China Forex Diaries: Be Humble or Be Screwed

China is an unforgiving place for the arrogant and the inflexible.

This article was written by Eugenio Accongiagioco, Managing Director of APAC Management Consultancy.

Twice your expectations

John was standing on the edge of the terrace of the Vue bar in Shanghai, enjoying his third pint. In front of him was the unblocked 270 degree view of Pudong, the Huang Pu River, and the Bund.

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“Hell, Eugenio, this city must have as many towers as New York!”

I only replied “Yeah, it’s beautiful here”.

What I really wanted to say was: “There are twice as many towers here; reality in China is always twice your expectations”. Or something along this line.

But I decided to shut up for once. After all, I had spent the whole day trying to contain his enthusiasm and manage his expectations, so I did not want to go back two steps.

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John is the fantasy name of any CEO of any of the forex brokers attempting to enter the Chinese market. Pick another name: Dimitri, Noah, Mohammed, Vishal, Roberto. Maybe pick another drink. But their train of thought is always the same.

Getting into China

I had first spoken with John two months earlier, during a conference call. He was still abroad, in his HQ in Europe, his head of business development joined as well. The call went more or less like: “We are doing very well, we are a great company, now we need to get into China.  Everyone is already there, but I think we know how to crack the market, we have an edge, and we already got into many countries with success. Eugenio, how can you help us?”

The second call usually takes a more aggressive tone: “I promised to the board that we are going to get gigamillions of clients and teramillions of profit after 12 months, because China is that huge.”

And then more: “I just spoke with the CEO of freakinglargecompany.com and he told me they made so much money. He is my friend you know? It must be true.”

The call ends with a final hint: “We really need China because we plan to be listed, or get a huge P.E. fund in. Next year. Two years tops. What are the next steps?”

Sounds familiar?

John is a successful entrepreneur who had good ideas, perfect grasp of timing, built a profitable company, survived when others failed, made millions, is self-confident and rightly so. John deserves my respect because I do not believe in luck, I believe he created his own opportunities, and he is good at it. I believe that luck is, in fact, a skill.

Still, with all due respect, John might fail in China. Why is that?

Adaptability

A certain professor Megginson from Louisiana once remarked on Darwin’s theories in a single statement: “It is not the strongest species that survive, nor the most intelligent, but the one most responsive to change.”

When I share that with John, he responds: “My company is already adaptable to change, we entered so many countries before approaching China.” Red flag.

He continues: “Actually, we even have an internal procedure to enter new markets, which we have already been using successfully in the past!” Wailing sirens.

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John goes on: “You know I just arrived 3 days ago and I am convinced I can get more business here now that in all my past elsewhere.” Red alert!

He ends with: “We just met an agent in DaLian the other day who asked us to finance a small local office for him; in exchange he’s going to bring in a million per month.”

At this point, if we were having a face-to-face meeting, I would invite my client to take a seat. John is affected by what I call the kid-in-a-candy-store syndrome, which foreign entrepreneurs are very susceptible to when they visit but do not live in China.

This illness belongs to the family of ‘things you don’t know you don’t know’.

The conversation could then go ahead as follows:

“John, imagine you are a lion, you are the king, you are a market leader in your country. Then one day you decide to explore and conquer a bunch of neighbouring countries. You discover that you need to adapt.”

“If you are going to say that I am going to fail…”

“No, you succeed. It comes easy for you to adapt. You are convinced that you know how to adapt. That is where the problem lies.”

In fact, chances are that when John enters China, his ‘adaptive model’ stops working. What is worse: by the time he starts realizing that something is wrong he is already down half a million dollars.

Was John doomed to fail? Was his company disorganized? Was the management not up to the task? No.

The problem often originates from the fact that both strategy planning and execution were based on biased data, wrong assumptions, and way too much self-confidence.

Most of the good things you heard about China are true: number of potential clients, wealth, risk approach, number of mobile users.

Checklist

But chances are that you are ignoring the points that require your attention. Just run a quick check. I listed below a few of the many questions I usually get from my clients.

  1. How do I minimize the risk to upset local authorities?
  2. What are the usual mistakes of FX brokers in China?
  3. How do I adapt my offer to meet Chinese demand?
  4. How do I process deposits and withdrawals?
  5. How should I set up my local office in China?
  6. How do I save on tax and cost of personnel?
  7. How should my Chinese website look?
  8. Is my website loading quickly from China?
  9. What is an ICP and how do I get one?
  10. Is my trading platform quick enough in China?
  11. Which marketing channels should I use and when?
  12. What about Chinese social media platforms?
  13. Where do I get an experienced Chinese country manager?
  14. What about Baidu?
  15. Is my bonus campaign going to work?

If you don’t know the answers, do your homework, read, hire professional advisors, interview locals, build your knowledge. Compare the answers.

And when you are done, do not forget to follow the advice. I often see companies investing big bucks in research and then they go ahead with the plan they had in mind in the first place. And then it’s all cry, baby, cry.

If you do have all these answers, and a plan built accordingly, please remember to execute said plan immediately, because China is always changing.

If readers will show interest, I will be happy to write more about China and address some of the points above over the next weeks and months.

In the meantime, please remember: your success depends on the way you approach China: either you are humble or you are screwed. It’s as simple as that. Don’t be John!

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