when we talk about China, the same goes for our colleagues at the firm people in our in our circles, right but every once in a while, right, I’ll have the opportunity to talk to someone else just this morning to give you a concrete example. I was listening to Joe Rogan podcast and I’m familiar with with the topics you know they were talking specifically about the origins of the Coronavirus, but when you listen to The way people talk about China. And again, these are the same issues that we talk about on the podcast, and at work. So it’s not the issues themselves, but it’s the way in which things are phrased. And, and sometimes you need to hear that from someone else just sort of shock us. So one of the things that, for example, that they talked about today, in this in this clip, actually was two separate clips, one of the most of our Coronavirus, one of them was, was about espionage. But um, just a way for example, in which people talk about Chinese espionage and how it takes place and and listening to this one clip, I thought, hmm, if I didn’t know any better, I can see how this kind of talk how this kind of language could make me start being suspicious, not just the word Chinese themselves, even Chinese Americans, right, which highlights why it’s so important to be very careful and nuanced about the way we talk about these topics. But coming back to your point, I think that I get the feeling that it’s easy to underestimate perhaps just how, just how deep that sentiment runs, and just how virulent that that sentiment can be. And I think that when you talk about the opportunities that China presents, to some companies, I think it might be fair to say that our national conversation here, and probably the same in Europe, is in a way as being shaped by by these two stories, right? You have the companies that are going to China finding opportunities, surviving, because of China, growing because of China and saying, look, this is it. This is the modern economy. Meanwhile, you have all those companies that maybe didn’t have that success. And I think a lot of the opposite sentiment, finds a lot of its roots there. And we do talk to a lot of those people, people who say, look, I gave it my best I went there, I opened the factory, I had to leave, you know, I I tried, I didn’t get a fair shot at it. And I think that if you look at government, probably within government, which is also an important part of the policymaking process, I think there it’s probably going to be even more so because if you look at the way government approach China or any other country, right, their metrics, they’re definitely doing a lot worse than businesses, right. I mean, because in that sense, I think it’s fair to say there’s been almost no political progress in terms of getting China to where us policymakers would like. So I think that maybe that’s perhaps how this conversation about China is being shaped on the one hand, you have the businesses that are that are doing well finding opportunities, and then there are these other companies and others that might not be businesses who are saying, look, it hasn’t worked out for us. So that’s where we’re going to take this kind of line.

 

Kristina Koehler-Coluccia  17:46 

Let me also bring in something that maybe might be a little bit controversial, but for those companies that have exited the market, why have they exited? We in the Western world, the first thing that we love to do is blame people, when things don’t go well, right, versus let’s find a solution. And let’s fix it. Most of the time, what I’m seeing in terms of why people are exiting the market is either the truth, meaning either their product is too new, and it’s not ready for the Chinese market, or, you know, there’s just not enough opportunity in the Chinese market for their product service, which can absolutely happen. And it just meant maybe they didn’t do the right research from the beginning. Otherwise, yeah, you can always say, you know, there’s, there’s a bad egg. And a Chinese person tricked me was, you know, cheating me whatever you want to say that also happens. But most of the time, you could have prevented that. You could have instilled certain processes or systems within your organization to stop that sooner rather than later. And when people go into the Chinese market, I find that they don’t pay enough tension to the, to the investment that they make, and either they’ll bring up excuses like timezone issues, it’s too far to travel with COVID, we haven’t been able to travel, whatever it might be. But there are always providers out there. I mean, that’s why providers exist, there are providers out there on the ground in China that can provide support to prevent any bad thing from happening. It’s just a matter whether you are ready to see that red flag, and whether you’re going to take action, when you see that red flag, you can always blame the Chinese for doing something wrong. You know, I’m seeing more and more of the trend that actually foreigners that are employed in Chinese businesses are the ones that are the bad eggs now and that are causing problems and issues within the organization’s nobody wants to talk about that. Because, you know, nobody wants to say that the foreign investors are bad. But, you know, again, it’s a bit of a controversial issue that I’m bringing up because, you know, nobody wants to take the accountability and say, I could have done more. I should have paid more attention to the business. I could have done x, y, z, I could have paid a little bit more A provider to go in and do a Legal Health Check or, you know, check that there really are contracts or check the finances of the company, right? I mean, there’s always ways of protecting your business. You do that in the US you do it in the UK, why don’t you do that in China? I’m bringing in a controversial point right there.

 

Fred Rocafort  20:17 

But this is so true. I mean, I I first moved to China in 2005. You know, so things were still a little wilder and I would see this all the time, I would, I would see people coming in to do business. And they bought into this China is China mentality to such a degree, that, in some cases, it wasn’t even that they were trying to sort of adjust their due diligence procedures to the Chinese conditions, it wasn’t in some cases, it was just almost like they felt like well, there’s no point in in really trying to do these things, you know, that there’s really nothing we’re going to accomplish by doing this. So let’s just, you know, let’s not do anything. And of course, you can’t be surprised when things don’t go well. Right. If you haven’t done your due diligence, if you haven’t, like you said simple things, you know, does this company exist?

 

Kristina Koehler-Coluccia  21:07 

Absolutely. Do your research, right? Get data points, get get a lawyer, I mean, I have a number of people on my speed dial, right. My lawyer. Even as a corporate service provider, I’m gonna have my lawyer on my speed dial, just in case, right. But I will also say this, you know, there are a lot of individuals out there. Either guys, who are one man shows, or even lawyers, or tax people, or whomever, who say they know China. And this is where I get very upset and very frustrated, because Fred, you just mentioned that you were on the ground in China, you know, what it’s physically like to live there to be in an office to walk around the street, go visit clients, factories, and whatnot. You’ve seen it with your own eyes, you’ve smelt it, you know what it’s like. There are people out there, where I’ve been on panels with a very large, Association oriented events. You can, I could tell by what they were saying they had never set foot in China. Right. And they’re, they’re supposed to be a China expert, one of whom I’d like to mention, actually said, even if you do a joint venture, the contract means nothing. My mouth fell. You know, you’re talking to 100 SMEs in the audience. And you as a lawyer can say, well, China’s China contract doesn’t mean anything. I had to repeat that. I sat there. And I said, I’m very sorry, but I disagree with you. And I’m not a lawyer, you should have a bulletproof contract, regardless of what you’re doing in China, right? So there are these individuals that are out there. I guess they’re trying to attract this outbound China business, inbound China business, I don’t know what you want to call it. And they act like they know everything. But you know, you’ve got to talk to advisors who have actually lived in the market, have traveled in China have really smelled and breathed. I have personal horror stories of things that went wrong in China, you’ve got to be with so many who can bring that experience on that street smart. I think we call it street smart type of China’s street smart type of aspect into the business. And that’s something that really frustrates me with some of these guys that go out there and pretend.

 

Fred Rocafort  23:32 

If you haven’t had a cup of hot water in the afternoon, when you really wanted a coffee, then you haven’t experienced China. I mean, I could at this point, I feel like I could completely ignore the topics that we had in mind, because this is a fascinating conversation. But I do want to try to bring it back to some of that. So let’s switch direction a little bit. Let’s talk about the business networks that a company that wants to enter China and succeed in China. Right. I think this is an important point that we need to stress. I mean, I think one of the takeaways from this conversation is I mean, entering is one thing you whether you want to be successful, right, that’s different. So what does a company that wants to be successful in China need in terms of business networks? I’d like to talk about WeChat. I was a, of course a WeChat. user. I don’t know how you live in China and not use it. Somebody should write a book. You know, it’s like that that seems to be such a feat, you know, and I really would want to hear that story. But let’s talk about WeChat. Let’s talk about the risks. My perspective on WeChat has changed since moving back to the United States. And let’s talk about information security. This is something we talk about in our blog. We certainly pay close attention to this one of my colleagues in particular Steve Dickinson is tracks these issues very, very closely and he has very profound knowledge of the regulations. It’s a real pleasure to talk to him about it from the legal perspective. So I’d like to hear perhaps from more practice. Typical business oriented perspective, what are the concerns regarding information security? And what can you do about them?

 

Kristina Koehler-Coluccia  25:06 

Well, I think what’s we start with WeChat. I think WeChat is the the fundamental basic tool to communicate to network, to stay in touch, to maintain relationships in China. I joined a webinar session about two weeks ago in the German community. And one gentleman made a comment saying, emails are obsolete in China. If you want a message read, or an email answered or something to be answered, you’ve got to use WeChat. And if you don’t have WeChat, don’t expect your email to get answered. So for me, that was absolutely fascinating. I struggle with WeChat, because again, 100% of my clients are foreign investors. So the decision makers are abroad. They’re not based in China, and they probably won’t have WeChat yet. And now with COVID, it’s quite difficult to add yourself to WeChat. I’ve tried to do it for people that are in other cities. And I think the issue right now is that you need the mobile phones to be next to each other in order to be able to add the users, because you need somebody who already has WeChat to authenticate. So I’ve seen issues with that right now, in order to be able to get on WeChat. And how to get on Wechat, my suggestion would be try to find someone physically who’s near you. So you can try and get that access to it. On the other side of things, you know, all my clients use email, Zoom, and WhatsApp, those are the main methodologies at the moment. And I’ve had to adapt to that. So I’m struggling with the balance of email, WhatsApp, WeChat, and Zoom, which is not so easy. And definitely, just because of my clientele, my WeChat messages are very much delayed. But that’s just because of the environment that I’m in. But otherwise, you know, my school group chats are on WeChat, right for my kids. All the communities on WeChat are members of chambers of commerce and the communities on WeChat. So Wechat is really fundamental. For my day to day communication. It’s what I use as my telephone, basically. And if like I, you know, like I said, if you have the ability to get on it, I would recommend you getting on. I think one of the most fundamental things you have to create for yourself in China is an ecosystem, or I call it an ecosystem. You can also call it a network of individuals that will help you to succeed in China. And that can be a variety of different people, you can have all of the various service providers out there. So you know, that’s the lawyers, the accountants, the headhunters, the payroll, guys, but it’s also the media agencies, the PR professionals, your logistics guy, your warehousing guy, you know, all of these people are on WeChat. Right? So you’ve got to maintain that relationship through there, in terms of security and information, because this is one of the dilemmas right now is that people aren’t using email, to sign contracts, they’re not using email, to send confidential information, they’re doing it through their own personal WeChat. Right, because you can’t create a, you can create a company WeChat username, but that’s to send out news or blogs. But otherwise, you as an individual are sending out this data. And this is where you just have to have strict policies. So you know, for example, with Woodburn, we use WeChat as a chat function. But anything regarding confirmation or contract documentation cannot be sent via Wechat and has to be sent by email. And even if someone says to me on WeChat Oh, Christina, just send me the document here. I just say no, it’s not our company policy, I have to send you by email. Please watch out for it. So I think everybody needs to be aware of that and have company policies. I mean, the next question will be, how do you enforce that? How do you enforce that company policy? It’s not always easy to do especially because for example, I’ve downloaded WeChat on my laptop, I could easily transfer documents through my laptop on the WeChat account on my computer. So you know, there have to be certain limitations. I don’t I’m not an IT expert in terms of how to limit all of this on your computer and whatnot. But you just have to instill certain company policies that the employees have to abide by.

 

Fred Rocafort  29:46 

I’ll take issue with one thing you said you said email is obsolete in China. I don’t think it’s obsolete. I think it never took off. I remember when I got to China, finding email, email addresses to be an adornment that some people had on their cards, I would get replies. Four months later, like, Oh, I checked my email and saw your, you know, your, your urgent message. And I get the feeling that things went downhill from from from that point, you know, after Wechat came online. But no, that’s you bring up another great point about the importance of having those rules, you know, a lot of the work I’ve done involves security audits, right. And, and this is exactly one of the issues that comes up very often when we have the guidelines that our clients set with a high degree of concern for leakage, intellectual property protection, and then you have the reality on the ground, people saying like, look, I can’t, this is not how it works, right? I need to rely on my WeChat or, depending on the country, it might be some other app, things that I had not heard of until until that moment. Um, but I think you’re right, I think ultimately, you need to have that that discipline. And I think that convenience is often the road to hell is paved with good intentions. I think convenience is also a paving material, when it comes to, to business operations and maintaining confidential information.

 

Kristina Koehler-Coluccia  31:11 

Absolutely. I just also think, if you explain it to the individual, and sometimes you have to explain things to make it clear and provide clarity and transparency. But you know, you’ve got to say to the staff member, listen, your WeChat is your personal account. Right? I don’t want you to send company information through your personal WeChat account, right? Your email is a company email, I want you to send corporate documentation through that. In many instances, there’ll be a click where they’ll say, Oh, yeah, you’re right. It is my personal data. You know, I I used to tell my stuff. Why aren’t you promoting Woodburn for a previous company through LinkedIn. And I got the feedback where they said, LinkedIn is my personal page. I mean, this is my personal profile, I will decide what I will, what content, I will share what content I will post. And, you know, my job has nothing to do with my LinkedIn profile. I was like, okay, on one side, I’m thinking not a team player. And on the other side, I mean, actually, fair enough, it is their personal page, right? It is their personal prerogative, whether they want to share content, like content or do anything on LinkedIn. But that’s, that’s sort of the balance, right? It’s like that with WeChat to

 

Fred Rocafort  32:29

hashtag LinkedIn is not Facebook. I don’t know if you’ve seen that hashtag I have. What else would you use LinkedIn for? Right? It’s it’s, I mean, I can understand Facebook, maybe Twitter, right. But what else? If you have these concerns with LinkedIn, you’re using it wrong?

 

Kristina Koehler-Coluccia  32:46 

I agree. But that was actually the feedback that I got from several Western staff members online. Can you do this also, the highlight a little bit about your point about internal processes. You know, having internal guidelines about how to use WeChat is just one aspect, you have to create an operational guideline for your employees in China, so they know what they can and cannot do. A lot of people brought about this, and I don’t understand why. The advantage of having having an operational guideline is one, you’re going to protect yourself. But number two, generally turnover of staff is high. So why wouldn’t we want an operational guideline to ease training to ease the onboarding of new employees and things like that? Yeah, that’s also another one of my frustration points that I get with a lot of clients.

 

Jonathan Bench  33:38 

So Christina, let’s turn to the topic of why foreign companies fail in China. And also a little bit about what what is the best way to enter the China market? I know those are those are tied together, right. And, and I can vouch for what you said earlier that sometimes the foreign investors are the bad actors, because I was on a transaction that was trying to close at the end of last year. And it was transaction between two US companies and assets being sold where China operations, I was representing the buyer. So as we dug into the China operations, it became clear that this US company operating in China knew that they were not operating by the law. It was very clear. And when we asked him about it, he said, so can you explain why your representative office is exceeding the scope of what it’s supposed to be able to do in China and why you’ve been paying these employees, half under the table. All we got back was kind of the shoulder shrug and saying, well, that’s you know, it, that’s just how we’ve been doing business. There was no remorse. And there was no explanation other than a shoulder shrug. And so my client ended up walking away. As I said, this is this is not something that you wanted to dip your toe into. I know you’re on the formation side and market entry side, but what do you know, what have you seen about why companies are failing in China?

 

Kristina Koehler-Coluccia  34:49 

There’s so many reasons. I think probably the biggest one, and I and I have a pretty strict criteria on this. I don’t talk to companies that don’t have research and data on their fingertips, about China, about the market about the sector or the industry that they’re in. Probably one of the biggest failures that I’ve seen is people don’t do enough research about the market at all. So they see this huge opportunity. They see this huge potential. They’ve heard of case studies. But they don’t actually physically do the research. You know, like, what is the market size? What is the market segmentation? Is there already brand awareness? Is there brand loyalty? Who are my competitors, not just the Westerners, but who are also your Chinese competitors? What are the price points, you know, there’s so much that you’ve got to look at going into the market, you can’t go in blindfolded, because something is going to trip you up, there’s gonna be a rock in your journey, that’s then gonna cut you off. So I tend to be quite strict now. And say, if you don’t have data at your fingertips, I cannot help you going to the Chinese market, I’m not the right advisor for you. So I think that’s number one is really, you’ve got to have data at your fingertips, you’ve got to know what you’re getting yourself into, you’ve got to know the market size, what is the potential, and that will lead you to so much clarity in terms of what business model, you should be creating how you should structure that business model. I think the other thing that rocked my boat, which also almost caused us failure early on, was I never wanted to rock the boat, I was too scared to rock the boat. So for example, if I thought a staff member was not reaching their potential, or was actually, I don’t want to say cheating me not not cheating me, per se, but just, you know, not working to their full potential. You know, I was just simply not good. I didn’t want to rock the boat, I was so scared of firing people, of losing people. And then having this high turnover that everybody hears about in China. I was scared to do that. And as a consequence, because I did not have the right team, I did not also have the right team members, giving me their opinions being proactive with me, giving me also their own piece of advice on how to move forward and how to grow. It I took me a long time to grow, you know, where you would expect to break even within the first three to five years, it took me double that amount of time, because I just didn’t want to rock the boat. So I think, you know, one of the things is if you see a bad General Manager, or if you have a gut feeling they’re not doing the job, right, or, you know, investigate it by all means, but fire, terminate, don’t have this fear of keeping poor employees on board that just aren’t on the same journey as you in terms of growing the company in reaching its potential. So yeah, I mean, the data points, the employees. And then I think those that think they can do it by themselves, and they don’t have to pay for advisors. Big one, right? You just mentioned this one client, you know, paying 50% of the salary under the table. There’s still a representative office, they didn’t upgrade themselves. So Limited Liability Company, because they didn’t want to pay for external help. So if you’re not going to pay for external help, like other types of service providers, or you know, one of the biggest trends right now is the consumer sector. All types of brands are trying to sell their products into the Chinese market through e commerce. No point setting up a shop on Timo or Taobao or any of these platforms, if you don’t have a media strategy and a brand strategy, but you got to pay for that brand strategy. And you’ve got to dispense some resources into that. Otherwise, how are people going to be aware that you’re on these platforms that you know, you’re interested in selling? So sometimes I get the impression that people still nowadays feel like China’s supposed to be cheap. And so they don’t have to pay for advice, or they can just wing it. Because everybody’s winging it. thought the case. You know, we’re in 2021. Now, it’s a legitimate jurisdiction to enter into. And if you don’t want to fail, you’ve got to make sure you’ve got the right resources on hand, the right research on have the right people and all of this.

 

Fred Rocafort  39:32 

So Christina, you bring up some excellent points, all of them. I like what you said about employees not being on the same journey as you are. That’s I think, an issue not only in China, frankly, businesses not doing their research. It’s frankly irritating to see companies going into China, saying, you know, we were really successful in our home market and then when you ask them like, okay, yeah, but your entire business model is built around this particular item. This food this this drink that is really popular in your home market. But are you really confident that you’re going to be able to sell that in China? And sometimes that that that arrogance, right? I mean, and of course, we know how those stories turn out. And also, like you said, if perhaps there was a time when things were more freewheeling that time has come to an end. And I know that there’s a certain amount of nostalgia that some people have for that, and then I certainly got to experience some of that in formal China, but we can all agree that that’s in the past, you know, if you’re looking for an environment that offers that sort of wild west approach, China, isn’t it anymore? There might be some places out there, but China certainly isn’t, isn’t it? Let’s turn to marketing. This is one of my my favorite subjects generally enjoy participating in our in our, in our, in our marketing activities of the firm, obviously love to talk to others about about marketing, especially people like you that bring together business and marketing right, in an integral fashion. And don’t look at them as two sort of separate things. Right. They’re they’re very related. So your firm’s are reactive on the on the marketing side, specially, or including, I should say, social media marketing. So tell us a little bit more about this, you know, what, what goes into your strategy? How do you decide, you know, of course, in general terms, right? How do you decide, these are the clients that we want to target? These are the substantive or geographical areas we want to target and any other companies that you think are doing a good job, right? Who can people look to essence peroration or a model on how things are, you know, and who’s doing a good job when it comes to marketing?

 

Kristina Koehler-Coluccia  41:44 

I think my philosophy around woodburners marketing is that in order for a foreign investor, to make a decisive move to go into the Chinese market, they have to be educated. And I think that there is a lot of outdated content about China on the internet. So my belief is, first of all, I need to create updated content about what is happening today. And I openly say to people, please don’t read articles that are over 12 months old, because most likely, that will be outdated, it won’t be valid as of today. So if you’re doing a Google search, and you’re writing, I don’t know, cosmetic company setup, don’t read anything that is over 12 months old, because there are new regulations in the cosmetic setup sector that are coming out quarterly, right. So you’ve got to know that number one, you’ve got to educate yourself. My mantra in China is knowledge is power, I could have avoided a lot of mistakes, personally, if I would have known a little bit more, and had the interest to learn a little bit more, or have this network of individuals that if I didn’t know something in a certain area they could have helped me out with. So having that network of people who are knowledgeable is key. So around my philosophy around our marketing is creating content that is up to date. creating content that is written in layman’s terms, is also very important for me. And very short articles. I actually don’t like to read, I somehow got into a habit of reading so much when I first arrived in China, that somehow I’m not into it anymore. And I love podcasts and webinars. So our biggest marketing methodology right now is everything around webinars. And we have a monthly webinar series around different topics. It’s not only me that speaking, I bring in guest speakers. Because again, I want to show that you can’t just work with one person, you’ve got to have this network of individuals that are contributing to your growth in China. So I try to get different guest speakers to come on talking about their expertise, what would they like to talk about? That’s a trend right now. And so yeah, we have a webinar series. It’s always the last week of the month, and it’s for five days. So one webinar topic, one big theme, one webinar topic per day. And usually it runs for about 90 minutes or so. And then I have these different methodologies that I’m trying to educate people on. So you know, in the intro, it’s said I was the creator of the China robot methodology. I’m also creator of the China incorporation blueprint and the China profit accelerator. These are all just programs that I’ve developed to educate people on what they have to think about kind of like a checklist. What do they have to think about on their whole China roadmap? What do they have to think about when they’re setting up a company? So in the incorporation phase, and what do they have to think about from a financial perspective, in terms of growing, because that’s also big failure that I see in many companies is not paying attention to p&l balance sheets, not reading, or analyzing financial management reports. So those are three programs I created that are three workshops, basically, that are free of charge. They’re all complimentary, and are part of this marketing that I’m doing to promote. And you know, I’m a little bit different, because I’m not, I’m not marketing myself to Chinese consumers, or a Chinese audience. I’m in China, marketing myself to foreign investors. So obviously, I’m using platforms like LinkedIn, predominantly. I do a little bit on Facebook, because I never know who might be looking on there. But I predominantly use LinkedIn, share all my content. And then on WeChat, we’ve created a WeChat, China roadmap community, where I’ve got my existing clients, providers and potential clients, and anyone who’s interested actually joining in, it’s a growing community, we’re about 4050 people now, where you can use that as a base to ask questions. So the other day someone was asking, you know, does anyone have experience with border controls at the moment? How can we get business visas? Can we get business visas? Other people, there was a breakout in Shanghai, I forget when that was before Chinese New Year. And so, you know, I raised a question saying, for folks that are in Shanghai, can you share your experience? What’s happening there right now with the COVID cases? Is it preventing you from going to work? Is it preventing you from from doing things?

 

So it’s just an opportunity for people who are in China, not in China? interested in doing business in China to ask questions, you know, I always say there’s never a dumb question when it comes to China. So just ask it, and I’m pretty sure somebody will give their two cents about it. So those are the main I mean, those are the main marketing avenues. And then I’m also a member of several associations. So China, China related associations that helped to bring in leads as well.

 

Fred Rocafort  47:16 

I just want to point out what you were talking about, regarding outdated material, that is so true, that is so true. I mean, even if it’s less than 12 months old, right? I mean, because there’s stuff that’s just inaccurate To start with, or somebody republishing some outdated crap. But to illustrate just how bad this is, I often have to cite the the company law in China. And sometimes it’s just easier for me to google it rather than go and find the the version that I have saved. And the other day I was I knew that the article that I was looking for, I just wanted the specific language and I, I was thinking, What’s wrong with this? Well, this was the moth, I think it was the moth comm website. And they have the old version, like the 2003 version of the company law, not the 2018. One. So even government sources in China.

 

Kristina Koehler-Coluccia  48:07 

Exactly.

 

Fred Rocafort  48:08 

So be very careful, be very careful. And if something really hinges on that language, and you can’t tell for sure, then talk to a professional advisor that can that can confirm that right. And this is not just an issue in China, right? I mean, there’s, sometimes there’s a new version of the law that’s going to come out. And in some countries, you don’t have as much publicity as we do here. Here, we know in advance that there’s going to be a change. But that might not be the case in some other markets. Right. But absolutely, I mean, have to endorse that 100%, don’t trust material on the web, it might be outdated.

 

Kristina Koehler-Coluccia  48:44 

I also think though, you need to be wary of talking to advisors. Because again, there are these one man shows out there. So I mean, I’ll be blunt and open about this. You know, when we had our previous company, I was hiring Westerners that were new to China. Right? And you can’t tell me that they knew the practicalities of how to do business in China. They didn’t. I was hiring them as advisors, though. And they all had legal backgrounds, but not legal backgrounds in China. Right. So this is also another thing that I want to push is when you’re talking to advisors, talk to advisors that have a good length of experience in the market, versus the newcomers who’ve had one or two years of experience. Because what I what I want to say that with this is that even when laws come out, you know the formal law has been implemented. It does not mean that practically speaking, that’s how you do it. So, you know, one of the things with the new foreign investment law, for example, is that you’ve got registered capital and total investment. These terms might not mean anything to you, but it’s just an example as popped in my head and in theory, total investment has been scraped from the foreign investment law. But when you establish your company, you still have to add it in. It’s a requirement. Right? So in practicality, when we’re establishing companies still, even though it’s not in the law, I still need to ask the client to provide me with this figure. So you’ve got to then talk to advisors or work with professionals that have been in China for a certain length of time, who can tell you yes, it’s written in the law, we know that. But practically speaking, this is not how its implemented in Shanghai or implemented in Gwangju or implemented in Beijing or wherever else, there’s a fine line with that, that you have to be careful of as well.

 

Jonathan Bench  50:39 

Kristina, it’s been really great having you on the show with us today, we always like to end with recommendations from you, Fred and me about something that others can look into you something you’ve read something you’ve listened to something you watched that’s been engaging for you. And this can be a recent thing, or it can be something that you’ve got to turn to every once in a while, because it’s a solid, solid input for the way you see the world. So what do you have for us today?

 

Kristina Koehler-Coluccia  51:04 

I’ve got two podcasts. One is called Wealth Without Borders. And it’s done by Howard Whiteson, who is a wealth manager based in Shanghai. And I love his podcasts because he doesn’t talk about well, he brings in people who are based in China, who are in a variety of different industries and sectors. And he gives them eight minutes to explain how to do business in China. That’s one podcast that I love listening to. And the other one is done by a guy named Oscar Fuchs, who’s also based out of Shanghai, and he does a podcast called China mosaic. And it’s lovely, because he brings in also guest speakers, Westerners, Chinese whomever, he has three or four questions that he asked. So it’s the same questions about what’s your favorite Chinese food? What was your favorite one time experience? What was your favorite one time event in China, and it just brings so much insight into life. I mean, just simply life in China, not just how to do business. And I sometimes think you need to have those two things, knowing how to do business plus, just how people live on a day to day basis to understand a little bit more how things work.

 

Jonathan Bench  52:20 

Great. Thank you for those recommendations. Fred, what do you have for us?

 

Fred Rocafort  52:24 

It’s an easy one this week. Last weekend, I saw a movie on Netflix called White Tiger. It’s an indian movie. And it is it is fantastic. It is one of the best movies I’ve seen. It has elements from parasite it has elements from Slumdog Millionaire sacred games, if you’ve seen that series on Netflix, it has a little bit of each of those, but it is just fantastic. The acting is great. The the cinematography and production are fantastic. Just a super movie. So I would set this aside for for a time when you know one of those special movie nights when you’re going to sit down and and are going to be paying full attention to it. Excellent movie, White Tiger. What about you, Jonathan?

 

Jonathan Bench  53:11 

There’s a great article that came out recently in the Smithsonian magazine. And the title is The once classified tale of Juanita Moody, so I never get sick of spy stories. And Juanita was the head of the NSA is Cuba desk during the Cuban Missile Crisis. Of course, she was one of I think she might have been the only woman at the NSA in that in that department right in that division during the time so and she was quite young. I think she was still in her 30s when she became head of the Cuba desk. So very interesting story. It’s fun as as these things get declassified, we get they come to light. And that’s how that’s how we can now hear about what she was involved in during that time. So I highly recommend it. That one’s classified tale of Juanita moody in the Smithsonian magazine. Christina, we want to thank you again, it’s been great having you We hope that at some point we can check in with you again and see how business is going and what you’ve what you’ve learned and what you’re seeing. And we certainly value your your boots on the ground thoughts. So thank you again,

 

Kristina Koehler-Coluccia  54:09 

thank you so much for having me. Hopefully, we can catch up actually in China at some point in the future.

 

Jonathan Bench  54:16 

We hope you enjoyed this week’s episode, we look forward to connecting with you on social media to continue discussing developments in global law and business. This podcast was produced by Harris Sliwoski with executive producer Madeline Williams music composed by Stephen Schmid. Tune in next week for another episode. We’ll see you then.

 

Transcribed by https://otter.ai