It seems that one of the trendy business headlines these days is about the opportunity American companies have now to sell their products in China. The opportunity exists because there is a growing middle class in China who are distrustful of Chinese made products. Both Forbes and the NY Times have run stories recently that extolled the opportunities in China for American businesses. And I sometimes get inquires from people who ask me about selling their products in China.
I remember 20 years ago when China was just a decade or so into its Reform and Opening policy. At that time it was also said that American companies had tremendous opportunity in China and many companies went to China with great expectations. One of these companies was a US regional fast food chain that opened a store in Shanghai in the early 1990s. They had a great location in one of Shanghai’s main commercial areas. The owners whom I met were very nice and they were full of optimism about their China venture. After all KFC was one of the most popular restaurants in Shanghai at that time. Over the course of the next few months every time I walked by the store, it was empty, like an old Sears Roebuck that had seen its day. Cashiers stood by their registers their faces blank with boredom, stains covered the tiled floor, a letter had fallen off one of the signs. And then one day nothing was left. All the equipement and tables had been removed. The only thing that remained was the broken sign. That store had become one of the many failed attempts to tap into the Chinese market at the time.
And this same scenario has played out in China many times over the years. The fact is that it is just not easy for small overseas companies to sell products in China. Most Chinese consumers want name brands or local brands and have no interest in paying 25 % more for a brand they have never heard of. So it is not surprising that currently only 6 % of China’s imports come from the US, and these are mostly electrical, industrial goods, vehicles etc., hard goods Chinese businesses need to build up China’s infrastructure.
Finally, the NY Times small business guide to selling in China advises small companies who want to sell their product in China to set up in China as a WOFE ( Wholly Foreign Owned Enterprise). In this way one can avoid ineffective distributors and Chinese partners. However the total cost to set up a WOFE is about 50K and can easily run 100 K. I don’t know of many small to medium sized businesses that are willing to make that kind of investment in a country where doing any kind of business is risky. I would not do it.