Through the years of traveling on business overseas, I've developed a taste for European editions of CNN – I am always curious to see what Brits, Germans, and French consider important to talk about. The outsiders' perspective on the news is very illuminating. They spin everything in a different (frequently unflattering to the US) light. Plus, most of the time you hear things you would never learn reading the New York Times or watching NBC.
Presently, I have a client with a majority ownership held by Chinese Americans. And it was in their offices that I first saw China Daily - the largest Chinese English-language newspaper. Aha, a chance to be exposed to yet another point of view and some possibly exotic news! How could I resist? I skimmed through one issue. And guess what? Right away it offered a fascinating article full of very refreshing news.
It turns out that European investors and businesses are quickly adapting themselves to the reality of new China. The times of outsourcing manufacturing to Chinese factories in order to benefit from cheap labor and maximize profits are over. First of all, the labor is not that cheap anymore – both the cost of living and the wages have been rising steadily. More importantly, China has been experiencing a rapid growth of the middle-class. This turned the country into a huge market with high demands for various products.
The first ones to recognize this shift were the Chinese manufacturers themselves, who started applying their experience (the decades of producing for Europe and the US didn't go to waste) to making the products needed in their domestic markets. Thus, the labor has become not only more expensive, but also scarce. Yet, according to the quotes provided by German and French bankers, these local producers can only cover a relatively moderate portion of the demand – there is still plenty of room for foreign companies to move in.
The article also highlights another opportunity, which comes from a change in China's collective mentality with respect to the environmental issues. Of course, they have no chance to reverse the terrible damage they've already done to the entire world, but there is definitely a possibility for some people to make a quick buck. Apparently, China is desperately trying to bring in green technologies. European companies have already entered the growing sectors of environmentally friendly insulation, heating solutions, and solar energy.
Moreover, the Chinese government started enforcing pollution standards in various industries. They go as far as closing plants that do not comply. This definitely opens manufacturing gaps, which competitive foreign companies will do their best to close.
The article points out that one of the biggest obstacles of the successful integration with local partners is the absence of the well-developed telecommunications, which makes the establishing of the necessary digital networks quite difficult. The international banks, eager to provide their clients ("CFOs in Hamburg," the article calls them) with online banking capabilities, suffer from this drawback the most.
Funny: the Chinese can knock off a Mercedes that will pass a German inspection with flying colors, but the Internet connectivity (which, let's face it, has become a basic necessity for us – like water, food, and air) is a hurdle. It's all by design, of course. Keeping people from being connected to the world is important for the communist government: politics will always take the precedence over the national wealth. But I'm guessing, as Germans and French move in with their technologies, services, standards, and products, the exposure to the World at large will be inevitable.
Paul Allen, senior vice-president and head of the European corporate banking at HSBC China, noted, "There is no doubt that international brands have an increasing appeal in China." How fascinating: the wealthier members of the middle-class don't want to buy products labeled "Made in China!" They want Italian, German, French, Dutch goods in their households and on themselves. I'm with them on that one.
So, Europeans are getting on this making-money-on-China wagon faster than we can say, "Trade deficit reduction." What about us? There were no American quotes in the article – not from bankers, or businessmen, or private equity investors. Is it going to be the same trend we experience in fashion – with us always two seasons behind?
Of course, it's not like we can compete with Italians and French in consumer brands (ours are all made in China, remember?). But what about technologies, energy solutions, industrial goods? Are we going to seat this one out as well? Is Hollywood will be the only sector viciously going after the Chinese market (see my distressed quote from a month ago enclosed)?
I fucking hope not. This client of mine, whose core business has always been importing chemicals from Taiwan and Korea for domestic distribution, is currently working very hard on developing a program for exporting US prime-grade environmentally-friendly PVC for Chinese market. It's possible that other companies with Chinese connections are doing the same.
The question is why our business publications are not screaming about these opportunities? Even more to the point: Why the hell our government is not working on some major incentive programs for small businesses to enter this market and grow stronger, while benefiting the national economy in the process? What? Too busy bailing out the banks and supporting the stock market?
Related articles
The Frustrated CFO 