By Steve Dickinson and Dan Harris
The American Chamber of Commerce in Shanghai just issued its 2010-2011 Business Report. This report should be required reading for all companies doing business in China or who are planning to do business in China. Our good friends over at Technomic Asia co-authored the report.
The report is based on surveys of AmCham members. This is critical. The report is not based on the impressions of academics and government officials. It is based on the day -o-day experience of companies that are working on the ground here in China. The critical findings of this year’s report are:
• The majority of respondents are operating in China with a focus on the China market. 58% focus primarily on the China market and only 10% focus primarily on manufacture for export. The notion that most U.S. companies are in China solely for the purpose of manufacture and sale to back to the U.S. is simply mistaken.
• U.S. companies are continuing to move from first tier cities like Beijing and Shanghai to second tier cities like my beloved Qingdao. 39% of respondents reported that they are considering moves to second tier cities.
• The major concern of U.S. companies in China is inconsistent interpretation and enforcement of Chinese laws and regulations. Respondents were not concerned with the content of law and regulations. Rather, they expressed concern that the laws and regulations are being applied in a way that favors SOEs against foreign owned entities. This concern is particularly acute with respect to the second tier cities of the center and the west. Concerns about the legal environment is preventing some companies from making the move to these regions, even though the central government strongly encourages such moves.
• The second major concern of U.S. companies in China remains the employment system. There are two major concerns. The first is the steady rise in wages, an economic phenomenon. The second is a continuing lack of clarity on the rights of workers under the Labor Contract Law.
• In its own blog post on the findings, Technomic Asia noted how American companies are faring so well in China, having just come off their “best-ever performance since 2000:”
U.S. companies had their best-ever performance since 2000, with revenue, profitability and market share up sharply from 2009, following an uneven period of growth from 2008-2009 due to the global economic downturn. Among the report’s highlights:
87% of U.S. companies in China report revenue growth, surging from 47% in 2009 and 77% in 2008.
79% of U.S. companies in China say they are in the black, up from 65% in 2009 and 70% in 2008.
61% of U.S. companies in China state that they gained market share for China products and services, up from 40% in 2009 and 52% in 2008.
• Technomic Asia also noted how the overwhelming majority of American companies are optimistic about their China futures as “about 9 out of 10 U.S. companies in China forecast a revenue increase for 2011. China is a the No. 1 priority for 20% of U.S. companies, and the percentage of companies that will increase China investment in 2011 by more than 15% doubled over 2010.”
These fundamental findings of the AmCham report are completely consistent with our own experience in China. China is remarkably open to foreign participation in its economy, which means that most U.S. companies are in China with the goal of selling in the China market. China is a huge place. To sell into the China market, most foreign companies must move into the second and third tier cities. A major impediment to that move to the second and third tier is the inconsistent and frankly unfair enforcement of national law at the local level. It is an issue that we face every day in our own practice in China. Every foreign company operating in China needs to assume that it will be required to address this issue on a daily basis.
Nonetheless, there is plenty of money to be made.
What are you seeing out there?
