SMBs in China are part of a thriving economy. But they also face special challenges that might surprise U.S. business people.
As regular readers of bMighty.com -- and my followers on Twitter and Facebook -- may already know, I've just returned from a couple weeks touring China. (Big thanks to Gayle Kesten and Jake Widman for running the site in my absence.)
While the main purpose of the trip was not business, I couldn't help but pay attention to how small and midsize businesses operate on the other side of the world. Fortunately, I wasn't on some everyday tour, but a custom-designed trip led by a Chinese expert, which included discussions with many Chinese locals and businesspeople.
The most striking thing I noticed is the extreme range of businesses in the country. On the high-end, many businesses in China are government owned and run, and are as large and bureaucratic as any in the world. China Mobile, for example (which powered my Blackberry during most of the trip) is the largest cell-phone provider in the world.
On the low-end, though, China is also bursting with tiny micro-businesses, sometimes run out of jury-rigged stalls lining crowded streets -- often right next to fancy neon-lit chain stores or even in the middle of busy airports. This kind of contrast is everywhere in China.
Small businesses crowding the Kunming airport.
Structured Competition
These dichotomies may help explain the country's incredible drive and business energy. While all the Chinese people I talked to said that life is now much easier than it used to be, earlier deprivations are still fresh in their minds and they still work very, very hard to get ahead. The country is incredibly competitive, with 1.6 billion people striving for a still-limited number of opportunities.
That competition takes very structured forms, however. Placements in elite schools and good jobs go primarily to those who ace rigorous examinations, putting a strong premium on mastering an established canon of skills and knowledge.
In the business world, this competition seems to be expressed almost entirely in pricing. Many retailers appeared to be selling the exact same range of products, for example, in almost exactly the same way -- each one claiming to have a better price than the others. And we all know how low-priced Chinese-manufactured goods have become ubiquitous around the world.
Only rarely did I see businesses innovating to gain competitive advantage -- such as the glass-floored cablecars for tourists on the Ngong Ping 360. Perhaps this is due to Chinese culture's reverence for the past masters rather than driving to create new masters. Or maybe it's just that there's plenty of room for everyone right now.
So far, at least, this certainly hasn't been holding the country back. While most of the world remains mired in recession, China is already growing again. Shanghai, in particular, remains a maelstrom of new construction in preparation for Expo 2010, with new skyscrapers rising above and new subways lines tunneling below.
In Money We Trust
The bigger issue, it seems to me, is trust. Relentless competition centered on price has an unfortunate tendency to crowd out all other values, including quality, service, and most important, trust. Traditional Chinese business practices were built on around establishing long-term relationships with business partners that could foster trust among all parties.
But China's current go-go growth poses a challenge to that ethic, and has led to many widely publicized business scandals, from melamine in pet food and baby formula to lead in childrens' toys.
And that's only most visible result. Other issues include hightened status given to brand names as a proxy measurement of quality and trust. Everywhere you go in China, you see high-end luxury brands plastered on every available surface. Every shopping shopping street boasts row after row of logos for Rolex, Prada, Swarovski, and the like. These well-known brands and products are deemed to be markers of entry into the middle class. According to The Beijing Review:
"Conspicuous consumption serves more or less a permit to enter one or more wealth-measured exclusive clubs for China's nouveau riche."
At the same time, China is also home to widespread counterfeiting of everything from DVDs and iPods to those very same luxury goods. I can't count the number of times I was offered fake Rolexes, at prices ranging from a few dollars to $100 or more. At a glance, I couldn't tell the cheap fakes from the expensive fakes -- maybe they were identical, and just priced differently -- much less from the real thing.
A fake iPod
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