Over 25% of the world’s production is done in China with one of the few growing markets in the world. The process to move another 300 million people from countryside to cities under the next decades with further rise in living standard will fuel continued growth.
There are many opportunities in the China market. But, to be competitive long term, local production is an enormous advantage. This does not have only to do with costs, but possibility to adapt and localize and not the least have quick delivery times.
Also, there has been a time when imported foreign products has had an image of superiority, but as quality goes up in nearly every aspects of production and life in China so does the image of Chinese produced products.
Not to participate directly in the market could mean that Chinese competitors take over, and soon with a large home market becomes very competitive exporters also in the global marketplace.
To start manufacturing in a new country is always a challenge. Not everyone have enough internal resources to support such a project. This is where Scandic Sourcing comes in. With a technical team on site, with western engineers, we assist and support were it is needed to get the project rolling. This includes feasibility studies, project management, factory construction, recruitment of staff, set-up of administrative systems and interims management.
After some years of low activity due to the COVID-19 situation our team is now actively scouting new factory buildings in the greater Shanghai area. There are many possibilities and local governments eager to support.
CELEBRATING 15 YEARS - LESSONS ON ENTREPRENEURSHIP, CHINESE CULTURE AND SUCCESSFUL BUSINESS LEADERSHIP IN TODAY’S VUCA LANDSCAPE
Meet Per Linden, Chief Executive Officer and Founder of Scandic Sourcing
Meet Per - business chameleon, managing director and (our fearless) leader. He is the mastermind behind (most) things happening at Scandic Sourcing, both creative and operational. From running high-performing teams to spearheading new business initiatives within his companies, Per has created an organisation with the mission to test and forge robust links across the global supply chain network.
Fresh from celebrating Scandic Sourcing’s 15 year anniversary, we sat down and asked our CEO and newly appointed Chairman of the Swedish Chamber of Commerce Shanghai Chapter a few questions about his journey, success and inspiration.
Could you tell us a little about your career background and current role?
As Founder and CEO of Scandic Sourcing, I lead a company of engineers and supply chain management experts who are actively problem solving and using their industry knowledge to address increasingly challenging international supply chain requirements.
Scandic Sourcing is a globally active company offering sourcing and procurement management expertise to clients spanning the Asia-pacific and Europe. We bridge the procurement-supply chain divide and work with industry leaders in the engineering and manufacturing sectors.
It is my job not only to lead for excellent suppliers in order to guarantee a smooth flow of quality supplies for our partner brands, retailers and importers.
We do this by deploying our on-the-ground engineers and quality control experts to assess manufacturing capacities and capabilities and are regularly conducting compliance and performance audits to check for internal problems that can delay supply orders. One of our most popular products is our award winning supplier code of conduct programs which not only gives clients a clear picture of how well their China suppliers meet their environmental and social requirements, but also utilises a continuous improvement process to stimulate suppliers to work toward modern standards.
It’s been nearly 20 years since I moved to Shanghai, and this month marks the 15 year anniversary since Scandic Sourcing was established.
What are your biggest lessons for successful market entry into China and doing business with Chinese people?
Many Western business people arrive in China with a list of etiquettes - how to eat fermented chicken feet or drink snake’s blood and similar handy tips - tons of business cards, an army of interpreters and so on. This may get them through the door, but not enough to sustain a prolonged relationship. Western business people have great benefits if they try to understand the broader context of Chinese culture and values.
Spending time acclimating yourself to the local culture is really important. Developing an understanding of Chinese thinking, etiquette and the way in which business is conducted here can help you put your best foot forward when negotiating with Chinese business people.
I really recommend learning some basic Mandarin and especially learn a little about the written language. The very different structure of the Chinese language is very intriguing and indicates a different way of thinking. You may find that cities like Shanghai and Beijing are more ‘Western’ and open-minded, but for many regional towns where many of the factories operate, many have not studied abroad nor had any exposure to foreigners. I always find that a willingness to learn about the local culture and language helps to break the ice in a formal setting.
Do you have any favourite books, TV shows or podcasts that you’d like to recommend?
One of my favourite books is called Romance of the Three Kingdoms by Luo Guanzhong, which is about a turbulent time during the unification of China around the year 200, and the lasting impacts of key historical figures on modern Chinese approaches towards business strategies. The texts can be quite heavy for first time readers though - I actually gave up reading after the first few chapters, but then my son Anders got interested in the TV drama and following the story became a favorite pastime of ours.
I can also recommend another Chinese classic text called “Outlaws of the Marsh” by Shi Nai’an.
Even if these two books are written in the 14th Century, you learn to recognise situations, different human behaviours and apply your observations to the real world.
While these books are about war and basic military strategies, they’re classic Chinese texts every Chinese person will have studied. These strategies are summarised in Sun Tzu’s Art of War. For Western business people entering China to negotiate a deal without some knowledge of these texts would be like walking into a battlefield without ammunition.
What does a day in the life of Per Linden look like? Can you take us through a recent workday?
Living in metropolitan Shanghai has given me the luxury of having my office within 300 meters from my home. Every morning I make sure to have a full breakfast with my kids and catch up with them before they go off to school. Sometimes I walk them to school.
In the office we kick things off with an internal debrief with my management team over coffee to go over everyone’s daily schedule, and anything that requires my support. It’s a great way to connect and team build before diving into our projects.
We have several engineers travelling to visit and audit factories. As often as I can, I like to join in these trips. Travelling in China has become very efficient and you can basically get anywhere with a high speed train and flights in 2-3 hours.
It’s coming up to 15 years since Scandic Sourcing was built. How do you work to achieve your goals?
China is both a complex and fast changing country. With this comes many opportunities. I’ve always been passionate about business leadership. China is a typical place to adopt VUCA leadership principles - Volatile, Uncertain, Complex and Ambiguous. These principles have allowed me to build a strategy to suit the context of today’s world - which has been particularly helpful throughout the pandemic.
The pandemic has seen people lose jobs and income, with no way of knowing when normalcy will return. The VUCA principles help to identify what the business needs are in a rapidly changing environment, one of which is to reach out to on-the-ground supplier audit professionals. In a volatile global trading environment, managing your business risks starts with solidifying your supply chain.
While the pandemic has affected international supply chains, the international border closures have actually benefited our business, and I believe this is due to our unique approach.
Do you have any last thoughts that you’d like to share with us?
People here remain very serious about new business prospects. International firms are looking for suppliers to help them bridge communication with local suppliers, while existing suppliers in China need us more than ever since they need people they can trust on the ground in China. We are very proud to have been able to build this trust over these 15 years with our clients around the world.
We hope you enjoyed reading about Per’s journey to success in China as much as we did writing it. We’re really excited about the next 15 years to come and look forward to celebrating many more milestones together!
A new foreign investment law in China comes into effect on January 1, 2020. It promises an equal treatment of foreign invested companies, forbid forced technology transfer and gives equal access to government procurement.
It is also bringing control of foreign investment policy to national instead of regional level.
It replaces 3 previous laws on foreign owned company entities. There is a 5 years transition period to adjust organization and governance structure.
The law is short on details but sets general direction and further clarifications are expected in the imlpementation instructions.
The manufacturing industry in China has in the last year been affected by the US-China trade conflict. It seems there is now an agreement in place, but don’t count on that this is the end of the story. The unbalance in trade flow and openness of the market still has a long way to go.
This has had both positive and negative effects on Chinese factories. In our work with mostly European clients, factories have in the past often had a limited interest in smaller order sizes and has had a preference from American companies, who used to order in large volumes and pay well . We see now some change in attitude and more flexibility in taking on smaller volume orders.
At the same time there is of course an increasing risk that companies who lost American business will either close down, but more likely change direction. In both cases you face the risk of losing a supplier.
It is advice to regularly visit and audit your suppliers to check their status.
China represents a quarter of global manufacturing output and will for the foreseeable future be a potential source especially for engineering products. But with domestic consumption powering economic growth and active efforts from the Chinese government to increase import, foreign companies should also consider how they can sell more in China.
Talk to us if you have questions about low risk market entry to China.
Difficulty in judging people and business partners and lack of available reliable data has always been a dilemma in China. China has been characterized as a low trust society, where trust is something that has to be built by good deeds, compared to the western world where there is normally initial trust until you destroy it by bad deeds.
The Chinese government launched already in 2014 an effort to by 2020 have ready a national social credit system with a single score for each individual and business with the purpose as “let the trustworthy to roam everywhere under heaven, while making it hard for discredited to take a single step”.
After many local pilot programs, systems for both individuals and companies now start to be available online. Most of this data was available before, but some of it not public.
The Chinese government agencies have long ranked companies according to how well they conform. This is the case with the tax bureau, customs, etc. Good behavior is rewarded with less control and faster processing. Bad behavior results with more restrictions, control, audits, etc.
“We find it much easier to do background checks on suppliers, and useful to be able to fairly quickly access the ownership of a company, debt obligations and legal processes. While reporting of financial numbers is still optional”, says Per Linden CEO of Scandic Sourcing.
There are worries about misuse of this system and wrongly assigned punishment would take up to 5 years to clear, stifling a company’s ability to operate and a person’s ability to move around, get loans etc. Having suppliers and business partners on a blacklist will also affect the score. The idea is that this should be a fair and transparent and self-policing system. But there is a risk is that complaints from suppliers, customers and disgruntled employees can have big effects.
Active efforts to ensure compliance will be even more important in China, than before. Keep track of your own score as well as your business partners and suppliers.
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