China trade ABC - a brief in Screen Printing business

Dear readers,

My name is Byron Chui, I come from Hong Kong. I am the sales director of Sefar, a screen printing mesh manufacturer from Switzerland, am looking after PR China, Taiwan, Hong Kong and Macao, where people usually called – the Greater China region.

I am a Textile Engineer and have further acquired my Master Degree in Strategic Marketing, University of Hull. I joined Sefar in July 1997 - which was then an historical moment for all Chinese – handover of Hong Kong back to PR China from Britain.

I like to share with you some of my understanding in this huge country, which is changing with an unprecedented speed and what Sefar has been doing there so far.


The Waken Giant

This emerging economic structure in the Eastern Pacific horizon has caught the eyesight of the whole world. Needless to say, we are now at a critical moment. Information Technology connection, Effective Logistic Coverage and Globalization have pushed China onto the stage of action.

While people were still discussing would China collapse 7 - 10 years ago? She was importing the most sophisticate production machines; training the unlimited supply of cheap and skillful workers; connecting the whole country with intensive highway network. Numerous World-Class manufacturers started to spring up, Galanz (microwave cooker); Changhong (television set); Haier (refrigerator), China Unicom (mobile phone service provider). All these changes took place too fast, and people easily judged that the development of China is superficial, and decorative only. This is not true, her changes is structural, not just on the economic level, but vertical. This will influence her internal political aspect as well as the international relationship.

She is named the “World Factory”, and will soon be named the “World Market” and is going to be named the “World Research Centre”.

Let some figure of China to tell us the situation:
The GDP in 2005 was USD 2,279 billions, which is the 4th biggest in the world.
Foreign Direct Investment in 2002 was 52.7 billions, first time to take over USA as the biggest in the world.
Out of the total Foreign Direct Investment (which is over USD 600 billions since her economic reformed), there are strategic investments, like IBM, Microsoft, Intel, Motorola, Nokia, Panasonic, Fujitsu, etc. has set up their research centre in China.
Highway Network is 30,000 Km, 2nd in the world, next to USA.
Petrol consumption was 199 billion barrels in 2003, has taken over Japan as the 2nd biggest in the world.
The world biggest consumer on coal, iron, cement, etc. (besides those human related commodity)
The world biggest producer on air conditioning unit; motorcycle; television set; laundry machine; refrigerator, compact disc, printed circuit board, ceramic tile, textile good, lighter, etc.


Pitfall in China

This would be non realistic if we are only optimistic on China’s achievement. The communistic system has left over 300,000 state own companies, out of which 70% are non profitable. At least 40% of the bank’s loans are non-recoverable and a lot of the economic developments are based on over-stretching financing tool. Smuggling, tax violation, civil corruption, environment concern, unemployment rate, intelligent right, etc. are all hot topics due to be addressed and rectified.

This is also true that the failure rate in China investment is higher than the successful rate, a lot of re-investment, consolidation, stuck up, pull out were seen. Proper timing, correct entry point and optimal scale are determined factors should not be ignored.


Sefar strategy move in China

Sefar has not overlooked the important of the China market; it was in April 1997 that Sefar setup her first office in Hong Kong, where she worked closely with her distributors in the regions, to look after the business development in China. Her office is now located in Kwai Fong, New Territories with a staff team of 12 staffs.

Another milestones development she has was in July 2001, Sefar’s 3rd Technical Centre started operating in Hong Kong, where she can perform most of the technical test, product analysis, quality complaint handling and customers training. This provides an invaluable support to Sefar’s customers in Asia and this is proud to say that this could be the best showcase of screen-printing laboratory in the region.

To prepare her strategic development in China, she further set up her fabrication factory in Shanghai in Apr. 2004. This office is equipped with 25 over staffs and her main function is to provide value added service to her customers on stencil making.


Sefar sales position in China

Sefar turnover has grown by near 4 times in China since 1996 to 2005.

This is estimated that the total screen-printing mesh market in China in 2005 is close to CHF 60 million, or 6 million M2.

Sefar biggest competitors in China is NBC, they are predominantly well known in the electronic industry.

The competitors come next will be the local mesh manufacturers, like Unirich, Anping, and Shanghai Bolting Cloth. This group of competitors has already taken the leading position in ceramic tile and graphic fields. Their success is more a price strategy and a good enough product.

Others competitors like Saati, Verseidag, Nittoku, Wangi, Taiwanese mesh are all present in China, and they share the remaining market, each with 3% - 7% market share.


Trading barriers to most of the European manufacturer

A lot of Sefar business is worked through distributors, communication between Sefar and end customers is rather limited. I can think of a few trading barriers which bring the situation as of today as follow:
Commercial trading within China is limited open to foreign investment
Except a few nominated import & export companies, no one has the right to import good into China
Foreign currency exchange is still strictly control by the government
Multi-tier and complicated tax system – VAT, local tax, state tax, re-construction tax, corporate tax, etc.
Importation via grey zone and VAT violation is still very popular.

Besides this, most of the local business players find their way to get around from all these business red tape; this makes the foreign investment difficult to join the game and to compete on a fair platform. Civil corruption, poor legal awareness made the foreign investors more difficult to play the rule.

This is still believe that Western manufacturer should sell their product through the distributors, which is the best and the most effective way, at least for the time being.

Sales outlook in China

Economy outlook of China before 2008 is rather positive, an annual growth of GDP of 7 - 9% is expected, this is believe that such an upward trend will be maintained even up to 2010 before the World Expo in Shanghai.

However, we should not under estimate the competition from local producers, over supply on industrial product, unhealthy competition among our distributors and the very strong bargaining power of those big factories will continuously ruining the margin.

As a conclusion, “cautiously optimistic” is the right word to be used.


Mentality of main land Chinese

You will never be successful if you do not know the mentality of the peoples you work with. China is a huge country with 1.3 billions people and 4,000 years of written history. Yet, you can still draw some common style among the main land Chinese.

Chinese is an adventurer in term of migration, and a gambler in terms of financial investment, do not be surprised if you find a company over stretching her investment scale.

Usually, Chinese are less patriotic during peaceful time; we are rather individualism and seldom take the legal awareness to the country level. This is common that Chinese will tempt themselves to play in the legal grey zone. The previous communistic system also lacks of the proper training in business rule. This explains why the violation on the customs and tax law are so popular.

In personal level, Chinese very much emphasize on education and academic result, we believe that this is the only tool to allow us to change our social class. Therefore, you can always find some Chinese with the profession / education you wanted. This contributes a supportive factor for China development in the last decade.

In the aspect of personal interaction, Chinese like to be “Respect”. We have a strong cultural base of 4000 years. East and West may have different value; yet, this is not superior or inferior. The difference stages of economic and democratic development should not be seen as better or worst. We like to respect and to be respected, or in Chinese, we call it to “reserve face” for others. Do not confront and not to be confronted.

Another word I can think of is “Golden Mean” or “juste – milieu”, this is still a strong practise among most Chinese. Please do not expect your partners will over excite with your idea. We should never over do, especially in human relationship. Revolution is not really our style. Sometime, you will be astonished how Chinese can endure over non-justice situation. In daily life, this will be reflected by non-rejection to others, when a Chinese say, “let me consider”, this would mean “No”. This is still a problem for most Chinese that when they speak English and to put “No” and “Thank you” together.