Humphrey Keenlyside, contributing editor, China-Britain Business
Council
For many exporters, China is bigger and, paradoxically,
smaller than they imagine. It is bigger simply because it is hard to get one‘s
head around the fact that one-fifth of the world‘s population lives there. And,
yet, it is smaller, because China is more like a continent than a country and so
most people will only deal with a component part. Whether looked at in terms of
different provinces, regions or even cities, the country can be sliced up in
many different ways.
What is clear is that China is having a growing
impact on the rest of the world. Running a huge trade surplus, China has
accumulated foreign exchange reserves approaching US$1 trillion. Few doubt that
at some point this century China will surpass the United States as the world‘s
biggest economy. Sooner still (as early as 2010, the Organisation for Economic
Co-operation and Development suggests), China will be the world‘s top exporting
nation.
China‘s manufacturing and purchasing power is immense: it is the
world‘s largest producer of steel, coal and cement and the largest manufacturer
of textiles, garments, footwear, refrigerators, microwave ovens, televisions,
radios, toys, office products and motorcycles. It is now also a huge importer of
oil, steel and raw materials; all of which are needed to fuel and sustain its
economy.
Impressive though these statistics are, the far more important issue for
small businesses is: how do I get a piece of the action? Here, the best single
piece of advice is probably to think small. China is a market like any other,
and should be approached with the same rigour, practicality, research and common
sense as anywhere else. The good news is that more small and medium-sized
companies are finding openings and are already capitalising on them.
Boom time
There are many and varied motives for
organisations to do business in and with China. Companies are moving to China to
manufacture products, source goods or components, move closer to the market, or
save costs on products produced for overseas markets, and quite often a
combination of all of these things. Many firms are also finding they can tap
into China‘s growing proficiency for research and
development.
Nonetheless, China is still regarded in some quarters as
being a remote and challenging market, for reasons associated with the
differences of culture and language and – a long-standing bugbear of foreign
businesses – a lack of clarity in the business environment. Regulations can
still too often be frequently contradictory or ambiguous. China also has a very
poor record when it comes to protection of intellectual property. Some would-be
entrepreneurs have been deterred by a number of highly publicised books which
delight in pouring scorn on the Chinese market.
Add to that the difficulties of moving and transporting goods efficiently – in China, logistics costs account for 40% of the costs of goods sold against 10% in the US – some lurid tales of corruption and, increasingly, the issue of whether China‘s political structures are seen as an anachronism when viewed in the context of a fast-liberalising economy, and it is no wonder that some business people take pause for thought.
But the benefits and the opportunities of this fast-moving market make it an
area that many small businesses would do well to consider from the point of view
of sourcing products, manufacturing goods, exporting to or simply investing in a
booming economy. And as far as this market is concerned, there really is no time
like the present.
John Mott, Business Bridge to China
It has taken just 25 years
for China to move from being a totally peasant based economy to the world‘s 3rd
largest exporter; a position that it has reached with less than 20% of its 1.3bn
population in paid employment.
The country now aims to quadruple its GDP
within the next 20 years – so its economic progress will continue at a rapid
pace.
Unless they operate in truly niche market sectors, manufacturing
based SME‘s elsewhere therefore face a fairly stark choice.
Do they:
• find a good Chinese partner(s) to work alongside – so that
future growth and prosperity can be shared?
or
• wait until the Chinese
are even more competitive and continue trying to fight that competition
head-on?
The right choice must be obvious. They should act now – while at least some of
the skills available to them are still of value to the Chinese – using those
skills to secure stronger bargaining positions with potential Chinese
partners.
Moving manufacturing activity to a partner‘s factory in China
not only allows many companies to reduce their unit cost of production, it also
allows them to convert many of their traditionally fixed costs to variable
costs.
The gains can therefore be substantial but so too can the risks
for the unwary:
• China still has a very different business culture so
finding the right partner is absolutely vital from the outset.
• Business
in China places a heavy reliance on personal relationships and these need to be
patiently built over significant periods of time and maintained on a regular
basis.
• Legal redress is difficult to obtain so relationships need to be
strong enough to withstand fairly stern tests in the event that something goes
wrong
• Manufacturing/material standards are often not universal
• The
approach to sampling and product development is very different and lead times
can be long
• Trading terms often require the payment of substantial deposits
with order and payment in full prior to shipment of goods so quality needs to be
assured before goods leave the country
• There is little published data on
the ownership and/or financial status of Chinese companies
None of these
difficulties should deter companies from exploring the option of doing business
with China but they probably all point towards one piece of
advice:
Don‘t try it alone
Work alongside advisers
who know and understand Chinese business well: people who can also look after
your interests in China on an ongoing basis.


