When and Why Most SMBs Will Do Business in China

A McKinsey Quarterly article suggests that small and midsize manufacturing companies in Europe and North America are passing up opportunities in China:

"For many small and midsize enterprises in Europe and North America, the prospect of doing business in China can be daunting. In fact, as a result of their reluctance, such companies seem increasingly vulnerable on several fronts: they are not only forfeiting opportunities to sell goods and services in China and to source low-cost products in its factories and workshops but also face new Chinese competition at home.

But rather than wait passively for the day when these competitors show up on their doorstep, they can pursue strategies that could help them overcome the barriers to entering China's domestic and export markets. To be sure, those barriers are considerable. Many small and midsize companies are hardly eager to deploy scarce management resources to identify qualified Chinese vendors or to research and understand the tastes of the country's consumers. Nor do they have the time and resources to recruit staff and manage operations there."

So what is the right way for SMBs to go about capturing the China opportunity? The article notes that some businesses attempt partnerships with local Chinese companies, but these rarely work out. Rather, the author suggests that small businesses band together and/or pool resources, possibly through trade associations, to take advantage of opportunities to reach China as a market and/or to source manufacturing there.

I found this an interesting article, but the part about pursuing market opportunities (i.e., finding customers) in China strikes me as unrealistic. Precious few small businesses would be in a position to chase customers in China, even by pooling resources. Most small businesses have a tough enough time increasing their footprint in their own local markets. To attempt to go after markets half way around the world, with deep cultural and language differences, is a challenge most small businesses simply cannot overcome.

Sourcing of manufacturing, however, is a different matter. Small manufacturing companies in the West today are faced with compelling circumstances that make it imperative they have competitive cost structures. These days, competitive cost structures are hard to achieve with high-paid Western labor. Outsourcing of manufacturing in China can make sense.


Tags: Business; small business; globalization; outsourcing