Thursday, January 8, 2009

Learning Experience Dubai 1 - 3

This is the third and final installment of the learning experience in Dubai. The focus is on making money in Dubai and UAE.

There is one word to making money in the middle east and that is Relationship. It is not how much you know but in many instances it is who you know. In the many years I have running around in the middle east, I have met with people who would come and propose project to either raise fund or find the know how and every time they will highlight that this project is linked to this princes and that princes. There must be a lot of princes in middle east and it is true there are many princes in Middle East :)
Question is which is the right prince to network with?

I have a mathematical correlation for relationship. Relationship is a function of time and event.

Relationship = fn {event, time}

What it means is that for you to succeed in this market, you need to invest time in building your connection and also create events like calling them or visiting them etc to improve on the relationship. In this market you will eventually see the results

Making money is one thing but the more important thing is the repatriation of money home. This is common sense and yet over the years of traveling, I realized that even big companies have not consider this aspect. For Dubai and Abu Dhabi this is not an issue but countries like China and India, it can be a very painful experience. There are many ways in repatriation of funds, unfortunately it cannot be shared in this learning experience. It is not illegal, it is just ........

Think about how you want to take your money out of the market before developing the market.

I hope you have enjoyed the sharing experience.

Learning Experience Dubai 1 - 2

In Learning Experience Dubai 1 - 1, I wrote about getting into Dubai and UAE. In Learning Experience Dubai 1 - 2, I will share with you about staying in business in Dubai and UAE.

2. Working with expatriates
I realise that if you take out all the expatriate in Dubai, the whole economy will collapse literally overnight :)

From the top management in PWC, Oracle, Microsoft, Nakeel, Dubai Holding etc. are supported by expatriates. I believe Dubai 20 % are local and 80% are foreigners, hence working with these expatriate is necessity. It is something that every foreigner coming to do business in Dubai have to learn to accept. Sound very ironical - foreign working and expatriate :)

I realized that if you are a sales person coming to sell something and want to see the company Big Boss who is a local, there are several "gantries" to overcome. Telephone appointment seldom work unless you have something that he really need. The other alternative is come direct to the company and wait. The first gantry is in most cases the Filipino reception, who is very non committal. Even if you convinced her (yes it is always a her) that you need to see the Big Boss, she will put you through a manager and in most instance it is an Indian and in most instance comes from Kerala and speaks Malayanan. If you convince the manager from Kerala that you need to see the big Boss, you get to see the general manager who is either from Europe (I have met Finnish, Swedish, Irish and even a Cornish from Cornwall in UK) or US of A. Many a time he is not the Big Boss....... If eventually you meet the Big Boss, he will do business if you speak Arabic.So my conclusion is that to be very successful in sales in Dubai, you need to find a Indian salesman from Kerala who speaks Tagalog, English and fluent Arabic :)

Joke aside, I just describe to you the business structure of a typical multi national corporation in Dubai ......

3. Business cost in Dubai
The cost of doing business in Dubai has escalated in the last few years. Rental has gone up tremendously and so have wages of employee. I remember once upon a time where you can get a good manager for US$700 per month now it is over US$3000 pm. Just yesterday, the lease cost of a plot of land in a free trade zone shot up from 6 Dir to 7 Dir in over one month and it was only asking 4 Dir about a year ago. Is it speculative ?????

Taking about free trade zone. It is a very common feature of the middle east country. Whether to base in a FTZ when you first start up a business will depend on where your customers are. I know of an engineering company that is based in Jabel Ali FTZ for the last 20 years and doing very well as all its customers are within the FTZ area. Know your customers. I also know of a furniture company who started up business outside the FTZ for the last eight years. The only issue this company faced and I have spoken to the owner many time is the 51% local ownership. He pays the local owner US$X every year, for doing nothing and for the last eight years this amount has been increasing exponentially irregardless of the profit growth. The owner wanted to change the local sponsor unfortunately the asking price is set by the benchmark set by the previous local sponsor. This is one issue that you must be careful. In the enthusiasm to start up a business, you have to take into consideration this cost and also you are not even the owner of your own business........

To be continued......

Learning Experience Dubai 1 - 1

As promised I will share the experience of Dubai with you.

The Dubai assignment was started 6 months ago. I have a very good client who is always talking about the Middle East market and how his product can penetrate the market. They manufacture carton boxes packaging. At the same time, SPJ was looking for IIP project for their students. I spoke to Prof Dalvi to have the student to do a market study.

I just arrived in Dubai this morning and in the course of the next 4 days (I leave on Thursday), I will share the various meetings and understanding I had with you on Dubai.

The learning experience will be focused on the cultural aspect of entering the Middle east market, I will not talk about the project specific as it is an IIP project which the students are still working on, you lot will understand.

1.Hard market to penetrate
Entering the middle east market is very difficult meaning making money in this environment is not easy. It is true Dubai and the rest of the UAE is booming with double digit growth in the last few years and there are many projects up for grab. As a foreign company coming into this market, you need to be very patient.

My first consultancy assignment here was with a Malaysian electrical installation contractor, who have heard of the many construction projects in Dubai and Abu Dhabi. I have been to the Middle East since the 1980's but this is the first assignment to set up a business in Dubai. Our first visit was tough. You need to understand the concept of Arabian time. You can come for a pre agreed 1 pm appointment and end up waiting for 2-3 hours and when you finally meet with the person, he does not feel bad about keeping your guest waiting :) In Singapore, the person would have walk out. Even during the meeting, the pace of conversation is very slow, there will be silence in a conversation....... You come to appreciate that you have to give allowance for your meeting and appointment :)

It was after six trips to Dubai to have finally landed with a project and after that things are alot easier. You need that first project to get you started. The total cost before we got our first project was about S$50,000 or 100,000 Dir. Imagine a small company wanting to start up oversea business and the kind of investment you have to put in. This exclude the manhour cost and cost of lost opportunity if we did not secure a project after six visits. Thankfully we did. Have we got our returns, the answer was Yes. The company is still operating in Dubai and have expanded to Doha as well. Expansion has its problem. That will be something we talk about next time.

There are several things I learn negotiating in middle east.
1. Never confrontation, reduce the eye to eye contact as much as possible. Arab client do not like to be cornered.
2. Have contingency option A,B, C.... even if you like option A and it give you the best return, give the Arab client what they want and eventually the follow-up work will come back to option A....
3. Never Hard Sell, I come to realize it never work. At the meeting we were proposing and hard selling a cheaper material and yet the client wants the most expensive. It is waste of money and we conceded.
4. Build relationship. Do not try selling all the time, get to know the client and more important the family..

To be continued.....

Learning Experience China 2 - 3

6th November 2008

End of my Shenzhen trip and waiting to board my plane for Singapore from HK international airport.

I guess most of you wants to know what was my client's decision.... to lock up the factory and run or stay and fight :-) I will give you the answer later..... but first I must share with you some of the more fascinating experience of China

I have brought many Indians to China and two of the best experience and one of the best impression are....

The best impression of every Indian who comes to China for the first time is the infrastructure. Many people not just the Indian are impressed with the road, the toll, the flyover of this country. Indian will wonder why and some even wished that the Indian can do the same in the years to come.....

The two best experience are

1. The massage and the spa.... Yes, even the most conservative Indian that I have brought to China enjoyed the experience... The Chinese has perfected the art of massage treatment through providing a wide range of professional service for young and old but also at a very afforable price.....Massage that is mixed with traditional chinese medical knowhow..... having your hair washed can be 100 minutes at only S$7 and the head massage is very refreshing. This is one thing you should have in your itnerary when you visit China.

2. The bargaining experience at shopping centre. Chinese loves to hagger over price and the Indian likewise love a good bargaining. If you are in Beijing there is the Silk Market and there is also in Shanghai and even in Shenzhen Luo Hu Shopping Center. Rows and rows of shops. It is a game and there is never any ill feeling even if you don't buy at the end. To top the experience the product can be your "Montblanc" pen, "Cartier" bags, "Gucci" wallet, "Rolex" watches etc.... Yes the imitation stuff :-) It is an experience you will enjoy.

Now back to the decision. We talk into the early morning.

As a consultant I cannot make the decision for him. It was his trust that brought me to meet with him and to share/consult something that is so critical in his business life. If he just run away, then he will not have to face the creditors - banks, suppliers and even government official. He is a foreigner who set business in China and closing the company, he just need to pack and not come back to China like what so many people have done before him. If he stay ........ he kept stressing on the employee who have benn with him from day 1 when he started the business........

This afternoon we went to see the banker and he has told us that there will be some government assistance to help small business tide over this financial crisis.... This is good news. With bank I like to believe that they do not want to see business go down as they will loss an account. So for your experience if you ever come to this position, talk to the bank on the length, the breadth and the depth of your obligation - meaning extent of the duration for payment (the terms), the payment amount (the quantum) and the interest payables. There is a fourth dimension.... what they can receive in lieu.

Finally the question is will he run..... I don't really know ?????

Learning Experience China 2 - 2

5th November 2008

There is a queue outside a factory in Fuyong near Shenzhen. This is not a queue for workers getting their lunch or waiting for a transport to take them to their hostel but a queue for compensation. Every worker will have about RMB 600 from the state government. In the queue I saw not workers but families. The factory manufactures small capacity transformers for toys and talking to people in the queue, I guess must be closed due to the falling demand for toys which I was quite surprise, afterall X'mas is coming....

There is a Chinese saying that for every factory that closed down, the stalls will be affected. In this instance when the factory that manufacture toys get wind down, their suppliers will be affected and even the small stalls outside the factory will lost their business as the workers who patronize the stall will not visit them. There is a lesson to learn from this story. If you ever go into business, never be the sub contractor to sub contractor to sub contractor. Always try to move up the value chain to be main contractor. For one thing the sub contractor to sub contractor gets to be paid last in the chain. Another lesson is that have a wide customer base and not dominated by one main customer as this case of the transformer company. They have only one customer on their book and also they subcontract the work to build the transformer that goes into a power pack that goes into one part of a toy that goes into the complete assembly of the toy........

By the way the owner of this transformer factory disappear, according to the workers I spoke to. He or she just lock up the factory door a fortnight ago and disappear, no where to be found and no one know where they are. Workers came to work one day and realize that they are out of job...... and for the past one week they have been "rioting" outside their factory....... Closing the factory gate and disappearing is one way of winding down a factory....

I spent the whole of yesterday talking to my client. Sorry cannot tell you who they are.... :-( .... He is facing mounting debt, first from the falling demand in the engineering sector and heavy bank loan which he took to invest to upgrade his machinery. He has three options

1. To close it himself - Voluntarily
2. To have someone to wind him down..... Most likely to be the bank
3. To bear this out, re-structure their liability and not give up

This is a tough decision.

Then there is the question of need to closed down and want to close down.

A business to the entrepreneur is a life - like a baby that they conceive and grow. There is emotion involves with this "baby". There is certain possessiveness. Sometime this "Baby" is more important than their spouse or even children. So when you talk to someone whose "baby" is either very sick or dying, it is a very difficult discussion. The lesson is to be learn from here, is that as an entrepreneur you must be very objective and able to look at a situation from an overview. If the "Baby" is dying and also is going to drag you down (remember the liability of a Private limited company) the entrepreneur must learn to chop and kill it. May sound very blunt but in business and living..... life do go on..... for business may close and start another in another day..... life and family goes on. Coming back to the need and want..... when you need to close it down because the business is going to bankrupt and your wife is going to leave you.... then objective close it .... but if the business has a chance of survival and that 600 families depend on this livelihood then don't give up. Many business that have survived through tough time will come out stronger from the experience.... believe me I have been through it many times :-)

What is my client decision...... to be continued....

Learning Experience China 2 - 1

3rd November 2008

I am now sitting at Hong Kong International Airport, waiting for the ferry to take me to Shenzhen and I thought it is good time to share some learning..... Learning Experience China 4 ... about the financial crisis and its effect on China

Sitting at the airport, I realize the volume of people that goes through this airport.... It is mind bogging. Just looking at the chairs and the queue.

I am on his trip as a result of an acquisition in south china.... the factory to the world. I have a client in China wanting to sell his business and raise some fund for his other business. Anyone interested in buying a fastener business:-)

In the last few months, I have several calls from some of my clients to look for investors for their business. To come and see them and see how I can help them. These are the people that employed ten of thousands of people, manufacturing from electronic, to household goods and garment for the export market. I am talking about the small business but the medium size business. Some of them have been around for over ten years. In the last one years, bankruptcy are in their thousand and retrenchment are in tens of thousand. It is bad.

There is three reasons why this is happening

1. The rising cost of business
In the last three years of traveling to South China (my specialize area of consultancy), the cost of labor has been increasing and also government enforcement of health insurance and other taxes have make the "cheap" place for production extremely expensive.Labor cost up by 30% to 50% in the last years. I remember Guangzhou has the highest GDP in the whole of China a few years ago and now......

2. The falling demand for goods
There is a steady drop in global consumer demand. This was evidence from the recent exhibition and expo which I attended, there is less European (the main market for China) attending these exhibitions. Surprising more Indian and African...More enquiries than orders. I notice the changing attitude of the exhibitors as well, there are more keen to talk to any one who come to their store, at one time I remember they were very selective.

3. The current financial crisis
This crisis affected many factory owners who have started their business with bank loans and financing for their supplies etc. The crunch has affected borrowing facilities and hence cash flow is an issue for these owners. It is very bad at the moment

We will talk about winding down a business.....

to be continued......

Learning Experience China 1 - 3

April 12

For this learning experiences, I cannot go into details as it is an on-going project and confidentiality is very important. Hence this will be the last experience sharing for China. Maybe when everything is finalized I will share the further details with you. I will however give you the feedback, my Indian client learnt from the whole experience in China.

1. China infrastructure
My Indian client was very impressed with the infrastructure. This is the key difference in the economic progress between India and China. True there are still traffic jam in Beijing and Shanghai which is no different from Mumbai and Delhi. But looking at the infrastructure surrounding the two Chinese cities, it is the organization of the road and the speed in which is constructed. I remember when I was last in Beijing in mid 80's, there is only one ring road surrounding the capital. In year 2008, there are six ring roads and two more coming up. Even in Shanghai, they are building four underground tunnels across the Huangpu River to ease the traffic, all in next two years.

It is not that the India are not good contractors, the key difference is the government. China Politburo is focused and succession smooth for the last 30 years, while the Indian government changes every four to five years and so does its policies.......

There is another logic to why the infrastructure is so well established and this is my deduction. You see every provincial government gets their funding from the central government and with the funding comes the KPI. Construction and infrastructure are the best illustration of the province or cities deliverables. How this logic can be applied to India ?????

2. Attitude
My client felt that the attitude of the Chinese are arrogant. We went shopping, site seeing and experience service at a top hotel, the general feeling of my client is that the Chinese is rather arrogant. I personally think the word is not arrogant but the lack of understanding and cultural difference on the Indian.

Take for example service staff, I rate service staff in India very highly - one of the best in the world. I believe this has to do with India culture and also caste perspectives. In China serving others is not a norm and this is magnified by the one child policy. Let me explain. Since 1979 when the China government in order to control birth rate implemented the One-Child policy across China and by now many of these one child are in the working age. Can you imagine a child who is brought up by six parents (two parents and four grand parents), he or she must be served mouth to foot and now these young people are coming into the service line...... what do you think will be their attitude towards service.

The Indian in China must also manage their expectation. There are many good things in China that they have to appreciate and must not compare with India.

3. Market Forces & Pricing
Cheap goods and imitation are readily available in China. Some are so cheap that you wonder that they are sold below cost. True. Some are sold below cost. Let me explain. While in Shanghai we came across an imitation branded watch. A very good imitation - mechanical, convex glass, serial number, screwed casing and lock mechanism. Perfect in every way. They were asking for RMB 400 per piece and eventually sold for RMB 100. If I break down the cost of the watch, (I know the price well as I have know of a watch factory in Guangzhou.)

For a selling price of RMB100, the cost
Leather belt = RMB 15
Convex glass = RMB 10 (if flat glass for watch is RMB 6)
Watch mechanical mechanism = RMB 50 (for quartz is cheaper)
Allow RMB15 for logistics, middle man profit etc.
The total cost is about RMB 90, he makes RMB 10 per watch.

This is a volume business and when the peddler approaches you, he is happy with a small margin as he is going for volume trade. At time they may go below cost like selling for maybe RMB50 if you buy two or more. They will make the money from someone else.

BTW this is never found in any of your MBA text :)

4. Language
After the China trip, the conclusion was LANGUAGE. For Chinese to explore India as a market, language is an issue. The Indian cannot speak Chinese and Chinese cannot Hindu/Urdu/Tamil et al. I believe this is the short term problem and in another 5 - 10 years, there will be many Chinese in India. Chinese do recognize the size of the India market and the potential of the market in terms of construction, retails, electronics sector will be very attractive.

I cannot disclosed what was the final outcome.......

Learning Experience China 1 - 2

Date 24th March

My biggest problem of going to China with my Indian client is FOOD :) Hence in the many trips that I brought Indian to China, I always comes one day earlier to check out the eateries. In the first trip many years ago for an Indian client looking to startup the import of electronic medical goods to India, on the first day we stop at a Chinese vegetarian restaurant. It was a bad experience as all the food were cooked with garlic and also ginger and as you know some Indian vegetarian do not take these product. Big mistake on my part. Since then I always look for Pizza Hut or western restaurant that serve pizza. In KFC and Macdonald, safest food is French fries. For your info, there 300 over Indian restaurant in Shanghai and about 40 Indian restaurants in Beijing, this will there you where all the Indian companies are in China.

In any collaboration, it is 90% emotional and 10% technical. When you are looking for partners in M & A work, focused on the emotional. Focused on building relationship. Focused on building the bridges first. I went one day early to meet with the various parties who my Indian client is keen to meet. Meet with them, introduce yourself, make them comfortable with you.... even giving them a copy of my book. So when you meet up with them the next time with your client they are more comfortable to chat with your client. Indian and Chinese are the same. "Guan Xi" or relationship is very important.

The next day when my Indian client arrived, it was a packed program. On landing in Beijing, I take them to meet a contractor in the hotel, then a short break to check in and then a very famous Chinese architect for dinner. The next two days is visit after visit, including visits to hotel development and shopping mall. Why the packed program?........

It is not all work, in between we visited the Silk Market, Great Wall, Forbidden City etc. Reason is to understand where China is in their economy. I learn long time ago is that when a country starts focusing on their heritage, that country has reach a high status in their economic development..... someday the India government will do to the Red Fort in Delhi what the Chinese is doing to restore their Forbidden City......

We then proceed to Shanghai and we did the same thing with a packed program of visits and meetings. Beijing is to Delhi what Shanghai is to Mumbai. Shanghai is the commercial center of China. Surprising on this trip to Shanghai I noticed a lot more Indian tourist as well as professional working in Shanghai. A very good sign.

There are many lessons my Indian clients learned from this trip and it is typical of the lessons learn for an Indian coming to China......

To be continued.

Learning Experience China 1 - 1

20th March 2008

Dear All

This is the China version of the Learning experience. This is the bringing of Indian company to China. The learning experience was written on the 20th March but today I was able to sent it out to all of you. You are all keen to know what I do for a living hence the learning experience write-up. This is different from the previous as it is to do with China.

Indian company is a hotelier planning to built 8 hotels across India. One is already build in Bangalore and another is in progress in Calcutta. My client have heard a lot about China and about Chinese speed and quality of building and hence keen to find a partner in China to work with for their hotel project.

My scope of work is to find the partner who is keen to look for project in India. Easier said than done.

The reputable architects and designers are found in the major cities. Through personal contact, internet etc, I managed to fixed a few major players in the industry, criteria must be able to do the complete turn key from design conception to building to interior and finally assist with the hotel management. The problem I faced here was these companies want to know about the Indian company and you will be surprised that some of the big developers in India do not even have a website or even brochures. The Chinese is better in this area of promoting themselves. You have to understand that most of the developer currently in India started with some other business and only come into the property development market in recent years following the property boom in India. It is not right or wrong..... look at it as opportunities :)

Trying also to tell my Indian client about the architects and designers we are meeting in China was also a problem. Most of them have very short history also due to the boom in their economy, hence their track record is mostly in China. The bigger ones have tie up with International firm but still for projects in their own motherland. You have to appreciated that the size of China will have enough work to keep them busy for a long time, need not look oversea. Likewise for India.

Eventually the itinerary is finalized and the dates are fixed. Appointments are fixed.

24/25/26 - Beijing & 27/28/29 - Shanghai

An Indian in China has a big problem

to be continued......