Trusted Network: Building relationships and growing business in China

Catherine Zhou is Managing Director and CEO of EcoKMC LLC, a Californian company representing U.S. and European products and technology in the construction, architecture, green-building and clean technologies industries. In this Women on Business interview, Catherine and I spoke about the opportunities arising from China’s urbanisation, ways in which foreign companies can cooperate with government in China, and drivers for adoption of new technologies.

Your work has focused on marketing innovative energy and green building products. Have you seen a change in market acceptance of these types of materials over the years? What do you think drives this?

I have seen the acceptance over time and I think that there are mainly two types of drivers.

At the beginning, it was the Chinese government’s initiatives that drove market development. The Chinese government provided a lot of incentives which encouraged the pilot projects, and these projects demonstrated to various industries that the products can truly work (to provide energy conservation and green building benefits).

Then the second driver is the customers’ recognition of a new way of doing things. With pilot projects all the customers have the chance to experience the practical value or experience the quality, so they can say, yes, this is good for us.

One example involves a distributor in Xiamen, who had been quite successful in business with a chain of hotels. These hotels generated great revenues every day. Initially he was really happy thinking that they would make a lot of money. But in the end of the year accounting, he found the business wasn’t making any money. The reason was that the energy bill was huge! So he saw the need to conserve energy before he could profit. I asked him, “what if we start a business to provide energy conservation services and products to others?” – and that’s how he became our distributor.

You can see that from this story, the market can developed by individuals recognizing a need, then adopting a solution and proving it works. That really helps develop the market.

Another personal experience to share: when I first came to Shanghai I visited a college friend and professor at Fudan University. It was close to Chinese New Year holidays in Shanghai. We were sitting in her living room and we had to have a quilt to cover ourselves — it was icy cold! Nowadays, when I visit her it’s much more comfortable. What happened? She told me that her building had undergone a series of facelifts upgradingincluding insulation, double-glazing of the windows etc. It had made her life so much more comfortable!

In Shanghai, China, everyone started out from the same place — everywhere was cold! It was normal to be cold! But once people experienced these technologies and the positive changes that came with the technologies – it’s no longer cold in their home anymore and they start to appreciate the advantages these technologies bring to their lives. So, these individual experiences, these types of experiences, also help to build demand and to create and excite a market.

And in terms of barriers — how do you overcome buyer and even consumer resistance to adopting new materials?

We found there are two ways to overcome this. One is trust, building trust. The other is that we offer a very good warranty.

On the trust side, Chinese culture has a strong focus on personal trust. If you have a lot of people who know you and trust you, they will be willing to try, to believe in the value of the product that you represent. They will try your product out or they will promote your product to others, and that becomes like a ‘trusted network’, which can help you to overcome resistance and build awareness initially.

Then, testing of the technology will follow, market awareness will grow, business will come, and eventually you can build a trusted and known brand. In China, with B2B technology, industry buyers will rely on national technology laboratories as well. We work with the national technology labs to test the product and provide reports to the market on the results.

Another factor on the trust side is bi-lateral government initiatives and assistance from NGOs. We participate in a lot of U.S.-China platforms, such as the U.S.-China Energy Efficiency Forum (EEF) and U.S.-China Energy Cooperation Program (ECP), U.S.-China Clean Tech Standard etc. What happens [through those forums] is that our cutting-edge technology is presented with support from U.S. government to Chinese government. Chinese customers, especially B2B, put a lot of trust in these types of exchanges.

We also work with NGOs like US Green Building Council (“USGBC”), The Paulson Institute, The Energy Foundation, The Nature Conservancy, The Nature Defense Council, and more. Through the years these organizations have put a lot of effort into China in the clean technology and environmental protection areas. By working with and supporting these organizations, the products we introduce benefit. All these efforts building trust. The sooner you can build trust with a potential customer, the sooner you can get into the market.

Sometimes trust alone is not enough. We also have practical measures. We provide warranties and guaranties. We acknowledge that customers might have some concerns and we give them these warranties as the assurance. Another method we use is to provide a free trial until our technology is proven for their need under the agreement that they will consider to be our customers once the results are proven.

Your work has put you on the leading edge of innovative technologies. What do you see as the next big breakthrough in buildings and materials technologies?

There are so many! The world of innovation is so exciting. But you know, I thought about something a bit more traditional. I think the big inspiration has to do with people’s well-being.

A few years ago the U.S. Green Building Council promoted this new standard called ‘WELL’. With China Society of Urban Studies (CSUS), they have also pushed out another standard called ‘Jian Kang Jian Su’ which means “Healthy Building”. When you see these trends and the standards, it all makes sense.

I want to share with you something from the Chairman of Shenzhen Architecture Science and Technology Institute, Ms. YE Qing, who has a view that, given that people spend more than 80% of their lives inside buildings, it’s really up to architects (and innovative owners) to design buildings that foster and support people’s health. Healthy buildings allow us to be healthy and happy, as we spend so much time in these man-made environments.

In the future, whatever technology can better capture and conserve energy, implement elements like daylight, fresh air, clean water, less noise, connection to nature — all of those are what people are interested in to support their health and wellness. If buildings can be designed and integrated with the environment in this way, for the planning, design, architecture and technological innovations that get us there will provide a better life for everyone.

You have led a number of foreign companies operating in China. What do you think are some of the biggest misconceptions foreign companies may have about breaking into the China market and operating a business in China?

In my day-to-day life and work, I’ve encountered two extremes. One is something you’ve heard thousands of times – one size fits all – a strategy that works in the U.S. will work in China, and that is absolutely not true.

In China the market is very fragmented. There are a lot of regional differences, many domestic (sub) cultures, and vast differences in socio-economic markets and sub markets. For any U.S. or European company entering China, yes, these companies need to understand that China is one, but also that it is quite internally diverse and has many market segments. The regional differences are one of the most evident beginning points in identifying the segments. A company new to China needs to recognize this, study this in depth and respond accordingly.

The professionalism of a company’s team is critical. A team in the U.S. may have gained years of experience. This implies a certain level of proficiency in-built, if you will, and thus professionalism. But in China that company’s market experiences may not be the same, thus that level of knowledge and experience may not bring the same result.

Therefore, in practice a lot of training and working with your management and employees, your suppliers, and your distributors throughout the ecosystem may be necessary in order to bring everyone up to a common standard that works in China. Furthermore, education of the market, too, is not to be underestimated. The entire value chain has to be educated.

The other misconception, especially by small and medium sized companies, is around IP (Intellectually Property). There is a misperception that in China, your IP will definitely be stolen. But that is no longer true. Laws are in place, the courts are maturing, and there is an arbitration process in place as well. Thus the Chinese IP protection regime is more mature than many western companies would believe.

In my view, when you think about all the challenges for technology companies entering China, to sell and market the technology is actually a much larger challenge than is IP protection!

Building and maintaining relationships with government regulators is essential to doing business in China. What’s your advice to new companies looking to start a business in China on working with government? How should they start building relationships?

If we look at the U.S. and China as a comparison, in the U.S. most businesses won’t approach government for things like industry standards, they approach their relevant industry body associations. But in China, yes there are associations, but the official associations are typically affiliated with governmental entities. Instead of just reaching out to the association, the best thing is to find out which government entity is the host of those associations and then start to work with that entity as well as the associations to participate industry standards and codes writing and/or revising.

Other things people will find when they work with Chinese government, is that the Chinese government loves technology and innovation. And like other governments, they are very much focused on future prosperity, job creation and they want to foster a good technology sector in the future. if business is flourished, the value of the city or district real estate growth will go up, and the economy grows. For years officials were also evaluated on their contribution to GDP growth.

Therefore, companies will find that Chinese government is very enthusiastic about helping technology companies enter the Chinese market. Somewhat unique to China there are all kinds of industry development zones and associated (real cash) incentives to attract foreign and domestic companies to move into those areas.

Something that foreign companies often fail to initially recognize is that the Chinese government is not just a government regulatory body and an administrative authority, but also a customer with deep pockets. Once we recognize that, we can also see them not only as a regulator and provider of goods and services to their communities, but as a substantial potential customer as well

As to how build these relationships, a few things can help. Firstly, actively have a dialogue with the government agencies involved and participate in these governments activities and programs. This can really benefit foreign companies.

Secondly, Chinese government officials really appreciate good suggestions, good practices, and good contributions in the form of new ideas. Thus when we share our market experience and industry know-how with government agencies, the government personnel become quite interested, and are eager to cooperate. By having this kind of dialogue with government agencies and personnel, we can work with them to start to shape and foster new industries.

 

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