My quest to ‘conquer’ China
In 1992 I co-founded an automation company with an ex colleague.
Starting from our common experience in a company making industrial weighing and batching instruments and turnkey solutions, we gathered a small team of engineers and in 8 years we grew a portfolio of customers and projects that had a steady although not steep growth path.
By the end of the century it was becoming more and more clear that industry was moving out of Italy and most corporations were transforming their technical offices into external resources. They were offering incentives to their engineers to create spin-off companies so that they could externalise the cost of software and design. The process was creating competition in the market where my company was active and making my customers even more arrogant than they traditionally were.
On top of this the tax burden in Italy, already one of the highest worldwide, was becoming even worse as the government, seeing the contraction of the employee workforce in favour of self-employment, was finally free to apply heavy taxation on “new entrepreneurs” without fear of unions and industrial corporations.
We were developing in house and deploying overseas the large majority of projects. We were exposed to heavy competition and taxation at home for projects that we were making for Italian companies, who were making large margins on our work and selling it abroad.
The business plan
After organising the data in a spreadsheet and creating a couple of graphs the opportunity to change the situation in our favour appeared quite obvious. In year 2000 I prepared a simple plan to open a subsidiary in Asia, specifically in Hong Kong, relocate myself in Guangzhou where I was deploying a large project, and start providing the same services to the same customers at lower prices and yet with much larger margins.
The plan was quite detailed and included a chapter about how to finance the operation: with savings on taxes and even with 70% of the revenue of the last year we already had all that we needed. Of course there was also the analysis of the market and a marketing plan.
It appeared quite obvious that the industry in China was in deep need of our competence and no one was addressing the need. Our customers were selling products, not technology. We were those developing the technology for them. We were those who had to stay months on site to make Western design and technology match with the needs of industries at a different stage and on a different path toward automation, and through this we were owning a key part of the experience.
The plan was approved and in 2001 I moved my residence to Guangzhou and founded the Hong Kong subsidiary.
The (non) business
In 2002 my partner closed the company in Italy and left me alone with 0 funding and 0 portfolio in China.
What had happened is very simple: I made a big mistake. We were both engineers fully engaged in project work, but I was the one also engaging with the customers and developing relations with them. When I left no one was available to take my role.
I was in China, extremely busy with the project that brought me to Guangzhou, not paying attention to the situation back home. My partner was busy with projects and was not prepared to substitute me managing the relations with the customers.
Loosing contact with the customers made our portfolio evaporate and the fierce competition won easily.
When the disaster happened I tried to keep working on my own in China as I had worked in Italy, but soon enough I realised how naive my plan was.
In Italy I could go and meet old customers, they were referring me to new customers, I could also go and meet new prospective customers, telling them of projects and names they knew and could easily assess.
In China I tried to talk to new customers, but they were not interested in a tiny consulting company. They could buy turnkey solutions from important foreign suppliers, why would they listen to me who could only provide a component in those solutions, the automation software, that they were not even very aware of as it normally was implicit part of the overall supply?
My own customers were not interested in working with me anymore because they were considering me as a potential competitor, too close to their own market. For them If I was permanently in China then I could develop strong relations with their customers and possibly aid their competitors.
When I tried to identify in the Chinese market the local competitors of the type of international business I used to work with, I realised that what I could offer in terms of knowledge and competence to the Chinese companies was at the time beyond their interest.
I struggled for a couple of years trying to make ends meet. I was lucky I could secure a couple of small projects with old loyal customers, but I definitely had to learn a lot and the hard way.
After nearly 20 years, looking at all I’ve done here, I don’t regret the decision to move to China, but definitely I am happy to share some of the lessons I learned with others who are more humble and clever than I was
The lesson I learned
- Look at the big picture, not only at the slice your business window shows you.
- Choose your partners carefully, understand their values and weak points and state clearly each one’s role and responsibility.
- Remember where your money comes from–most likely your customers, not savings on costs or investors.
- Validate your ideas with sustainable proof of concept and accept they may not be as good as they seemed in the beginning.