China has become far more difficult for foreign companies. It is what we have been calling the New Normal. This New Normal extends to all foreign companies that do business in or with China.
Since October 6, 2018, one of our recurring themes has been that China has become far more difficult for foreign companies. It is what we have been calling the New Normal. This New Normal extends to all foreign companies that do business in or with China, but it has hit U.S. and Canadian companies particularly hard. The New Normal has greatly increased the risks for foreign companies that do business in or with China.
Yesterday, in U.S. Senate Bill to Block American Companies From Storing Data in China: It’s About Time, we wrote about a newly proposed U.S Senate bill that will make it illegal (as in jail time) for American companies to store their data in China. Our post predicted this new bill would pass and yesterday’s unanimous censure of/warning to China about its human rights violations in Hong Kong ought indicates its odds of passing are overwhelming. At the end of that post we advised American companies to act accordingly and promised we would follow up by explaining what acting accordingly would look like. This is the beginning of that follow-up.
There are essentially three keys for dealing with the new China risks:-
- Recognize these new China risks exist. Putting your head in the sand and denying that doing business in or with China has not changed is the most dangerous risk of all.
- Determine your own China risks. The risks of a Canadian company with 300 employees in China selling cutting edge healthcare products to mostly Chinese government owned hospitals is going to be a lot higher than the risks for a Spanish company that has three quality control people in China to aid it in making leather handbags. It is important you know your own risks.
- Confront your China risks. Knowing your risks is only half of the equation. The other half is dealing with them.
Pretty much all of our clients that saw and confronted their China risks early on are thriving, while those who went into denial are mostly panicking. One of our clients that immediately chose to switch its outsourced manufacturing to Thailand is doing great, while another of our clients that makes the same product but somewhat inexplicably chose “to stick it out in China” is talking about closing its business because of plunging sales. One of our clients that makes electronics products decided at the very beginning of the US-China trade war to move out of China “no matter what” now has a thriving low/no tariff diversified supply chain, while most of its competitors are just now scrambling to get out, while still stuck paying rising tariffs and duties. See Getting out — Tariffs push some US manufacturers to exit China. But on the flip side, many of our electronics product clients have virtually no choice but to keep production in China.
What are the China risks foreign companies are facing with China today? The list is almost endless, and it only makes sense to divide those risks between those who are doing business in China and those who are “merely” doing business with China. More