Calgary Herald, Zi builds guanxi to crack Chinese market
Thursday 5 August 1999
Zi Corp builds 'guanxi' to crack Chinese market
Matthew McClearn,Calgary Herald
Shannon Duncan, Calgary Herald / Frank Chen of Zi Corp. shows off remote control that is used with his company's software. Zi Corp. has developed a technology that allows people of various languages, including Chinese, to send e-mail and shop on the internet with a cell phone or remote. CAPTION TO A PICTURE
TEXT
In China, mastering the art of making connections -- guanxi -- is more important than credit cards and clean underwear are in the West. In other words, don't leave home without it.
After six arduous years of building business relationships in China, Calgary-based Zi Corp. is starting to win the reputation and trust it needs to make major deals in the world's third-largest economy.
"Guanxi is very important to do any business in China," says Frank Chen, who was an investment banker with CIBC Wood Gundy before joining Zi as executive vice-president recently.
While many agreements in North America are fuelled by a simple coincidence of need and the ability to provide, business doesn't happen in China without familiar relationships.
"Basically, it is the needle and thread to the tapestry of business," Chen says. "You must have guanxi."
Zi's business is bridging the chasm between Chinese and today's anglocentric information technology. It develops software that allows users to use the Chinese language to interact with cell phones, television set-top boxes, personal and handheld computers, and other devices.
The Chinese written language features eight strokes which form some 80,000 words. Zi's input system recognizes the order of the first few strokes and extrapolates which words the user is forming.
Chairman and chief executive officer Michael Lobsinger needed guanxi to sell that in China.
He has made many trips to the People's Republic of China to meet with officials over the past five years. But words alone are not enough -- Zi had to show commitment by setting up offices in Beijing, hiring Chinese developers, and conducting research and development there.
"The most important thing about a foreign company doing business in China is understanding the culture, the philosophy and the methodology of business," Lobsinger says. "It is extremely difficult to apply Western business techniques or solutions in a different culture."
John Chandioux of the Chandioux Group, a Montreal consultant that has 25 years of experience developing language software, says the market for software that enables people to interact with technology in their native language, and for translation tools, is growing.
"The ability to work with these languages, and enter them into handheld computers, agendas and cell phones, it makes a lot of sense," he says.
"It makes even more sense that they are addressing the Chinese market. The Chinese have jumped directly from no telephone at all to the cell phone, because it costs less than installing lines. It could be a very popular item over there."
While Zi was building its guanxi, its quarterly revenue graphs remained as flat as open prairie, and it recorded consistent losses, including $20.8 million in 1996 and $2.3 million last year.
"Over the last five years, it was frustrating because, as Canadians coming in not being Chinese, it was more difficult (to build relationships)," says Chen. "But once you establish credibility with them, it is smooth sailing."
Continuing that metaphor, the breeze has been strong for Zi of late.
Last year, it signed an agreement with giant Ericsson Communications of Sweden to implement Zi's software in cell phones. The first product hit the market this week. Last month, Zi reached a similar licensing and royalty agreement with Xiamen Overseas Chinese Electronic Co.
Zi also signed a deal with the ministry of education to create a new company, Hauyu Zi Software Technology Ltd., 85 per cent owned by Zi. The joint venture will supply its input software to computer equipment in Chinese schools.
Zi made a second deal with China's ministry of information industries. This will see Zi technology licensed for use in set-top boxes that will provide television and Internet access.
"These deals are very significant," says Brian Pow, technology analyst at Acumen Capital.
"There have been ongoing discussions with Ericcson for a long time, but it was one of these things where they were missing pieces of the puzzle. The endorsements they got through the different ministries of the Chinese government were really the missing pieces."
In the past month, the company's stock has spiked from the $1.50 range to its closing price of $7.20 on Wednesday, down 90 cents on the Toronto Stock Exchange.
Pow says he "wouldn't be jumping all over it." Zi's challenge will be to build its input software into a standard technology for consumer electronics, and that has yet to be seen.
"Now that they have these endorsements, we should expect to see some exponential growth taking place," he says. "If we don't see that on a quarter-to-quarter basis, then we'll know that this may not be a standard."
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