The First Mover Advantage to Going into China

Interesting BusinessWeek story, entitled, Apple vs. Google: Starkly Different China Experiences, comparing Apple’s China successes with Google’s purported failures. The thrust of the story is that Apple succeeded in China by holding back on doing business in China while Google failed because it moved too fast.

I agree with the first half of this equation but I disagree with the second half of it. Google’s alleged failures in China (I say alleged because in looking at what Google faces in China, I am actually impressed with what it has accomplished) are far too complicated to ascribe solely to its having gone into China too early. I am not even sure Google’s so-called early arrival in China has had any impact on its China business at all.

The BusinessWeek article contrasts Google’s go-fast approach with Apple’s go-slow approach:

In its rush to get into China fast, Google made mistakes. It had to fight in court just to get the Microsoft executive, Kai-fu Lee—four years later, Google was still badly lagging Baidu and Lee had left the company. Google also couldn’t decide what it wanted to do about China’s censorship rules. Eventually the company decided to relocate its search service outside the mainland rather than succumb to Chinese censors, a move that won kudos from free-speech advocates in China and overseas but also embarrassed the Communist Party leadership and jeopardized Google’s other China plans. It now has just 16.6 percent of the Chinese search market, according to Chinese research firm Analysys International. Baidu has 78.5 percent.

With its haste to penetrate the China market, Google even ended up with an awkward-sounding translation for its name in Chinese: Gu Ge—which sounds a bit like Google but means “valley song,” a rather odd, amorphous phrase.

No such problems at Apple, whose name in Chinese is simply Pingguo—Mandarin for apple. Apple successfully took the long view when it came to finding Chinese partners for the iPhone. The company negotiated with the market leader, China Mobile (CHL), but was willing to walk away and team up with the No. 2, China Unicom (CHU). That was a major risk because Unicom not only was much smaller but also had a reputation for poor service

The article implicitly says that going slow on China is the best way to go and I just do not believe that is always the case. There is no one-size fits all answer on doing business in China and I recently received a couple of emails that highlighted that for me.

The first is from someone who wanted advice on closing down a China WFOE. I have modified the email to hide any possible identifiers, and it now reads as follows:

I set up a WOFE in last year with me (from the US) and another American.

My partner and I decided to part ways and I bought him out (although that wasn’t formally completed), and then due to a lack of capital I was unable to keep the business running with the office requirements etc. I then set up a cheap office for six months, but then returned to the US.

We did not register the company properly and we never set up a Chinese bank account. We did not receive any money, and we do not have any debtors, we did not hire any staff or pay any salary. Our registered capital was 250,000 RMB, which we just transferred in, and then took straight out.

What are my options are for this going forward? I have been told it will cost 20,000 RMB to close down the company officially by going to the relevant departments — however I am not sure if we decide to go down this route how much we would end up paying – I don’t trust that it would be only 20,000 RMB.

A friend who opened a Rep Office said he let his Rep Office close, and he has never had any visa issues. And a Chinese friend says I should just let it go and there will be no problems.

My co-founder (whose name is still on the company as a shareholder) has a small WOFE in China and I am concerned about the consequences for him.

I also intend to travel to China in the future and set up another company.  I can speak Chinese and I have many friends there and I definitely do not want to close any doors there.

There is some urgency since we have to file the annual report within a month, so I’m guessing if we don’t file this then fines will start to add up and it may be a bit more messy to close.

Appreciate any advice you might give.

My initial instinct when I get an email like this is to respond by pointing out the specific complications and nuances involved in both the questions they are asking and in what they are seeking to do. I also was chomping at the bit to point out that just because he has one friend who let his Rep Office close (note that it was not a WFOE) without visa issues (so far) no more means that smoking is harmless because I know someone who smokes like a chimney and is still going strong at 77. But instead, I wrote something back something along the following lines:

I’m sorry, but there is no way we can even give you any worthwhile advice beyond telling you that every situation is different and dependent on the facts. For me to be able to think about the best solution for you, we would need to first think of the additional facts we would need from you to access your situation and then work with you in gathering up those additional facts. At that point, we would then need to figure out the applicable legal issues and research them. From there we would want to speak either with lawyers in the appropriate city (or cities) and the appropriate government officials as well.

My e-mail is really just a long-winded lawyer’s way of saying, “Dude, it really depends on the specific circumstances; there is no one size fits all.”

The other email I want to discuss is one I received today from a highly qualified China business consultant. It was this consultant who alerted me to the BusinessWeek article and he did so with the accompanying email:

I for one advocate a go-slow approach for most companies intent on entering the China market. Top speed usually ends up in a crash landing. People don’t seem to realize that if they truly want to be in the China market trying to be first in means having to plow your own path. The market has just begun to grow and slow and steady wins the race. Companies need to understand that many consultants will push them to enter China quickly (no matter what) simply because that is how they make their money.

His email is really just a long-winded China business consultant’s way of saying, “Dude, it really depends on the specific circumstances; there is no one size fits all.”

What do you think?  Is the first mover advantage for China (or for anywhere else) all it is cracked up to be?  Should all companies go slow in China or go fast, or, like we lawyers are always saying, does it really just depend?

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