entering china's market_ the do's and don'ts_in depth_chinadaily.com
TRANSCRIPT
1/17/2015 Entering China's Market: The do's and don'ts|In Depth|chinadaily.com.cn
http://usa.chinadaily.com.cn/epaper/201305/10/content_16490299.htm 1/5
Sat, Jan 17, 2015 Go Adv Search中文 CHINA EUROPE AFRICA ASIA ASIA NEWSPHOTO
Epaper / In Depth
Entering China's Market: The do's and don'tsUpdated: 20130510 11:33
By Michael Barris and Chris Davis (China Daily)
Print Mail Large Medium Small 1
A ship with cargo docked at Qingdao port. Despite an increase of $6.6 billion, or 6.5 percentfrom a year ago in US exports to China, the nation's overall share of exports to China droppedto 7 percent in 2012 from 10 percent in 2000, according to the USChina Business Council. Yu
Fangming / For China Daily
It's the world's secondbiggest economy and Western businesses want in, but they need toknow how to do it, report Michael Barris and Chris Davis from New York.
When he was asked to comment on his company's foreign growth outlook during an analysts'meeting last month, Henry Gerkens, chairman and CEO of Landstar System Inc, aJacksonville, Floridabased freighttransport systems provider, said he hesitated to dobusiness with China.
"I just am a little bit leery about doing business in a communist country," the executive said.
Says consultant and author Stanley Chao about doing business in China: "China is still the WildWest and far from our Western standards with respect to business ethics and laws."
And Savio S. Chan, president and chief executive of US China Partners, a New Yorkbasedconsulting firm that has helped American companies do business in China, says: "If you do itthe right way, there's a lot of opportunity in China, but if you do it the wrong way, you can beblacklisted and that will come back to haunt you."
The difficult economic climate in Europe and the US combine with China's changingdemographics, rising incomes, increased consumer spending and increasingly open businessenvironment to make the world's most populous country and secondbiggest economyattractive to Western businesses, especially small and mediumsized companies (SMBs). Butdoing it the "right way," as Chan calls it, is often debated endlessly by US companies that onlyexport to China or manufacture and sell in the country.
Chao, the author of Selling to China: A Guide to Doing Business in China for Small andMediumSized Companies (iUniverse, 2012), believes now is when SMBs have a betterchance than ever for going into China.
"Where else in the world are you going to find a population of 1.3 billion, a growing middleclass and a GDP growing at 8 to 10 percent?" says Chao, the son of Chinese immigrants who
Most Viewed
'Sweet girls' of Neijiang
Abandoned boat become work of art
Poor health care in rural China lessens joy ofpregnancy
Braving bitter cold for nation’s security
HK donor gives $1 million to NYPD officers' families
Images: Top 10 weirdest buildings in China
Across Canada Jan 16
In pictures: Nairobi mall shooting spree
Top 10 countries for plastic surgery
Across Americas Over the Week (Jan 9Jan 15)
Editor's Picks
Pumping up powerof consumption
From China withlove and care
From theclassroom to theboardroom
Schools openoverseas campus
Domestic power ofnew energy Clearing the air
Today's Top News
Shenzhou X astronaut gives lecture today
US told to reassess duties on Chinese paper
Chinese seek greater share of satellite market
Russia rejects Obama's nuke cut proposal
US immigration bill sees Senate breakthrough
Brazilian cities revoke fare hikes
Moody's warns on China's local govt debt
Air quality in major cities drops in May
US Weekly
Geared to go The place to be
Home China US World Business Sports Travel Life Culture Entertainment Photo Opinion Video Forum
Video Slide Photos
1/17/2015 Entering China's Market: The do's and don'ts|In Depth|chinadaily.com.cn
http://usa.chinadaily.com.cn/epaper/201305/10/content_16490299.htm 2/5
class and a GDP growing at 8 to 10 percent?" says Chao, the son of Chinese immigrants whonow heads up Los Angelesbased All In Consulting.
"In the United States, we're growing at an anemic 2 to 3 percent a year and most SMBs aren'tdoing that well. China's certainly a good new market for them."
Gerkens' comment on why he's "leery" about doing business in China expresses an antiChinabias that some observers say is typical of middlemarket US companies, which have annualrevenue of $50 million to $500 million.
The CEO, according to a transcript of the meeting, spoke more enthusiastically about exploringopportunities in Denmark, whose GDP in 2012 was about $313 billion, a tiny fraction of China's$8.36 trillion.
Gerkens' comments, which followed the release of the company's firstquarter financial results,"baffled" Charlie Welsh, group editorinchief of Xport Reporter, an online businessinformationjournal which covers the export market.
"People have fears that if they go to China, they have opportunity, but there are risks there,"he said.
Xport, a unit of British publishing and education company Pearson PLC, says it analyzed morethan 200 interviews its journalists conducted with decisionmakers at midmarket companies.The results indicate that while some large corporations have jumped into exporting to China,midmarket companies "are not even trying to sell their products (there)," Welsh wrote.
Welsh noted that in April, Guangdong province announced plans to pour $228 billion intoinfrastructure, with 60 percent of the spending related to transportation. "Yet even withopportunities on this scale, a majority of [US] midmarket companies harbor significantreservations about selling their products and services to China and have prioritized smallerforeign markets that they feel more comfortable operating in," Welsh wrote.
Statistics from the USChina Business Council tend to back up Welsh's claim. Despite anincrease of $6.6 billion, or 6.5 percent from a year ago in US exports to China, the nation'soverall share of exports to China dropped to 7 percent in 2012 from 10 percent in 2000, thecouncil said in its latest report.
"That means that on the whole, they are losing competitive ground," Welsh said. "That'sworrying, because if the market is getting bigger, the opportunity is getting bigger. And the USshare of that is getting smaller. Somebody else is benefiting at their expense." China remainedthe US's thirdbiggest export destination last year, trailing Canada and Mexico, according tothe report.
Welsh thinks media reports that emphasize the US disadvantage in the export market andother issues, are misleading. "They try to say there are barriers to US companies going in.Forget about it," Welsh said. "Are American companies even making the effort in the firstplace?"
"It's not just a question of the US needing to export, but they need to produce more tradablegoods because they can't rely on consumer driven demand," he said. "So the answer has tobe by growth in external markets. And the obvious place is the biggest market."
'Demand and desire'
Welsh said his visits to China have shown him a widespread "demand and desire" for USproducts. "And then you come back here and you talk to people and they go, 'Yeah, wehaven't quite worked it out, yet.'"
Chao agrees that the mediumsized companies he handles as a Los Angelesbased consultantappear to lack drive when it comes to exporting to China. "Only two out of five companies I visitwant to make a serious attempt in entering China," Chao said.
"Basically, they don't see China as a real, practical market for them and should only be left forthe large, multinational corporations," he said. "China is just seen as too far, too expensive, tooforeign and just too wild for smaller companies to take a chance."
Clouding the issue further, the office of the United States Trade Representative last week onceagain put China on its "priority watch list" of countries who it claimed failed to provideprotection of US companies' intellectual property rights, citing claims that China launched cyberattacks on US firms.
Chao says midmarket firms still cling to an "antiquated" view that only large corporations canexport to China. "They had the political connections, investment capital, and most of all, thetime to wait for the market to develop," Chao said. "Though antiquated, this mentality is stillpervasive among smaller companies."
Perry Wong, director of research at the Milken Institute, says anyone venturing into the "vast,fast evolving and increasingly complex market that is China should apply "the three doubleDs": "Due Diligence, Due Diligence and more Due Diligence."
Wong says cost advantage is the most important thing for small and mediumsized businessesto consider, because they are more sensitive to pricing and cost control. "If you go back 10years ago, manufacturing costs were very low in China, energy costs were somewhat stable
Exclusive InterviewWith Secretary General OfDubai Economic Council
Lithuanian EmbassyHeld EU Open Day
Special
Have some moretea
TCM Keepinghealthy in Chinese way
Debate over artist's choice Beauty pageantAn open letter to Ministry of EducationHelp me, I am ashamedEndangered ecology on upper of Yangtze RiverWhat's terrorism?Once boyfriend upgraded to husband
Video Slide Photos
1/17/2015 Entering China's Market: The do's and don'ts|In Depth|chinadaily.com.cn
http://usa.chinadaily.com.cn/epaper/201305/10/content_16490299.htm 3/5
years ago, manufacturing costs were very low in China, energy costs were somewhat stableand one could make the argument that administratively it was a lot easier to operate in Chinacompared to now," Wong said.
Wong added that US companies can no longer assume that anything they do in China will becheaper than doing it at home, though labor is still an advantage, if you go inland.
"China is a big country so there is a big gap between the operating costs when you set upfactories in the east coastal region viz a viz the inland region," Wong said. "There are a lotmore labor regulations in terms of pay and pension than 10 or even five years ago."
Dilworth's experience
Wong cited recent research that he said found that China's wages are 40 percent below USwages. That advantage, however, can be canceled out by energy costs, which are much betterin the US, he said. "If you are making some very bulky manufactured goods, it almost doesn'tpay to manufacture in China any longer," Wong said.
John Dilworth, vicepresident for sales and marketing for GraphOn Corp, a Campbell,Californiabased developer of applicationpublishing software, said his company's proprietaryremoteaccess Internet Protocol competed directly with Microsoft Corp and Citrix Corp, and hiscompany was having trouble gaining any traction in the US. So they decided to go worldwide inthe hopes that the two giants didn't have the lion's share of the market outside of the US,which turned out to be true.
GraphOn left all of Asia, including China, to one employee based in Seattle and, between theproblems of language and time zone, the strategy failed, he said. "Probably most important,"Dilworth said, "was the cultural difference. I don't think GraphOn ever understood the culturaldifference in how to do business in China."
Bill Smith, CEO of VU1, a New Yorkbased company developing a new kind of mercuryfreeincandescent light bulb now being manufactured in China, singled out cultural differences indoing business as the biggest hurdle his company had to overcome.
VU1 began operations in the Czech Republic, an experience Smith calls "horrific. It's basicallyunionization on steroids over there."
Lured by the lore of low costs of manufacturing and components, he turned to China about ayear ago, but with what turned out to be not enough groundwork. He hired a lighting companyin Guangdong, and gave all the specs and instructions. The Chinese company said, "We cando it, no problem." Deadlines were never met, communicating dropped off, and nine monthslater, VU1 got a product that failed in the field, Smith said.
A board member brought in Chao, who visited the Guangdong factory, their outsourcepartners and their secondary suppliers. He found that many of their components didn't meetspecs, none of the inprocess testing was being done, they lacked the equipment necessary tomake some subcomponents and no final quality checks were done.
There was a clash, Chao said. "The Westerner blaming the Chinese company saying, 'Youlied, you cheated,' and the Chinese company came back and said, 'No, we did our best tomeet the specs'."
Chao said he doesn't blame the Chinese manufacturer as much as he blames the Americansfor not doing their homework, not verifying for themselves that the manufacturer could actuallydo what they said they could do.
Dilworth said he learned that China was a land of many resellers, where nobody seemed tobe loyal to any kind of structured channels. "A lot of resellers will become distributors," hesaid, "then half of the employees will leave the company and create a new company selling thesame thing. Something that's not allowed here in the States, with noncompete clauses."
"The problem is you build a company and a distribution channel and an ERP (enterpriseresource planning) system internally and you put strategies all together and then you have tocompletely rethink how you're doing business," said Dilworth. "We tried to do it our way andsaid 'No, this is our policy, you have to follow it' and we failed."
Language is half the problem and the difference in time zones is the other half, he said. "But Ihonor the contract, I honor the threetiered distribution channel that is traditional in the US andEurope," he said. "You have to think of it differently in China if you want to be successful."
'Bricks and mortar'
Microsoft and Citrix "put bricks and mortar" in China to try to infiltrate the country, Dilworthsaid. "But they have not done a lot better than we have in China."
Bricks and mortar and a hundred employees aren't the answer, as far as Dilworth isconcerned.
"The right answer is having the right Rolodex and understanding the culture," he said.
"I've had four attempts of trying to get into the Asia market with different technologies. I failedevery single one. I can't say that this one was wildly successful, but it's up and it's running and
1/17/2015 Entering China's Market: The do's and don'ts|In Depth|chinadaily.com.cn
http://usa.chinadaily.com.cn/epaper/201305/10/content_16490299.htm 4/5
I want to comment 0 have participated
Username Create an account Please read our community rules
Password Login I forgot my password
Comments posted above represent readers' views only. Login And Post
1
every single one. I can't say that this one was wildly successful, but it's up and it's running andwe are profitable with the venture and I'm very happy."
Contact the writers at [email protected] and [email protected]
More China NewsSpace lesson to reach millionsAir quality in major cities drops in MaySuspect in sex tape scandal denies chargesCity plan will grant migrants benefitsOfficial executed for raping 11 minorsSex tape official stands trial
More World NewsHighlights of Paris Air ShowCanada sends soldiers to support mission in HaitiVenezuela reports more H1N1 casesIran's electoral watchdog approves resultUN condemns office attack in SomaliaSudan receives China's representative
Photo
Michelle lays roses at sitealong Berlin Wall
Historic space lecture inTiangong1 commences
'Sopranos' Star JamesGandolfini dead at 51
UN: Number of refugees hits18year high
Slide: Jet exercises fromaircraft carrier
Talks establish fishery hotline Foreign buyers eye Chinesedrones
UN chief hails China'speacekeepers
1/17/2015 Entering China's Market: The do's and don'ts|In Depth|chinadaily.com.cn
http://usa.chinadaily.com.cn/epaper/201305/10/content_16490299.htm 5/5
ChinaPolitics
Society
SciTech
People
China Scene
OpinionEditorals
OpEd Contributors
Columnists
Thought Leaders
BusinessPolicies
Economy
Companies
Markets
Industries
Opinion
Green China
ForumNews Talk
Leisure Time
English Study
Overseas Students' Family
Europe Discussion
WorldAsia & Pacific
Americas
Europe
Africa
Middle East
Kaleidoscope
Newsmaker
PhotoChina
World
Sports
Slides
Odd
Photographers
LifePeople
XRay
Hot Pot Column
Food
Restaurant
VideoNews
Big Talk
China Lite
Tradition Mission
Focus
EntertainmentCelebrities
Movies
Music
Television
Style
Language TipsBilingual News
Hot Words
Buzzwords
Translation
Audio
Movie English
Survival English
Study Abroad
SportsChina
Stars
Golf
Tennis
Other Sports
MobileiPad
iPhone
Kindle
Android
Blackberry
| About Us | Advertise | Job Offer | Contact Us |
Copyright 1995 2013 . All rights reserved. The content (including but not limited to text, photo, multimedia information, etc) published in this site belongs to China Daily Information Co (CDIC). Withoutwritten authorization from CDIC, such content shall not be republished or used in any form. Note: Browsers with 1024*768 or higher resolution are suggested for this site.
License for publishing multimedia online 0108263 Registration Number: 20100000002731