Warren Osborne stopped believing in serendipity the day he starting doing business in China. Like many entrepreneurs wanting to expand to Asia, Osborne, CEO of Seastone LC, a Provo-based gift card company, says the transition requires more than a bit of luck — it takes hard work, realism and understanding of Chinese customs like “saving face.”

Businesses in Utah are looking to China as a means to reduce costs and capture its vast market, with 1.3 billion people and the fastest-growing economy in the world. Since joining the World Trade Organization in 2001, China has rapidly become an economic force, doubling its share of global manufacturing output and creating a commodity-market boom. In 2004, China became the largest exporter of information and communication technology exports. And the 2008 Olympic Games in the capital, Beijing, starting in August, will represent a great opportunity for China to showcase itself to the world.

Gov. Huntsman’s trade mission to China in 2006, in which 19 companies participated, and his fluency in Mandarin, has helped bolster relations in the country now commonly referred to as the “New Wild West.”

“I attribute a lot of our success in China to the governor’s efforts,” says Brett Heimburger, director of Asia for the Governor’s Office of Economic Development (GOED). “Large corporations like Boeing can make their states and trade numbers look really good. But Utah has mostly medium size firms, so when you consider that between 2004 and 2007, we increased exports to Asia by 62 percent, from $1.4 billion to $2.3 billion, that’s significant growth. Utah exports to China alone increased 214 percent, from $123 million in 2004 to $387 million in 2007. This growth, as the governor predicted, was significant. I think the trend will continue.”

To help Utah businesses continue to succeed in China, Business Connect asked local experts to share their best practices. Here’s what they had to say:

1. Understand the Culture
“Understanding Chinese culture is crucial to establishing a presence there,” says Aaron Wong, founder and CEO of Arrow Quality International, a Lehi-based Chinese consulting firm. “In China, ‘saving face’ means you always give a good impression and never ruin someone else’s reputation. In the Chinese culture, you always greet the boss or the elderly first. Otherwise you lose face. There is certain etiquette at business meetings, too. The Chinese consider it offensive to rush through things."

These seemingly small differences can yield costly mistakes. “There’s a certain way to do business in China. Learn it now, or else,” Wong says.

2. Overcome the Language Barrier
Don’t do business in China unless you speak Chinese or have someone with you who can, Wong says. “I’ve been a linguist for the federal government. There are lots of levels of Chinese speakers in Utah, but just because a person spent two years in China as an LDS missionary doesn’t mean they know how to conduct business in China. The negotiation and business language is different than what you see.”

3. Choose the Right Partner
Take time to find the perfect partner for your company. Once you find the right partner, build trust and develop a win-win relationship. “Most people think that they’ll serendipitously find the right partner when they visit China. I see people becoming partners after meeting only one or two times,” Osborne says. “Be sure to cast a wide net, track down 40 or 50 plus potential partners, interview them like you would an employee, ask 100 questions in that interview process to qualify them. Consider things like quality, service, pricing, experience, professionalism, references, etc.”

Kent Millington, president of Orem-based IPDevPro, has taught at the University of Science and Technology of China, as well as Peking University. “The Chinese word for networking is guanxi, which means friendship or connections. You really need a network when you enter country. If you don’t know anyone, contact GOED and they’ll help you.”

4. Define Quality Control
Last year, Mattel recalled more than 20 million toys made in China. According to Wong, the company made two cardinal mistakes. First, they handed the responsibility of quality checks over to the factory. Second, they got greedy by trying to pay less for manufacturing their products with the assumption of receiving equal quality to higher priced manufacturing. These mistakes coupled with insufficient knowledge of doing business in China lead to increased risk of poor products, Wong says. Unfortunately, Mattel is not the only company that has made these types of mistakes. According to the Consumer Product Safety Commission, 60 percent of all product recalls are from products made in China.

To solve this problem, Wong recommends providing a detailed prototype to manufacturers along with drawings and charts to help communicate exactly what they want. Also, don’t expect high quality products by paying low. Manufacturing in China is beneficial only if you plan on purchasing in bulk. Depending on the product, bulk purchases are typically not as large as it may sound. “Like many products you purchase, you get what you pay for. If you expect to only pay pennies for a product, then that’s what it’s going to be worth,” Wong says. “Also, protect your product by applying for a patent or trademark before you start your search for a factory. Use non-disclosure and confidentiality agreements to protect your idea. When working with factories, sign contracts. Make sure all written legal agreements are translated in Chinese.”

5. Know the Law
It’s important for every company to get the right legal assistance it needs in China, says Heimburger. “Rules and regulations change dramatically. Protect your intellectual property. If you don’t do that, then you don’t have much of a leg to stand on.”

Michael Chen, an attorney with Salt Lake-based Kirton & McConkie, helps Utah companies understand China’s legal environment. Chen, who grew up and went to law school in China, says the biggest mistake U.S. entrepreneurs usually make is underestimating the difficulty of the Chinese market. “They think that if they have a good product, they can sell. But Chinese consumers are very picky — they look for value and compare prices.” From a legal standpoint, Chen says businesses should do upfront research about protecting their intellectual property, labor laws and manufacturing laws.

6. Be Realistic
“Our decision to go to China wasn’t really a decision, it was an organic evolution,” says Mark Ritchie, vice president of operations at Black Diamond Equipment Ltd., a Salt Lake-based outdoor equipment company. “It seemed silly to have components shipped and manufactured here. We were also running out of space and people. In order to keep up with growth, we expanded to China. Some of the evolution has been painful, mostly time consuming, but it has strengthened us and made our products more sustainable. The reality is that there are a lot of challenges to overcome; it’s going to be a lot of work, but if done the right way, it’s definitely worth it,” Ritchie says.

Lew Cramer, president and CEO of World Trade Center Utah, says maintaining a realistic and healthy mindset is key to doing business wisely in Asia. “Go in with your eyes wide open. Be flexible with your timeline and budget. It will take twice as much time and twice as much money than you think,” Cramer says. In fact, Cramer recommends expanding to Canada or Mexico first, in order to test the global waters before heading to China.

SIDEBAR 1

Do’s and Don’ts of Business in China Do’s

• In China, business relationships are personal relationships; establish a trusting relationship that demonstrates your respect.
• Business cards are important. When exchanging business cards, it is polite to present your card with the thumb and forefinger of both hands.
• Become friends with local influential officials.
• Take time to discuss issues, ask for feedback and explain your decision. The Chinese respect this approach over the preferred fast meetings in the United States.
• Handshaking is the accepted greeting, with a light handshake encouraged, lasting as long as 10 seconds.

Don’ts

• Avoid unintentional criticism of others.
• Don’t poke fun at someone, even for laughs.
• Don’t be the first to reach for a restaurant bill.
• Don’t be late for an appointment. It is considered a serious insult.
• Don’t make snap decisions; the Chinese like to be included in the decision-making process.

SIDEBAR 2

More Best Practices to Come
The Jon M. Huntsman School of Business at Utah State University is developing a white paper for the Governor’s Office of Economic Development, which will outline best practices for Utah companies wishing to outsource manufacturing to China. Mark Thomas, director of field studies at USU, says the handbook will most likely be posted on the GOED Web site (goed.utah.gov) this summer. USU has had an active relationship with China for several years, with the exchange of graduate students and scientists.