Deciding Whether China Is a Good Fit for Your Business

Many traditional manufacturers face rising business costs. Spiraling wages, higher energy costs, and other cost-drivers have taken their toll. Manufacturers have seen others go under before them. As they look for ways to become more competitive, their eyes turn toward China.

Some companies are better suited than others for doing business in China. This section can help you and your company understand some of the important characteristics of a business that’s likely to succeed in China. By taking stock of your company, you can evaluate your company’s readiness for China.

Your company shouldn’t go to China because everyone else seems to be going there. And going to China as the last resort — because your business is already on its knees — isn’t a smart move either. Consider doing business in China for one reason: because it makes good business sense.

Considering your employees

Many companies take pride in the fact that they’ve been a local manufacturer in their home community. Some companies have been in business for several generations. These companies have created jobs for local people, and the company leaders are part of the fabric in the community where they live. Unfortunately, many of these companies are under extreme pressure to improve margins, lower costs, or boost productivity.

For companies like these and other less-established firms, going to China may be an option to seriously consider. But no company leader really likes to outsource jobs overseas. Restructuring your company while laying off loyal company employees is no picnic, either. And other political, ethical, or financial concerns about China may weigh on businesspeople like yourself.

Consider all your options — both in and out of China. As you begin to get a grip on the trade-offs for your business, you’ll be in a better position to understand some of the likely consequences as well — and be prepared to explain your decision. Laid-off workers may find some consolation that they aren’t losing their jobs simply because somebody else is willing to do their job for a much lower wage. Maybe doing business in China is a survival issue. Perhaps you need a growth engine for new sales. Whatever the reason, make sure you know why China may be your best bet.

Having international experience

Ideally, your company has some proven skills in successfully developing international business opportunities. This experience can be importing or exporting products to selected overseas markets. It may be managing overseas distributors of your products in Europe. It can be sourcing components from a supplier in Malaysia. Maybe you already manage a production facility in Mexico.

International business skills aren’t necessary for doing business in China, but they’re highly desirable. You have to be a very fast learner if you’re new to the international business game and plan to make your mark starting with China. A company with no international experience can do well, but it needs to be extra prepared for what lies ahead. For more information on business planning, go to Chapter 4.

Getting company leaders on board

Some companies know that China is an option for their business, but the owners don’t have the time, energy, or inclination to figure out how to make China work for the company. They don’t know where to start. They don’t have a roadmap to help them find their way. It seems all too foreign for the owners. And it seems way too hard. If your company leadership has this type of attitude, don’t attempt to do business in China.

You need to have strong leadership that’s committed to making your China business a success in the long-term. Without your company leadership’s full commitment, the chances of failure increase drastically.

Having patient capital

Your China business will likely require a significant amount of financial resources to get started and to keep your business up and running. Most companies find that making a profit in China takes longer than it does in the West. Generally, you can expect getting profitable to take twice as long. In part, this delay is due to China’s competitive business landscape. Getting to critical mass takes time, too. If your financials aren’t at full strength, stay away from China — your company doesn’t need to take on any more risks.

Dealing with the government and laws

To set up in China, your company should be comfortable working with government workers and officials. You’ll face a lot of red tape with many permits and approvals required, too. And China’s government bureaucracy has a well-deserved reputation for moving at a snail’s pace. On top of it all, the government official you deal with today may be gone tomorrow. If your company isn’t prepared for dealing with government bureaucracy, China likely isn’t the place for you to do business.

China’s business laws are quite different from what you’re used to. Make sure you do your research and can get some good legal advice. Here’s what you have to be ready for:

✓	Your company needs to have its various business activities preapproved and then stay within them (unless you want to get more approvals).
✓	The currency, the renminbi (RMB), has a lot of exchange restrictions, so you want to structure business in a way that optimizes your ability to repatriate money. (See Chapter 10 for details on money.)
✓	You’re not allowed to own land in China — you may only own rights to use the land for a period of time. And the types of rights vary, so you have to be careful about which ones you’re receiving.
✓	China has different systems for taxation, labor regulation, and resolving disputes (among other things).
✓	Many of China’s laws are somewhat business-friendly. Getting to understand how they affect your company is imperative.

One area where China’s laws are very weak is intellectual property rights (IPR) protection. Don’t sell or manufacture in China if you need to rely on intellectual property laws alone to protect technology or processes. Go somewhere where you’ll have more protection. See Chapter 17 for ways to protect your company’s IPR.

Appreciating cultural differences

Different cultures do business in different ways. If your company has trouble adapting to new ways of doing things or respecting a culture that’s different from your own, your company is probably not well suited for doing business in China.

On the other hand, your company’s culture can also be its biggest draw in the labor marketplace — the Chinese are often hungry to work for foreign companies that offer more flexible and creative cultures than Chinese companies do.