At least once a week, I will sarcastically say, "I'm from the government and I'm are here to help you." I love blaming the government for just about everything. But even I have my limits.
In its post, "The iPhone debate: what can Apple do?" China Herald has a nascent debate going on regarding Apple's China foray. On one side, Shaun Rein, who believes Apple's less than stellar start in China is its own fault and believes it needs to do the following to succeed in China:
1. Listen to local consumers
2. Pick China Mobile as a partner rather than China Unicom
3. Treat China as a part of the global market, not as a separate one
On the other side sits PTaylor, who blames the Chinese government for Apple's alleged woes.
To which Rein has this to say:
I always like it when people say it is all the government's fault and there is nothing companies can do to get around it. That is sometimes true but smart companies will evolve business plans for local conditions to factor in local regulations and market conditions. Apple did not do that well enough.When people say that, they just don't know enough about how to get things done in China or, as is often the case, local execs do know what to do but they can't get buy-i from the home office.
For instance, eBay failed in China more because of meddling from the home office than from folks in China -- they were actually quite good but just ignored.
So, Ptaylor, my advice -- learn how to deal with obstacles rather than just
complain about them.
Who's right?
Well, of course, they both are to an extent, but I overwhelmingly side with Shaun on this one, despite being an Apple shareholder and massive fan of the company.
But let me start out by stating as clearly as possible that I do NOT think Apple is failing in China. I do not know exactly how well or how poorly it is actually doing there, but the reason I am certain it is not failing there is because it has not been there nearly long enough for anyone to say it has failed, or even that it is failing. Apple is a big company and I am quite certain that it plans on being in China for the long haul and until the long haul is over, one cannot ascribe failure to it. Apple is still in the "getting its feet" wet stage in China and it is not fair to pass anything close to final judgment on it until it has gotten well past this stage. I again urge everyone to read the book, Chocolate Fortunes, to better understand how it can take a long time and a lot of money for a big company to establish a consumer foothold in China. Let's just say Apple's conduct in China has not caused me to even think about selling even one share of my stock.
But I side with Shaun nonetheless because it is not right to blame the government for Apple's alleged shortcomings in China because the responsibility rests with Apple to know of government issues before entering into the China marketing and to have a plan for dealing with them. If Apple did not know of the governmental issues it would face and did not have a plan in place for dealing with them, and if those issues are going to prevent Apple from succeeding in China, long term, then Apple should not have gone into China. My guess is that Apple did know of most of the major hurdles the government would be throwing up against it, does have a plan for dealing with them, and does (and almost certainly will) know how to succeed in China despite them.
Again, my response here is based largely on my own experience with assisting other foreign companies in going into China. In the typical situation, the smart company knows and plans for most (though certainly not all) government obstacles to its doing business in China. The smart company also knows whether those government obstacles are likely to fall disproportionately on them or whether they are going to be spread around fairly evenly among both them and their competitors.
It is the very rare situation where I would be willing to blame the government for my clients' failing in China. In fact, it is the very rare situation where any of my clients have even sought to blame the government for their own failures in China and even rarer still where I would agree with them.
We had one client who set up a factory in China only to discover that it would need environmental approval to import one of the key component for its product. This client made a mistake in not checking this out first, but it did not blame the government for this; it merely went through the somewhat arduous process of getting that component approved.
We had one client who was fairly hard hit by a change in China's tax laws that caused it to make sense to restructure its business entities a bit. This client did the restructuring and talked often of how its having done this so quickly would actually give it an edge over some of its slower moving competitors.
We have had a million clients who have had issues with the government regarding countless things (zoning, labor issues, tax issues, etc.), but virtually all of them worked these things out and virtually all of them acted as though these sorts of things are just par for the course in doing business anywhere.
We have had clients who have invested money into China and/or started businesses there that were later declared illegal for foreigners. These businesses had to close down and in these cases, it would not be fair to blame my clients entirely for their situation. But is this really any different from the risk any business faces of its business being declared illegal or becoming obsolete. When Seattle banned all smoking within a business, a couple of cigar bars had to shut their doors. As people move to the internet, newspapers are shutting down. Though I certainly do not entirely blame the impacted businesses for their plight, I do think that any business runs an existential risk and that is life.
The truly nimble business will nearly always survive, no matter what the external conditions.
Blame the business or blame the government? What do you think?
Read more: The iPhone In China: Ain't No Mountain High Enough.
Yesterday I did a post on Apple's alleged iPhone failure in China, entitled, "The iPhone In China: Ain't No Mountain High Enough." I say "alleged," because though iPhone sales have not soared in China, I remain confident Apple will do just fine there.
After I ran that post, I received a couple emails with "inside knowledge" of how Apple is messing up in China, largely because it is trying to do things "its way" in China, rather than the "Chinese way." I also received a fairly large number of comments saying pretty much the same thing, all of which I accidentally deleted (sorry!).
And though those who emailed and commented are probably right to say that Apple has so far not done as well as expected in China, I, even as a shareholder, say (in the largest font I can muster), SO WHAT.
Of course this is true.
I began my legal career with a massive law firm representing massive companies and my present firm has a few Fortune 500 companies as clients. I have done enough work with large companies to know that they are generally slow to change. They rightfully view their large size as a sign of their success and they are rightfully (usually) slow in turning away from what has worked for them in the past.
This means when they go overseas, they usually start out doing pretty much what has enabled them to succeed elsewhere. And then they adjust. I have both worked with and seen big companies go into China because they believe it important they go into China, figuring they will figure out China as they go.
I do not know if that is what Apple is doing right now in China, but it certainly would not surprise me a bit.
Small and medium sized companies (SMEs) tend to go overseas very differently. They tend to go overseas either out of necessity or because they want to make more money and they want to do it fast. Lacking massive reserves, they are not well equipped to handle sustained losses and they tend to do everything they can to avoid it. I have had companies tell me that if they are not showing a profit in China within a year, they will probably pull out. I have had other companies tell me that they can only lose x dollars in China and if they are not profitable by that point, they are out. Their margin for error is smaller and because of this, they tend to be more open to doing things a new way.
Do you agree? What are you seeing out there? Those whose comments I accidentally deleted, please comment again.
UPDATE: A reader sent me a link to this post, entitled, "An article wherein it is explained why everything written so far about Apple’s iPhone launch in China is beside the point," positing that Apple knows exactly what it is doing in China and its iPhone sales through China Unicom are a minuscule portion of that.
Read more: Apple In China (Again) And Why SMEs Usually Do Better Faster.
Global Post is running a five part series on China's high-tech sweat shops (h/t Danwei). Part I is entitled Silicon Sweatshops and from there you will find the link to the other four parts. For those who deal with China every day (or even if you have read the excellent book, The China Price) the main themes of the series will come as no surprise. The themes are that the conditions for and the treatment of workers at many (most/all?) of the factories that manufacture for the leading high tech companies (Apple, Nokia, Microsoft, Dell, etc.) are not up to the standards these companies seem to seek.
The other, somewhat more universal theme is how difficult it is to monitor and control the Chinese companies with whom you work. And whatever the series says about this in terms of labor conditions holds with at least equal force with respect to product quality control.
This is an excellent series for understanding what goes on in China and how difficult it is to really know what is really going on inside the factories you are using. I recommend it.
Read more: China's Silcon Sweatshops. And Why It Matters To Your Business.
I am going to have to be vague almost to the point of incoherence here, but if you keep reading, you will understand why.
About three years ago, we brought a very large lawsuit in China, using one of our favorite Chinese law firms. We are representing the plaintiff on this case and we are claiming that another foreign company (with a very large China presence) made a mistake that cost our client. The mistake involved shipping and the issue is a really important one for China. The law ought to be clear and it ought to favor our client, but the Chinese courts have been very reluctant to rule.
We have been stuck at the highest level court of the province (a relatively sophisticated province) for about two years now. The court kept trying to get the parties to settle and that has gone absolutely nowhere. Now the court keeps delaying its ruling, saying the decision is important to China and important for China's foreign affairs.
And so we sit. And sit. And sit.
This is the first time anything like this has ever happened to me and I am wondering if we will get a ruling in my lifetime. Our Chinese law firm has a great relationship with this court and is in constant touch with them and they too are very frustrated.
And so we wait. And wait. And wait.
Ugh.
Anyone else have a similar story?
Read more: On China Litigation And Getting Harmonized To Death. Ugh.
I am always preaching how foreign companies must register their trademarks in China if they are going to be doing business in or producing product in China (see, for example, "China Trademarks -- Do You Feel Lucky? Do You?"). And in most cases, companies should register their trademarks in China now. Right now.
China is a first to file country, which means that, with very few exceptions, whoever files for a particular trademark in a particular category gets it. So if the name of your company is XYZ and you make shoes and you have been manufacturing your shoes in China for the last three years and someone registers the XYZ trademark for shoes, that other company gets the trademark. And then, armed with the trademark, that company has every right to stop your XYZ shoes from leaving China because they violate its trademark.
But saying a company must register its trademark if it is going to do business in China does, at least to a certain extent, beg the question as to when that company should register the trademark. I always tell our clients and potential clients that they should register their trademarks right away. My thinking on this is that if they are going to be doing it anyway, they should do it right away so as to make sure nobody beats them to it.
But what if you are an American company that is thinking of introducing your product into China in a couple of years? What do you do? Well if you are a massive company with a lot of money, you go ahead and register your trademark right now. But if you are a small company, spending the money now may or may not make sense. Where and how do you draw the line? There is no one answer here; it is more a case of knowing it when you see it.
I thought about all this yesterday because I received a call from a small company that was referred to me by a China sourcing company we represent. The China sourcing company had the foresight to tell this other company (let's call it Company A) that it needed to register its trademark in China before the sourcing company started going out and trying to find manufacturers for Company A's product. But when I spoke with Company A, it immediately became clear to me that its funds were very limited and that it was very unsure if it would even be able to find a manufacturer at a price that would make sense and if it did find that manufacturer, whether its product would catch on in the US or not. Company A's not unreasonable plan was to make a limited quantity as a test run and then, if that worked, secure financing to ramp things up.
Company A: Is a trademark really necessary in China?Me: It is necessary if you are going to be sure to protect yourself from someone taking your name from you. How important is your name to you? If someone takes it, could you stamp a different name on your product for the next go round?
Company A: I really like our name, but I could always come up with a new one if that were to happen. Do you really think someone is going to register our trademark right away in China?
Me: The odds certainly favor you, but you just never know. You can consider waiting until after you see if your product will have legs.
Company A: I would prefer to do that. Am I taking a huge risk?
Me: A lot depends on whether the worst case scenario of having to come up with a new name is terrible for you or not.
You will never get me to say anything other than how important it is to register your trademark in China right away (because I do not want anyone to be able to blame me if "their" trademark is registered by someone else), but obviously the decision on when to register is sometimes a bit more complicated than that.
What do you think?
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