I was interviewed last night by a reporter writing a story on foreign companies doing business in China.  At one point, she asked me what I saw as the best business opportunities for foreign business in China.  And I referred her to this post, China’s Five Best Business Opportunities, in which I list out education, healthcare, food, clean-tech/green-tech, and software. In that post, I noted that I have been pushing these same five industries for years.

Now I am just not so sure.

Let’s look at each of them.

  1. Education.  Everyone knows China is big on education and everyone knows China is particularly big about its best and its brightest (well, its richest anyway) getting a foreign or a foreign-like education.  So even though some aspects of China’s education business are shut off to foreigners, this does remain a prime area for foreign business. More anecdotally, our education clients, spanning a massive range of businesses, are almost universally thriving by doing business in China or with China.
  2. Healthcare.  Everyone knows China is aging, getting wealthier, and seeking to improve its healthcare. All of this is almost a perfect storm for those in the healthcare field.  But healthcare is a big field and much of it is a minefield of regulation, corruption and/or other assorted difficulties. Though no doubt this is overall a great field, it certainly has its issues.
  3. Food.  Everyone knows China wants better and safer food and I am an unabashed optimist about the role of foreign food in China. Without exception, every one of our clients that has fought through the requirements to be able to get their food product (of all kinds) into China, be that on their own or through a distributer, is thriving in China.
  4. Clean-tech/green-tech.  Everyone knows China has nearly limitless pollution problems and everyone knows that the Chinese government is concerned about that.  But this is a tough field for foreigners because it is one in which government connections are too often critical.  We have clients that have succeeded spectacularly and we also have clients with top tier products and management who just cannot (and will not) buy a break in China.
  5. Software.  Everyone knows China (like everyone else) wants better software.  The biggest hurdle I see for software companies in China is pricing.  A number of our software clients have told me that Chinese consumers and businesses are “not accustomed” to paying high prices for software and their Chinese competitors are accustomed to selling software at rock bottom prices. On the other hand, our clients that sell highly specialized industrial/commercial software seem to be doing just fine.

I can tell you one business of which I would be wary of starting in China: Corporate sleuths on edge after China detains foreign consultants.

But what about China for foreign business overall?

To that I turn to a “ChinaFile Conversation” from just yesterday, entitled, Is Business in China Getting Riskier, Or Are Multinationals Taking More Risks? The conversation is between the following China luminaries:

Krober starts the discussion by essentially saying things are still quite good for foreign companies doing business in China or seeking to do business in China and the numbers bear this out:

But the headlines are deceiving. Data and company surveys both show that China continues to be a magnet for foreign firms. Greenfield foreign direct investment, according to the Ministry of Commerce, has held steady at US$105-115 billion a year since 2010, well above the pre-crisis level. Inflows in June exceeded $14 billion, the highest monthly total since 1997. Broader data from the central bank, which include reinvested earnings, show that foreign companies committed a quarter of a trillion dollars to China in 2012.

Member surveys by foreign chambers of commerce consistently reveal that despite their discontent, foreign companies in China are still quite profitable and generally want to increase their investments. A walk down any Chinese high street will quickly confirm these numbers: foreign brands occupy a far larger and more visible slice of the market in China than in most other Asian countries, including Japan, Korea and India. And big cities are filled with tens of thousands of young foreign entrepreneurs who find it easier to start a new business in China than in their home countries.

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On the whole, though, the evidence shows that foreign companies win quite a bit more than they lose.

Schlesinger says that despite recent headlines, China is still the place to be for foreign businesses and dalliances with countries like Myanmar will only reinforce that:

The current onslaught of bad news about China—much of it real, some of it the pendulum-swing of pundits piling on—certainly makes China business seem like risky business. A slowing economy, growing social pressures, looming crackdowns or public relations campaigns against foreign companies—none of these are good signs for companies hoping to swiftly reap the fruits of their labors.

Some executives are scurrying to look for the next best opportunity in Myanmar or the Philippines or Indonesia. But for those who stay, and for their boards, this may be a necessary reset in expectations that actually leads to healthier and more sustainable investments.

 Schlesinger goes on to say that the downturn in media perceptions of China creates opportunities for smart companies that go to China and do things right:
Now that China bears are having their day, smart companies will go back and ensure the basics are right. That’s hard, slow, unglamorous work. But it sure beats having your executives jailed, your reputation sullied or your cut-corners exposed.
Ma sees China getting tougher mostly because it is getting more “normal”
But the terrain for MNCs in China has surely gotten more complex—and at times contentious—but those are relative terms. And most of the changes in the operating environment owe to what Arthur described as China becoming a more “normal” country in which to do business. Normal, of course, being filtered through the detritus of “Chinese characteristics”—uneven regulatory enforcement, opaque decision-making, relationships, and so on. It is worth reiterating the point that China has transformed rapidly from a capital-starved country to a capital-abundant one, and it has learned the rules of the game at the WTO and can play by them effectively. In combination, these developments make for an attitudinal shift in how China may be approaching foreign MNCs—if they no longer really need the capital, then what do they need now?
Dickinson notes how the old days of foreign companies getting away with ignoring Chinese law is over and that succeeding in China today requires abiding by Chinese law:

It is true that over the past 15 years, China has adopted a formal legal system that at least on its surface resembles that of a developed country and is, in that sense, “normal.” The paradox is, this normality has led to greater risk for foreign companies rather than reduced risk. The environment in China in general has not become more risky. However, the risk of violating Chinese law has increased substantially.

In the old days, foreign companies just ignored Chinese law and relied on connections and the rest to operate for maximum profit. These profits were high enough that the time and effort of working in the chaos of China was justified. Over the past 10 years, the system in China has changed dramatically. This is the Wild West to Chinese law and regulation no longer works for foreigners.

This puts foreign companies operating in China in a difficult situation. The fact is that Chinese companies routinely ignore Chinese law. So, foreign companies operating in China are faced with a major decision that carries big risk. They can follow the law and struggle or fail in the Chinese market or they can act like their Chinese competitors and violate the law in order to compete on a level field.

The risk is: as China becomes increasingly stressed by the declining growth of the economy, the government has shown that it will seek foreign scapegoats. Drugs are too expensive: it is the fault of the foreign drug companies. Food is not safe: if is the fault of the foreign fast food companies. Mobile phones are defective: it is the fault of the foreign phone manufacturers. The China Dream has not been realized: the foreigners are holding us back. As a result, taking action against foreign violators of Chinese law is an obvious way for the Chinese government to deflect attention away from the deeper problems in the Chinese economy and society.

Dickinson goes on to say that foreign companies doing business in China or seeking to do so must ask themselves whether they can both follow the laws and be profitable, or not.

China opportunities for foreign business, what do you think? Better now than ever? Worse?  The same?  Mixed, depending on the industry?  And what are the best opportunities anyway?

For years, I have been touting education, health-care, food, cleantech/greentech, and software as the five most promising areas for foreign investment in China. So I am always pleased when others tout the same (or roughly anyway) things.

Jing Daily recently interviewed Helen Wang, author of the book, The Chinese Dream: The Rise of the World’s Largest Middle Class and What it Means to You, in which Helen listed education, healthcare, cleantech and luxury goods as the best industries she sees for foreign companies in China:

JD [Jing Daily]: Last year, we interviewed Handel Jones, author of ChinAmerica, who said that education, health and the Internet are going to be the most lucrative sectors for Western companies to tap the Chinese middle class. Would you agree with this? Are there any other sectors you would add?

HW [Helen Wang]: Definitely, the ,  and education sectors will provide lucrative opportunities for Western companies. I am not sure about the Internet as it’s currently dominated by domestic companies. But if you look at the e-commerce sector, it could be a game changer. Recently, many VCs have invested in e-commerce and group buying sites as China’s internet users are approaching half a billion.

I think the consumer products sector, particularly in the areas of luxury goods and big ticket items such as automobiles, LCD TVs, and smartphones, will see increasing opportunities for Western companies. I would also add the clean tech sector. Western companies are leading in technology in this field.

I think Helen’s addition of luxury goods makes sense.

For more on China’s health care industry, I urge you to check out this China Business Network interview of Michael Zakkour, in which Michael eloquently lays out his views on why he has coined the phrase, “Wealth through Health.”

What are you seeing out there?

I speak at so many China events and I attend even more. I typically bring my iPad and when I find a topic or speaker particularly interesting, I tap away.

I just found this on my iPad and though I have no idea who said it, I like it and I agree with it. The “it” is one person’s views (I am sorry but I do not remember who it is/was) on the best opportunities for foreign companies in China over the next five years (my notes are from 2010). Here goes: 

  • Health care and life sciences. China has an aging population, a social welfare system in the process of rebuilding and a workforce that needs to stay healthy and productive to support the country.
  • Clean tech and energy. The environmental degradation in China’s industrial areas is worse than most of us think and its energy needs continue to grow. Energy efficiency, and water, soil and air pollution abatement are not about Corporate Social Responsibility for China; they are about survival. Right now.
  • Services. Growth in the profitability of China’s manufacturing is going to be enabled by b2b service providers. China’s back-end systems have to get more efficient. Logistics, branding, market makers, grid managers, capital-and-risk efficient banking, and outsourced services are all needed and are all in need of substantial improvement and foreign companies are badly needed.

This list is pretty similar to the five industry list I am always spouting

My answer was education, health-care, food, cleantech/greentech, and software.  It is the same five industries I have been saying for years and the one that always seems to draw the most surprise is food.

If I had to add one more thing to my list, it would be luxury goods.

What do you think? What industries in China do you see as particularly ripe for foreign companies?

I gave a talk a couple years ago on what Chinese companies look at in determining whether to expand their business to the United States.  My thesis was as follows:  

Chinese companies looking to buy American companies are usually looking for a valuable technology or commodity or, to a much lesser extent, a strong brand name. If the company you are pitching has neither, the chances of a Chinese company buying it are really slim. People have told me that Chinese companies “have to be” interested in companies with really good marketing people. They tell me Chinese companies are terrible at marketing and so they obviously will be buying American companies that are good at it. That’s true in theory, false in reality.

I then talked of the following oddball/outlier purchases:

— The wealthy Chinese businessperson who owns a Chinese company and wants to buy an American company so his son or daughter can go to UCLA. These purchases tend to be more random.

— Haier. Even though I am convinced Haier’s setting up production in the United States is a money losing proposition, I still think it was brilliant. I believe Haier came to the United States despite its doing so hurting the bottom line. I believe Haier came to the United States so as to minimize export/import risk in the long term, so as to improve its reputation in the United States, so as to learn from the United States, so as to improve its marketing in the United States and the West and so as to be better perceived in the United States. In other words, it did what Toyota and Honda did when they built US car plants back in the 1970s. This sort of prescience from a Chinese company has so far been vary rare, but I do see it slowly increasing.  

My own experiences have forced me to add an additional reason: sending kids to United States public elementary schools.  Not kidding.

I should have realized this sooner, because this has been true of many of my firm’s Russian and Korean clients for many years.  

At least half the time, my meetings with Chinese companies looking to come to the United States devolve into a conversation as to whether it is really true that they will immediately be able to get their five year old kid (yes, the kid is usually five years old!) into a top neighborhood school for free. I swear that our saying “yes” to that question triples the chances of some sort of transaction going through.

The United States and Canada are the number one and two most desired countries for people from Asia, according to this recent Gallup survey. (h/t Global Small Business Blog) The reason the US scores so well is “opportunity,” including for children, which translates into education.

What do you think?  

UPDATE: Shanghaiist did a post, entitled, “Special delivery: mainland mothers heading to US to give birth,” on how wealthy Chinese mothers-to-be are hopping on airplanes to the United States so their kids can attain United States citizenship by being born there. 

I have watched with only mild interest the debate about the number of engineering graduates in China as compared to the United States, because, in the end, it is the quality of the graduates that really matters, not the quantity.

When it comes to a quality education — the kind that drives innovation — China is lacking.

The Australian just did a long and thoughtful article on this, entitled “Chinese Fail.”  [link no longer exists] This article was spurred on by a 26 year old computer engineering PhD candidate at Tsinghua University (often called, “China’s MIT“) who quit school and then posted on his blog his reasons why. The blog post, which has become hugely popular in China, “accused the university of being obsessed with the production of meaningless research papers, rather than focusing on practical training, and said the teaching was not creative enough.”

As this article indicates, admittance into China’s best universities is very much based on rote memorization and, to a large extent, that is what goes on behind the university walls as well.  China must change this if it is to reduce the innovation gap.

Will that happen? If so, when? What do you think?

Asia Business Law Blog has a interesting post, entitled, “Discussing Controversial Issues in China’s Universities,” [link no longer exists] focusing on the surprisingly free speech granted foreign professors at Chinese Universities.

Is it fair to compare the boundaries of free speech at China’s universities with the political correctness now reigning at so many United States colleges and universities?

Walter Hutchens’ Blog [link no longer exists] did an insightful and informative post today on a new China Ministry of Education opinion regarding foreign involvement in China education.  In summation, the opinion stresses the need for China to maintain its domination of educational institutions.  Hutchens perceptively notes as follows:

I suspect what often happens is that a foreign educator falls in love with China, becoming excited about the enormous potential here (a familiar story in other sectors, of course). Then, after a few rounds of friendly visits and talks, a deal is signed between the foreign intuition and a PRC university without the foreign party ever having actually read (or being advised by somebody who has read) the relevant regulations.

Hutchens, who is a professor at the University of Maryland’s Robert H. Smith School of Business, also has a website, Foreign Participation in PRC Higher Education, devoted exclusively to China’s rules on foreign involvement in China’s higher education.