Early in his presidency, Richard Nixon began taking small steps that led to his 1972 visit to china, and the eventual establishment of diplomatic relations with the communist giant.
Nixon referred to the country by its official name, the People's Republic of China. He encouraged a U.S. ping pong team invited to perform exhibition matches there. And he dispatched National Security Advisor Henry Kissinger to participate in secret meetings with Chinese diplomats.
Similarly, New York accounting firm Friedman LLP took slow, deliberate steps over the past several years to become a leading provider of accounting services to Chinese companies. In a recent conversation with Friedman managing partner Bruce Madnick, I gained insight into the company's successful China initiative, and their best practices of finding a strategy and growing a niche.
STEPWISE AND STRATEGIC
About seven years ago, Friedman set out to expand its global footprint by looking for clients among Chinese companies based in the U.S. "Our original intent was to become the most successful U.S. midmarket firm doing business in the United States servicing Chinese clients," Madnick explained.
Today, Friedman has become one of the largest U.S.-based firms serving primarily Chinese businesses based in China and that are, or are becoming, public in the U.S.
Like other mid-market firms, Friedman finds the domestic U.S. market to be characterized by price sensitivity and fierce competition. By contrast, the Chinese market continues to be wide open, with excellent market conditions. While the U.S. economy is on a slow growth curve, China's huge economy is experiencing a growth spurt due to some very significant, profitable companies. Additionally, competition is relatively sparse, enabling attractive pricing.
Because the Public Company Accounting Oversight Board has not had the ability to inspect Chinese-affiliated firms (Big Four in China), they have been putting pressure on the Big Four in the U.S., which has caused the Big Four to start to decline to take on work in China, or to be very selective in the business they do take on. "That has given us greater opportunities than we had before," Madnick said. Although many small U.S. firms have shown interest in China, most lack the resources, human capital, and appetite for investment to establish a strong foothold.
Friedman's foray was jump-started by Chinese-born partner Eddie Wong. He played a key role in introducing the firm to New York's tight-knit Chinese community, and Friedman became the first mid-market accounting firm with an Asian-American practice.
Although Friedman had its eye on attracting large corporate Chinese clients, its leaders had to earn their way in by serving the modest accounting needs of individual Chinese taxpayers. Although these clients were very price-sensitive, the strategy helped open the door to additional introductions and larger opportunities in the Chinese community.
The next step was to partner with the DFK International-affiliated firm in Hong Kong. Friedman is the largest independent member of DFK International, a global resource and networking association for accounting firms. Rather than merely socialize at cocktail parties with other firms that had some China connections, Madnick and other partners laser-beam focused on a firm already well-established there.
BETTER TOGETHER
Friedman next engineered a strategic merger that would become a key element in its China strategy. Joining forces with the New Jersey firm Bagell Josephs Levine & Co. LLC was especially important, as BJL was a competitor already active in China. BJL had a solid base of clients and two dynamic partners in Jason Tang and Neil Levine, who were well-versed in the China market, plus important contacts in legal firms, private equity firms and investment banks. But BJL lacked the resources that Friedman brought to the table.
Friedman broke the unwritten rule (whose rule is it, anyway?) that forbids talking to a competitor. I am a firm believer in learning everything about an industry or niche from every possible source, even those you compete against.
According to Madnick, the merger was typical of Friedman's approach to acquisitions. "The goal," he explained, "is to use the contacts of the firm we're merging with to get them to the next level, providing services that firm could not offer on its own."
As a result of the merger and other activities, Friedman's international practice has grown to $7 million within a few short years, mostly reflective of increased activity in China.
ENSURING SUCCESS
Friedman's plan for entering China was bolstered by several other factors. One was the fact that Friedman is a diverse, multicultural firm with many foreign-born and multilingual staff members. I remember Madnick telling me a few years ago that as you walk down the halls of the firm, you hear all types of languages, and see all kinds of people.
This characteristic eased the firm's entrance into a country with a distinctive business culture, where nuances of tone and behavior can make the difference between success and walking away empty-handed.
Today, Friedman sends about 25 bilingual professionals from its New York and New Jersey offices to China each year. They work closely with affiliates on the ground to serve a growing number of clients.
Another advantage was Friedman's willingness to do what was required in terms of compliance. In light of cultural differences and business style, many generally accepted U.S.-based audit standards are often insufficient in China. As a result, firms must audit above U.S. standards. Only those that are willing and able to go the extra statutory mile have a chance at long-term success.
Noted Madnick, "You can never do enough due diligence and background checking when you're working in China."
SUCCESS BREEDS RESPECT
As Friedman has grown its Chinese practice, Madnick and his colleagues have learned a great deal about the nation's people and culture. One of the most satisfying aspects of the engagement has been the appreciation shown to the U.S.-based accountants.
"They show such respect, it's just wonderful. They also appreciate that we are teaching them U.S. reporting culture and practices," said Madnick.
Friedman staff members working in China are frequently honored at gala dinners. When the firm recently put on seminars in Beijing and Shanghai, clients flew staff members in from across the country to share in the learning with the American visitors.
In a world in which international squabbles and political innuendo dominate the headlines, it is exciting and promising to see this bold, deliberate initiative paying off.
In the end, I was struck by the sophistication of Friedman's China initiative: first, its use of solid principles of growing a niche -- evaluate market conditions, go where the competition isn't, find powerful channels of distribution, keep an open and curious mind, and evaluate all possibilities; and second, the entrepreneurial boldness, coupled with a carefully thought-out approach to risks and impediments. Insurance, standards, due diligence, cultural understanding -- these are viewed as business challenges to be solved, not show-stoppers preventing success in a lucrative new market.
The future possibilities are as vast as the nation itself. And it seems that Friedman's China playbook, like that of Richard Nixon, will be part of an enduring legacy.
Gale Crosley, CPA (
