In China, Proceed With Caution

There’s still plenty of time to get into the Chinese marketbut beware the pitfalls. Thats what Leslie T. Ivie, head of innovation at Zellweger Analytics, told a group of students at Gleacher Center on December 4 at an event sponsored by the China Business and Economy student group.

Anyone—or any corporation—can now set up an office in China without Chinese shareholders, which wasn’t true 10 years ago. Paperwork is easier to manage and the country is physically easier to navigate. The advantages are clear: if a company is supplying to China, there is a substantial market. There are 100 million consumers in China and, Ivie said, They want the most modern, the best, the fastest, the shiniest. By 2010, there will be 40 million middle-class households and 15 million affluent ones.

If a company is manufacturing in China, costs are often lower because the Chinese tend to work longer hours and, Ivie said, there are a lot more of them. That’s why half of all clothing and 29 percent of all cell phones are made in China.

But, Ivie said, Products are only cheaper up to the loading dock. Then you have to insure the ship, and then wait for your inventory, which is on the high seas. You can’t sell products if theyre sitting on boats.

He added that prospective companies should realize that 60 percent of the Chinese population lives outside of the cities. Within cities, unemployment is low; outside them, unemployment is very high, even among university graduates. Ivie said the best opportunities in China are in these areas, where suppliers offer lower cost alternatives and competent workers are seeking jobs.

Other pitfalls include significant language and cultural barriers and a risk of losing a company’s intellectual property if it isnt fiercely protected. To overcome these, Ivie suggested making sure that all intellectual property disputes are handled outside China. Also, he said, Partnerships are essential. Not equity partnerships, but people who can help you navigate the market place. You need these connections.

 

Jennifer Vanasco