April 1, 2003｜China
Special Adviser, International Planning & Co-ordination Corporate Planning Unit, Nissho Iwai Corporation
Last year, 2,745 Japanese companies invested in China. This works out as more than 200 companies expanding into China each month. The cumulative total of Japanese companies that have moved into China is in excess of 25,000.
Amid this investment boom, some people say, “companies that have expanded into China have generally failed”, possibly because examples of failure tend to be hyped, but this is of course not true. However, there are quite a few “hard luck stories”.
Perceiving a shortage of houses for foreigners, a company specializing in rented apartments drew up a business plan, but lost its “chance from above” as negotiations regarding the joint venture and obtaining permission for it took a long time. Because other apartments began to appear in quick succession, there was a glut of properties and there were no tenants at all when the construction of this particular building was completed. Also, the location chosen should have been a good environment in an educational district, but, misjudging the direction of urban development, the property ended up in an inconvenient location in an outlying area, thereby losing any “geographical advantage”. Worse still, “harmony among people” could not be maintained, as the foreign investor was obliged to change one after the other the management executives it dispatched, because they did not get along with the Chinese partners, with whom they were supposed to share a common destiny. Of course, I have heard rumors to the effect that “this foreign investor has pulled out”.
Along with the shift of production bases to China by consumer electronics and automobile makers, companies that supply raw materials and components to foreign-invested and Chinese companies have ventured into China en masse.
At one metal processing company, most of whose sales are credit transactions (as they have no other choice but to give credit), payment for most of its sales is overdue and this situation is placing extreme pressure on the company’s cash flow. I thought, “I might have known that Chinese companies would be bad at making payments!”; however, further research reveals that the ones who were would not pay up (the ones holding the company back) were foreign-invested companies that had enthusiastically advocated advancement into China.
A company that had expanded into China with the dream of selling products in the huge Chinese marketplace faced an unexpected barrier: local protectionism (known as the “regional blockade” principle in Chinese), which is a system that allows companies to sell products within the region, but makes it difficult for them to sell them if they try to extend their market outside that area. While local governments provide local companies with various advantages in order to protect them, they discourage the incursion into the area of companies from outside the region, by such means as imposing taxes on vehicles when they are registered, or imposing restrictions on their actual registration.
In such circumstances, it is difficult to sell things in China, despite its large consumer market, and one cannot help but complain that, “China is a country with a large territory and a small market”. While accumulating a stock of hard luck stories in the Chinese market, the valiant challenge being mounted by foreign-invested companies is continuing even today.
[Translated by ERINA]