By: Alex Claypool - Lancaster Holdings International, LLC
Editor Note: The January 25, 2014 cover of The Economist Magazine was titled “China Loses its Allure – Why Life is Getting Harder for Foreign Companies.” We asked Alex Claypool of Lancaster Holdings International, LLC, an investment consulting firm in Shanghai that specializes in market entry, distribution management, new product sources, and business turnarounds, for his thoughts on the China market.
The Economy in General:
We source acquisitions for several foreign (non-Chinese) private equity firms here in China and speak to dozens of owners, presidents and general managers every week across several industries. The general response regarding the economy is that it is neither good nor bad, but slowing demand has put pressure on margins in some markets. We definitely see signs of softening in China, but there are some important things to note. There are almost no markets the same size as China, the US or Japan, except perhaps if you count Europe as one entity. I previously had the opportunity to run a business in Europe with operations in Denmark, Germany, France, Spain, the Netherlands and the UK. Any suggestion that the European governments are more pro-business, and the markets easier to maneuver from a regulatory, branding, consumer preference and language perspective would be an amusing debate indeed! At the end of the day, China is already the global number one market in several industrial and consumer categories and will likely remain so for several decades regardless of declining growth rates.
Competition and Management:
China is one of the most crowded, and therefore competitive, markets in the world. With competition comes a need for more sophisticated management. This should play into the strengths of US businesses, not be a reason not to enter China. Chinese companies and employees are in need of management talent and this is something foreign businesses can provide and use to their advantage with business partners in China.