Written By Gary C. Harrell
Originally published 02 May 2017
Let’s begin this missive with one very plain thought: leaders need leaders. Even the best leaders among us are well-served to pursue outside counsel. And so, it is not uncommon for striving business professionals to seek the aid of a #mentor, advisor, or coach.
As we discussed in a recent missive, the world of executive #coaching has become a big #business. In fact, as a sector, executive coaching became a $1 Billion growth industry in 2014, and today, more and more organizations are working to pair their talented managers and team members with coaches, all in the common hope of spurring professional development, of improving performance and retention, and of bringing new ideas back into their organizations. So common has the practice of#executivecoaching become that nearly 6,000 individuals in North America, alone, identified themselves as “coaches” during a 2015 survey conducted by the International Coach Federation. Indeed, not to be outdone, as of 2016, even this consultancy offers AxSA Coaching Solutions for Business Professionals, a package of professional development tools and sessions designed for individuals, rather than for businesses. (We will talk more about that later.)
The goal of this missive is to unpack the murky industry that is executive coaching, in order to help would-be #clients of coaching services better understand what to expect. Rather than craft a long article, the best approach for disseminating this information is in Q&A segments – and so, let’s begin.
DOES COACHING REALLY WORK?
This is a perfectly legitimate question, particularly because hiring an executive coach can be a costly proposition. A would-be client is correct to pay attention to the value that any coach brings to the table. But as a whole, the industry flourishes for good reason. It gets results. According to a survey of 100 business executives, conducted by Manchester Review, executive coaching, where quantifiably tracked, produced double-digit improvements in areas like productivity, employee retention, quality, and organizational and professional development.
WHAT DO EXECUTIVE COACHES GENERALLY DO?
In the ideal engagement, the goal of an executive#coach is to leave the client better than he find him, while equipping the client with new tools for tackling the day-to-day world and meeting near- and long-term
objectives. In doing this, an executive coach would do the following:
• Identify and help the client to develop professional talents
• Act as a sounding board for ideas and concerns, while asking the type of probing questions that elicits thoughtful responses and actions
• Help the client to identify and address derailing behavior
• Evaluate and develop strategic career #goals and plans for #growth
• Coordinate priorities, help set goals, and develop measures for accountability
• Help the client to dissect and tackle difficult issues, both, at work and outside of work (Remember: one’s personal life does impact one’s professional performance.)
With all of that, coaches not only influence the behavior of the clients they engage. They also shape the client’s learning process, enabling the latter, in most cases, to think more objectively, creatively, and strategically.
WHERE DO EXECUTIVE COACHES COME FROM?
Finding an effective executive coach can be a challenging endeavor, particularly because the field is so ripe with individuals and groups claiming to provide such services. Executive #coaches come from a variety of sectors of the economy, such as#consulting, psychology, human resources, and the senior #management of disparate industries. Some even hail for the military and the world of sports and fitness. For would-be clients, it is important to know that an executive coach possesses both the acumen to lend the best advice. Therefore, knowledge and experience are both important.
To that end, coaches do not come cheaply. In fact, executive coaches – really good ones, more specifically – can charge clients anywhere from $200 per hour to as much as $3,500 per hour, as in the case of motivational speaker Tony Robbins. Consequently, it is important that a would-be client to get a good idea of what types of results can be expected, perhaps based upon the coach’s record, and have an understanding of the value to be delivered in the engagement.
IS THERE A PROCESS FOR EFFECTIVE BUSINESS COACHING?
There is no singular formula or approach for a successful coaching engagement. Nor should there be.
WHAT ARE THREE IMPORTANT POINTS TO REMEMBER ABOUT EVERY COACHING RELATIONSHIP?
(1) This is not about feeling good. A client is spending a handsome sum of money for objective insight and professional development. He cannot and should not expect an effective executive coach to placate him or enable him.
(2) Measurable results are everything… Unfortunately, the majority of coaching engagements do not provide quantitative feedback on a client’s progress. This is unacceptable. By not establishing the right type of metrics, there may be no way to link the coaching to improvements in professional performance or the harnessing of new skills… And how else would you be able to decipher value?
(3) Coaching should not go on indefinitely. In fact, the goal should be to build specific, new skill sets and enable the client to become self-reliant. Therefore, clear goals and a timetable for the coaching engagement are useful.
WHAT IS THE AxSA WAY?
The AxSA Coaching Solutions for Business Professionals is this consultancy’s own executive-coaching service package. While each coaching engagement is tailored to the client, we adhere to the same overarching approach, in order to ensure consistent results:
• Baseline survey
• Focal points – setting goals and timetables
• Monitoring through client sessions
• Intermittent surveys – gauging ongoing improvements and milestones
• Closing survey
• Engagement feedback
To learn more about AxSA’s executive-coaching service package, please contact us directly.
WHEN DOES COACHING NOT WORK EFFECTIVELY?
Coaching is not right for everyone, and under certain circumstances, a coaching engagement can be doomed before it ever really begins. Here are a few factors that can lead to a failed coaching engagement:
• A client who is too rigid and unwilling to explore new ideas is not entirely #teachable. All of the advice in the world is of little consequence to the man who refuses to hear it, process it, and apply it.
• A client who does not enter the engagement in good faith, or who is not honest about his circumstances or progress, will make for a difficult person with which to work. #Pride and dishonesty can have no place in an effort to make one a better version of himself.
• A client who harbors a toxic or negative disposition is problematic. If consistent, these bad thoughts really sour one’s mindset, and whereas thoughts impact feelings, #beliefs, and actions, there is a chance that such thoughts will also woefully cause the coaching engagement to fail.
• A client who is unwilling to own shortcomings or mistakes, or who projects onto others, is dealing with the same pride and egotism as those who are unteachable.
• A client who is unwilling to commit to the process, whether due to fear or laziness or “a lack of time”, will passively doom even the best effort. They are not ready.
• And of course, if clear goals are not set forth in the coaching engagement, the effort by both parties, the coach and the client, is really for naught. It is important to aspire for something and know, quite succinctly, what that something happens to be.
If #results matter, then Paul William Bryant is surely one of the best examples of effective coaching we will ever know. Usually just referred to as “Bear”, Mr. Bryant served as the head coach of the football program at the University of Alabama for twenty-five years. Naturally, as a coach, “Bear” was expected to lead his teams to victory, but he delivered in spades, with phenomenal consistency – 323 regular-season wins, 13 conference championships, and 6 national championships. To this day, the legacy of#BearBryant has helped to cement the University of Alabama’s reputation as a juggernaut among its peers on the football field.
Interestingly enough, though, despite being one of the greatest tacticians of America’s favorite pastime, the coach remained humble. “I’m no miracle man,” he said. “I guarantee nothing but hard work.” Such words epitomize the mark of a great coach.
As in football, an effective executive coach does not promise to make a client great. He promises, instead, to present the assignments necessary for a client to make himself great. The executive coach, much like “Bear”, stresses the importance of self-actualization on the part of the client. That is, he works to get the client to discover and activate for himself new #talents and ways of thinking. He also acts as a beacon for the client who must make practical these new traits in his daily routine. And he serves as a sober voice of support as the client conditions himself into a better and more promising version of himself. The executive coach guides; the client initiates and carries out the work. And as the results become more and more evident, therein lies the value of an effective coaching engagement – significant, lasting, and positive change.
Gary C. Harrell is the founder and Managing Principal of Axiom Strategy Advisors, LLC. For more information about the consultancy, please visitaxiomstrategyadvisors.com.
©2017 All rights reserved; Axiom Strategy Advisors, LLC
MANY PEOPLE HAVE DREAMS OF STARTING THEIR OWN BUSINESSES, BUT ALL TOO OFTEN, THOSE ASPIRATIONS ARE DASHED BY #FEAR. SO IS FEAR A REAL THING?
Underlying fears are typically the most prevalent culprits behind indecision, inaction, stagnation, regression, and so on. And interestingly enough, many would-be #entrepreneurs succumb to hard-driving emotions. Like anyone else, they, too, whether knowingly or unknowingly, hesitate or recoil at the crossroads to their destinies. That is why the words of noted evangelist #TDJakes ring true: “Fear is the assassin of greatness.” And so, the answer to the question is simple: in a world where perception is a greater force than reality, yes, fear is a very real thing.
In order to overcome or manage fear, it must first be understood for what it is. Many are unlikely to admit it, but fear is something that resides in each of us. It is an emotional response to stimuli that, in humans, travels through our neural circuitry from the parts of the #brain known as the #amygdala, and because this emotion is connected to the self-preservation instincts of every living organism, it would be fair to say that its existence dates back to the dawn of creation. In humans, fear is triggered when the amygdala recognizes threatening stimuli being collected by the body’s senses, which also happens to be sharing this information with the brain’s cortex. Detecting a threat, the amygdala can bypass the neocortex and prompts the body into action, even without a conscious impetus, quickly initiating an evaluation of the perceived threat and determining an appropriate response. There is little that the untrained mind can do; fear can strike out of nowhere. And just as literal threats can cause a rush of insurmountable fear, figurative ones like uncertainty can also cause ongoing bouts of anxiety and apprehension.
In his best-selling book #EmotionalIntelligence, Daniel Goleman wrote that we have two minds—one emotional, the other rational—and that, for the sake of a healthy life, the rational mind had to be in control. He described emotional intelligence (EQ) as the ability to “motivate and persist in the face of frustrations, to control impulses and delay gratification, to regulate one’s moods and keep distress from swamping the ability to think, [and] to empathize and to hope.” Goleman believed that people were too often collared by their emotional mind, but through EQ, they could learn to temper their emotional propensities and discover ways to grow. And where fear was concerned, Goleman acknowledged that it was possible to reshape the human response to threatening stimuli, by working to help individuals understand why they are afraid, redefine the stimuli that frightened them, and replace negative experiences of the past with new and positive ones. This process was called emotional relearning.
Such a psychotherapeutic approach to understanding and overcoming fear is also useful in the business world, where fear can undermine new ventures, cause the suppression of much-needed talent and ideas, upend change initiatives, and (worst still) strengthen corrupt or obsolete leadership. Every new entrepreneur has arrived at a crossroads with a degree of trepidation, as he or she gazed onto the dueling #possibilities of promise and of peril. But only those entrepreneurs with the capacity to identify and overcome their fears of failure (peril) have a better shot at success (promise) than, say, those who elect to stand there, or perhaps those who decide to take costly detours, or even those who decide to walk away entirely.
Here are a few thoughts on how an aspiring entrepreneurs can begin to understand and overcome the fears affecting his new ventures:
–Recognize that he is standing at the crossroads. Here, fear is a common emotion, and it is nothing for which anyone should be ashamed. As he starts to make this recognition, he can begin to understand what the fear is and how it is impacting his prospects.
–Develop a #vision of the other side. The entrepreneur should ask himself the question: if not for this emotional impediment, where could his dream be? Could it be brought into successfully fruition? An honest effort to answer this question will enable him to paint of picture of where he would like to take his venture. From there, he can set attainable benchmarks and #goals by which to transform that picture into reality.
–Know the real enemy. Many fears are based on inaccurate presumptions. As he begin to identify his fears, the entrepreneur should also make an effort to fully understand where they come from, and determine more accurately their levels of potency and validity. What he find may surprise you: many of these fears may be unfounded or simply based on erroneous information.
–Get help. There is no shame in admitting limits, and this is the reason that people in my field consistently tell entrepreneurs that they need BAIL (“bankers, accountants, insurance agents, and lawyers”), as well as very bright #businessconsultants, to help devise and navigate the course forward. These people, along with the members of the entrepreneur’s team, will complement his abilities and serve as a support system.
–Take that first step. Once he has an idea of where he is headed, the necessary resources, and a plan – yes, a #businessplan! – for getting there, he does not have to be afraid to go for it.
–Persevere. When the entrepreneur confronts what should be fearful moments – and he will – the typical biological impulses may surface. Nevertheless, he must have confidence, and he should trust his rational mind, as well as his support system, to get him through the anxiety.
–Know that everything is temporal. Today’s times of challenge are tomorrow’s moments of #triumph. The entrepreneur must remember that what he faces today, if encountered effectively, can help to propel him forward, where undoubtedly, he will face a whole new set of challenges and where he may have to identify different types of fears. With any luck, though, the lessons learned from today will prepare him for much of what is further down the road.
Gary C. Harrell, the author of this piece, is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write email@example.com.
©2015 All rights reserved; Axiom Strategy Advisors, LLC
By Gary C. Harrell
For a small business, expanding into new markets can be an exciting time. This is particularly true when the new market is a foreign one. But, for all the excitement, a great amount of attention must be given to the way in which products are traded, promoted, and placed in these foreign markets. One misstep, one detail overlooked, can result in lost goods, non-payment from buyers, compromised intellectual property, or even reputational risks. Therefore, managing every stage of the export process is critical.
When it comes to safeguarding a business against the risk of non-payment, an entrepreneur-cum-exporter should consider trade credit insurance. This type of coverage is used by businesses of every category and size, and though only three percent of exporters used it in 2016, recent political events like Brexit, trade difficulties between the United States and China, and a swathe of business failures is making the coverage more popular. In fact, many banks increasingly require export receivables to be insured if such receivables are to be considered as collateral for credit lines.
Contingent on the breadth of coverage selected by the exporter, trade credit insurance policies may cover between 60% and 95% of the debt owed by a foreign buyer, if such coverage applies to specified circumstances resulting in the buyer’s non-payment, i.e., political instability or business failure. For this reason, it is advantageous for an exporter to seriously consider the risks posed, both, by the buyer and in the buyer’s market, before selecting the appropriate coverage for the transaction. What’s more, unlike most other types of coverage that policyholder put aside until they must be used, with trade credit insurance, the exporter must report to the insurer as the first shipment of goods or services is dispatched to the buyer; the exporters must commence the payment of premiums; and the exporter must remain in regular communication with the insurer.
While private insurers do offer trade credit insurance to well-heeled exporters, a good number of them do not make the coverage available to small businesses. For this reason, the Export-Import Bank of the United States has stepped into the gap, providing coverage in areas deemed too risky by private insurers. Of course, though, there are a few restrictions when using the EXIM Bank:
- The business must have at least one year of operational history.
- The business must have at least one full-time employee.
- The business (and, in many cases, its owner(s)) must have a positive net worth.
- Fifty percent or more of the costs of the contents of the goods or services to be shipped must originate in the United States. (This can also include indirect costs such as labor or administrative costs.)
- All goods must be shipped to their destination countries from U.S. ports.
- Goods and services must only be shipped to eligible countries.
- The goods typically cannot be inclusive of arms or munitions for military, commercial, or civilian uses, unless the “dual use” of such goods can be clarified and approved prior to their sale.
Entering foreign markets can be an exciting time for a small business owner, because doing so can mean the growth of a brand and the diversification of revenue. But foreign markets come with their own set of challenges, and those are not limited to languages, topography, logistics, laws, customs, or tastes. Managing these risks requires a comprehensive understanding of the new market and proper preparation for exporting to it – not simply a casual desire to do so. Trade credit insurance is but one many facet of that preparation, and it can be a useful and reassuring tool for helping new exporters reduce possible risks in unfamiliar markets.
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Gary C. Harrell is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write firstname.lastname@example.org.
© 2018. All rights reserved; Axiom Strategy Advisors, LLC.
Written By Gary C. Harrell
31 July 2017
Let’s start this missive with the kind of sobering admission that we all know to be true: many businesses – in fact, most businesses – do not work out. As we noted last year, according to statistics from the Small Business Administration, one-third of all new businesses close their doors within the first two years of operations, and half of the remainder, beyond that, do the same within their first five years. These statistics accurately point to the fact that, in spite of the best-laid plans, many entrepreneurs, whether new and experienced, find themselves making one of the most grueling decisions of their lives.
The decision to shutter a business for good is typically a financial one. Even still, the closure might have emotional ramifications on the business’s owner. An entrepreneur can be devastated by this loss, and there is an overwhelming sense of defeat, particularly as he recounts the possibilities that could have saved the business. What’s more, if the losses sustained by entrepreneur are great, the risk of the entrepreneur withdrawing from the world and sinking into depression can be equally real and just as concerning.
While there is no easy way to tell the owner of failed business that he should cheer up and prepare to move on, Axiom Strategy Advisors feels that it is important that every entrepreneur be equipped with the tools necessary to overcome the uncertainty and emotional challenges that might follow a business closure. Indeed, we recommend an entrepreneur prepare himself in five areas, in order to reduce the stress that will come in the long days and weeks following a closure:
1. Sources of Optimism
It is very easy to succumb to pessimism in the wake of a business closure. An entrepreneur may feel, among other things, drained and embarrassed, and he may simply not want to do anything for some time. After all, he has just shuttered the physical manifestation of his dream. Consequently, he may even begin to question the viability of any his other dreams or aspirations. But he should not do that. The best way for an entrepreneur to restore his hope in things to come, along with faith in his own abilities, is to find competing sources of optimism. He can look to things like his family, his hobbies, his civic involvement, and other personal interests as barometers for measuring his effectiveness and ability to still contribute to the world. As they preoccupy his time, these personal interests can also serve as the motivators necessary to galvanize the entrepreneur back into action.
2. Support System
Everyone needs a support system – and in the wake of a business closure, no one more so than an entrepreneur. In fact, being able to speak candidly to others helps the entrepreneur gain perspective, and it prevents him from bottling up difficult-to-process emotions. While family members and friends are acceptable outlets, it is extremely useful for an entrepreneur to include like-minded professionals and, when appropriate, mental-health clinicians in their support system. Those with experience in dealing with these challenges will offer the entrepreneur the best way to navigate through uncertainty.
We do not always win. We cannot always win. In fact, our moments of failure in life are just as common as our moments of success. That is perhaps the hardest realization for anyone to accept, let alone the entrepreneur – a man who stakes copious amounts of time, energy, and treasure on the physical manifestation of a dream. And so, when that dream proves unsuccessful, the entrepreneur might resist the notion that the failure is not personal, but it isn’t. It really just happens, irrespective of person, as would any social or behavioral phenomenon, and of course, there are times, statically speaking, when the risk of that failure is just greater, particularly for the adventurous and the intrepid, for the creative and the enterprising. That said, entrepreneurs are well-served to consider the words of Albert Einstein: “A person who never made a mistake never tried anything new.”
4. Objectivity & the Lesson of the Moment
Oprah Winfrey called failure, quote, “another steppingstone to greatness”. This is a description that should resonate with an entrepreneur. We all make mistakes, and some of those mistakes can be quite costly. Nevertheless, it is very important that an entrepreneur have the presence of mind to exploit even a difficult moment for what it is worth, by taking the opportunity to identify the lessons to be learned. For the owner of a failed business, the practice of taking a moment to step back, reevaluating the circumstances that led to such failure, and processing the lessons from those events are more than just about gaining perspective. These can become life-lessons that help to pave the way forward.
5. A Fresh Start
From the start, an entrepreneur possesses a unique sense for identifying opportunities that few others recognize, while also mustering the courage to act on them. That superpower is not lost in the wake of a business closure. In fact, it is just as keen as it would have been on the first day, when the entrepreneur originally conceived the idea for his first business. Consequently, it is very important for the entrepreneur to approach the next chapter of his life with the same confidence and zeal that enabled him to move forward in the past.
To the general public, business closures seem to occur swiftly, almost overnight, and in an orderly manner. We consultants and a world of entrepreneurs know differently. When a business is headed to its closure, it takes a long and agonizing march filled with unexpected twists and turns – glimmers of hope, waves of disappointment, moments of contention, and weeks of endless, new questions. Indeed, each day is more painful than the one before it, and each turn chips away at the veneer of a once-hopeful, once-determined entrepreneur. To that end, there is perhaps no greater evidence of the destructive consequences of a business closure than the toll it takes on the people involved, particularly the entrepreneur.
Understanding this, Axiom Strategy Advisors takes great care in working with entrepreneurs facing the decision to close a business. This is also the reason we elected to share these points. We hope to stress a singular message to entrepreneurs who, in the end, need to be reminded to remain positive, open, adaptive, and driven.
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Gary C. Harrell is the founder and managing principal of Axiom Strategy Advisors, LLC. For additional information, please write email@example.com.
© 2017. All rights reserved; Axiom Strategy Advisors, LLC.
With all of the talk about tariffs and trade wars, AxSA has been getting a lot of questions about what it’s like to manufacture products in China. The biggest one: Does China really cheat on intellectual property? And our answer is simple: Hell yeah, it does – and you are still going to do business there!
That is the reason we published this piece of wisdom four years ago.
Written By Gary C. Harrell
It is not uncommon for entrepreneurs to fear the idea of sourcing their products abroad, particularly to suppliers in a country like China, a place where the shanzhai culture of counterfeiting goods can be such a pervasive practice. Nevertheless, China still ranks among the world’s leading destinations for outsourcing. In spite of the risks, producers are still attracted to China because of its high technical prowess and relatively low costs. So are the fears warranted, or is what we are hearing simply overblown? Well, there is no discounting that the theft of intellectual property is a real risk in a country like China, but the fears of such risks may, in some cases, be misdirected.
In speaking with entrepreneurs, one thing this consultancy has found is that many are most afraid of the prospects that their own suppliers will be the culprits behind counterfeiting their goods. That is a real possibility, but we believe there are a few rules that entrepreneurs can follow to reduce the risk of this happening.
Select a reputable sourcing agent.
Many businesses, and particularly most small entrepreneurs, lack the knowledge to circumnavigate the business environments of foreign countries. Consequently, they may hire third-party sourcing agents to facilitate relationships with suppliers. This can be a useful entrée into those foreign countries, where differences in language, culture, and infrastructure may pose challenges. That said, though, entrepreneurs would be well-served to keep in mind some key points when selecting their sourcing agent:
- The sourcing agent must have real familiarity with the local business terrain, and he should also maintain an on-the-ground presence in that market.
- The sourcing agent should have a strong track record as a liaison, providing the entrepreneur with a fair number of references.
- The sourcing agent should report to the entrepreneur, in writing, on a regular basis, even if nothing new or unexpected is occurring.
- The sourcing agent is not a permanent fix. No business should foster an indefinite reliance on a third-party agency without cultivating its own direct channels for communications and accountability with its supplier.
- The sourcing agent needs to work for the entrepreneur, not the supplier. No exceptions.
Identify a reliable supplier.
Once the entrepreneur and the sourcing agent are ready to do so, the vetting and selection of a supplier really is no different from the way it is done domestically. The entrepreneur should verify that the supplier has the competency needed to build the products being sourced, the capacity to meet the requisite needs, and the ability to scale that capacity up when demand increases. Accessibility should also be a concern for the entrepreneur; a lack of critical infrastructure near the supplier can hinder both communications and transportations, thereby adding to logistics costs. And, of course, the entrepreneur will need to confer with references provided by the supplier, to evaluate the supplier’s track record on, among other things, quality, timely deliveries, services, communications, and ethical business practices.
Lawyer up—and document everything!
“Shanzhai” is a Cantonese word used to refer to the inferior knock-offs of well-known products being churned out of some Chinese factories. As more and more outsourcing came to China at the end of the last century, the number of knock-offs exploded. Today, the shanzhai culture is so pervasive—and, unfortunately, so much more improved—that counterfeiting in China is estimated to cost businesses nearly $20 billion in potential revenue.
For small entrepreneurs new to the sourcing world, this can be disconcerting. And while there may never be a way to completely head off the risk of counterfeiting, having product designs properly patented and trademarked, alongside working with legal counsel to draft comprehensive manufacturing agreements that conform to both domestic and foreign rules of law, promises to be the best way to reduce such risks. A well-drafted series of contracts between the entrepreneur and the supplier (as well as any subcontractors, if necessary) should help to make clear the terms and expectations in this new relationship. In addition to a number of other components, a good manufacturing agreement should specify, in detail, the following:
- Product specifications
- Product standards
- Procedure for manufacturing
- Identification and descriptions of any subcontracted parties
- Payment schedules
- Site inspections
- Framework for legal recourse
- Acknowledgement of intellectual property rights
- Confidentiality and non-use agreements
- Shipping specifications (with details about performance, control of goods, insurability, etc.)
If the supplier has a reasonable reputation for being above-board, then there is probably little reason for immediate concern that this partner will be the culprit of any counterfeiting. In fact, the problem, more than likely, may originate with manufacturers with whom the entrepreneur has no contact and, consequently, no working agreements. These unconnected manufacturers are notorious for reverse-engineering products, sometimes at the behest of an entrepreneur’s competitor, and mass producing replicas of, or developing slightly different versions of, the entrepreneur’s product. To this end, the entrepreneur would be well-served to use resources in the foreign market, like those provided by some larger sourcing agencies, to monitor the foreign marketplace and identify incidents of counterfeiting.
Conduct on-site inspections and establish communications channels.
An entrepreneur cannot rely too heavily on the efforts of the sourcing agent. He must travel to the supplier to assess the operations. These site inspections not only bolster the entrepreneur’s familiarity of the manufacturing process, they provide him with a great way to build a direct rapport with the supplier. The goal is not to completely usurp the inroads forged by the sourcing agent, who should continue to work as a tactical representative of the entrepreneur, but the direct channels of communication can be useful when unforeseen issues arise.
Understand the role of the foreign government and the legal landscape.
To simply say that an entrepreneur should have ready and competent legal counsel at his disposal is a glaring understatement. Many foreign countries—and China, particularly—can be a litigious minefield for even the savviest businessperson, and for a small entrepreneur, legal challenges in these markets could overwhelmed their personal savings and the finances of his new business. Therefore, it is quite imperative for an entrepreneur to retain legal counsel with a broad wingspan of resources in the market in question. He should also attempt to learn, in advance, as much as he can about the legal terrain of the foreign country, so as to fully understand where, if any, potential liability exposure may reside.
What’s more, it is important to have a clear picture of how intellectual-property rights are protected in the foreign country. China poses an interesting case, inasmuch as its overall handling of the shanzhai phenomenon has been spotty, yet foreign firms have still elected to outsource to this country. The proper treatment of intellectual property had not always been a matter of serious interest in this country. In fact, it was not until 1992 that the Chinese entered into a Memorandum of Understanding with the United States, wherein China agreed to acknowledge the trademarks and patents of companies filed in the U.S., and in doing so, agreed to provide similar protections against the infringement of those works within its borders. That language was largely codified into law in 1996 with the signing of the Sino-U.S. Agreement on Intellectual Property Rights. Suffice it to say, though, the law did little to reduce infringements, and the intellectual-property arena remains as murky and troublesome as ever in China.
Part of the problem in China exists in its patent framework, while another part of the problem is owing to the manner in which culture and biases trump the rule of law. First, China splits its patents into three significant types: invention patents (which, until recently, were only available for product made and originally made in China); utility model patents (which protect the shape, structure, and composition of a good for a period of ten years); and design patents (which, of course, only protect designs). In order to enforce these patents, officials in China deploy a “double-track” system that allows an aggrieved party to challenge an infringement through administrative channels or a judicial course of action via the courts. While the administrative approach may seem less costly, it can be tremendously time-consuming with no assurance of resolution. Meanwhile, costs notwithstanding, the courts pose their own hurdles. In 2004, the number of patent lawsuits filed in Chinese courts stood at just over 2000, but by the end of 2008, that number rose to 8000, creating a backlog of cases threatening to overwhelm an already-burdened system. Complimenting this, though, is a problem deeply rooted in xenophobia. Judges have shown suspicious deference for local companies, and since many of these judges do not consistently write or publish their rulings, it is often impossible to determine the motivations behind their decisions.
For all of these reasons and others, an entrepreneur should follow the lead of larger businesses, who elect to fight infringement cases, when or if the opportunities ever present themselves, in the United States or other countries with more transparent courts and histories of upholding the rule-of-law, rather than places like China.
The outsourcing of goods can, of course, saves many businesses significantly on production costs, while increasing the margins on those businesses’ products. This fact has proven itself true for companies as large as General Motors in Detroit and as small as an industrial clamp maker in South Texas. But what is also true is that both businesses face the risk of losing their intellectual property to the shadowy side of manufacturing in a place like China, where counterfeiting has become a lucrative business. For this reason, like their larger counterpart, small entrepreneurs must do everything they can to protect their intellectual property. The high points shared in this missive are a good first step in that process.
© 2014 All rights reserved; Axiom Strategy Advisors, LLC