According to recent analytics, China has made the fastest recovery since the COVID-19 pandemic struck. Rethinking strategy and regional set up in Asia is a result of the impact of COVID-19 on business. Success in Asia is based on a strong local presence, and here comes the question: “How to ensure this effectively, lean, and cost-efficiently in the Post-COVID-19 world?”
Here are some excerpts of some Asia economy expert’s remarks for doing business in China.
1. VDMA Publishing House: How does the Corona Virus impact global machinery and technical business and are there any silver linings?
Excerpt of Alexander C. in Singapore: The situation in South East Asia is much more complex. The ASEAN countries, and Sri Lanka, have started to re-open their economies. Industrial production is coming back slowly. Industries related to tourism and traveling are still suffering. Retail just opened. Essential industries are doing well, but many export-oriented industries, such as textiles are in a crisis.
Taiwan and South Korea are outstanding in their effort to fight the virus. Business seems better there but these economies are very connected to the global supply chains as well as China. In the long-term, countries will recover based on their excellent fundamentals from demographics to pure size and access to raw materials – but with COVID-related operational restrictions for the gesture of people.
2. VDMA Publishing House: What are the most pressing issues you see now during the COVID time with business Partners?
Excerpt of Alexander C. in Singapore: Firstly, it is sales and cash flow, But operationally and acutely it is related to HR and Travelling.
Companies rely on traveling to manage their sales networks. Germans are Directors in foreign entities. They are cheque signatories as well. From Singapore or Thailand as an example, European companies use regional technical service teams.
For a while, this can be done with Zoom or Skype but now companies need refreshed local physical presence and Staff Many expatriates in South East Asia and Greater China feel restricted. They have an essential need to return home. Bringing new expatriates out is a challenge. Many Companies now have HR challenges related to restricted traveling.
Expert of Martin Wachholz in China
This is similar in China, but the difference is that China has a huge domestic market, and European companies typically have their own set up in China. Traveling to and from China will continue to be a challenge. This has an impact on projects and sales, but also on the management of the non-Chinese workforce.
We already see that many companies send foreign staff back home. Companies whose performance in their non-Asian core markets has been affected definitely must cut headcount and investments in China.
3. VDMA Publishing House: Asia Revisited is the idea you can think of. For example, some clients say that they have a small sales or service set-up in China but now face difficulties managing that from Europe. What is your response?
Expert of Martin Wachholz in China: We see that often – in fact even before COVID. Many European SMEs are here as hosted entities or as representative offices. Accounting, P&L, cash flow, tax filing and audits, payroll, and supply-chain are often a burden and require management attention. So how do you ensure compliance, disciplinary management but most important sales-control? It is a challenge to manage, motivate, and assess the performance of sales and marketing teams from far away.
With a professional agency, you could build on a well experienced local management team of senior Chinese and German nationals addressing the above aspects. A large part of the professional agency captive business in China is exactly that: management of our sales and service organization.
Excerpt of Alexander C. in Singapore: Asia. Revisited proposes to those companies that offer services as a local partner – in Greater China or ASEAN, and South Korea, Sri Lanka. They can build on well-experienced local management teams of senior local Asians and as well as German and other European nationals.
4. VDMA Publishing House: What business in Asia could be managed by an agency?
Excerpt of Martin Wachholz in China: No agency can claim to be able to manage any business. But what are some companies missing: Commercial experience in China as well as a rational, reasonable, and pragmatic management style. For example, In May 2020 we have established a three-party joint venture with a leading German medical product manufacturer, a Chinese medical product distributor, and the Melcher company.
We take a minority share, provide financial and compliance. Three partners bring together the best of three worlds – a relevant product, an effective sales channel, and a reliable and compliant execution.
5. VDMA Publishing House: This is relevant. We see that some members have a partner in China but would like to grow the business with their entity now. But they are not able to delegate the management capacity necessary. And often they don’t trust the partner’s business forecast to be realistic. What is your advice?
Excerpt of Martin Wachholz in China: Personal contact is very important in Asia. You cannot Skype a handshake. Some professional institutes e.g. Melchers have come to help in such situations. It needs to combine our professional market intelligence, operating experience, and financial ability to check legal concepts and to propose the most suitable structure.
Local teams compile the necessary information to verify or challenge the assumed market data and projections. It needs an M&A team to support companies with background checks and due diligence. Local legal and financial teams offer proposals for the most suitable legal structures of your future entity. We can be the ‘founding directors’ and then handover the entities to the partner. We also suggest the joint-venture structures mentioned above.
Excerpt of Alexander C. in Singapore: We can set up companies, but we can also act on the companies’ behalf. This will cut the direct cost for the European company. ASEAN is very heterogeneous. Indonesia, Singapore, Thailand, or Singapore – just to name so different economies. We have the local ability to offer very specific advice and to establish and set up companies. We can also do the opposite and liquidate a company and take over your staff to offer continuity but without fixed cost.
We understand the challenges of local compliance, as we maneuver our entities through these complex bureaucracies. Singapore is often used as a regional headquarter and we are well set up here to assist in ASEAN. But even in smaller countries like Sri Lanka, we have competent local management; if you have a sourcing challenge, we can help.
6. VDMA Publishing House: In summary – what is your advice?
Excerpt of Alexander C. in Singapore: COVID and digitization raise new challenges for companies active in Asia. One pressing question is how present you must be in geographically distant markets like Asia. Is an indirect organization an asset or a liability? Should you prioritize a direct sales organization but outsource the back-office? Therefore, we suggest revisiting your strategy; work with a professional marketing agency to actively manage your organization in Asia.
In China, it is not only about cost but also about efficiency and the utilization of resources, and control. It may not be so expensive to have an ex-pat in China, but it is expensive to control and manage a legal entity. Companies need to rank and assess the real value of their organization. To compete in China, companies need to be high.
Interesting Related Article: “How to Maintain High Standards of Service While Moving Office“