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Foreign Companies In China: A Chasm Between Big And Small.

By Dan Harris on Posted in China Business, Legal News

David Wolf is someone who just “gets” China and I lap up what he writes about it and I nearly always agree with it. He wrote something the other day on his Silicon Hutong blog to which my first reaction was along the lines of “amen brother, I need to write on this.” What he wrote was the following:

Interesting report provided the viewpoint you want is that of Fortune 500 companies doing business in China. Most of my clients are in that category, but I’ve also discovered that viewing the China operating environment through that filter does not offer many forward-looking insights.

By contrast, the challenges that face SMBs and foreign entrepreneurs in China are massive, arguably more indicative of the regulatory climate as a whole, and are largely ignored by groups like AmCham and the U.S. China Business Council. The next time somebody wants to do some research on business attitudes in China, ask the little guys. You would be amazed how different the picture is.

The report to which he was referring was the American Chamber of Commerce’s 13th Annual Business Climate Survey, which is nicely summarized here. No doubt many of the concerns brought out by the survey do resonate with SMBs/SMEs in China, such as IP protection and the discrimination they face as foreign companies. But other issues are, near as I can tell, pretty much non issues for SMEs. For example, both the survey and the media have made a big deal out of China’s indiginous innovation policy, but only one client of ours has ever even brought it up with us and that is a company that sells almost exclusively to governmental entities. 

I am absolutely not criticizing the survey (which is, as always, incredibly well done and informative), but I do think it important to keep in mind that the Fortune 100 and the SMEs do, in many instances, operate on entirely different planes in China. 

What differences have you seen between how small and large companies have to operate in China?

  • Tim

    Dan,
    Actually have a number of my clients, who are primarily SME’s that have run into problems with government bids because they are not locally invested companies and recently worked with a medium-size firm who chose to not to enter the market based upon this trend for locally invested companies’ products increasing since 2009 . This is generally in infrastructure projects but can also affect software companies, and niche players in the environmental sector.
    Although I’d agree USCBC mostly represents the interests of large companies, AmCham has quite a large contingency of SME’s; they have working groups focused on SME interests and the surveys are sent to all members – not just to large companies. Both AmCham and EU Chamber devote a fair amount of resources to advocacy for their members and both act as a channel for SME’s to gain the attention of government bureaus that would otherwise be unavailable to them.
    I would argue that the concerns of the SME’s largely gets drowned out in the mainstream press, however, by sound bites from CEO’s of large companies complaining of increasing barriers interrupting their China operations taken to mean across the board discrimination against foreign enterprises in China.

  • http://siliconhutong.com David Wolf

    Tim,
    I’d never accuse AmCham or the EU Chamber of either not representing or ignoring SMEs or their interests, especially when the current chairman of AmCham, Ted Dean, comes from a medium-sized enterprise, BDA.
    My concern, and the reason for my brief post, is that the interests and issues that concern SMEs are frequently at odds with those of MNCs, and I question whether the interests of either can be adequately addressed in the current environment by mixing them together in a single report.
    While there is some commonality of interests between the two groups, AmCham of all organizations needs to recognize, acknowledge, and address the differences. The issues facing SMEs qua SMEs in China are diverse, distinct, and, in my opinion, provide a clearer litmus of China’s policy environment for small business and foreign business.
    This is essential: if China is not a fertile ground for growing American businesses, which represent the cradle of growth and job creation for the US economy, legislators and policy makers in Washington need to understand why that is the case and address it in their approaches to China. What is more, MNCs need to acknowledge that in looking at how China handles foreign and even local SMEs, they are looking at their future.
    David

  • http://laowaiblog.com Laowaiblog

    Although I agree with Mr. Wolf, I think it is only normal that the more money a company has and the more contacts it has, the more successful it will be. I think this is true globally and not just in China. What is different in China, though, is that many are the times that WITHOUT proper contacts or wealth, a small company is simply unable to succeed. That is, to me, the sad part of doing business in China, because China is losing many attractive businesses and opportunities because of this problem.

  • Harland

    99.8% of all the news, information, and advice regarding China companies is aimed at the big boys. Small foreign companies get almost zero attention, and when they do get attention, it’s typically scoffing. “You’re too small, go home, what are you doing in China anyway, etc.” Trust me, every time I bring my company up, Real Foreign Businessmen jump all over themselves to piss on me. I pretty much stopped talking because of this. Don’t even start about AmCham. By the rich, for the rich.

  • Volker Müller

    I am a member of the SME working group of the European chamber of commerce in China.
    Unfortunately participation of SMEs is very limited, i would encourage more SMEs to participate in the chambers activities to get their voice heard.
    One problem is that most SME have only very few English speaking employees who can spare the time to participate in the activities. It may be a good idea to switch to Chinese as working language of the SME working groups to lower the threshold of participation.
    A China-specific problem: there is a general feeling in the public “big is beautiful”. If you ask a student where he or she wants to work after graduation, the answer will most likely be “in a large company”. Few employees see the chances they may have in a SME.
    Despite much complaints: we should be aware that in China there is much “positive discrimination” towards foreign companies and products. Many customers (not just consumers) simply trust in foreign brands, whether this is justified or not.
    For many SMEs China is the most important market in the world.
    If your company, whatever the size, is not successful in China, you can only blame yourself, not the government.