Ten years ago, a visit to New York gave China expats near rock-star status. Everyone wanted to know what was really happening. In recent times, the excitement has rapidly subsided – to the point where expertise in China is now about as romantic as facility with a dental drill. It’s great for those occasions when necessary, but otherwise everyone already seems to know as much as they care to about the topic.
Is China central to a global business strategy?
Westerners in China take it as an article of faith that every successful enterprise will eventually have a China presence – but outside the fraternity of Old Hands and deep-pocketed multinationals, is it really so?
The US business community gives Chinese financial indicators like GDP, inflation and PMI the same significance as the price of oil. They are important – but the average small business isn’t going to set up a subsidiary in Saudi Arabia when a barrel of crude pops above US$80. When times are tough in the US, we look inward and turn isolationist. Downtown mosques and celebutante drug busts are headline news, but China only edges back to the front page when the story involves warships or the chance of economic downdrafts.
US business doesn’t see a China payoff
Small and medium-sized players in the US don’t see the China market as a solution to their domestic woes. They either haven’t heard the success stories or have read too much about the challenges. In any case, overseas expansion ranks a distant second to getting their US business back on track. The US isn’t very globally oriented in the best of times, and now China is viewed as "stunt work" that requires a highly specialized team.
China has not been successful at seizing the opportunity, either. Americans may be more budget-conscious than ever, but they are placing a premium on reliability, stability and value. Consumers still view "Made in China" as a warning label, and the much-anticipated trend of Chinese brands going West has made little headway. China’s state-owned enterprises (SOEs) have been hitting brick walls in their attempts to buy firms as Congress, regulators and corporate boards obstruct deals. The result is a drift toward increased disengagement as protectionism, ignorance and apathy become commonplace.
Is this an opportunity or the end of the party?
Does this mean that US-China entrepreneurs have bet on the wrong horse – or that the field is thinning out and things are getting more interesting? Are we between opportunities – as the big infrastructure and heavy lifting finishes up, will there now be profits for those who can figure out how to get paid on IP and services? Or have the cross-border opportunities dried up under the glare of protectionism and domestic competition?
International managers have three ways to play a less buzzy China:
Charge on in anyway. Chinese small and medium-sized enterprises (SMEs) are feeling starved and hemmed-in by the big SOEs, which have deep pockets but lack nimble managers. Now is a good time to get creative – offer to provide western marketing expertise in exchange for access to the China market, resources or manufacturing. Even if China goes into a slide, it still offers opportunities that just don’t exist in the West. The key to China is figuring out a model that gets you paid for services and IP. It’s not impossible, but you’re definitely swimming against the tide.
2. Test the waters with a cautious, incremental approach
Edge in slowly. Be creative and keep options open. Capitalize on niches and special situations. If you are already in China, take on the role of intermediary, guide and potential "local partner" for other overseas SMEs that want selective access. If you aren’t invested in China yet, open talks with a few different potential counter-parties and use your future deal as bait while you fish for info and better deals. It’s very possible that Chinese economic activity will be moderating just as the US recovers. That may lead to some very volatile scenarios, and may favor Westerners’ ability to function in an uncertain business environment.
3. Wait it out
This may be a great time to pull back and see where the pieces fall. If China’s market numbers dip in 2011 – particularly as the US recovery takes hold – then we could be looking at an entirely different market environment a year from now. If 2011-2012 is a whole new ballgame, then you may be best off keeping your powder dry and options open for now. Bear in mind, however, that this tack puts you squarely in the mainstream – so you will have plenty of competition when clouds part and we have better visibility a year or so down the line.