China: Good Business Gone Bad


So I just got an email from an international litigator friend criticizing me for being “relentlessly” upbeat during the “world downturn.”

He says we are losing credibility by acting as though things are “great all over.” Though “we” have at times described him as the kind of person who walks around with a cloud over his head (and complains about it), this is my response.

1. I wrote just one post on how China’s stimulus is working. Short term.

2. I said nothing about how great things are going in Pakistan, how truly enlightened Saudi Arabia is becoming, or how much I want to go to North Korea.

3. Yes, there is a horrible economic downturn going on right now and China related and international businesses are absolutely not immune. This post is going to highlight companies that are either gone or on the verge of being gone due to the downturn. I am again going to be incredibly vague (and in some cases intentionally inaccurate) so as to make certain no company will be recognizable. You will simply have to believe that the core facts are accurate enough to paint a realistic picture of what is going on out there.

Here’s the list of hurting companies the international lawyers at my law firm have dealt with over the last six months or so:

1. A yacht manufacturer. This was our first client to go. It was a great company but it had been teetering for more than a year. Too many of its potential customers disappeared and too many of its real customers lost their financing mid-build. Quality control problems from China did not exactly help.

2. A video game company. This company had been doing great for years, but it came out with a new game that did not meet expectations and the banks that had during the bubble begged this company to loan it millions of dollars were now unwilling to give them a penny. The banks got way too conservative on this one.

3. A very large US food importing company that got hit with a perfect storm of problems, including losses caused by its Vietnamese fish products being held at customs much longer than usual due to concerns about Vietnamese quality and getting hit with retroactively applied anti-dumping duties.

4. A company that had lined up five investors who were each going to contribute $1 million to allow it to become the first company to import a Chinese product that would have cost about half the US version and probably would have sold very well. Problem was that two of the five investors backed out after the downturn and there just was not enough money to move forward.

5. VC funded software company whose funding was cut off with the explanation that “you are a great company, but you are at least three years away from being cash-flow positive.”

6. Formerly big company whose work force has shrunk so much that it has become doubtful the company can survive. I called there the other day to see where it was in its plans to outsource more to China and they told me they did not have enough money to explore that option anymore, even though doing so may be necessary for long term survival.

Many of these companies are/were long time clients and long time friends. Most had done many things right for many years.

I wish I could somehow blame these companies for their plights as that would make it all feel just a bit more justified, but with very few exceptions, I do not think they did anything wrong, except maybe pride themselves too much on their independence. Some of them may/will come back in different iterations, but some almost certainly never will.

It’s sad.

What are you seeing out there?

6 responses to “China: Good Business Gone Bad”

  1. You make a good point. Stateside, economy continually compared to Depression Era, yet no endless breadlines forming nor Hoovervilles popping up. Strange mixture of good and bad; which leads back to your blog, find the sunny-side of the street and follow that warm glow till there is no more horizon.

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