Small Businesses Look East
China trade is opening up "a whole new planet" for companies willing to do the hard work needed to tap it
Bob Calvin compares the opening of China's vast market to the opening of California 150 years ago. And he's not alone in foreseeing a great eastward gold rush now that China is about to join the World Trade Organization and the U.S. Congress has voted to normalize trade relations.
Can small businesses join the rush without being run over by the behemoths in banking, food, machinery, and high tech that already have a foothold? Absolutely, says Calvin, who teaches entrepreneurship at the University of Chicago's Graduate School of Business. "The market is vast and expanding, so there's room for a lot of people. Small businesses should look for niches, for markets that large companies aren't interested in."
Claire Hervey, director of international marketing for the California Trade & Commerce Agency, thinks the comparison to California isn't apt. "It's like a whole new planet has been discovered," she says. The agency recently opened an office in Shanghai, headed by a Chinese-American who knows both cultures. It will help California companies develop market strategies for China trade, reduce red tape, and find joint-venture partners. "We serve small and medium-size businesses," says Hervey. "Big businesses have the money to get there themselves."
QUESTION MARK. Companies interested in cracking China's market need to start nosing around and building a network now. Options for doing so include government agencies, local business organizations, and the commercial enterprises springing up to make those connections, such as ChinaMallUSA.com and AsianConnections.com. For many business owners, the fact that China has been a closed society, that many of its businesses are partly state-run, and that its shift to capitalist ways won't be immediate or seamless makes the country a bigger question mark than other markets.
"The how-to is complicated," says David Chai, a Chinese-American who is former assistant commissioner of the New Jersey State Dept. Nobody can say "here are the three easy steps" to doing business in China. He suggests business owners attend trade fairs, such as the one he helped organize earlier this month in New Brunswick, N.J., with businesspeople from the province of Zhejiang.
"That's the difference between a Lucent or a Schering-Plough and a small business," he says. "They know the market for their products is there. How do you know you can sell there? How do you open that market without knowing some cultural and business aspects? You need a local partner."
"MYOPIC." If you've got a viable product, the obstacles are worth tackling, believes Calvin. "Small businesses don't think a great deal about global markets. You've got tariffs, you've got bureaucracy, you've got cultural issues," he points out. "Most small businesses are myopic. They don't think: 'If I'm doing $5 million here, there's another $15 million in Asia.'" Twenty percent of his students are from China, and many of them plan to return home to open small businesses. He says it's not too soon for these would-be entrepreneurs to be making contacts.
Hervey suggests that you think of the huge market -- China has 1.3 billion people, more than one-fifth of the world's population -- rather than the hurdles you'll have to jump. "The sooner you get into the market, the better off you're going to be," she says, referring to branding and the learning curve. Skittish businesses might consider starting in Hong Kong and running distribution into China. Hong Kong, as a "special administrative region," is run on a separate set of principles, and although it's more expensive than the mainland, it's less of an unknown.
Whether businesses looking East see mainly opportunity or obstacles, one thing seems clear: As China joins the global marketplace, a billion people are poised to make the transition from an agrarian lifestyle to a technologically sophisticated one. That many people can't make such a move without a dramatic rearrangement of the global economic landscape.
By Theresa Forsman in New York
businessweek.com |
