Had a long conversation today with a longtime client and one of our China lawyers on the pros and cons of doing business in China. The client owns a relatively small, but very international company that is being pushed hard on prices by competitors that are much farther along in China than it. Our client is convinced that he needs to take his company into China to compete on costs. At the same time, he is rightfully concerned about maintaining a quality product (which is what got his company to where it is today), rightfully concerned about hooking up with the right/wrong companies, and rightfully concerned that he does not know enough to be doing business in China.

My conversation today reminds me of a (somewhat recurring) conversation I had a few weeks ago with a number of very experienced China people on the difficulties SMEs (Small and Medium sized Enterprises) have in doing business in China, as compared with the behemoths. I advanced the theory that many of the smartest companies going into China were SMEs. We each then contributed stories of massive China mistakes made by massive companies, but then wistfully noted that all of these big companies seemed to be thriving in China now. We then agreed that what the big companies have over the small companies is the wherewithall to survive big and costly mistakes. The big company can lose $10 million and shake it off. Indeed, oftentimes there is no real shaking to be done since the $10 million was already budgeted.

The small company that suffers a big mistake is done. Finished. Kaput. The small company simply does not have the same margin of error as the big one.

I talked a lot with my small company client today about the risks of China and what his company can do to reduce those risks, all the while emphasizing there is no way to wholly eliminate them. Towards the end of our conversation, he said, “it sounds like you are telling me I should not go into China.” I then told him I was actually telling him the opposite, but as his lawyer I felt it my job to highlight the risks and focus on minimizing them. I then went on to say that based on what he had told me, the biggest risk of all for his business would be to not go into China.

Only a few hours after this conversation, I read a China Business Blog’s post that nicely encapsulates what I had sought to convey to my client. The post quotes from Tim Moore, Chief Executive of SGAI Tech, a high-tech firm that provides a variety of product development services, saying: “China is a train coming down the track fast. You can either get on, or stand in the way and get mown down.”

Moore then goes on to say that SGAI Tech did “get on” the China train and it has benefited from having done so, despite all the challenges. Jeremy Gordon of China Business Services says at the end of his post that “China is going to have an impact on most businesses in most places, and in some cases the competition may indeed signal the end for some that will not, or cannot, adapt. On balance, the risks involved in getting on the China train seem acceptable. Even if there is only space in the hard seat [wooden bench] section!”

For those who have ridden Chinese trains (or even for those who can imagine them) this is a great analogy, and one I am sure I will start using the next time I speaking with a client contemplating doing business in China.

Update: Just came across this post, entitled “Warts and all,” on uber-marketer Seth Godin’s blog, on how we are wrong to think of big companies like Apple and Starbucks as being perfect; in other words, they do make mistakes.

  • How a Small U.S. or European Company Turns to China

    China Law Blog tells the story of a worried client deciding whether to do business in China, revealing the decisions set before a small or medium-sized companies in the United States or Europe when faced with competitors who manufacture in China.
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  • Mr. Husain —
    Thanks for checking in. Interesting quote and undeniably, rather similar to Mr. Moore’s, but of course on a very different topic. Now that you’ve pointed out the similarities in the idea of going forward, and hinted (I think) at the idea of following a herd, I would love to hear your views on doing business in China?

  • Lewis Husain

    The comment from Tim Moore is very reminiscent of Mao in 1927, writing in his ‘Report on an investigation of the peasant movement in Hunan’, a very influential piece that was a key part in the CCP seeing the peasantry as a key part of the revolutionary struggle:
    “In a very short time, several hundred million peasants will rise like a mighty storm, like a hurricane, a force so swift and violent that no power, however great, will be able to hold it back. Every revolutionary party and every revolutionary comrade will be put to the test, to be accepted or rejected as they decide. There are three alternatives. To march at their head and lead them? To trail behind them, gesticulating and criticizing? Or to stand in their way and oppose them?”
    With a few modifications, this could quite easily be a comment on doing business in China …