The Five Myths

Five Myths
About Doing Business In China

Napoleon’s Sleeping Giant Awakens Two Hundred Years Later

Today Napoleon’s sleeping giant is awake! And, just as Napoleon predicted 200 years ago, China is shaking up the world. Although by many standards, China remains a less developed country, China is clearly a country on the move. With nearly one-fourth of the world’s population, China is emerging as a major business, economic and political force; so, it is not surprising that with such a major shift ongoing there would be a number of misconceptions about China. The third issue of The International Solution briefly highlights five myths about doing business in China.

Myth One: Foreign companies cannot make money in China.

As with any new business venture, success requires doing one’s homework in advanced. The legal, financial and real estate regulations and practices in China are different than in the U.S. and they are evolving. America’s largest companies apparently do not put much stock into the myth that foreign companies cannot make money in China. According to an article attributed to the China People’s Daily article published in 2001, 400 of the Forbes 500 companies have invested in more than two thousand projects in mainland China. The track record for foreign companies in China is encouraging. According to the most recent AmCham survey, 75% of foreign companies in China are profitable, up from 64% in previous survey. Coca Cola, e.g., has been profitable for 10 straight years in China.

Myth Two: The best business opportunities are already taken.

While the growth in both manufacturing and domestic consumption in China has been spectacular, the fact remains China has a long way to go on its long march toward urbanization and industrialization. A couple of points of reference along the journey so far show:

  • Although China already has 388 million cell phone users, which makes it the largest market in the world, that figure still represents less than 25% market penetration;
  • With a population of 1.3 billion people, China already boasts the world’s largest cable TV subscriber base, but only 30% of the market has been penetrated;
  • China has already surpassed Japan as the world’s second largest personal computer market behind only the U.S.
  • Today more than 16 million Chinese tourists are globetrotting, a figure predicted to soon pass the U.S. and Japan.
Looking ahead, business in and with China looks promising. A few business drivers for this continued progress include:
  • China is in the process of establishing a highway grid modeled after the U.S. Interstate system;
  • China’s national goal is $2 trillion GDP by 2010 and $4 trillion by 2020.
  • China is building more airports.

Myth Three: The rise of China hurts U.S. workers and businesses.

While outsourcing and the loss of many U.S. jobs are often blamed on waking the Chinese giant’s economy, the truth tends to be more complicated. For example, according to an article in the October 4, 2004 issue of Fortune magazine, a study conducted by Morgan Stanley estimated that U.S. consumers saved approximately $600 billion since the mid-1990s on lower cost imports. Likewise, U.S. businesses have saved untold billions in less expensive parts and components for their products. These savings have helped the Federal Reserve maintain historically low interest rates, fueling a multi- year housing boom, and lowering the cost of capital for U.S. companies to invest in new technology, products and expansion.

Myth Four: Companies go to China just for cheap labor.

Not true. API Global, in conjunction with CoreNet Global, an association with 7,500 corporate real estate and related professionals, commissioned a survey of U.S. multinational corporations in November 2004 to address international expansion. Over half of the 100+ survey respondents cited the opportunity to expand their market for their products and services as the primary reason for international expansion. Improving global competitiveness was the second most cited reason. According to a March 2005 study by Duke University’s Center for International Business Educational Research, taking out costs and competitive pressures were the highest reasons cited. Quality of services and qualified personnel were also cited as important reasons in this study of 100 large U.S. companies.

Myth Five: China makes only low-tech, inexpensive products.

The Chinese-made Dawning 4000A Opteron at the Shanghai Supercomputer Center was ranked the 18th fastest in the world until earlier this year, able to spin out 11 trillion calculations per second, or 11 teraflops. China now claims to have 19 of the world’s 500 fastest supercomputers. On Oct. 17, 2005 China completed its second space mission –a five-day mission that included orbiting the Earth 76 times. While not yet in the same league as the U.S. and other advanced countries, China can boast surprising advances in scientific niches, such as gene research, biomedicine and certain aspects of electronics.

Want to know more about doing business in China?

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