Took another day off work today – and worked from home. Or at least partially worked. Had a bad cold. Since the cold took me out of operations – I did end up thinking about more ‘strategy’ stuff.
First, the corporate structure is nearly finished – 10PM call today to discuss the US side of things with US CPA/legal team – and then I have a clear definition of what I need. Seems little crazy as I’m looking to open up 7-8 new entities – so I know its going to be a bit busy on the logistic side – but – the focus needs to remain on the cost savings those structures can offer – and I guess the sooner they are up and working the better.
Incidentally a good friend of mine, a very good friend – reach out out to, for help in setting up a Chinese operations in China for his Canadian business. First, its funny, because we haven’t talked in about a year or so, and yet, we have one of those really nice deep relationships that doesn’t require maintenance as such, but we still know we care for each other. So, touchy feely stuff aside, I realized how FAR into the Chinese game I am and how much value I could bring to someone.
Just through a chat session, right away I identified some basic hurdles for someone trying to get a foot print into Chine:
1. You really need to be in China for at least 5 years to know the systems
2. You better have experience in setting up international structures to position the Chinese Company for profit
3. You better have SOP, HR infrastructure in place to be able to bring in Expat management and Chinese work force
4. You better have someone you 100% trust on the ground in China – otherwise you are 100% guaranteed to get screwed.
5. The volume of sales needs to be AT minimum $2-4MM to make a Chinese operation worth while – otherwise the complexities of running a foreign operation become very difficult.
Having though of the above (and the above is just cursory) – I can see how I could help a smaller business come into China, and be up and running in 6 months. This would be from start to finish ie. corp formation, hiring, office, training, on-the-ground logistics, control systems, IT systems, etc, etc. The million little details that had gone into building pearlsonly – I could now duplicate for someone in 6 months – yes, 6 months – BUT it took me 6 years to learn. And when I mean 6 months, it means that I could give someone a very steady, stable operations with worry free management, optimal financial position.
I look at how much someone would need to pay to do this on their own and the amount is staggering. First, you would need to hire one of the big 5 to help understand tax structure. Then you would need to find agents to setup and open up the entities. From there, you need on the ground team for ground work. The time to do just the above without someone that has done it, I would say would take at least 1 year – would cost probably $500K, and at the end of 1 year – would not be up and running – BUT would be JUST ready to run.
Just a day ago, I wrote how I need to stay focused and here comes this kind of ‘fun’ side challenge – so my brain does go to it a bit – and starts to think how I could help my buddy. The play, for me, would definitely not be about money, but rather about the challenge of the launch. I think the money would easily follow BUT the money doesn’t excite me in this case – the fun of getting something off the ground in 6 months would be pure joy.
Very simple idea for me is this – for the new entity, bring in a high level expat that is capable of executing. The Expat takes on the CEO role of the Chinese entity, while I position myself as the board member. Through my guidance and leadership, the CEO does not have to have a high level of CN experience, but through working with my systems he becomes the executive wing. In this case, a CEO can be someone without any CEO experience, to save costs, but someone that can handle projects, project execution and schedules. The rest of the ‘difficult stuff’ would come from my experience and knowledge. This would help minimize impact on myself and minimize my time commitment. The nice thing for the person assuming the CEO role would be the tremendous amount of experience they would gain in doing this. A real win-win for everyone. Gotta love that!
Cost to launch using my method above would require about $200K for the first year – 6 months being non-productive – and 2nd 6 months beginning to generate revenue – with the goal of the CN side being profitable at end of year 1, with payback of all invested capital by year 2. This is without doing any spreadsheets – just very, very rough off the top of my head numbers.
The great thing is that I have access to people that run body shops in China already – and knowing how their business works and what makes them do well – is a huge asset. If the Sales in west can generate the demand, operationally, I’m 100% sure the Chinese Operations will be able to pick up the volume and deliver.