10 thoughts from Foreign Investors in China
Cole & Wright has been interviewing Western CEOs during this pandemic. Here’s some personal thoughts and their advice for other businessmen and entrepreneurs:
1. «In today’s supply chain, don’t take for granted anything». Even if you have been doing something (without problems) for the past decade, the game has changed. Don’t assume delivery timing, don’t assume transit time, don’t assume the normal costs, don’t assume logistics will go smoothly. We can’t highlight this enough. «This current situation with logistics and supply chain will make you think way further and more strategically, plan ahead. Re-consider again time, costs and risks».
2. «Let others cry in the corner, while we look for opportunities» was literally a sentence that one of my guests said. «Every minute you spend complaining about the situation, is a minute that I use to think of new business opportunities», was his advice. In the middle of the crisis, they created new products, new production lines, even opened a new office, because they spent the time looking for needs of the market. He finished his coffee with me saying: «Re-negotiate EVERYTHING, payment terms, conditions and future deals, whatever you had agreed, you might have to re-negotiate».
3. «Help others in times of crisis, if they die, you die». This was another advice given by one of the Directors I interviewed. Some companies take advantage of their suppliers and they «squeeze» their last RMB of margin, knowing they are desperate. «It makes no sense, if they close down, I need to find a new partner and build the relationship again from scratch, it is better for everyone to give up some margin, suffer together, and then after this temporary situation is over, our relationship will be stronger». In difficult times, it is when clients and suppliers and manufacturer show their real integrity.
4. «Proudly Made in China». Years ago, the foreign investor coming to China had a huge negotiation power, this balance has been shifting, and now they realize that the manufacturers and suppliers take the decisions. They know the final consumers and they are capable of supplying and selling directly under their own brand. These can be home appliances, machinery, devices, fashion, accessories and many more. «You will see, Owen, in the next coming years, those big brands will carry Chinese names, and now proudly Made in China».
5. «Sometimes I work with a Supplier who is my Competitor». Foreign brands face this issue: many suppliers and manufacturers are actually becoming the foreign investors’ competitors. Not only the buyers are shortening the supply chain but cutting off intermediaries, also the sellers are getting rid of middlemen by selling directly to final consumers. Some of the so called Chinese suppliers are going to the destination market and set up companies to sell directly, this is one of the several factors that are driving Chinese outbound investment. «So, remember, if your product is very popular, you will receive a phone call».
6. «China is buying the world», this phrase is not a secret anymore. You can ask any institution and company and they will tell you that the key industries in their countries are being sold to the Chinese, energy, mining, infrastructure, agriculture, metals, etc. There are many cases of products that are being produced in that country to be almost exclusively sold for China as the main buyer. As someone asked during the Ibero-American Forum: «How good or bad or risky is it to depend on China as the sole client?». Despite the obvious risks, the speakers keep encouraging Chinese investors to walk the path less walked and explore other (not typical) products that have huge potential but are still unknown.
7. «We are becoming China’s China», which means, many geographies in the world are becoming the factory of China. In our firm, we often receive inquiries of local investors who are interested in setting companies overseas to: manufacture / produce / assemble / maintain / outsource low added value activities that used to be done in China. Basically, they are setting up companies abroad (Mexico, Latin America, Turkey, Poland…) to do the hard labor work that was traditionally complete in Dongguan, Foshan, Zhongshan, Wenzhou, Ningbo, Qingdao… «If your country fulfills the requirements to become one of them, if might be of your interest to analyze if it is worth it, China is and will look for this kind of investment opportunities».
8. «Don’t depend or rely too much on others» is a piece of advice that one of the speakers at our conference highlighted. Due to Covid, restrictions, economic recessions, supply chain crisis, logistics bottlenecks, purchasing power, geopolitical conflicts and many other reasons, the Chinese market made a big shift in the last year and started to change (very dynamic and rapidly) and adapt to its domestic market. The need for Western purchase or consumption is (and will be) less significant in the next years. «If your industry or product is something that can benefit from this situation, you MUST be present in China as a Chinese company selling to Chinese consumers, or you will miss the train». Exporting in 2022 has way more difficulties than selling to domestic market.
9. «Find your niche or market», there is no one-for-all solution to everyone’s challenges, and if seek advice, you will get as many different answers as people you ask. Each region and city in China is making their own efforts to keep growing and developing as a hub for (fill in with whatever industry you try to promote), this works both for national and international companies. One of the most popular (if not the most) is the GBA, the Greater Bay Area, that is attracting the attention of many enterprises not only from overseas but even domestically. «It is becoming a huge market itself with the combination of what every strong economy needs all concentrated in one single region». It contains manufacturing, sourcing, design, work force, huge trade industry, highest GDP, education, several ports, access to overseas market, etc, definitely a place to consider for any company with big ambition.
10. «Managing a company at the distance», this was indeed a challenge for foreign companies and also for local service providers at the beginning of the pandemic. In 2021, many service companies and the government quickly made adjustments to make it workable at the distance. Now in 2022, there are many traditional tasks that can be done without having to fly to China, except from the key changes and re-structuring within a company. Many new opportunities were born as a result of this demand, and overseas companies can complete tasks related to bank account, payments, payrolls, HR outsourcing, accounting, auditing or many other activities through third party agencies. While being physically in China helps a lot with daily operations, companies can be managed at the distance remotely, or even get started without having to go to China even once.
First of all, it is extremely interesting to have lunch or dinner with these friends from different industries, you get to learn first hand their real pain points, challenges, strategies and market trends. Some are my clients, some are friends, and they all like to share valuable knowledge for the rest, such as the quantity of cherries that China imports from Chile, the shrimp that comes from Ecuador, the smells and fragrances that the Chinese consumer likes, or the way they choose the education for their child.
Secondly, this market changes at a speed that is difficult to keep up with. I highly recommend companies and investors to get very well informed, not only about their products and sectors, but specially in the current changes in policies, taxes, tariffs and regulations. Contact the countries’ institutions that provide excellent reports (the equivalent to Export Agencies, Investment promotion offices, or Chambers of Commerce), contact industry leaders, consultants, advisors and platforms for more information.
Finally, like it or not, this globalized village is getting more and more dependent and interconnected. China’s role in the global economy needs no clarification, and those who play the cards well will have more chances to succeed in the most important market in the world.