By Mark Schaub, Partner, Corporate, King & Wood Shanghai

Many West European and US companies have thinned out their ranks of middle management in the never-ending pursuit of shareholder value. A China project is likely to be more time intensive and involved (and therefore expensive) than the foreign company initially forecasts. For this reason many foreign investors in China face difficulties in assembling a successful business project team to implement the project. Part I discusses the assembling of an effective in-house team.

Having an export manager deal with a China project on a part-time basis will mean that the project may have a lower priority than it deserves. Having a middle manager deal with a China project on a full-time basis and having his destiny interwoven with the China project (i.e. no China project = no job) may mean the deal will proceed regardless of whether it makes sense or not.

In the author’s experience the most successful China project teams are indeed teams rather than individuals. Suitable team members will typically consist of an in-house team consisting of an executive-level member, a business development manager, an in-house lawyer and a technician; and normally external support including lawyers, accountants and consultants.

In-House Team

(1) Executive
Often in China, it is difficult to close a deal without the assistance of an executive-level negotiator from the head office. It can often be a mistake to bring such persons too early into the game as this demystifies them. Better to bring the high-level negotiator to close the last remaining open points rather than waste him on small wording issues.

(2) Business Development Manager/Project Manager
Projects without a dedicated project manager or business development manager tend to proceed slowly. Ideally, this person will not be the person to actually implement the project if it is a joint venture. This may appear at first glance to be counter-intuitive. However, experience shows that although a dedicated project manager is good, one that is too dedicated can be very bad.

Project managers who end up implementing the project (i.e. as General Manager) will tend to adopt a position of compromising too easily on important issues to the company and digging in the heels for items that, although less critical from a corporate view, may impact upon the General Manager. If the candidate for the General Manager is already clear, then it is useful to have him or her involved but not leading the discussions.

Case study: Our Friend François
An example of such an issue was with a French chief representative who was negotiating a joint venture for his company. François saw his very career being entwined with the formation of the joint venture as he would be the General Manager. The project was to be a 50/50 joint venture due to legal restrictions.

In the initial letter of intent, the parties had agreed that the French side would nominate the General Manager. However, as one may expect, during the actual negotiations of the detailed joint venture documentation the Chinese side wished to have a “veto” over the actual appointment. Sacré bleu! The Chinese side was sensitive to François’ obvious discomfort with the proposal which appeared to him to be a thinly veiled attack.

In order to smoothen our Gallic friend François’ ruffled feathers, the Chinese explained that it was not that they were against François as General Manager. No, François was their friend. No, François was a competent man. No, the problem was that the Joint Venture was to last for 20 years and their concern was whether François’ successor would be equally competent. François’ response (unfortunately heartfelt) was that they should not worry. It was clear that after his term as General Manager, he would return to France and have a board position in the headquarters and be responsible for Asia. Accordingly, the Chinese partner could rest assured that François would still be involved. It was a little difficult, but I felt it necessary to take François to one side and explain to him: “1. The Chinese partner is interested in doing the project with the company, not with you; and 2. they were only being polite — they do not really think you are competent.”

(3) In-house lawyer
A much maligned breed. For many project teams, the in-house lawyer represents the worst nightmare — the lawyer you cannot fire.

However, in-house legal counsels will often play an important role in a China project.

Their main advantages are: (1) they have a good understanding of the foreign company doing the project (i.e. what is feasible and what is not); (2) they can play an important role in ensuring that the proper headquarters’ resources are brought to bear as required; and (3) an often underrated advantage is that they are able to ensure that outside counsel remain focused on the project.

When the legal counsels are good, they can be very good for a project. However, occasionally one comes across in-house counsels that seem to block everything. As the Chinese saying goes: “A man who cannot say yes is useless, a man who cannot say no cannot be trusted” (不能说“是”的人没有用;不能说“不”的人信不过。). Some in-house lawyers from headquarters fall within the “cannot say yes” category.

There is one tried and true solution to such a dilemma — invite the in-house lawyer to attend negotiations in China. Most China project negotiations do not occur in metropolitan Shanghai or Beijing but in relatively remote areas. One trip will normally be enough to change the in-house lawyer’s attitude from “No way, this is a crucial issue” to “OK, well if you cannot negotiate that point, I understand it is difficult to second guess negotiations when you are thousands of miles away (please God, do not make me go back to that hell hole)”.

(4) Technician
Almost all China projects have a technical or technological element. The technology is normally an integral part of the potential risk as well as being crucial to the project’s success. Despite this almost all joint venture projects are negotiated without the participation of technicians. Input from technical staff is crucial in determining how to protect technology, assess what technology should flow into China, and also crucially, how to transfer technology to China.