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Europe’s Losses As China’s Gains?

Posted in China Business

I would guess that 95% percent of my law firm’s China law work comes from North American (United States and Canadian) businesses, with the other five percent coming from mostly Latin America and Europe.  But in the last six months, we have seen both a marked increase in companies from Spain and Italy contacting us and retaining us.  Is something going on?

I am noticing some commonalities between the companies contacting us from these two countries.  About a third are in the food business, another third are in the software or gaming business, and the last third are manufacturers.  All are looking to China to expand their markets.

Without exception, the food businesses are surprised at the costs involved (both legal and non-legal) in setting up in China and none of them have moved forward.  And none of them were very far along when they called or emailed us.  In fact, their level of China sophistication was very low and reminded me a lot of many American companies that would call my firm five or six years ago. They would ask questions like “can we get a good manager in Shanghai for $200 a month?”  I got the strong sense these companies had not done any real China research. Or, “can you help us find a distributor for our products in China?” I got the very strong sense that these companies do not have the money for a China push.

The software and gaming companies were a more mixed bag. Some of them were very sophisticated, having already expanded into other countries in Europe (many spoke of selling their products in Germany and in England). On the other hand, a fair portion of these companies had not really thought out their China plans much at all and in fact many of them had no idea how difficult it is for foreigners to get set up on the China web and be able to collect payments.  Most interestingly, some of these companies have technologies for which Chinese companies were seeking licenses.  I got the strong sense that many of these companies do not have the funds/personnel bandwidth for going into China.

The manufacturing companies were, on the whole, the most advanced.  Most of them were contacting my firm as part of the tail end of their extensive research. They knew costs and they had a plan and many were reaching out to us to make sure their plans could work legally and to alert us to the fact that they would likely be needing us soon.  I got the strong sense (and subsequent contacts with some of these companies has borne this out) that these companies are China ready.

Again though, my question is what is going on?  I think that what is happening is similar to what happened with US companies in late 2009.  Europe has been in a recession (please don’t anyone bother to write me to say that, technically, this isn’t true — I am using the word colloquially here) for a long time.  Companies at the beginning of a recession tend to retrench and buckle down. But later on, they get sick of stagnating and they have employee time on their hands. This combination causes them/almost forces them to look out.  And that’s where doing business in China comes in.  Am I right?

What do you think?  Are we seeing/going to be seeing an increased wave of European companies heading to China?  Or is what I am seeing just a one firm anomaly?

  • Eric Meng

    This is only tangentially related, but from my vantage point in Shanghai, I am seeing a lot of individuals from Spain and Italy, especially young people, moving here to find work.

    • bystander

      Yeah, I was gonna say the same. In the lobbies of the nicer hotels in Shanghai I see a lot more Europeans who seem to be cutting business deals over there than I did 10 years, and relatively fewer Americans. Another factor that might be pushing this along is currency exchange rates: before the QE programs in the US, the RMB was very cheap to purchase in dollars. Now it’s relatively less attractive to purchasers with dollars and perhaps relatively more attractive to holders of non-dollar currencies.

  • Modest Musssorsky

    I guess your Italian and Spanish lessons must be paying off.

  • China Newz

    Haven’t companies been sitting on a lot of cash since the Great Recession, too. They are lean and mean, so what better time to think about expanding to foreign countries, especially when they have a favorable exchange rate w/ the Euro/RMB.