China Law Blog

Andrew Hupert over at Diligence China did an excellent post on business in China for SMEs (small and medium Enterprises). The post is entitled, "Overseas SME's into China: We've got some good news and some bad news."

Being an optimist, I will start with the good news.  According to Hupert, the good news is that China is still booming and China's "market and regulatory landscape have evolved to the point where smaller firms with limited resources are able to do serious business ' and their prospects are bright.'  Hupert sees bad news in the fact that China's "reputation for crushing the dreams and hopes of entrepreneurs and opportunity seekers" is still justified.  He is right on all counts. 

Hupert views China as having "set up a fairly transparent system of rules and regulations that level the playing field to a large extent: for SMEs:

New regulations, company formation procedures, systematic laws, sophisticated new infrastructure and a growing middle-class are creating a perfect storm of opportunity. As China changes and develops, new niches and market opportunities are opening up faster than incumbents can satisfy them.

Hupert, very insightfully cites Citibank's launch of a Small and Medium Enterprise (SME) Senior Management Training Program in conjunction with Fudan University's Management school as additional proof of "the trend towards SME growth in China." Citibank is predicting its SME-based business will grow by triple-digits for the next few years.  "Big state-owned behemoths grab the headlines in China, but it is the no-name SMEs that really drive the economy. By many estimates, smaller firms are responsible for over 50% of China's output ' and 75% of new job creation."

Hupert sees service industries as the best arena for foreign companies coming into China because "home-grown Chinese [service] firms have trouble competing."  "Design, management consulting, HR and training, and marketing are key areas for international start-ups ' though the finance industry is expected to be a tremendous source of growth as the sector develops." 

For many small companies, China represents the ideal competitive environment. Some SMEs are being pulled into China as they follow their existing clients into the new market, while others are finding that the burgeoning B2B and consumer markets offer them new opportunities for growth and expansion. SMEs have certain competitive advantages versus their giant global counterparts. Small, nimble service providers have the flexibility to serve niche markets and react to' or even lead ' market trends to a degree that the global giants can only dream of. HR is a key challenge for managers in China, but one that suits the micro-organization hiring small numbers of local graduates and managing them closely. That model has been known to work well in China, while the giant MNCs have been plagued by high turnover, rising payrolls and skyrocketing training costs.

I completely agree.

In fact, one of my first posts on this blog, back in January, 2006, was entitled, "Service Sectors in China Will Reign" and that this is Part XIV is proof that my enthusiasm for this sector has never waned.