Top 10 Misconceptions about Doing Business in China
Think you know the basics of the business relationship between China and the U.S.? From safety recalls to the trade imbalance, issues surrounding the two countries' business dealings have been in the news a lot lately. Nonetheless, the Kiplinger Business Resource Center has an eye-opening article dispelling ten common misconceptions on the topic. It's directed at investors but worth a read for managers as well. Some of the more interesting points:
- U.S. foreign direct investment (FDI) to China has climbed over the past decade, but a little perspective is in order. The $15.5 billion the U.S. has sunk in China this decade equates to only 1.6% of the global total. U.S. FDI in Ireland and Germany was roughly triple the level of investment in China over the same period.
- The Chinese consumer is more important to U.S. firms than the Chinese laborer--Keep in mind that China is not a unified market of 1.2 billion people but a collection of markets with different dialects, varying levels of development, and disparate per capita incomes. These variables, along with many others (the brand-sensitivity of Chinese consumers coupled with intense foreign and local competition) dictate that American firms adapt to local tastes and operate on the ground. Customer proximity, in other words, is key in China.
- A stronger yuan, according to prevailing logic, would help to redress America's out-sized trade deficit with China--We question this logic but are even more concerned that Washington may be putting the cart before the horse... the United States may be prescribing a currency debacle to China. Before China adopts a freely floating currency, the mainland first needs a sound and strong financial sector, in addition to a more liberal capital account.