Humphrey Keenlyside, contributing editor, China-Britain Business Council
For many exporters, China is bigger and, paradoxically, smaller than they imagine. It is bigger simply because it is hard to get one‘s head around the fact that one-fifth of the world‘s population lives there. And, yet, it is smaller, because China is more like a continent than a country and so most people will only deal with a component part. Whether looked at in terms of different provinces, regions or even cities, the country can be sliced up in many different ways.

What is clear is that China is having a growing impact on the rest of the world. Running a huge trade surplus, China has accumulated foreign exchange reserves approaching US$1 trillion. Few doubt that at some point this century China will surpass the United States as the world‘s biggest economy. Sooner still (as early as 2010, the Organisation for Economic Co-operation and Development suggests), China will be the world‘s top exporting nation.

China‘s manufacturing and purchasing power is immense: it is the world‘s largest producer of steel, coal and cement and the largest manufacturer of textiles, garments, footwear, refrigerators, microwave ovens, televisions, radios, toys, office products and motorcycles. It is now also a huge importer of oil, steel and raw materials; all of which are needed to fuel and sustain its economy.

Impressive though these statistics are, the far more important issue for small businesses is: how do I get a piece of the action? Here, the best single piece of advice is probably to think small. China is a market like any other, and should be approached with the same rigour, practicality, research and common sense as anywhere else. The good news is that more small and medium-sized companies are finding openings and are already capitalising on them.

Boom time
There are many and varied motives for organisations to do business in and with China. Companies are moving to China to manufacture products, source goods or components, move closer to the market, or save costs on products produced for overseas markets, and quite often a combination of all of these things. Many firms are also finding they can tap into China‘s growing proficiency for research and development.

Nonetheless, China is still regarded in some quarters as being a remote and challenging market, for reasons associated with the differences of culture and language and – a long-standing bugbear of foreign businesses – a lack of clarity in the business environment. Regulations can still too often be frequently contradictory or ambiguous. China also has a very poor record when it comes to protection of intellectual property. Some would-be entrepreneurs have been deterred by a number of highly publicised books which delight in pouring scorn on the Chinese market.

Add to that the difficulties of moving and transporting goods efficiently – in China, logistics costs account for 40% of the costs of goods sold against 10% in the US – some lurid tales of corruption and, increasingly, the issue of whether China‘s political structures are seen as an anachronism when viewed in the context of a fast-liberalising economy, and it is no wonder that some business people take pause for thought.

But the benefits and the opportunities of this fast-moving market make it an area that many small businesses would do well to consider from the point of view of sourcing products, manufacturing goods, exporting to or simply investing in a booming economy. And as far as this market is concerned, there really is no time like the present.

John Mott, Business Bridge to China
It has taken just 25 years for China to move from being a totally peasant based economy to the world‘s 3rd largest exporter; a position that it has reached with less than 20% of its 1.3bn population in paid employment.

The country now aims to quadruple its GDP within the next 20 years – so its economic progress will continue at a rapid pace.

Unless they operate in truly niche market sectors, manufacturing based SME‘s elsewhere therefore face a fairly stark choice.

Do they:
• find a good Chinese partner(s) to work alongside – so that future growth and prosperity can be shared?
or
• wait until the Chinese are even more competitive and continue trying to fight that competition head-on?

The right choice must be obvious. They should act now – while at least some of the skills available to them are still of value to the Chinese – using those skills to secure stronger bargaining positions with potential Chinese partners.

Moving manufacturing activity to a partner‘s factory in China not only allows many companies to reduce their unit cost of production, it also allows them to convert many of their traditionally fixed costs to variable costs.

The gains can therefore be substantial but so too can the risks for the unwary:

• China still has a very different business culture so finding the right partner is absolutely vital from the outset.
• Business in China places a heavy reliance on personal relationships and these need to be patiently built over significant periods of time and maintained on a regular basis.
• Legal redress is difficult to obtain so relationships need to be strong enough to withstand fairly stern tests in the event that something goes wrong
• Manufacturing/material standards are often not universal
• The approach to sampling and product development is very different and lead times can be long
• Trading terms often require the payment of substantial deposits with order and payment in full prior to shipment of goods so quality needs to be assured before goods leave the country
• There is little published data on the ownership and/or financial status of Chinese companies

None of these difficulties should deter companies from exploring the option of doing business with China but they probably all point towards one piece of advice:

Don‘t try it alone
Work alongside advisers who know and understand Chinese business well: people who can also look after your interests in China on an ongoing basis.