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September 13, 2005

Irrational Exuberance in a Chinese Perspective, or, Should You Be Doing Business In China?

Until this past decade, post-Liberation China was entirely unattractive to the American businessman. The promise of China as a spigot of liquid gold had beckoned for 150 years, enriching New England ship-owners in the 19th century China trade and maverick expatriate entrepreneurs in 20th century Shanghai, but tantalizing far more.

Invasion, civil war and 40 years of self-engineered insularity put the proverbial nail in the coffin. The cataclysm that shook one of the most ancient and populous societies effectively convinced Americans that the crystal curio of China had been, if not moth-balled, then shattered for all time.

China became the destination of a handful of wide-eyed westerners in search of an exotic experience. They were, to put it politely, a motley mixture of celebrities and frauds, Sinophiles and language students, tour groups and assorted runaways from the western world. In the late 1970s, Malcolm Forbes rode the “point-bike” in a supremely ridiculous convoy of Harley-Davidson motorcycles through the improverished countryside, imperiously barking demands at stunned local officials. Rarely did an intrepid trekker thrill the world with more memorable creations, but the writer Paul Theroux did, "Riding the Iron Rooster” in the 1980s.

But the times have greatly changed. Or have they? Let me suggest to you that, at least for some American businessmen, they have. A number of Americans have established growing businesses in China that create wealth and opportunity. Having spent a good deal of time in China, they speak mandarin and possess a profound understanding of the “mechanics” of life there.

I am more concerned for the others for whom the dream of an endless trough at which to sup remains the standard by which they uncritically throw in with the overarching sentiment of American business today: “we must be in China by all means.” Even companies that have no business going to China feel they must. They rush into the China market on a wing and a prayer. But, while many large corporations are now making a profit in China, according a recent survey by the American Chamber of Commerce in Shanghai, many American run companies are still out on the wing.

If you are thinking that China is your next frontier, I would like you to first consider these apparently simple, but deceptively complex questions.

1. We’re going to China. Why? What do we think we’ll accomplish there?
2. What is our basis for the answer to question #1?
3. Why do we think we are so sure of our answer to #2?
4. Review your answers to questions 1-3. What have you learned? Do you still wish to proceed?

I will deal with each of these questions in our next post.

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