I was very fortunate to spend the last week in China. I was with a group representing the leadership of top 75 accounting firms here in the US. We spent four days meeting with government officials and Chinese CPA firms of varying sizes to discuss and learn about the opportunities and challenges that are presented in China.
China is a country with 1.5 billion people, where even their smallest cities in the center of the country are larger than New York. In addition, their cities have grown rapidly as they move away from a communist farming economy. We were shown pictures of rural cities with dirt roads from 1980 that are now vibrant centers with six-lane highways. What they have accomplished from an infrastructure perspective in a short period of time is phenomenal. However, you don’t need to spend much time in the smog or sitting in Beijing traffic (which makes the Lincoln tunnel look like a speedway) to realize that they have a long way to go in providing for a comfortable living for their citizenry.
The business opportunity for the middle market is not necessarily using them as a low cost manufacturer. There are clearly cheaper venues and as their economy matures, costs will continue to rise. The business opportunity lies in taking advantage of their growing prosperity by selling into China, with a product, process, or technology that they can consume. As it was pointed out to us very clearly, you don’t need much market penetration on 1.5 billion people to turn a reasonable profit.
Now, there are challenges for sure. We had difficulty communicating. Even though we were using interpreters, many times our questions were lost in translation and we got answers that were out of sync. Additionally, the labor market is unskilled and their culture does not encourage transparency, and intellectual property laws don’t exist. However, the people themselves are cooperative and willing to learn and do what is necessary to be successful. With the right local partner and structure, middle market companies can be successful there.
I would encourage companies to take a look and give the opportunity a fair evaluation, so it doesn’t become a missed opportunity 10 years from now.
