Monday, September 17, 2012

Shortsighted US business strategy?



So, earlier this week, the US government took the battle to the Chinese by suing them in the WTO -- again. 

I am not sure how many people realize how China does business, so I will share a few insights that I have been reading up on and that I have discovered via discussions with friends who have gone through these hassles many times .


  • Did you know that when a company sets up shop to manufacture things in China, it invests substantially in the machinery etc. To get compliance certificate (which is must have to sell products in the west), the Chinese demand full details of the designs (includes hardware, software, specs, etc.  ) and insist that all testing be done in China. Of course, this enables them to get full access to all the manufacturing details (ever wonder how the Chinese started manufacturing high tech gadgets on their own??).
  • Then, if the company decides that it wants to get out of China, it is free to leave but can't take anything it set up there -- which is then considered the property of the Chinese Government.   
  • Also, once you hire workers, you can't fire them (replace them, but not remove them). Remember, it is a socialist, communist nation (I have seen the same thing happening in Indian states which had communist parties elected to power). 
  • The price is often manipulated. Take rare earth minerals for example. For years, the Chinese kept the prices dirt cheap – which caused many mines all over the world to shut down.  Then the Chinese went around buying these mines all over the world. Today, they control the world market and increase prices at will, and also dictate how much they will release to the world. Example -
    • The element needed for a catalyst plant for treating crude oil, went from $3/lbs  to $110/pound. So much so that, Shell sold one of its plants as that business was no longer viable.
    • Panasonic uses a rare earth element in its TVs, China is now telling Panasonic that it will not supply the material, unless Panasonic moves the manufacturing to China.  
It is little wonder that countries like India don’t trust the Chinese businesses. So help me understand - why would we in the US, still want to set up shop in China?

Further reading: