Industryweek 2279 Iw0511malone

Manufacturing in China: Look Before You Leap

May 12, 2011
If you're planning to do business in China, consider the Four P's first.

The siren song of China's booming economy is virtually irresistible to many U.S. manufacturers. Before taking the plunge, though, you'd be wise to do your homework, asserts business lawyer Dan Malone.

"I once heard somebody advise companies to just get to China as soon as possible, and in effect leap before you look," says Malone, who is director of Asian client incentives for the law firm Dykema Gossett PLLC. "I could not disagree more with that comment. China is a very complex place to do work and to make money."

Malone doesn't claim to be an expert on China. But Malone, whose Detroit-based practice focuses on automotive and product-liability litigation, has heightened his cultural IQ through more than 50 visits to Asia over the past 15 years.

Dan Malone:
U.S. manufacturers can solidify their chances of success in China by taking the time "to understand where China has come from, where it is currently and where it seems to be heading."
He offers Four P's that can help provide the backdrop for doing business in China: perspective, problems, priorities and predictions.

Perspective -- China, Malone points out, is not just a different market: "It's an entirely different culture with a different business way of operating."

"In China and elsewhere, patience is a virtue," Malone says. "You really need to develop relationships and proceed at their pace, which is a very difficult lesson for Westerners to learn. Some never learn that lesson. It's like, I bought you dinner, why am I not getting all of your business?' That's not how it works."

From a 20,000-foot view, you also need to be cognizant of the state of the U.S.-Sino political relationship -- which "at the moment is pretty hard-wired for crisis."

"And while both countries very much desire stability and are trying to figure things out, it's a relationship that is an evolutionary process and, as a result, is very issue-sensitive at the moment," Malone says.

The trade deficit, currency valuation and human rights are among the "flash points" that can upset that tenuous stability, he adds.

Problems -- While China has experienced "stupendous economic growth" over the past decade, Malone emphasizes that it still is a developing country grappling with a number of domestic challenges that could spiral into crises.

Malone notes that China now has more than 120 cities with populations of more than 1 million people, "and most of them are experiencing very serious pollution issues already." With an estimated 200 million vehicles on Chinese roads today -- a number projected to grow to 500 million by 2050 -- air quality will continue to be on the radar of the Chinese government.

Another serious concern is the widening disparity between rich and poor.

"There's certainly a sub-class of Chinese who have done fabulously well under the economic renaissance that has occurred since the late 1970s," Malone says. However, China has "an unbelievable number of people who are still trying to move out of poverty."

Priorities -- China's five-year plans "are good roadmaps" for U.S. companies to assess whether or not their business strategies fit within China's priorities, Malone says.

Approved in March, China's most recent five-year plan reiterates its goals to groom global champions -- "they are determined to build a world-class Chinese auto industry," Malone says -- while attempting to address some of the aforementioned issues such as air quality.

One of the goals of the new plan is to cut China's carbon dioxide emissions per unit of GDP by 17% over the next five years. The plan, Malone notes, also places a high priority on promoting "happiness" among its citizens.

"The plan really strives for what I would call fairer and greener growth," Malone says.

Predictions -- From the standpoint of a U.S. vehicle manufacturer or supplier, it's not hard to read the tea leaves: Electric vehicles are coming to China.

The Chinese government, Malone says, is very much aware that a "more-of-the-same approach to internal-combustion engines will very likely result in crushing public-health and energy problems with severe air pollution and major oil dependency." It believes EVs might be the answer.

Consequently, Malone predicts that China soon will boast the world's largest electric-vehicle market "by far," opening a window of opportunity for U.S. manufacturers and suppliers of electric vehicles and EV infrastructure.

In general, it's also safe to predict that China's economy will continue to tantalize U.S. manufacturers for years to come, and that doing business in China will continue to be a challenging -- but potentially enriching -- endeavor.

Manufacturers can solidify their chances of success by taking the time "to understand where China has come from, where it is currently and where it seems to be heading."

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