KTV and entertaining – Set some clear guidelines for your sales staff

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An old topic, but the corruption crackdown is changing the game

There’s plenty of ways to do business in China without KTV these days, in fact some are shutting down for lack of business, and Dailan Wanda is divesting it as well.

KTV, or karaoke, is typically sung in private rooms by the visiting group, and comes in two flavours, family-friendly fun and, uh, the other kind. It’s popular legitimate entertainment, which is what makes it confusing: If your college friends in a mixed group invite you out to KTV, it’s the former; if the big fish your trying to close wants to go KTV, it’s likely the latter, ranging from a hostess bar type, to sex on or off the premises. The facade isn’t a great clue either: I’ve poked my nose into places that I was sure focused on extra services and saw nothing but innocent mixed groups.

Companies may even do team building at KTV, although it can be a strange experience if there’s a core group of guys who hang out until after everyone leaves for more fun. Still, common sense or a trusted local should give you the vibe, and how you play it sort of depends on your position in the company, but I’ll assume you’re in charge.

As corruption comes under increasing scrutiny, your own corporate governance may require you to take a closer look at how business is conducted in China. Most companies I’m quite sure would prefer to say ‘no’ to all KTV as policy convenience. However, depending on who your customers are and the existing company culture, you may find it useful if employed suitably.

First evaluate the status quo. You may have staff that understand and adhere to understood Western practice, even if it hasn’t been spelled out, especially if they deal primarily with Fortune 500 and business is good. If you do big business or anything touching government, stay away from it with a 10-foot pole. You may also have the exact opposite, staff that take advantage of a lack of supervision.

You probably need to have built up some level of trust before your staff give you an honest report of what’s going on. Their receipts will tell a lot of the story, although the savvy ones know that if the commission exceeds the spend, it’s still a good deal for them. Nota bene: receipts in Chinese will often have KTV in English letters on them, so even with no Chinese you can take a quick look. If you have a little Chinese, the words 歌 or 唱 (song or sing) should also stick out. North of 1000 RMB per person it starts getting fuzzy. That may seem low, but remember, laowai are charged a lot more. Also, the final fees may be off the books.

Plenty of bonding and business is done over grey-area KTV (let’s say by East Asian standards) where you are pampered by a pretty girl, but even if other services are offered, it’s left at that. This is likely how your staff will present it to you if they view it as necessary, especially if they know you are uncomfortable with it.

For their own protection, unless you have a few ‘dirty’ long-time expats who have a stay-in-China-forever destiny, there’s no reason your foreigners on rotation need to be exploring the seedier side of KTV for business. They can’t read the greens reliably enough to have good outcomes for both themselves and the company.

Your call on where it all sits in your moral compass, but I feel you do need to reconcile the results and expectations with the constraints and resources. Of course sales training, but also looking at more palatable if equally expensive options–trips, conferences, speaker fees–there’s a whole gamut of what I consider equally questionable but more acceptable practice. Still, sometimes the ahem, heart wants what it wants, and when that’s the case your staff should understand what the expectation is, what the company will finance, and if a personal spend is acceptable.

Whether that’s a monthly no-questions asked budget, case-by-case review, or absolute no, I feel you’re doing your staff a disservice by not scrutinizing the easy way that’s rapidly going out of style. Further, if you’re leaving it to them but not giving them carte blanche, you put them in a very awkward situation. An expensive dinner, never mind KTV, can be more than their monthly salary, so clarity and support helps them act with confidence. If they’ve reported what the upside of an evening out is, (I’d prefer it to celebrate a close rather than facilitate, but there’s all sorts) ask them where the evening could go and set the budget/expectation. They’ll be able to direct the night and make excuses as necessary.

Oh, and if these expenses are considered extraordinary, don’t be a chicken and make sure they have a paper trail with someone’s approval. You’re the one making the real money, it should be your ass on the line–they’re already doing the heavy lifting.

Want fries with that?

Even with high growth, resist the urge to skimp on sales training

Anyone who has been to a fake market has seen what aggressive sales can look like in China, and in fact it is a great manifestation of what makes the difference between a crowded stall and an empty one 3 meters away selling the exact same stuff. The likely reality is however, that you can neither get nor want a team comprised exclusively of top sales talent in the traditional sense. They become unmanageable and leave once they see your numbers trend downward.

So you need to invest in working with that you have. Further, building in training early not only shores up for the future, it more critically builds a culture accepting of pivots in strategy and tactics.

You see how inactive some can be when it’s their own money on the line, what do think they would do peddling your services?

There is definitely a hesitation among many sales people that I would say is derived from a national character of deference, especially when they are technical at their core. Perhaps you recognize this in your domestic team also. However in China I find it easier to help people stretch out of their comfort zone because quite frankly, they tend to have more on the line and more to gain.

As always, the core reasoning has to be expounded. The perception of an oily charmer out for personal advantage has to be replaced with one of an useful partner who can anticipate his client’s needs. Then they have to see it work, often led by example.

Then they need to be incentivized. As anyone who manages a commodity catalogue knows, as soon as the promotion of a product line stops, sales tend to taper off. The key here is to use incentives to train behaviour with the understanding that either a. there will be a permanent commission structure in place to reinforce the sale or, b. there will be a bump in base pay that recognizes the superior overall performance. I’m generally in favour of b. if you can pull it off. Not only does it give you simplicity, the employee will appreciate it more.

Here are a few general ideas that I’ve found useful that don’t require an outside trainer:

Explain the effect of price on your bottom line. You don’t have to use your real numbers (although I recommend it), but until they understand that a 1% drop in price can be a 15+% hit to earnings, it’s just too easy to drop the price as the go-to move, especially if their commissions are only minimally affected. If you can tie their earnings more closely to the company’s, even better.

Explain the effect of giveaways on your bottom line. Service is probably number one here. There can be an expectation of a lot of free service in China, and like in the US, it has to factor into defining who is a good customer. Again, the sales guy gives away something that doesn’t hurt him, but causes havoc to another department–it has to be tied together somehow, at least by a meeting of the minds internally.

Explain statistical results. Suggestions of change raise a very common knee-jerk objection: it will alienate the existing customers. After dealing with whether or not this is true, you then have to explain if how your tactics change the big picture, and more importantly, how it improves their pay-to-effort ratio. Formulate some case studies to illustrate.

Let them watch you walk away from a deal. They won’t believe anything you say if you can’t show them. A graceful, respectful exit can do wonders in improving your mix. Watching how you explained the move to your boss, perhaps even more so. Bonus if your boss supports the move and can demonstrate it semi-publicly.

Fire a disruptive top-performer. In a similar vein to the above. If the message is numbers buy immunity from policy, discipline, etc.. you rarely see the rest of the team reach for the stars. They in fact just sink to doing the minimum and you end up with a fairly toxic environment. It’s just not worth it. Now, I’d generally try to turn it around by appealing to their desire to exhibit leadership to the others, but in the end, if your value to customers rest solely on one woman’s smile, you have bigger problems.

Incentivize the up-sell. As I mentioned before, it should be a training tool to drive home maximizing margins or reducing losses. Charging for parts & service when the expectation was free can be a big one (lots of training involved there, and I’d suggest taking a few meetings yourself to show how it’s done, and perhaps learn their pain firsthand).

Recognizing the difference between an unwelcome automatic up-sell and one that seems informed can be demanding. Given how non-linear the extra effort is here, the incentive also has to be non-linear. This perhaps will improve your own focus: you can’t afford to offer bells & whistles that don’t have higher margin unless it’s part of your brand.

Loyalty, Fear, and Laziness

As the economy cools down, resist the urge to retain employees who stay out of fear, and increase your proportion of loyalists.

It’s no secret that modern corporate America owes no allegiance to employees (save executives) but what’s been a bit slower to sink in is that the new worker feels the same way right back at them. In fact, some corporate moves, such as elimination of training, use the results as justification to exasperate the cause. Gamification and other ‘measurable methods’, such as personality testing, etc… are trying to make up for what could be achieved through transparency, leadership, and development of soft skills.

Here’s where China’s otherness can play to your advantage: while China has its own HR rules, you’re likely not bound in the same way as you are domestically at the corporate level. So rather than rely on the fad-derived opinion of some disproportionally powerful director with no hard skills or sense of your business, you can just do what works. Of course if you have an HR superstar, take advantage of it, but my experience is that field is still lagging even at otherwise progressive companies, to say nothing of application in a foreign culture.

A lot has been made of high turnover in China. However at companies doing it right turnover is remarkably low, and was even during the most frenzied growth. I’ve failed more than succeeded at poaching some top performers, despite promises of promotions and massive raises.

Let’s get one thing out of the way: you have to pay competitively. There’s no employee you want who will stay at 30% below market. There’s no trick, no combination of benefits, that can statistically bridge this gap.

Of the three, I’d rather keep the loyal and lazy over the scared. Why? Because workers who are afraid are unpredictable, and here I think I’m in line with modern thinking that can value reliability over even short-term incremental gains. Things scared employees do: take another job on the side (maybe even with a competitor), put up even higher barriers to communications, sabotage morale, steal, lie, disengage.

To clarify, by lazy I mean those who may have a malaise on the job, but don’t feel enough pain to either rock the boat or look for other work. I don’t mean those who can’t show up on time. And by afraid, I mean those who feel their position, status, prestige, or income are in jeopardy.

One advantage of a slowing economy is it gives the ambitious a wider tolerance band to wait for you to get your act together, and it gives the scared more willingness to listen to your overtures. Even the loyalists will appreciate the relationship more as they see the hardships their friends endure. The point is, you have to do what it takes to earn their loyalty. I’ve posted on how before, but this is carried on best by your local champions, supported by corporate.

Because China had a massive skills gap similar to our post-WWII boom, you have a situation a lot of near-retirees (should) appreciate: many hold jobs they’re essentially unqualified for. And like in the US, the good ones rose to the challenge. On both sides of the Pacific these people have something in their hearts you can’t buy: they recognize they were raised up by the grace of their employer.

They, unlike most of the new workforce, will tend to consider the company’s long-term needs ahead of their immediate bonus. They will organically create an environment that attempts to pass on the same ethic. The magic is that in China, these people could be in their 30’s, and you could get another 20-30 years out of them. If you don’t have any, now is also a good time to develop some.

The key is not to turn that loyalty into fear as you strive to apply your modern management theory. Just like they learned whatever hard skills they needed 10 years ago, they need to approach it like a problem to be solved and skill to be learned, not an attack on their position, ability or character. ‘Matrix organization with Chinese characteristics’ may be  order of the day, as they color things for local application, dynamically adding value so they’re not being 100% dictated to.

And in turn, giving them freedom, whether that’s for payroll, training, or team building, will allow them to take advantage of the slowdown to swell your ranks with the people you want, which will inevitably show up in whatever metrics you’d like to apply.

New leadership

Cultural change will never be more possible than just after firing your GM

The most common problems that need addressing under poor leadership are typically:
– establishing a collaborative performance culture
– encouraging initiative and eliminating fear
– professional development
– addressing other needs of employees

This is quite similar to issues in the West, but interestingly enough, you can manifest change far quicker in China if you have the right program and rapport established. I would say this is due to a pragmatic, younger workforce serving their self interest with less baggage and more optimism on tap. It’s not Confucianism.

Much will ultimately be accomplished via your new GM, but I encourage you to prioritize the EQ and human element ahead of functional expertise, which can ultimately be bought.

Establishing a collaborative performance culture

For all the rhetoric and stereotype of Chinese working well together, you may find after a little digging that this is far from true. In my experience the most common reason is the same as anywhere else: they’re too busy rushing through their own job to appreciate anyone else’s point of view. What’s frustrating is that even at the manager level, there can be little capacity for the big picture, and so it becomes the function of a few senior managers or your foreign team.

Rather than sit everyone down in a meeting, it’s more efficient to have your foreign/senior team map your processes, analyze what’s best, then walk the managers through your findings and thought process. Even if it’s glaringly obvious all the problems are in a few holes, unless you plan on firing those department heads, you can’t communicate it as such. Further, the departments will also not appreciate being made out as stupid even if it’s entirely their leader’s fault. Remember to resource the departments correctly as workflow changes.

For staff functions, you can probably call it a day at this point. For line functions, you need to tie their fates together while preserving individual motivation.

A huge issue with sales is a lack of information sharing. This true everywhere in the world, but when commissions affect not how often you go out to eat, but whether you can buy meat this week, it takes on a different character. It’s going to drive finance and those who are used to managing by data crazy, but the easiest solution is to raise commissions when multiple sales staff are involved so no one feels cut into. Though they understand all boats rise through cooperation, nothing will change their behaviour faster than seeing it in their daily transactional life. Only after the culture has really changed and they see the benefits through the year-end bonus should you think of going to a more standard model.

Related to this is making sure your own team is sharing information across the Pacific. China can be an afterthought even if they are half your revenue. Every time you wish your Chinese team were more proactive in communication, think about how much they are kept in the dark in turn.

By the way, don’t forget the sales support staff in incentives. Whether that’s upselling, keeping complaints down, throughput, what have you, nominal bonuses and recognition go a long way in reducing their hatred of what the sales guy is promising. Even better, often their performance is quite measurable.

You may be having problems with CRM use. It’s its own issue issue, but I tend to tie this with expense reports. Trip/visit reports, CRM logs, whatever your sales discipline is, nothing will get these filled out faster than expenses paid pending completion. BTW I’d recommend paying expenses out bi-weekly at the slowest. It’s just a huge cash flow burden that they can’t absorb the way your US employees may be able to.

Encouraging initiative and eliminating fear

By now you think you’re a genius with all the issues you’ve uncovered and resolved. What no one has told you is many of your staff have the same or better recommendations, but are used to keeping their mouth shut out of fear of their supervisor’s wrath. Even when your supervisors are good, there is still a cultural propensity to keep their mouth shut. It has to be actively encouraged. And nothing is more encouraging than a red envelope full of cash. The key here is to make it come from the supervisor. Reward her and the employee. Make her look like the magnanimous visionary. She’ll find she wants to match the reality to the image.

Ever never get to the bottom of exactly who screwed up? That closing of ranks can be managed, but the issue is there’s no path to improvement. You have to absorb a lot of mistakes without consequence before people start taking risks and speaking up. That can be hard to do especially in lock down mode, but look at it this way: it’s been going on the whole time with no benefit. Why not make it work for you in the long run? That means getting closer to the bottom of it with no airing of laundry or chastisement, but a private acknowledgement, advice or plan with encouragement to keep moving forwards. Time, rapport, and an ability to speak Chinese are the only way to get there.

Professional development

If your GM ran things very Chinese, chances are your staff are under trained. Whether that’s technical, English language, sales training, nothing will get more confidence that you’re here to stay and interested in them than providing training. The ones who don’t care? Fire them. By and large, Chinese professionals are thirsty for knowledge of all sorts.

More critically, develop their leadership potential. A recent HBR article points out that leadership gaps and soft skills is one of the biggest problems in the workforce today. I see that all the time in the US, but in China it can be worse. I would rate many senior managers as barely supervisors in their leadership and managerial qualities, especially if you’re trying to run a global operation.

Addressing other needs of employees

Once you open this up, expect a flood of requests, but you should investigate the overall quality of life of your staff to make sure your policies are reasonable. Whether that’s paying expenses on time or adjusting holiday policy, realizing that minor inconveniences can be huge obstacles may help you establish a healthier more focused work force (and make you more leftist?)

Also, making sure they are properly equipped…well-lit work stations, AC, cell phone expenses, vehicle subsidies, etc… Many Chinese-run companies put much on the employee that would not be acceptable in the US. Just because you can doesn’t mean you should.

Take care of them and they will take care of you, by and large. It’s true everywhere, but when operating in a country where you’re so easily taken advantage of, why ask for it?

Compliance

Post transition get ready for inspections

As a parting gift, your GM or one his cronies may play informer for non-compliance. Worse, he may inform his pay-off buddy the well is drying up. Here are the big ones:

Labour contracts: If your contracts are not up to date, you can be subject to many penalties. Sometimes after 3 successive contracts, they enter an ‘open’ state, which makes termination and negotiation difficult. Check with your local labour lawyers. Great chinalawblog post here.

Get a handle on everyone on probation immediately and do a proper review before their contracts pass to permanent status. If you let these pass, you’ve just added considerable headache later.

Chinese work contract

HR Manual. Know it for options on firing and compliance on your own rules.

There can be all kinds of hoops to jump through with finding alternate positions and GROSS violations before terminating someone. Incompetence is not necessarily strictly valid, especially if they’re off contract. You can assign a manager to janitor, so getting rid of her can be more annoying than long-term (it still can seem interminable to you). But what about the janitor?

On a practical level, many employees are ignorant or misinformed about their rights. They also are practical themselves unless you’ve turned it into a personal fight. It’s about the payout. But compliance is still necessary.

Overtime and pay: Hopefully you have an OT policy and actually pay it. There are however, strict OT caps at 36 hours/month. You may end up paying a penalty, and there’s no good way to avoid it. It’s really about planning to get into compliance in the future.

There’s also other issues such as the hot temperature subsidies that you must comply with. One note, don’t get suckered into paying it if you provide comfortable office conditions–it’s then about making employees happy, and convincing the local authorities of your exemption. (Good post on that here)

Software: Only a sucker or large corporation pays for software in China right? That’s certainly still the prevailing attitude. IT’s function is often not compliance but advanced piracy. Prepare for them to come calling. (article on Microsoft plans here) You probably have a relationship in the US or EU with these vendors. They can be a resource to help clear things up, but they’re also an avenue to come collect.

I advocate for compliance, but some advice for those who insist on doing it the China way: set aside funds and tally a ground-zero license requirement. Factor in a certain degree of back payments/penalties. They may go for as much as 22%/year/license plus penalties. You can usually negotiate, but if they decide to play hardball you can be in a tight spot if their relationships with the local business bureaus happen to be sufficient to lower the boom. Further, you need to demonstrate credible action: if you leave any hint in public that you’re knowingly trying to duck the fees, they can sniff it out and it can turn antagonistic fast.

Environmental & Regulatory compliance: If you emit or dispose of any hazardous waste or are subject to any specific regulations, get a jump on it. Make sure you follow rules stated in your internal manuals, particularly regarding safety. ISO can not be worth the paper it’s printed on, but if it’s valuable to your business, you should do a review. Product quality programs are probably most valuable to your operation and reputation.

Taxes: China can seem fanatical about collecting taxes with as much control and little efficiency as possible. (Article here on 发票 fapiao, or tax receipts.) However, if any money was being hidden, it may come out now, either from ‘anonymous sources’ or your own forensics. Just going to have to pay and fix it. This applies to import/export too.

VAT fapiao

These are some of the things that you may have to do by law. Next week I’d like to address what you may want to do because it’s just good leadership and how you right the ship.