Easing the Transition into China's Market

Medical Device & Diagnostic Industry Magazine
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An MD&DI October 1997 Column

To the Editor:

I thought the article in the July MD&DI, "China's New Business Climate Warms Up," was excellent. My company does medical device manufacturing in China for export and for the domestic Chinese market. I can tell you that the market today is not what it was a few years ago. It is growing quickly, but there are still numerous obstacles. With all the challenges in the U.S. market, overseas expansion certainly must rank as a key strategy for many U.S. device manufacturers. It's an alluring market, but one that should be approached with caution.

I would suggest that the authors give more concrete advice about where U.S. companies can seek assistance when entering the market. U.S. companies wanting to expand in Asia can contact the U.S. Foreign Commercial Service at the U.S. Consulate in Hong Kong. Also, HIMA has an office in Singapore. The American Chamber of Commerce in Hong Kong has a Health and Medical Industry Committee that is active. Several other American Chambers of Commerce have similar groups (Beijing and Taipei are two that come to mind). The American companies operating in Singapore and Malaysia also participate in industry groups in those locations. I have contact numbers for these organizations if you are interested.

I was gratified that the article did not emphasize finding the right partner, which is the cliché about doing business in China that raises more questions than it answers. The right partner usually means finding someone who has good connections (guanxi). As the article pointed out, this is becoming less important. Probably more important is finding distributors that are well funded, well run, and able to provide sufficient geographical reach to cover a large portion of the Chinese market, which, like the U.S. market, is just too large for one company to handle. It is probably better to establish distributorships in the major cities like Beijing, Shanghai, Guangzhao, Chongqing, and Wuhan. A more extensive distribution system would include second-tier cities such as Shenzhen, Xian, Harbin, and Dalian. Setting up and managing good distributors in these locations is not trivial. Distance between the cities (as well as from the home office in the United States), language, customs, lack of infrastructure, corruption, and inadequate financing will all take a toll on the distributor relationship. If a company is serious about China, it will need a local headquarters either with its own staff (expatriate or local) or with a good partner. In either case, the U.S. company has to be prepared to play by the local rules and customs. As you so often hear out here, "But this is China."

Hong Kong is still the best place to start for market entry into China. As the China market opens up, Hong Kong will lose its preeminence as the stepping stone to China but will remain an important headquarters site. This is particularly true for companies that want to manufacture in China. The business and legal infrastructure in Hong Kong is on a par with those of other developed countries, while China is still a bit like the Wild West. Furthermore, Hong Kong provides access to transportation, communication, financing, and talent. It is a free port allowing duty-free import and export of equipment and material. Hong Kong has low taxes (16% flat tax), simple government regulations, and a pro-business attitude, and it is located on the doorstep to southern China.

David Groll, Managing Director
Vincent Medical Manufacturing
Company, Ltd.
Hong Kong

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