This article was originally published on LinkedIn by Chris Wingo, Managing Director – China Sage Consultants and China Sales Solutions. It is republished with permission. Cover photo: TRUST. iCON Street art.
A Confusing Time for Business in China
These days, China is getting a lot of press and much of it is negative. News reports ranging from “new normal” GDP levels, South China Sea conflicts and massive economic bubbles to cyber-hacking and unfair policies toward multinationals, leave western business people wondering “what the f……reak?”. It does seem the honeymoon is over.
With all the confusion, what are western businesses to do, especially smaller less experienced less resourced SMEs? In my opinion, there is only one thing they can do and it is not developing a more accurate forecast – China is just too difficult to forecast with any degree of accuracy. Rather, SMEs should remain nimble and follow the few sensible guidelines shown below for operating under China’s “new normal” conditions. The guidelines may not tell you exactly what is coming but they will keep you ready for when it arrives.
Note: This post is for the more traditional mature (i.e. longer run time) companies doing business in China. China’s dynamic startup sector in which foreign and Sino-foreign JVs are developing fast moving service and IT concepts is a whole other topic.
Don’t give up on China but stay engaged
Though expected to slow, China’s economy is bound to maintain growth rates higher than developed economies as she strives to overcome the middle income trap and become a wealthy nation (think 3 to 5% instead of 8 to 10%). This process is uncertain and will continue for years, really decades, to come. Uncertainty aside, foreign SMEs with any hope of doing business in China long-term have no choice but to continue engaging China, albeit more cautiously. Companies who pull out now will lose ground they likely will never recover. Two exceptions for exiting: SMEs who really cannot compete with locals or have nothing the Chinese want to buy – you should know who you are.
Become ultra selective in your China pursuits
Now more than ever, companies pursuing sales in China must be highly selective. Targeting the right opportunities, employing the right people and engaging good partners are increasingly critical to success and resource conservation (like saving money) during these tough times. The opportunities companies choose must be realistic, employees of good character and partners trustworthy – yes, it is far easier said than done. It is also a good time for SMEs to consider alternative business models that might reduce cost, increase market access or in some way improve results, models such as business process outsourcing solutions.
Consider a strategic partnership in China
If you have been struggling in China, it may be a good time to establish a strategic partnership with a Chinese or other international company with capabilities and resources your company lacks. A good partner can offer ways to reduce costs, better government relations, tap new distribution networks and access their customer base. Of course, finding and vetting the right partner is essential and certainly not easy. For this reason, “scaling up” a partnership as opposed to jumping right into one could be a way to limit your exposure, at least until the partnership achieves defined milestones. And remember, partners in China come in various shapes and sizes so maintain an open mind.
Adopt an “in China for China” mentality
Without a high-performance, very specialized and not easily duplicated product or service, competing for sales with local Chinese companies by simply exporting to China is generally a losing proposition – it is difficult to imagine the intensity of competition here without being here. The situation could change if China truly reforms and opens its economy, something that will take years to happen if ever at all. This suggests an obvious solution which is “in China for China”. It is proven that companies who serve Chinese customers from operations within China have a much higher success rate than those who do not. Going forward, SMEs without some type of operation in China, even if only a sales office, are going to find it increasingly difficult to compete.
Focus on continuous product development
Chinese companies seem to aspire to produce just about everything their domestic market demands, the global market too. Fortunately, they remain incapable of actually doing this and therein lies an opportunity. SME companies able to produce a continuous stream of new and differentiated products, whether for industrial or consumer markets, stand to win in China. Fierce opportunists, many Chinese companies do not want to invent the next best thing so much as copy it. Almost every known product has a cheap China-made counterpart, some better than others. The only way to buck this phenomenon is by leading the market with difficult to replicate products. The more the Chinese market recognizes your ability to do this, the more business it will award you.
Keep Your Head Low and Eyes Open During China’s Uncertain Times
Western researchers say that 85% of the things we humans worry about never come true. Given we are talking about China, let us take creative license and adjust that number to 65%. In other words, 65% of the China predictions you read about will probably never materialize so stop worrying so much. That other 35% of possibilities? Expect something and prepare for everything you possibly can by being flexible, staying cool and following the above guidelines. Finally, keep your head low (clean and legal) and eyes open (a 24-7 360 degree view). If your business can survive these difficult and unpredictable times in China, then I would venture to say you have a winner.
Thanks for reading!
About the Author:
Chris Wingo, Managing Director
From 1997 to 2002, he managed the sales and business development effort in China and Asia for a well-known U.S. environmental products company – not surprisingly,
he experienced nearly every misunderstanding and misstep common among foreign companies trying to sell and do business here. He could not help but think there had to be a better way. Set on providing that better way, he established China Sage Consultants and a China Sales Incubator program. The year was 2003.