China business partners: Are government officials your best choice?

Just came across a great post by Andrew Hupert on the DiligenceChina blog, entitled, "Matchmaker, Matchmaker, Make Me a Profit." The gist of this post is Hupert's disbelief that small businesses are still going on China business tours for old style meet and greet sessions with local government officials.

I cringe every time one of our clients says it found its China partner on a trade mission with its local politicians. I cringe because I know exactly what this means.

I have a really smart client in the process of going into a business in China. For attorney-client reasons, I cannot get specific about the business. This client has substantial international experience. China will be its third Asian country in which it will have operations. My client spent months narrowing its choice of Chinese cities down to two. The client's plan is to find a China partner with an already built facility, and then work with that company to upgrade its product and, most importantly, market it to Western businesses, many of which are reluctant to use this product/service from/in China because of quality concerns.

My client met with government officials in both cities to explain its plans. Both cities strongly urged my client to partner with a particular company in their respective city that they touted as by far the best in the field. My client met with both touted companies. In conducting its due diligence on the various potential partners in both cities, it concluded these two were by far the worst candidates. Both of these companies were at least five years behind the other companies in terms of technology and the buyers know it. Buyers go to these two companies only if given deep discounts or if the other companies are too busy to handle them. Both companies had hundreds of extra employees. Not so coincidentally, both companies had substantial city ownership and both were "rumored" to be moneymakers for city officials.

Hupert's post starts out by noting his having recently heard of a two-week trade mission arranged by a major US state's small business advisory board with the declared goal of helping small and medium sized business "learn about ways to find mutually beneficial ways to participate in China's economic development:"

Mincing no words, Hupert then expresses his view of forming business relationships based on such a trip:

Serious Question: What gives someone the idea that the mayor of Peoria, working with the mayor of Zibo, should be the conduit for finding them a China partner?

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