It’s high time for small firms to look to China
The year was 1986. One does not walk into Asia, particularly China, with any real idea what it will take to succeed in business. It would take many trips, over several years, and a good deal of pain, to reach a feeling of accomplishment for my company. There is much to learn.
China was at the beginning of major economic reform, led by Premier Deng Xiaoping. It was in Shenzhen in 1987 that Xiaoping said “to be rich is glorious,” and he re-defined communism in China, moving toward a market-driven economy.
Change for the world
This economic transition brought on great change for China and the world. There was tremendous industrial growth as Chinese entrepreneurs built their factories, addressing a vast variety of industries. Buyers from all over the world came to take part in the financial opportunity.
Of course, opportunity in China has been principally the availability of inexpensive labor. Great migrations of worker power came from all over China to work in factories. Every year at Chinese New Year, there is the largest migration of humanity in the world as workers return home for holiday and then come back (or not) to factory life.
Labor came from farms where families scratched out a living and the young had nothing to do. The opportunity to go “out to the city” to make $100 to $200 in a month, in addition to room and board provided by the factory, was most attractive.
Initially, social abuses such as under-age labor, excessive work hours and poor work conditions were common.Over time things steadily improved.
Evolving society
The standard of living in China has clearly improved. The best factory owners have set the fair labor standard; working conditions are dramatically better and they continue to improve. Age 18 is the legal working age. Worker pay is on the increase as are government-mandated social programs.
When we first traveled to China, cities were packed with people on bikes; now they are packed with BMW, Mercedes, and Lamborghini. Today in Hong Kong it is the Chinese who fill the designer shops and who are fast to spend money The Chinese are the largest consumers of fine wine in the world. Chinese are conspicuous consumers and that consuming middle class is growing,
Of course, China has been the hotbed of low-cost labor. That has been the China advantage. That is the reason that businesses should have been looking to China. However, as the push to take advantage of the China opportunity grew, businesses that did not belong in China went there. Too many companies did not properly understand cost and risk.
Logistics cost high
Companies did not properly evaluate logistics cost, transportation and duty. This is a major part of product cost when dealing internationally.
Managers accustomed to aggressive U.S. negotiating practices pushed China suppliers into bad pricing, not understanding the risk, which is that the factory is not going to lose money and pricing may well increase or perhaps your product doesn’t get produced.
Companies would also push China factories into unrealistic delivery commitment and then were disappointed with late delivery and disrupted supply.
U.S. business managers still often do not “get” the critical nature of “guanxi,” (pronounced gwan-shee.) This is about the development of personal relationships with factory owners, government officials and the like, and is critical to success.
Your China investment requires constant and close attention.
The bottom line is that lots of business was moved to China that never belonged there. This is the business that is now coming back to the United States. The business that is appropriate for China will stay in China. It is not coming back.
The fact is that we truly are in a world market environment in every respect. “Outsourcing” is passé. Companies must manufacture in the best cost/quality environment and companies must also understand that the world is their marketplace; the vast consuming market is outside of the United States.
800,000 engineers
China continues to be the most dynamic economy in the world and China will continue to create opportunity. Engineering and quality levels in China simply continue to improve. China graduates 800,000 engineers annually, compared to 100,000 in the United States.
Many companies of all sizes understand this and they have been successful in China. More small and medium-sized companies need to learn how to use this opportunity.
Very affordable resources are available to first help you understand if your company and product and business plan are appropriate for China, and then to get to specifics of how to do it. To enter this arena today without experienced help carries a big price tag in unanticipated cost and time.
The resource that your company should align with needs:
To have full-time local staff in China;
To be completely trustworthy;
To include engineering staff and quality staff as well as manufacturing expertise;
To have a technical team to review product specs with factories;
To have an independent quality-control staff.
You need to find experienced professional help that can offer this kind of support and guidance.
For the smaller companies not already involved, this may all sound too much and too expensive. There are, however, excellent and cost-efficient resources readily available to help smaller companies, in the form of international business consultants, product sourcing specialists, government agencies, local organizations specializing in China business, and more. Begin by meeting with an expert on doing business in China.
This is the time to realize that globalization is real. Find out how to take advantage of opportunities to make your business grow.
Larry Mahoney,
Asia Direct Resource:
651.335.3467
lmahoney@yahoo.com
www.asiadirectresource.com
