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Doing Business With China
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China - The Sleeping Giant

Most people have heard the term: "China - The Sleeping Giant!" If you are active in the business community, it will not come as a surprise that China has been awake for some time!

As Ambassador Charles W. Freeman, Jr., said at a recent AMA forum, "It is not that China is growing in influence. Rather, it is that it is returning to a past position of wealth and power, one it held as late as the 1850's when it was displaced as the largest superpower by England." Considering China's re-emergence, how do you enter and grow within this huge new market to import/export goods and provide service activities here in the U.S.

House of Adjustments for several years has cultivated relationships with Chinese officials and within a cross-section of various business entities, quasi-governmental and governmental agencies. We currently receive and have handled successfully a substantial amount of business with sizable amounts/exposure against U.S. companies as well as business from U.S. companies against Chinese entities. While providing receivable management expertise and collection support on delinquent and disputed receivables, we were also developing the ability to provide, as available, comprehensive credit reports on Chinese companies as well as contact assistance and education supporting growth efforts and presence in this area of the world.

As we formulated the steps to begin the process, we were fortunate to have Mr. Henry L. Chan as a colleague and advisor. Mr. Chan is a very well known and respected expert in Far Eastern affairs and trade for over 35 years. He speaks fluent Chinese and is familiar with the complexities of the Chinese way of doing business. Clearly, his insights have been extremely helpful and important to our successes to date and positioning for future growth.

The following are a few areas we believe are crucial to establishing a successful, profitable and on-going partnership in China.

" Relationship Building": This we believe is a key and possibly the most important element of doing business in China. Being respectful of individuals and organizational structure leads the list of "do's" as a trusting relationship is developed. It is necessary to be patient during negotiations. The Chinese are strong negotiators. They are adept at moving quickly when in their interest to do so and moving painfully slow when necessary to delay for further review internally or to gain additional concessions, etc.†

" Due Diligence": It is extremely important, actually imperative, that you obtain sound and objective information on the company(s) you are meeting with to determine if they are the right "partners" for your entry into the Chinese market. Furthermore, you need to understand the state of the national economy, specific industry, company's financial status and operating results for full risk assessment. You may also want to discuss their marketing programs and plans.

If you are contemplating placing orders for equipment or for product to resell, in addition to reviews of financial strength and stability, further research and investigation should be undertaken to determine the company's ability to produce the product and meet manufacturing deadlines and delivery requirements.

" Terms of Sale": Based upon the services House of Adjustments provides our billings are and have been in U.S. currency. Funds to clients in China and their payments to us are via wire transfer and to date there have not been any problems or delays. Clearly, because of the nature of our business, credit terms are not necessary or required. In those instances where for example a direct payment was made to our client versus House of Adjustments, our fee billings have been honored and paid upon receipt. Charges for reports are also done on a cash immediate basis unless other contractual arrangements have been negotiated.

We have received strong indications both from our U.S. and Chinese clients that open credit terms are fast becoming the accepted way of doing business. Therefore, companies shipping product(s) or providing services requiring the extension of credit should be very thorough in their review before determining what "terms" (if any) will be considered to avoid the very dangerous "Ship and pray" and "When in doubt ship it out" type decisions.

The latest survey completed by the Foreign Credit Interchange Bureau (FCIB) for the 3rd quarter of 2003 (74 respondents in the Chemical, Allied Products, Electronic and other Electrical equipment industries) reported 50% open account terms, sight to 75 days clearly stating only extended to Joint-Venture companies and large and well known companies with good reputations. 25% utilized Irrevocable Letter of Credit terms; sight to 75 days and 25% said they required payment in advance.

Letters of Credit should be opened by the Chinese Company at a major Chinese Bank such as Bank of China, Commercial and Industrial Bank of China (CIBC) or Construction Bank of China. We can provide additional banks that also have substantial assets thus potentially avoiding the extra expense of having a U.S. Bank confirm. Another consideration is the location of the Chinese Bank. Our experience is that when located in a major city, the likelihood of problems/payment delays are minimized versus a location in an inner city.

Most disputes and payment delays can be avoided by fully understanding the "Terms and Conditions" (requirements) of the L/C. If you disagree with or do not feel that a requirement or several requirements are acceptable, obtain Amendment(s) to the Letter of Credit (maintain with the original L/C) modifying or deleting those stipulations before acceptance and shipment.

The thoughts previously expressed are intended to provide a basis, perhaps even a road map for doing business in China. As you gain knowledge, develop expertise and grow your relationships, you will no doubt benefit from China's economic growth, booming markets and strong interest in continued trade expansion.

House of Adjustments is an 80-year-old worldwide commercial collection
agency and receivables management company established in 1923. We are fully bonded, licensed, and a certified agency of the Commercial Collection Agency Association.

We have seen enormous growth in our international business over the years. Our multinational clientele value our effective results, our personalized service and the professionalism that we apply to all claims entrusted to us. You can reach Ken Wiltsek, President or Mel Chaiken, Account Executive by phone at (914) 381-6000 or fax (914) 381-6499.

Reprinted with permission from the Covering Credit Newsletter 4/30/04 Edition

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