Ten Reasons Chinese Companies Fail In The U.S.

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A couple of years ago, I did a post on my blog listing my 10 reasons why Chinese companies were failing in the United States.

In response to that post, Nina Ying Sun at the Plastics News Blog did her own post entitled "Why Chinese Companies Fail the US Market," explaining, agreeing on and challenging the items on my list.

I then did a new post, entitled, "Why Chinese Companies Fail in the U.S., Part II," responding to Ms. Sun.  Someone just tweeted on this post and when I followed the link and read it again, I realized nothing has changed.

Chinese companies are still failing in the United States at what I see as an alarming rate--and the reasons I see for that have not changed a bit.


Here is my list, with Ms. Sun's comments and then my comments on Ms. Sun's comments:

1. Chinese companies focus on a Chinese consumer, not an American one.

Ms. Sun's comment: "Chinese companies would like to find out more about their target American consumers, but they mostly rely on personal-level approaches to collect business information, lacking a systematic and scientific market investigation conducted by professional Westerners that understand the market."

My comment: Very interesting and, I think, accurate observation. Chinese clients have driven me nuts by asking my views on things that I know nothing about, and then completely ignoring my advice when I try to hook them up with real experts. The following are typical conversations:

Chinese client: How much should we pay for that U.S. trademark?
Me: I have absolutely no idea. I just do not know such business well enough to be able to help you at all on this. But, we have worked with a company that does nothing but value IP and I would be happy to give you their name.
Chinese client: But what is your best estimate?
---

Chinese client: Should we start out selling our product just on the West Coast or should we start out nationally?

Me: Good question. Difficult question. It seems to me the answer to this will hinge greatly on the costs involved and on your ability to set up distribution networks. My firm does not handle questions like this (and even if we did, I do not think it would make sense for you to pay law firm rates for this information) but I would be happy to refer you to top notch business consultants who do.
Chinese client: Should we start out in Los Angeles, Chicago or New York?

2. Chinese companies fail to realize that one reputation-damaging mistake in the United States could doom them forever here.

Ms. Sun's comment: This one is dead-on. And how come they don't realize this common sense? Because they get by in China and assume it's the same in the States.

My comment. Exactly.

3. Chinese companies fail to realize it will take time for them to make an impact in the United States and they are unwilling to spend the time and money necessary to do so.

Ms. Sun's comment: Chinese people take such pride of the fact that industrialization, urbanization and modernization have happened in China in a much shorter period time than in the West that they believe, if you try hard enough, everything can be done fast and well. Why don't they invest enough money to lay the ground work for the new market? Well, they look at the exchange rate. The same exchange rate that makes the Chinese production cost in yuan seem so low magnifies the marketing cost in dollars in the States.

My comment: Okay. But see number two above. Haste oftentimes makes waste.

4. Chinese companies focus too much on the end result (making money), and by doing so, they sacrifice the professionalism that would allow them to achieve long- term success.
Ms. Sun's comment: The Chinese would ideally like long -term success. But the drastic social, economic and political upheavals and changes in the past century have paralyzed Chinese people's long-term thinking. Fill the pocket as full as possible before the next change hits, be it credit policy, industry standards or consumer interest.
My comment: Absolutely true. Why think long term if there may be no long term? This explains the reason for the problem, but it still needs to be resolved.



5. Chinese companies tell users what they want instead of listening to users.

Ms. Sun's comment: This obnoxious mentality is a hangover of the old Soviet-Union-style "planned economy" (1949-1978). That period of time featured insufficient supply of necessities and one-sided propaganda.

Although it's hard to question about China running a market, capitalistic economy today, the country skipped some vital steps in the development of the Western countries.

My comment: Same as for number four above.

6. Chinese companies focus too much on making money in the short term, rather than on building the quality necessary to sustain themselves in the long term.

Ms. Sun's comment: What pops up in my mind includes: vicious and endless price wars, a business environment that has deprived consumers their say, and lack of technology and craftsmanship.

My comment. I agree, but what pops into my mind is that companies must be broad-minded enough to recognize that what makes sense in one country may not make sense in another. Indeed, one might even say this of China's regions and there are certainly plenty of Chinese companies that have managed to succeed in China as a whole by localizing their product or their marketing by region.

7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.

Ms. Sun's comment: Traditionally, domestic consumers simply can't afford beauty and design. Price is the only distinguishing point. Plus, the companies don't want to invest much on design, because it's bound to be copied by competitors right away, thanks to the absence of intellectual property protection in China.

My comment: All true, but see my answers to Number four and number seven above.

8. Chinese companies rely too much on phone calls and face-to-face meetings instead of e-mail.

Ms. Sun's Comment: This is probably part of the Asian culture, underscoring personal communication instead of machine-generated and less interactive e-mail. I don't think it's necessarily a disadvantage though. Japanese companies have done well in the U.S. market, despite their preference for in-person meetings and phone calls rather than e-mail.

My comment. When in Rome..... But, I agree this may not be a disadvantage, so long as the Chinese company has the time and the people for it.

9. Chinese companies fail to use "simple and elegant designs."

Ms. Sun's comment: Unfortunately, they are trapped in between complicated traditional styles and a blank page of modern Chinese inspiration. Again, they can't justify investment on design, because it will be copied by competitors overnight.

My comment: See my comment to number seven above.

10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.
Ms. Sun's Comment: Call them cheap or arrogant. They don't trust MBAs or Western veterans unless foreseeable return is guaranteed. They also want everything under their control, not threats and risk brought by language barrier and different business values.

My comment: I don't know what to call this but I know it is not wise.

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Wisdom compromised

The Sages: Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets.

Author: Charles R. Morris
Publisher: Public Affairs
Ah, if only we could capture the intellect of financial geniuses in a book.

Only then will we be able to finesse our craft of investing, boost our confidence, harness positive energy and make killings in the stampeding environment of stock markets.

Best yet, if the approaches of these geniuses are poles apart.

We can then garner the best of each and excel midway, making us fearless yet grounded by reality and logic.

With that need in mind, Charles R. Morris puts together in his new book three sages, distilling distinctive investment styles of the two, and reminiscing the essence of one fine public servant.

But does profiling the lives of sages offer useful lessons for all of us?

Not really, if the sages are Warren Buffett, George Soros and Paul Volcker.

Much less so if the profiles make up of a series of quick recounts and lack in-depth analysis of the financial wisdom of these successful individuals.

Furthermore, while the life of the enigmatic Buffett is never tiring to read, his investment philosophies are more comprehensibly documented in Alice Schroeder’s Snowball.

Soros, meanwhile, has authored a number of books in which he offers more detailed descriptions of his trading methods and strategies.

The most well-known one being Soros’ magnum opus, The Alchemy of Finance, from which Morris, too, has quoted.

Morris, in a ham-fisted attempt to document the extraordinary life and career of Soros in slightly over 50 pages, has made Soros seem less of a sage than he deservingly is.

Although Morris regards Soros as a keen global trend reader with “feline sensitivity to quivers of disharmony in the economic flux”, his account of Soros’ trading history in quick succession and brief summation makes Soros looks more like a barbaric trader short of conviction and confidence.

On a few occasions, Morris makes it seem like Soros’ success comes more from luck than flair.
“My father changes his position on the market because his back starts killing him. It has nothing to do with reason,” Robert Soros is quoted as saying about his father’s investing intuition.

Morris’ inclusion of Robert’s comment offers little humour but reinforces Soros’ veering conviction.
In addition, Morris’ narrative of economic scenarios prevailing at the time is too swift and brief, confusing reader sthe least but disabling them from doing their own analysis the most.

“Without great conviction, (Soros) expects credit contraction. The stock market and house markets are both weakening, banks are in serious trouble and currencies are pushing against their upper bounds. On the positive side, the budget deficit is falling along with interest rates, and banks are slowly improving their balance sheets. What to do?”

Anyone will get lost in this economic scenario. Yet there are more.
Indeed, Morris’ impatience with economic theories is most obvious in the chapter on Paul Volcker, the man whom Alan Greenspan succeeded as former chairman of Federal Reserve.

Hoping to cover Volcker’s two-decade long career as an expert in monetary policies, Morris sails through the various economic conditions from which Volcker honed his lore, but remains short on specific attributes that make Volcker a man of implacable integrity.

The reader lapses into a trance of economic frenzy, hearing not the voice of a great man calming wave after wave of financial disruption, but the sound of screeching financial jargons that deafens anyone unfamiliar with the interlocking world of US economy and politics.

But the book does shine with its more personal portrait of Warren Buffett.
Morris focuses less on the technicality of financial markets but more on the young and endearing Buffett, when he achieved his first billion and his journey to become the beacon of sound judgement in the world of investment.

At over 900 pages, Alice Schroeder’s Snowball seems to have covered nearly everything that people want to know about Buffett.

But Morris is sensible enough to know his disadvantage and smart enough to have included a summary of Buffett’s witty anecdotes on Wall Street’s follies.

On the issue of accounting misrepresentation, Buffett quips and compares it with Abraham Lincoln’s riddle: “How many legs does a dog have if you call his tail a leg? The answer: Four, because calling a tail a leg does not make it a leg.’”

His failure and inability to walk the reader through economic wilderness notwithstanding, Morris has done a fair job in drawing these biographical sketches.

But sages have feelings, too.
A deeper look into their inner worlds may be more rewarding than the brief recounts that Morris has provided.

China Three Gorges flood Test, Yangtze River Flow Surpasses 1998

China Three Gorges dam faces major flood test

The Three Gorges Dam discharges water to lower the level in the reservoir in Yichang, Hubei province August 5, 2009.

Credit: Reuters/China Daily

BEIJING | Mon Jul 19, 2010 5:17am BST

 

Officials said the controversial Three Gorges Dam helped mitigate flooding this year [Reuters]
 
BEIJING (Reuters) - China's massive Three Gorges dam is facing a major test of the flood control function that was one of the key justifications for its construction, as torrential rains swell the rivers that feed it, state media said Monday.

Much of China has been suffering flooding and landslides after weeks of torrential downpours. At least 146 people have died since the start of this month, as a result of the rains, and another 40 are missing.

The peak flow of water hitting the giant reservoir on the Yangtze River, China's longest, will be higher than in 1998 when devastating floods killed over 4,000 people and forced some 18 million to relocate, the official China Daily said.

Engineers have raised the rate at which water is being sluiced out of the reservoir, to make room for new waves of floodwaters expected this week.

"The levels of this flooding will be higher than the historic floods of 1954 and 1998," Wei Shanzhong, Head of the Flood Control and Drought Administration office for the Yangtze River, told state Television.

"The rain in the gorges area will have an immediate affect on the water flow, to around 70,000 cubic meters (per second)."

Overall however, the flood this year is expected to be shorter than the 1998 disaster.
When the flood-tide hits, locks that allow shipping on the reservoir up to the city of Chongqing, a southwestern hub, will be closed if the water comes faster than 45,000 cubic meters per second, the China Daily report added.

The dam was given the go-ahead by the government in 1992, against unusually visible domestic opposition -- with environmentalists warning the reservoir could turn into a cesspool of raw sewage and industrial chemicals trapped behind the dam, and feared silt could also cause problems.

The government justified its decision to push ahead by citing massive clean power generation and flood control were cited as the reasons it was pushed through. If it fails in the latter task it will add to concerns about the dam's overall cost and impact.

However even if the dam succeeds in its role of holding back deadly floodwaters there may still be problems downstream where continuous rains have also weakened dikes. Further north at least 20 people are missing after a landslide last night in a mountainous corner of Shaanxi province, around 400 km (250 miles) from the provincial capital of Xian.

Altogether over 38 million people have been affected and over 1.3 million have had to be evacuated, because of the weather, the Ministry of Civil Affairs was quoted as saying by the China Daily.
July 20 (Bloomberg) -- China’s Three Gorges Dam, the largest in the world, help alleviate flooding in central China by containing the heaviest rush of water in more than 12 years.

Water flow down Asia’s longest river was contained and released at a “safe level,” Huang Hua, assistant director of public affairs at China Three Gorges Corp., the operator, said by phone today. Operations at the Hubei province dam, including power generation, are “all normal”, he said.

Rainfall since July 1 has affected about 38 million people and forced the relocation of 1.3 million in 11 provinces, the Ministry of Civil Affairs said July 16. Rice output in China, which accounts for 35 percent of global production, may drop by 10 percent on torrential rains and outbreak of pests, industry website cngrain.com said today.

“Three Gorges can comfortably handle the flood water,” Chairman Cao Guangjing said in a statement on its website today. “For the control of flooding downstream, Three Gorges is working very effectively.”

The speed of the water rushing down the river peaked at 70,000 cubic meters a second, though the volume probably won’t be as big as 1998, with the peak level lasting a shorter time, Cao said in the statement. The flow is expected to drop to 60,000 cubic meters a second by 8 a.m. tomorrow, it said.

The 1998 flood, when the water flow reached 50,000 cubic meters a second, killed about 4,000 people and forced the evacuation of 18.4 million, causing economic losses of at least 166.6 billion yuan ($25 billion). That flood, which had affected central and northeast China, lasted for months.

Record Level

The Three Gorges Dam, which started operations in 2003, can handle water flow at 98,800 cubic meters a second, the official Xinhua News Agency said, citing Cao. The record high was 70,800 cubic meters per second in 1981, the news agency said, citing an unidentified spokesman at the dam operator.

Flood and landslides triggered by torrential rains have left at least 41 people dead and 84 missing in Shaanxi and Sichuan provinces, the official Xinhua News Agency said, citing flood control authorities. Economic losses in the 11 provinces totaled 29.52 billion yuan, the civil affairs ministry said.

“Heavy rains in July pounded on Hubei’s grain, cotton, vegetable, aquaculture and livestock producing areas before shifting westward and northward,” said cngrain.com, which is owned by China Grain Reserves Corp. “The rains also induced pests outbreaks this week.”

Ravages Crops

In some of the main producing areas, the output decline may be as much as 20 percent, cngrain said. Persistent and wide- ranging rains ravaged early rice crops in Jiangxi and Anhui provinces, with about 23 percent of the area in Jiangxi affected, it said. The early rice crop was in flowering stage when the rains hit, it added.

Regions in Liaoning, Jilin, Heilongjiang, Inner Mongolia, Shandong, Anhui, Hubei, Hunan, Chongqing, Guizhou, Yunnan and Guangdong will have heavy rain in the next 24 hours, the China Meteorological Administration said in a statement.

Typhoon Chanthu may land in Guangdong or Hainan province on July 22, the weather bureau said at 11:18 a.m. local time.

Highways, Old Towns

More than 80 percent of the old township in Guangan city in Sichuan province were submerged after the biggest flood since 1847 hit the city, China Broadcasting Union reported today. More than two kilometers of the No. 318 national highway in county Qu, located in the eastern part of Sichuan Basin, was flooded yesterday at 6 p.m. The water blocked cars from the area and left the county an “isolated island,” according to the Chengdu Business Day.

The Chongqing Maritime Bureau has suspended shipping in the areas of Baishatuo Bridge, Chongqing Port, Tongluoxia, and Huangcaoxia since yesterday, Xinhua said. Chaotianmen port, the largest in Chongqing and the site where the Yangtze River and Jialing River merges, was partly inundated by the peak flow yesterday afternoon, People.com.cn reported.

Part of the Sichuan-Tibet highway may only be open again on July 28, after rain led to spillage of mud and rock, Xinhua said, citing the Communications Bureau of Tibet.

Flooding in southern China this year poses a challenge for agricultural production, Chen Mengshan, the Ministry of Agriculture’s spokesman and chief economist, said July 16.

China Three Gorges, the parent of Shanghai-listed China Yangtze Power Co., is building dams on the Yangtze River to control floods and help end electricity shortages in the world’s fastest-growing major economy. The nation is the world’s largest consumer of energy, according to the International Energy Agency.

--Winnie Zhu and Feiwen Rong, with assistance from Penny Peng and Miao Han. Editors: Tan Hwee Ann, John Liu.
To contact the editors responsible for this story: Bruce Grant at bruceg@bloomberg.net; Andrew Hobbs in Sydney at ahobbs@bloomberg.net.

China braces for more floods

Officials said the controversial Three Gorges Dam helped mitigate flooding this year [Reuters] China is bracing for its second powerful storm in less than a week, as the death toll from floods and landslides across the country climbed to nearly 300 this month. Tropical storm Chanthu is expected to make landfall in Guangdong and Hainan provinces on Thursday, and it may pick up force while over the South China Sea. The government has advised people to stay indoors, the official Xinhua news agency said. Last week, typhoon Conson skirted the resort island of Hainan, killing two people, before heading into Vietnam. Spreading north Much of southern and central China has been suffering flooding and landslides after weeks of torrential downpours and the deluge is spreading north, with Liaoyuan city in northeastern Jilin under waters 1m deep on Wednesday, state television reported. Weeks of torrential rains have left three-quarters of provinces under water [Reuters] Northeastern Liaoning province was experiencing its heaviest rainfall since 1994, state news agency Xinhua said. Flooding is common in southern China during the annual rainy season, but this year has been the worst in decades in some areas. At least 273 people have died as a result of the rains this month, bringing to 701 the number killed so far this year. Another 347 are missing, the government said on Wednesday. This year's death toll is the worst since 1998, when the highest water levels in five decades claimed 4,150 lives. Already, three-quarters of China's provinces have been plagued by flooding and 25 rivers have seen record-high water levels, officials said. Flooding, particularly along the Yangtze river basin, has overwhelmed reservoirs, swamped towns and cities, destroyed farms, and caused landslides that have smothered communities, including toppling 645,000 houses. The government estimates that the rains have caused direct economic damage of $21bn. Typhoon season With the typhoon season only just starting - six to eight typhoons are expected this year – and another bout of heavy rain forecast in the Yangtze region for Thursday, there are fears of another mass disaster on the scale of 1998. But Liu Ning, general secretary of the government's flood prevention agency, said that should not happen. He said the country was far better prepared than in 1998 and the overall water volume was not as high this time, although some rivers had risen above the peak of that year. Rescue teams have been struggling to help those affected by the floods [AFP] Since 1998, dykes have been improved and the massive Three Gorges dam completed. Only a few dykes have failed this year, unlike in 1998 when thousands did, Liu told a news conference. But he warned that since 60 to 80 per cent of the annual rainfall occurs between June and August, the authorities should ramp up preparations and "be prepared to prevent and combat potential disasters". The Three Gorges dam was given the go-ahead by the government in 1992, against unusually visible and vocal domestic opposition – with environmentalists warning the reservoir could turn into a cesspool of raw sewage and industrial chemicals trapped behind the dam. The $50bn project has already displaced millions as their homes were covered by the damming of the river. Millions more are expected to have to move within the next decade. The government justified its decision to push ahead by citing massive clean power generation and flood control. The Three Gorges Dam faced its highest levels ever this week and water breached the 2km long and 200m high dam. But Liu said although water levels in the upper stretches of the Yangtze had surpassed 1998 marks, "the flood situation is still not as severe because the Three Gorges Dam has played a key role in preventing floods along the river this year"

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