Embassy exec gives advice on trade with China
Reprinted from Pacific Coast Business Times, March 28 – April 3, 2003
By LAURA POLLAND Staff Writer
Trade with China holds opportunity for American companies, but enthusiasm for the growing market and huge population should not distract would be exporters from sound business practices, an international trade expert warned a group of Ventura County businesspeople.
“It’s the only growth market left in the world, yet one of the toughest markets in the world to penetrate,” said Thomas Lee Boam, senior commercial officer of the United States Embassy in Beijing, China. While many American companies are doing very well in China, many others suffer from counterfeiting, disadvantageous contracts, or simply no market for their product, he said.
“Right now I have $9 billion in trade disputes on my desk,” Boam said, estimating that 75 percent are “self-inflicted,” the consequence of companies becoming careless in their business practices. “We see people coming to China doing things they wouldn’t do anywhere else,” he said, adding a colleague’s advice: When you come to do business in China, don’t leave your brain on the luggage carousel.
Boam spoke at a March 19 luncheon in Oxnard sponsored by the United States Department of Commerce and Irion Enterprises and supported by other Ventura County organizations with an interest in international trade.
Boam offered a series of anecdotes and advice to attendees who are doing business or considering doing business with China. If American companies come in having done their homework, the embassy can be more helpful he said, adding that he would prefer to answer questions like “How can I repatriate my profits” rather than “How can I get my money back?”
The first step to a successful trade relationship is to make sure there is a market for the product, Boam said.
He described a seller of embalming fluid who came into the embassy with high hopes for his prospects in China. What he hadn’t bothered to find out was that “99.9 percent” of the Chinese population is cremated, and never embalmed, Boam said.
While some companies, like this salesman, are fighting upstream against millennia of Chinese cultural history, others simply overestimate their market.
“People don’t understand that desire doesn’t equal demand. We’ve got oodles of desire. Demand is desire plus disposable income,” Boam said.
He estimated that just about 250 million ‘Chinese are in a position to buy relatively expensive American products. Another 800 million live on about $1 per day, he said.
China’s gross domestic product last year was $1.3 trillion, about on par with that of Italy and a third of California’s. Japan’s GDP was eight to 10 times larger. “The difference in China is growth,” Boam said.
There is a demand for Western products, which can serve as status symbols. However, this demand also drives the flourishing counterfeit market.
Boam estimated that counterfeit goods represent 10 percent to 20 percent of the country’s gross domestic product. The piracy rate for software is 92 percent, down from 98 percent a few years ago. Movies are one big counterfeiting market; pharmaceuticals, more seriously, are another. The biggest source of counterfeiting is former employees.
Conditions are improving, however, as courts make an effort to deal with counterfeiting. The Chinese government has agreed to buy its software, rather than using pirated copies, Boam said. Intellectual property protection is essential to the business model of any successful company trading in China, he added.
Copyright 2003 Pacific Coast Business Times.