Dear Smart Shanghai Team -
I am the owner of a company in the Shanghai area, and am looking for a foreign JV partner to help me expand my factory. During my negotiations with one US investor, I told him that my company had a tremendous advantage – NO COMPETITION. I have personal connections with the local government, and was able to get a license to sell a certain kind of product that no one else has. It is a great opportunity, but he still said no! I don’t understand. What do you think happened? –
CKL
Dear Mr. L
We understand your confusion. You have used personal connections to gain a competitive advantage – exclusive rights to produce or sell a product in a certain area. But for some investors, that is less of an advantage than you may think. There are two reasons for this.
• It is a temporary advantage. Other people in China have personal connections as well. In addition, there are other market forces at work. China ’s investment laws and regulations are changing rapidly – and usually becoming more liberal and open. This is a very positive trend – but it means that there will be more and more competition. Your investor may be worried that in a few months, your exclusivity will disappear, and then you will be faced with more competition
• Scalability or Expansion. You may have great personal connections in this city or province, but what will you do next? How will you expand your business? What happens after you satisfy this market? If you main advantage is your personal connections and exclusive arrangement with the local government, you have no clear advantage in other markets. Investors are always interested in knowing about your strategy for the future. Some overseas investors think that personal connections are more of a strategy for the past.
You should talk about operational advantages – things like distribution channels, market recognition, product design, technology, production methodology, etc. Overseas investors like to hear about profitable operations and market strategy. Your personal connections are a great asset – but you probably have others, too. Focus more of your conversation on PROFITABILITY and MARKET GROWTH.
