China Market Getting Tougher
Facing Foreign Devils - or Foreign Firms?
The dead hopes of foreign firms litter the Chinese landscape. The skeletal remains of their efforts to get rich in China have been piling up ever since the British hoped they could sell one shirt to every Chinese close to two centuries ago. But hardly a day goes by that I don’t find some small company that pins its hopes on China. Company owners see all the articles about how big the market is and decide that they must be in China because that is the sexy place to be. These are kindred to the firms that lost their shirts in eastern Europe or central Asia or Vietnam, or wherever else has caught the media’s fancy in recent decades. They try to enter markets without doing their homework or objectively assessing what is best for their company. If a small U.S. company wants to head for Asia, and they have little experience there, I will always try to pursuade them to try Hong Kong or Singapore, or perhaps Taiwan first. Don’t begin with China.
The Wall Street Journal ran an article yesterday, entitled “U.S. Firms Feel Shut Out In China”. It reports a new survey of 203 member companies of the American Chamber of Commerce in China. These are big companies, by and large, and the results of the survey should be daunting to small new entrants to this market. The survey questions focused on how tough things are if you are trying to win government contracts in China. The respondents were companies experienced in government procurement worldwide and who know what it takes to succeed in China. 38% of them report that they feel unwelcome in the Chinese market, a sharp increase from the 26% who felt that way in a survey less than a year ago, and from the 23% who felt discouraged in 2008. The Journal comments that “sentiment is rapidly deteriorating“. I’ll say.
The deterioration follows China’s new procurement regulations that favor “indigenous innovation” for technology products. (See “Indigenous Innovation Can’t be Wrong“.) These rules threaten to make it harder for foreign firms to sell servers, computers, telecom equipment, software and even wind-power generation equipment in China. They are not in place yet, but 37% of AmCham China’s respondents say they are already feeling the impact. A majority of 57% expect negative impacts on their operations in China.
But this isn’t just a tech issue. Only 32% of the respondents were in high tech or IT industries, while 30% are in general manufacturing and 27% are in services niches. While half the respondents who said they feel unwelcome in China cited the indigenous innovation policy, 58% cited inconsistent interpretation of regulations by Chinese officials and slipshod treatment by Chinese courts. As one businessman told the Journal: “… a lot of people are rethinking their China strategies.”
The bottom line? If companies like Google can’t hack it in China, what makes you think you can?
[I have relied on the Journal's report on the AmCham survey, which has not yet been released on the AmCham China website. Should the actual survey reveal different conclusions, I'll be coming back to you when I see it.]
