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Doing Business In China. Seize The Day.

Posted in China Business

A friend of mine sent me an article today on how “mid-market” American companies are not doing enough to take advantage of money making opportunities in China. The article is entitled Still figuring out China and it starts out noting how America’s share of imports into China has shrunk from to 7% from 10% in 2000 and this shows “America is losing competitive ground to other countries in what is widely viewed as the biggest growth opportunity of the 21st century.”  My friend sent me this article (along with some others) after expressing strong frustration regarding his own company being too “chicken” to venture into China.

The article posits the following reasons for America’s lack of success in doing business with China:

  • Too much concern with China’s lack of IP protection
  • Anti-China sentiment
  • A lack of focus on China/a lack of support regarding China

I think all of the above are true and I will add one more. American companies tend to be more conservative about doing business internationally, particularly when it comes to countries very different from our own, like China. We are a big country and a big market and it is relatively easy to write off a complicated and difficult country like China.  The problem with doing that, however, is that by the time that country becomes “easier,” the companies that went in during more difficult times already have a massive leg up when it comes to things like name recognition and distribution, making it difficult to catch up.

Not saying all American companies should be looking at doing business in China.  Not at all.  But I do think too many American companies are ignoring great opportunities in China and like my friend, this frustrates me.

Are we off base here?  What are you seeing out there?

  • http://www.qualityinspection.org/ Renaud Anjoran

    US companies might be too “chicken” to venture into China. But European companies seem to be even more “chicken” about it. In French and European Chamber of Commerce meetings, most seminars are related to importing FROM China, not INTO. It seems to me that the American population here is more focused on the local market.

    • bystander

      That’s interesting. These days I see a lot more French nationals in Shanghai than I did some years ago. That’s just anecdotal of course, might not mean anything. But I had taken it to mean that there are lots more French businessmen venturing into China these days…

  • Jeff Gandy

    After 4 years of exposure to the Chinese business environment I can say with a fair amount of certainty that there are just other places where money can be made with less risk and headaches. To some extent it depends upon the size of the enterprise as well, larger businesses are in a much better position to benefit from the Chinese market where the small to mid-size company will end up being fleeced.

    My time here as been a real eye-opener. Once I was all starry-eyed and saw so many opportunities, mainly because there are so many shoddy businesses offering inferior products to a population that really deserves better. But in the end those markets are protected through vague rules and regulations enforced to prevent foreign competition. The almost instant duplication of any business concept that has the slightest success, dilution of brands and the constant battle with corruption is a substantial headache and risk for a company that most likely has other areas to explore.

  • Terry Newman

    I am Australian and my wife is Japanese. We have plenty of international experience, a wealth of experience in business and strong academic qualifications in law and accounting. When we arrived six years ago we could, by virtue of being Japanese speakers, instantly read enough of the language to render signage and simple script comprehensible. We work 24/7 on our small manufacturing business and we are now going okay, but it is a total immersion game. It is not for the faint hearted or the part-time entrepreneur. Only those individual entrepreneurs with very deep pockets or executives with the total support of their parent companies should even consider the place in my opinion.

    In addition to the “normal” problems of start-ups, here you have an arbitrary and opaque bureaucracy that is totally unresponsive to business needs. New imposts are made at the drop of a hat. You never know if or when they will kill your business, but they can and do kill business all the time. It has made me a dedicated subscriber to the Chinese Dream: Make plenty of money and get out as fast as you can.

    • PaulR

      Yours is not a great advertisement for investing in China!

  • Mellvee

    I agree with all the points you raise, especially the last ones about US companies growing too complacent inside North America.

    For more on this check out http://usa.chinadaily.com.cn/epaper/2013-05/10/content_16490299.htm

  • ScottLoar

    Dear Bystander,

    Yes, really, Americans are dopey about the place. Those comparatively few international companies who own their own manufacturing – not contract manufacturing with Chinese – or do profitable business in China are exceptions, and are in the main international conglomerates but still a small number of all US companies. For most US manufacturers “exports”, “international”, “overseas business” – no matter what the term used – remains less than 5% of their business if at all and is a hassle for most of the company.

    Volunteering the names of international conglomerates does not obviate what is obvious to most except you: Americans are provincial, don’t know much about overseas affairs and really don’t care. But you have experience of China. What happens when you go back to the States after that initial remark, “Wow, China. That’s really something…” or similar? How long does it take them take to switch to a topic of familiarity? About a minute or so, because Americans are simply not interested; this is shown by their ignorance of geography, their general disinterest in any history (even their own), and their lack of genuine curiosity about foreign places other than Caribbean vacation spots. Their knowledge of current, international affairs lacks background and… but say, selling a lot of integrated circuits in China qualifies one to pronounce on China and things Chinese? Really?

    • bystander

      Something tells me that I would not succeed in talking you out of your contempt for Americans, so I won’t try.

      I will point out however that the U.S. is China’s largest trading partner by (bidirectional) volume, and we’re the fourth largest exporter to China, after South Korea, Taiwan, and Japan. I’m not sure that Taiwan’s exports should count — it’s a bit of parochialism to regard it as a separate country, so I think that, officially, we’re the third largest exporter to China. Japan has had a rough year in the exports to China department; I have heard it said in China that they need to bone up on their history and geography as well, so you might be on to something.

      I agree however that we Americans should be doing much better. If studying culture and history is the ticket, then I’m all for it. (I remain a little bit skeptical that it will work.)

      • ScottLoar

        I am American whose family has a long history in America well before its founding, I have no contempt for Americans but, like my criticism of Chinese or others, will not let nationality prejudice me to their faults.

        Yeah, I’m pretty sure I’m on to something by advocating understanding and even empathy with the people, language and cultures you’re doing business with rather than trying to coast along by technical knowledge alone (that you doubt so proves my point that Americans don’t know and really don’t care about such qualities). But how do I know so? From the words and actions of those I work with throughout the Region, and by the measured results they deliver to myself and the company.

  • Tolly Diamond

    US exports to China reached over USD100 billion last year the highest ever. So what does that mean? Kinda shoots this article down in flames.

    • ScottLoar

      Whoa! Let’s see the top 10 US exports to China, year 2011 ($ billion):

      Power generation equipment 10.8 (9.70% increase over 2010)
      Oil seeds and oleaginous fruits 10.7 (-3.10% decrease from 2010)
      Electrical machinery and equipment 7.1 (-16.60% decrease…)

      Vehicles, excluding rail 6.4 (55.60% increase…)
      Aircraft and spacecraft 6.3 (10.80% increase…)

      Optics and medical equipment 5.2 (8.30% increase…)
      Plastics and articles thereof 5.0 (7.20% increase…)
      Pulp and paperboard 3.8 (27.10% increase…)
      Copper and articles thereof 3.7 (32.70% increase…)
      Organic chemicals 3.5 (17.80% increase…)

      Source: The US-China Business Council

      Now in what way do these items in the top 10 either need savvy marketing and a knowledge of the China market, or in any way prove that Americans understand China and international business? 7.5 billion in exports of paper and copper scrap? 6.3 billion in aircraft and spacecraft? 10.7 billion in oil seeds (probably soy) and oleaginous fruits? Do ya’ think these 10 items were crafted and marketed for the China market? Or that these 10 items were purchased by the Chinese from the US as cheap (the scrap and oil seeds), necessary (the aircraft), or advanced (optics and medical equipment) regardless of source.

  • Joel Silverstein

    If an american company is looking to build a direct owned presence in China then I do not recommend they try unless they have very deep pockets and are happy to lose money for many years. That is the nature of any large turbulent emerging market and China is no different. If they have a clear unique product advantage that is difficult to copy anda middle size or smaller company with limited resources, then they should try and work through a reliable trustworthy agent or distributor. They do exist but are very hard to find and qualify. It is best to look at organizations that already represent other products and have good track records.

  • http://www.qualityinspection.org/ Renaud Anjoran

    Yes, for sure. In Shenzhen and Guangzhou also. But are they individuals trying to set up a bakery shop, or representatives of a company trying to set up a distribution channel there? Not that many are the latter.

  • PaulR

    The few posts here are already creating a picture…

    If yours is a large company, with a leading product and great technology, then by all means come to China – indeed, your company is likely already here. You can afford the years of investment and losses, you can send multiple experts and expats from your HQ to baby-sit your new ventures, you can make contacts with the right politicians in China, and get the US embassy to help. You can afford the lawyers to endlessly chase the IP thieves and fraudsters. You can wade through the system. Indeed, yours is the sort of company China wants to have.

    If you are a small or medium company, looking to manufacture and sell to the local Chinese market – China already has someone doing what you are doing, and no one really wants you here. Your time is very likely better spent on other opportunities.

  • http://www.shigroupchina.com/ Jim Nelson

    Trying to figure out China by experience is the school of hard knocks, China has trustworthy people, but they are not found in the yellow pages. We again and again help Western Companies here who used their accountant or intuition to find contacts in China, and the path is messy and costly. It does not have to be this way, Hire the right people from the get go. Get help in country. It does not have to cost an arm and a leg. Please do not bad talk China when the problems you have are that you did not get the right help.