While tapping the growth of the Chinese market sounds like a good idea, a fellow VC who just got back from a trip to Beijing and Shanghai says he completely understands why his companies are not getting any real traction in that market. Besides the highly politicized nature of business, there is a pervasive “catch me if you can” philosophy inherent in the economy. Think about it-moving from a world where the state owned all enterprises to a hybrid form of capitalism is not easy. In the past, it was always the people versus the government, and therefore there was little respect for financial instruments like debt. It did not matter if you defaulted because you would be bailed out anyway. Extend this same thinking on debt into the private market, and you get a system that does not function well. Therefore alot of business is done cash on delivery as business credit does not exist. Throw in lax IP laws and the fact that China is thousands of miles away from the US and you get a difficult market to operate your business. So the next time someone tells you that they will get x% of the market in China, remember how difficult it really is to operate in a far away land with different rules of engagement in the business world. This will obviously get better with time.
Published by Ed Sim
