Businessmen around the world often ask the question: Can I be successful with my business in China or is China too big to “handle,” leaving room only for large, multi-national corporations (MNCs)? There is an old saying about doing business in China: The idea is not to sell a stick of gum to every person in China (1.3 billion population), but a pack of gum to selected high value consumers. This having been said, one must keep in mind that opportunities abound in China. Although it is the world’s second largest economy, it is still a third world country; with many parts of China undeveloped, underdeveloped and hidden, there is a treasure trove of opportunities.
Chinese Cities: Tiers of Opportunities
China experts have divided the country into “tiers,” with Tier One being cities such as Beijing, Shanghai, Guangzhou and Shenzhen, where many opportunities lie in IT, real estate, automotive, shipping, biomedical, and all kinds of manufacturing. Investors coming into China at the Tier One cities will find a strong manufacturing base and rent, salaries, government mandated benefits, and general cost of doing business on par with any major city in the U.S. (New York, San Francisco, Los Angeles). However, where the opportunity lies in today’s market is in Tier Two and perhaps even Tier Three cities, such as Hangzhou, Suzhou, Chengdu, Dalian, Nanning, Ningbo, Chongqing, Changsha and others. Here you will find there is an ample supply of workers at reasonable prices, and the general cost of doing business – from taxes to employee salaries and benefits – more in tune with smaller towns in the South and Midwest of the U.S.
A rapid increase of labor costs in the coastal areas is an additional argument in favor of western cities, such as Chongqing and Chengdu. However, small and medium-sized enterprises (SMEs) entering the Chinese market in these areas will face more challenges in terms of language, knowhow, and business culture. So a wise entrepreneur will be well served if he teams with the right local partner, brushes up his Mandarin, and works with the right law and accounting firms. Entrepreneurs also should be prepared not only to investigate opportunities thoroughly but, once an opportunity is identified, to educate the team on Chinese business and culture, along with educating the local work force on the demands of an internationally based company.
Advantages in China for SMEs and Start-Ups
By definition, SMEs are more nimble, have greater capacity to be flexible and are not laden with public reporting requirements and corporate policies that are unbendable. If you are an MNC, then your strategy has to be “go big, or go home” in the Chinese market. Over and over again, MNCs who lack the will or staying power find themselves retreating from China. For SMEs, however, the approach is different. It is not size that matters, but the quality of your entry business plan; it is not how much money you spend, but how you spend your money; it is not only what is not yet legal that matters, but how to make a matter legal under Chinese law. As it is in the U.S., MNCs in China, in sheer numbers, only make up 20% of the businesses; leaving 80% of the businesses to be cultivated and consummated by SMEs.
An ancient Chinese proverb says:
三人一条心，黄土变成金 (sān rén yì tiáo xīn, huáng tǔ biàn chéng jīn )
If people are of one mind and one heart, you can even turn the yellow earth into gold.