Archives: Selling to China

Whenever a client decides not to venture forward (those words intentionally chosen) overseas in a situation where I am convinced that it should, I get frustrated.  I get particularly frustrated if the client says that it “hasn’t ruled out the move, but it is going to table it for a while.”  I keep my mouth shut, but I want to say something like, “well, I just hope that your waiting won’t permanently harm your market position.”  There are definitely some products where not getting into a foreign country now may permanently doom you to second or third tier status in that country should you ever actually go.

So imagine my frustration this morning when I got an email from the US-China Business Council summarizing its new report on US China Exports by state. The good news is that US exports to China expanded by “6.5 percent, representing an increase of $6.6 billion.”  The bad news is that “the United States’ share of imports into China has fallen to 7 percent from 10 percent in 2000.”  In other words, the United States is losing competitive ground in China to other countries.

Why is this?  I do not know exactly (does anyone?), but I suspect that it has a lot to do with the United States’ large size, large and wealthy population, consumer diversity and economic vibrancy.  The opportunities are simply so great for companies just within the United States itself that there is less need for them to go overseas, than a company from South Korea or from France.  The problem with this is that with certain products being second or third or fourth to the party may end up being the equivalent of not being invited at all.

There is a lot of good news from this report though, starting with the fact that China’s import purchases are rising and rising fast.  I also find it interesting how the composition of US sales to China also seems to be changing. Until recently, sales to China were dominated by large-ticket sales made by major multinationals. Think Boeing aircraft and GE power plants, with occasional big equipment sales by mid-sized companies thrown in. In the past few years, however, I have seen way more SMEs move into the China market in areas such as software, tooling and specialty manufactured products and consumer products. We also have seen a rapid growth in services sales in industries like architecture, education, energy consulting, and marketing. I anticipate that the trend of China buying more in the way of services from American companies will increase at an accelerated rate as China works to move its manufacturing base and its other industries up the value scale.

China needs the help of American companies and it finally seems to be willing to pay for it.  Now it is the job of American companies to satisfy that need.  See   China’s Five Best Business Opportunities

And for some of  the legal issues involved in exporting to China, check out the following:

On a related topic, the US-China report listed out the following as the top fifteen states for exports to China:

1. California                        $13.6 billion

2. Texas                                $10.1 billion

3. Washington                   $7.9 billion

4. Illinois                               $6.1 billion

5. New York                        $4.2 billion

6. Georgia                           $3.8 billion

7. Michigan                         $3.7 billion

8. Ohio                                  $3.7 billion

9. Minnesota                     $3.5 billion

10. South Carolina            $3.3 billion

11. Iowa                               $3.2 billion

12. Pennsylvania              $3.0 billion

13. North Carolina            $2.8 billion

14. Indiana                          $2.6 billion

15. Alabama                       $2.5 billion

What do you think?

Way back in 2010, I was asked in an NPR interview what I saw as the being the best opportunities for American companies doing business in China or selling to China.  I answered with education, healthcare, food, clean-tech/green-tech, and software. These were the same five industries I had been saying for years.

So I could not have been more delighted to have just seen a Financial Times article, entitled, Hidden benefits of China’s slower growth, quoting Helen Qiao, Morgan Stanley’s Chief China Economist, on how foreign companies can benefit from China’s slowing growth:

As China’s traditional growth drivers fade, other countries and companies need to look at the areas where they can benefit tremendously,” says Ms Qiao from Morgan Stanley. “They should focus on what really bothers Chinese middle class households and where China really needs to fix its problems — problems like pollution, bad traffic, food security, poor-quality medical services and substandard education.

In other words, education, healthcare, food, clean-tech/green-tech, and software (I see software as a way to advance remedies for all of the problems).

What do you think?

What with we lawyers needing to complete our Continuing Legal Education (CLE) credits before the end of the year, my November and December are jam-packed with speaking engagements.  In the hope that some of our readers will be able to attend one or more of these events, I will briefly set them out here now and then discuss them in greater detail in the coming days/weeks. We are always getting emails from readers looking for “good China conferences” and this post is in answer to those, with an international trade conference thrown in for good measure.

1.  November 8, 2012, Chicago, Illinois.  I will be on a panel at the 2012 PLUS International Conference discussing “The Evolution of D&O Insurance in Asia.”  I will mostly discuss the risks that foreign companies have been facing of late in China, arising, at least in part from the downturn in China’s economy.  My short speech will deal with some of the same issues raised in my recent Wall Street Journal article, “China’s Slowdown and American Business,” but focus more on insurable risks. My co-panelists will be the following:

2.  November 12, 2012, Seattle, Washington.  I will be moderating a panel at the Annual Washington Trade Conference, put on by the Washington Council on International Trade.   The entire day is devoted to international trade policy.  Governor Christine Gregoire, Senators Maria Cantwell and Patty Murray, Commissioner Meredith Broadbent of the U.S. International Trade Commission, and U.S. Representative Adam Smith, are all on the program.  My panel is on “Challenges and Opportunities for Washington Services Exports” and it consists of the following:

3.  November 15, 2012, San Juan, Puerto Rico.  I will be speaking on  “What You Need to Think About When Doing Business in China – A Legal Perspective” at the 19th World Offshore Convention.

This is an excellent conference, at which I spoke in Shanghai last year. Last year’s conference lived up to this year’s promise to “reveal real life, tried and tested solutions together with bold alternative strategies for those forward thinking international financial professionals and wealth managers committed to being at the forefront of this ever changing industry.”

4. December 7, 2012, New York City.  I will be speaking on China IP at a conference on Protecting Intellectual Property in a Global Economy – Was it Made in China and Stolen from America? This conference is being put on jointly by HB Litigation Conferences and Bloomberg BNA.  I have spoken previously at HB Litigation conferences and they have been uniformly excellent.  The upcoming conference is to have the following “eight central topics”:

  1. The Threat to U.S. Companies Posed by Foreign Entities
  2. Economic Espionage Act Prosecutions
  3. Understanding the Eastern Business and Cultural Perspective
  4. Litigating an Infringement Case with a Chinese Company
  5. Evaluating the Threat of Computer Hacking
  6. The Dangers of Counterfeiting
  7. Protecting Intellectual Property in China
  8. Negotiating Supply Chain Agreements

The conference is being chaired by August J. Matteis, Jr. and Peter J. Toren of Wesibrod Matteis & Copley and Beau Oliver, and Sean Page of Toffler Associates. Matteis and Toren were the winning lawyers in a recent USD$26 million copyright/design misappropriation case against a Chinese tire manufacturer.  The following people are also on the faculty:

  • Helene Kim, Executive Director of International & Executive Legal Programs at UC-Berkeley Law School
  • Julie Myers Wood, President of Compliance, Federal Practice and Software Solutions for Guidepost Solutions
  • Paul Maric with the Federal Bureau of Investigation’s Economic Espionage Unit.
  • Spring Chang, Attorney at the China law firm Chang Tsi & Partner
  • John Falk, President and CEO of Vigilent Inc
  • Donald McPhail, Attorney at Cozen O’Connor
  • John Gibbons, Senior Managing Director of Investigations at Guidepost Solutions
  • Shaun Kennedy, Director of the National Center for Food Protection & Defense
  • Angelo Mazza, Attorney at Gibney, Anthony & Flaherty
  • Stephen Weisbrod, Attorney at Weisbrod Matteis & Copley
  • Jordan Fishman, Inventor of the tires at issue in the USD$26M case mentioned above.

I will be writing more on this conference shortly, but right now I urge you to attend by writing to HB’s Managing Director Tom Hagy at tom.hagy@litigationconferences.com or by calling him at (610) 312-4754.  Tom has promised me that if you mention “China Law Blog” he will give you a “special price.”

5.  December 13, 2012, Seattle, Washington.  I will be co-chairing a seminar on “The China Market: Selling Products and Services in the New China.”  As you can tell by the seminar’s name, its focus will be on China as a place to make money, not so much to save money.  I will be writing more on this conference as it approaches.

If anyone has any questions regarding any of the above, please let me know.  Otherwise, I will see you there.

The Portland Business Journal just published an article by my long-time friend, Alexander Aginsky. Alex is a Thunderbird MBA who for the last ten years or so has been assisting American companies going into emerging markets and emerging market companies coming into the United States, through his company Aginsky Consulting, “a boutique market entry consulting firm.”

Alex’s article is entitled, “When it comes to exporting goods, there’s gold in the BRICs” and it sets out the basics for exporting product to and selling product into the BRIC countries, including China. For the full article, go here.

Alex’s article starts out by noting how the BRIC countries are getting wealthier and more appreciative of American goods. Alex then notes how “too many companies sell themselves short” in wrongly assuming their products will not stand a chance overseas.

Brazil, Russia, India and China “are sprouting new billion dollar companies and millionaires … who want the products and services that American companies offer” and the days of “America buys and BRIC sells” are being replaced by “everyone buys and everyone sells.” Local companies often overlook the export potential of their products and do not realize that their products can “command premium prices as luxury products in BRIC economies.”

The article then lists goes on to point out that going international takes “research, planning, and commitment

The article then sets out the following tips for those looking to sell overseas:

  • Be prepared for a serious commitment. International trading holds small rewards for one-time transactions. The economies of scale of marketing and shipping make high-volume shipments over a long period of time more profitable.
  • Research your target market. While mass culture and the Internet are bringing distant cultures closer together, tastes and preferences still vary incredibly from country to country.
  • Adjust your marketing for your target market. Beyond simply changing the language on your packaging, try to adapt your entire marketing and branding to fit with the culture of your target.
  • Research the potential barriers to entry. The BRICs are not known for easy access. A maze of permits, approvals, quotas, and tariffs may be the first things to welcome your products when they reach these new markets. These barriers may be troublesome, but once you overcome them they can act as a deterrent to future competition.
  • Determine your competitors. Besides getting to know your local and foreign competition, analyzing a competitor can provide you with a case study to determine what works and what does not.
  • Consider logistics. The cost of shipping is a serious consideration for exporting and must be factored into your financial projections. Also, you must consider how well your products will fare in a shipping container going across the sea for weeks.
  • Have a local presence. Whether it’s a complete office staff or a single part-time employee, it helps to have someone on the ground to represent your products and to keep you updated on your performance. Moreover, having a permanent physical presence in your target market can simply add credibility to your company and demonstrate commitment to potential clients.
  • Look out for assistance programs. The federal and state governments have a wide array of programs to encourage American companies to export.
  • Have the right partners. Whether it’s a lawyer, a consultant, or a distributor you can trust in your target market, it helps to have the knowledge and experience of an expert on our side.

All good advice….so read the full article and get selling.

What do you think?

9-21 UPDATE: A reader sent me a very interesting WaPo article detailing how German companies are moving ahead of American companies in selling luxury household goods to China’s consumers.