Understanding Chinese business customs and forming close ties to partner companies there is crucial for dietary supplement firms looking to the Asian market to grow their businesses, according to industry experts.

"When you are buying from China you need to understand the differences on how we do business and how they do business," says Warren Majerus, an auditor for NSF International and an industry consultant with extensive experience in the country.

Jeff Crowther, director of the Natural Products Association's office in China, agrees.

"You really need to make many trips there - even if you are not going to set up an office - to really understand how things work and how you can protect yourself," he said.

At the Natural Products Expo East in Boston Oct. 15, Majerus and Crowther offered advice on working with Chinese firms as ingredient suppliers, finished-product manufacturers or distribution partners.

As an example of different business norms, Majerus said while purchase orders in most markets are binding contracts, in China they are often considered a starting point for negotiations.

"If they like you, you come to an oral agreement. That is as good as you will probably get in agreements with China," he said.

Dedicate Staff

Crowther recommended that before supplement firms work with Chinese partners, they assign employees to focus on doing business in the country.

Completing due diligence before taking action is also critical, he said. "Look before you leap," Crowther advised.

While firms often look to hire well-connected Chinese partners in order to "hit the ground running" with their businesses, it is important not to cede control of a business to representatives in the country, he said, adding that visiting operations in China as often as possible helps keep investments secure.

He recommended that businesses contact a trade group with an office in China, such as NPA, and also consult the U.S. Department of Commerce's Commercial Service for business strategies and information on the reputations of foreign partners.

Preparing before commencing work in the country or with partner firms there is particularly important because U.S. law forbids government intervention into litigation that is already underway in a foreign court (¹ Also see "Looking To Expand Into China? U.S. Commerce Is Your Concierge" - Pink Sheet, 28 July, 2008., p. 11).

Mix Friendship With Business

Majerus, who plans his 32 trip to China in December, said that becoming familiar with the people operating Chinese businesses is a good place to start.

Ingredient suppliers and other businesses in the country can be good resources for information, such as where to obtain materials or what distribution partners to use, he said.

Majerus said knowing whether suppliers have been audited by a third party and letting them know their ingredients will be tested by product manufacturers also are important to sustaining agreements.

He stressed the importance of friendly bonding with operators of partner companies.

"If you want to get into China and really do business, you need to get to be one of those trusted friends," said Majerus.

"If you want to be in the business of dietary supplement manufacturing sales, we have to look globally," he added.

"We are not buying in Kansas anymore."

- Katie Stevenson ( k.stevenson@elsevier .com)

In China, Foreign Firms’ Success Often Depends On Friendships

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