Just Don’t Go There
Don’t go to China for business. I have been preaching that mantra to neophyte exporters for years – not that they listen. And there is a growing chorus that adds fuel to my view. U.S. Secretary of Commerce Gary Locke is in China right now trying to convince Beijing to put a stop to its protectionism. As the South China Morning Post‘s Tom Holland points out, the British tried the same thing in 1793 and received a lecture from the emperor: “We possess all things … and have no use for your country’s manufactures.” Locke is likely to hear a variation on the theme.
For decades, surveys of foreign business in China have highlighted how tough it is to do business. Western companies rush to China whenever they see the prospect of something opening up and, almost invariably, their hopes are dashed as China swings the doors closed again. The largest, smartest companies in the world have gone to China – and many have had their heads handed to them. I won’t deny that some companies have done very well in China, but – in almost all cases – it is only after many years of determined effort. Yet another article in this vein appeared yesterday in the New York Times.
Despite all this, I see a stream of small companies, often neophytes in international business, insisting that they must go after the Chinese market. These are often companies that have never tried Hong Kong or Singapore, or other Asian markets where they might have a chance of understanding what is happening and have a rule of law that is comprehensible. I ask such companies why they are headed into China, and their thought process has rarely gone beyond “Oh, because the market is so huge!” They don’t take it kindly when I ask questions about getting paid, protecting intellectual property, or if they have the capacity to handle a huge order from China. They just don’t want to hear it. I have likely lost more potential consulting contracts over this issue than all others combined. My accountant would love it if I could just bring myself to gush over China and simply disappear when my erstwhile clients lose their proverbial shirts.
Go to Hong Kong, skip China. (Image: Pwojdacz)
I spent Friday at an excellent conference in Honolulu about using Hong Kong as a gateway to doing business in China. The program featured a stellar cast of experts on Hong Kong and southern China. All were upbeat about Hong Kong and its prospects, most made the obligatory obeisance to the hugeness of China, but there was an undertone that the reason to go into China via Hong Kong, using Hong Kong reps, is that China is just too darn tough to do it on your own.
The side conversations, as often happens, were the most revealing. Even using a Hong Kong connection is no guarantee. Several Hong Kong consumer goods companies have returned home with their tails between their legs when they have tried to place products on mainland store shelves. It’s not just the exorbitant, unpublished fees for stocking on desirable shelves, but the grease necessary to move product in and the seemingly endless array of new requirements with which foreigners (even Hong Kongers) are surprised. And it is not just foreigners. I heard about Chinese manufacturers who have decided to go exporting because they find it easier to get into a foreign market than to sell their goods in the province next door. The word is that corruption remains rampant and woe betide any incoming company that competes with a locally-owned manufacturer.
One owner of a company that has been in China for many years told me that his company had to get approvals from more than a dozen different ministries, each of which claims superiority over all the others, and must file monthly reports with each of those ministries. The paperwork alone is staggering and the prospects for corruption in such a “system” are mind boggling.
So, for small companies especially, just don’t go there. There are plenty of easier, lucrative markets. Use those markets to get some cash flow started. Go to China when you are so rich you no longer care.
