Skip Nelson - World Trade Center Alaska

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SURVIVING A START-UP IN
CHINA
SKIP NELSON
ADS-B TECHNOLOGIES
www.ads-b.com

2004
BUSINESS PLAN
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2007
ANCHORAGE
Exports ADS-B hardware & software to China
2008
BEIJING and HONG KONG
Garmin Avionics distributor for China
Avionics Component manufacturer for
HONG KONG
Exports General Aviation Aircraft to China
Builds GA infrastructure in Asia
2009 - 2010
Possible Joint Ventures & Teaming With
Chinese Partners

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CHINA EXPERIENCE
• Since 2004, 37 trips to China
• 90% Export to China, 10% Chinese
manufacturing for sale in U.S.
• ~ $5.1M in air traffic control, avionics
and aircraft sales last 2 years
• Permanent offices in both Beijing and
Hong Kong
• 12 clients: 5 government, 7 private
• Most of our work is in Central and
Western China.

What’s ADS-B?
Automatic Dependent Surveillance - Broadcast
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The aircraft get their position
from the GNSS constellation
Then they simultaneously l broadcast
their position and other data to
any aircraft, or ground station
equipped to receive it
Ground Stations then transmit the aircraft’s position to Air Traffic Control

FIRST, You Have To Understand China…
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CHINA SUPERLATIVES
It’s BIG!
1.3 Billion people (1/5 th of the World’s population)
It’s SAFE
Extremely low rate of Crimes Against Foreigners
It’s FRIENDLY
As in, they are genuinely fond of Americans!
It’s definitely OPEN FOR BUSINESS!
China has had the World’s largest Gross Domestic Product (GDP) in all
but 225 years out of the past 2,000 years. Right now, they have more than
$1 Trillion USD available to buy foreign products and services
(China's GDP is about $3.5 Trillion, and the US GDP is about $14 Trillion)

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I had a lot of misconceptions!
• I expected to see streets crowded with bicycles and
people in Mao Jackets
• The Central Government was going to be very visible
and heavy-handed
• The people would be somewhat suspicious of
foreigners and hard to approach
• Business methods would be difficult to understand
• Banking and finance would be almost impossible to
deal with

Boy, was I wrong!
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POPULAR CHINA MYTHS
• China is still a “Third World” country:
Not even close. Even in rural areas, you’ll see
modern new roads, bridges and communications
infrastructure. The quality and scope of China’s
Internet and cell phone connectivity are
legendary. Several of the most dramatic modern
cityscapes in the world can be seen in China.
• The Central Government controls everything:
Nope! Forget everything you learned about China prior to
1985 -this is, and always has been a country of
aggressive individual businessmen. Provincial
governments now operate somewhat like State
governments in the U.S. Best technique: Ignore politics
and deal with the people (their Government has to…)

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…and LEGENDS
• The Chinese don’t like Americans and/or are
difficult to deal with:
Of all the countries I’ve visited during the last 40
years, China is probably one of the most outgoing
and friendly to Americans. The average Chinese
remembers our help in WWII and seems to take
genuine pride in the commercial and intellectual
contributions China has made to the U.S. during
the past 20 years.
• Corruption is quite common:
It was, but the Government is leveling the playing
field by instituting some strong new anti-
corruption rules. Your biggest problem will be
other foreigners that have a higher threshold for
“crime”

• The Billion-Person Market:
And still more LEGENDS
(As in, “Wow - I can sell a lot of stuff here…”)
Yes, they have nearly a billion consumers, s but don’t
forget they’ve also got at least 50 million very
aggressive domestic entrepreneurs working the
same sectors!
• China will steal your “stuff”:
Yeah, and so will 75% of the other countries around
the world if you give them half a chance!
Again, the Government is cracking down and there
are fewer IP violations each month.
Know your customer/manufacturer, isolate your IP
and compete fairly (aka’ “Don’t make it worth their
effort to rip you off!”)
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GETTING
STARTED

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FIRST, YOU HAVE TO ASK YOURSELF….
1. What’s your strategy? – Merely
selling “America” is Old School!
2. How are you going to handle your
business in China – Business-to
to-
Business, or through an AGENT?
3. How are you going to find a
reputable Agent?
4. Do you have the patience to do
business the “Chinese Way”?

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BUILD YOUR NETWORK
1. Alaska Export Assistance Center
2. U.S. Commercial Service in
China
3. Alaska World Trade Center
4. Attend a trade fair, or
professional meeting in China
5. Network through other people
doing business in China
Don’t even think about going in cold!

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OTHER POINTS OF CONTACT
• Professional organizations –
especially those that have full-time
reps in China (OGP, for example)
• Other U.S. government agencies
(FAA, USDA, etc) that have offices in
China
• U.S. US – China Chamber of Commerce
www.usccc.org

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“AGENTS”
(A Necessary Evil)
1. RULE #1: It’s virtually impossible to do business in
China without a good Agent.
2. RULE # 2: The majority of the agents you’ll
encounter will have only one significant skill: They
are bilingual. (“I speak Chinese, therefore I am a
China Expert…”)
3. Get to know your agent before you sign anything:
a. How long has he worked in the field?
b. Who does he know, what is his experience?
c. Is the U.S. Commercial Service familiar with him?
d. Has he traveled to the U.S.?
e. Is he Chinese-American, Chinese, Taiwanese, or
Singaporean?

TRADE SHOWS
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TRADE SHOWS & FORUMS
1. If you find the right one, they are an excellent
way to meet an Agent and begin to create your
network in China!
2. Virtually every industry has at least one
reputable Trade Show in China each year
a. Check with the U.S. Commercial Service
b. How many years have they been operating?
c. How many exhibitors, speakers, etc?
3. Beware of “Forums”!
a. They can be little more than a disguised pitch for an
individual Agent
b. What is the ratio of foreigners to Chinese decision-
makers ?? If the ratio is >1 on 1, then you’re just
talking to yourself!
c. Chose a Forum that will be held in a city close to your
potential market – travel is expensive for the Chinese

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CLOSING THE DEAL IN
CHINA

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GUANXI
Guanxi means “connections” – It’s not what you
know, but who you know that t really opens doors in
China!
Building a good network of friends will help you
avoid hearing, “Yan jiu, yan jiu” – Let us consider
for a moment…, or “Mei yo” – There isn’t any
Guanxi is not bribery, even though it might involve
taking an official i out to lunch, or offering small gifts
on special occasions (such as Lunar New Year)
G i t k ti d
Guanxi takes patience and perseverance
(Something most Americans are not too good at!)

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THE “CHINESE WAY”
Social Contact
30% - 50% of your time. 25% of marketing expense
Informal Agreements
The “Agreement to Agree” starts the real negotiation
Formal Contracts
Things will change up to the very last moment!

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In other words:
Eat lots of lunches…
Drink lots of tea.
… and then it’s Contract Time!

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NEGOTIATING
• Know your product, your prices and
your competition cold!
• Expect many rounds of negotiation
• Last minute “Discount” is expected
• Know Export Controls & End Users
• Know Import Duties and Regulations
• Be very careful with Joint Ventures!
Remember: The Chinese have been perfecting their
Remember: The Chinese have been perfecting their
business skills for more than 3,000 years…

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SPEED BUMPS
• The correct people p
are hard to find!
• Travel is becoming more expensive
Up 60% in the last 2years
• Access is not balanced
• The Exchange Rate can fool you
• Frustration with business methods
• The language barrier !
• Jet lag, airport hassles, etc
• And the biggest problem: Shopping!

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问 题 ?
(Questions?)
SKIP NELSON
ADS-B TECHNOLOGIES
(907) 258-23722372
www.ads-b.com

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China has had the World’s largest Gross Domestic Product (GDP) in all but 225 years out of the past 2,000 years
China's GDP is about $3.5 Trillion, and the US GDP is about $14 Trillion
Their $550B bailout = 14%, ours is ~5% Theirs is going into technology & infrastructure, ours is restoring failing
financial institutions
China's central bank reserves are 987 billion as of November 2008
The country's annual trade surplus or the amount exports exceed imports ballooned to $262.2 billion, up 47.7 percent
from 2006
Exports in the 1 st qtr 2008 amounted to 424.6 billion U.S. dollars, up 21.5 percent, or 6 percentage points less than a
year earlier. Imports were 366.6 billion U.S. dollars, up 27.9 percent, or 8.8 percentage points more than a year earlier.
I watched the Yuan gain almost 20% against the Dollar since 2005.
The US initially welcomed China's July 2005 decision to remove the peg tying the value of the yuan to the US dollar and
link the yuan instead to a vaguely defined basket of currencies. Pressure soon grew in Washington, however, for a faster
rate of appreciation as the US trade deficit with China continued to mount, sucking ever-more dollars into the Chinese
treasury.
When I started in China the Dollar was 8.2 Yuan, The currency hit a record high of 6.8099 on September 23.
There is some indication that the Yuan may be weakened
In September, China surpassed Japan to become the biggest foreign holder of US Treasury debt, with a total of $585
billion. China's $2 trillion in foreign-exchange reserves (the world's largest, followed by Japan's $1 trillion), are primarily
invested in relatively low-yielding US government debt and the until recently considered safe debt of Fannie Mae and
Freddie Mac, the two mortgage-finance companies taken over by the US government three months ago.
Statistics that say the U.S. is producing 70,000 engineers a year vs. 350,000 from India and 600,000 from China
aren't valid, the Duke team says. We're actually graduating more engineers than India, and the Chinese numbers
aren't quite what they seem. In short, America is far ahead by almost any measure, and we're a long way from
losing our edge.
Actually - We found that the U.S. was graduating 222,335 engineers, vs. 215,000 from India. The closest
comparable number reported by China is 644,106, but it includes additional majors. Looking strictly at four-year
degrees and without considering accreditation or quality, the U.S. graduated 137,437 engineers, vs. 112,000 from
India. China reported 351,537537 under a broader category. All of these numbers include information technology
and related majors

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One in a million = 1,300 like you in China and 1,100 like you in India
1.3 billion people (1/5 of the world’s population)
You can encounter the entire population of North America ( 330M) within a day’s drive of Shanghai
[US = 305M), Mexico = 106M US is the 3 rd largest country on earth
PC Board Assembly & Final Packaging
Full Box build for Electronics & Commercial Applications
Fabrication of Metal & Plastic Molding Parts & Assemblies
Cable and Harness Assembly and other Value-Added Assemblies
General Assembly for Business-to-Business & Retail Applications
Standardized & Customized Components, Parts and Assemblies
Here are some examples of benefits of manufacturing in China:
Reduction in Direct Labor, Material, and Overhead Cost
Reduction in Indirect Engineering, Marketing, Financial Labor & Transactional Cost
Simplify supply chain logistics & service to your Asia customers
Center for Material Sourcing throughout Asia for Domestic and China Production
Fast-turnaround of Low Cost Tooling & Fixtures
Currency Transaction Flexibility between Multi-National Countries
Knowledge of Emerging Local Chinese and Asian Markets