Luo-Ho District Mall in Shenzhen, China

Why not? Thousands of people do. A few years ago when I started looking at China for business opportunities I started to look with my American corporate business trained eyes, after some research I learned that there are many ways in which foreigners can do business in China. I say after a while because getting precise information on rules, laws and regulations can be as difficult as getting directions in Chinese-English on how to get from point “A” to point “B” in downtown Beijing.

China is literally writing commerce law as we speak, many laws are not only not existent yet, but the ones that exists are left to interpretation at local levels and many lawyers are actually ex-army people who are given an honorary degree. Most Chinese citizens simply laugh when you ask about incorporation laws, tax laws, banking rules, etc. Now make no mistake, the central government has it’s ways of making sense of all this chaos. For example banks are required to report an all bank transactions involving foreign entities to the central government, thus making very difficult for foreigners to do anything different than what the current rules will allow with the added complexity of the local interpretation. This later fact can lead to disasters if the central government interpretation differs from the local one.

So how can you do business in China? Here is a brief list of the different ways, I will expand on each one of them on future posts, for now this post only gives a perspective on the last one.

• Investing in Chinese companies stock (class B shares)
• Creating a Joint Venture with an existing Chinese business
• Starting a Wholly Owned Foreign Enterprise (not allowed to sell products in China)
• Starting a Foreign Invested Commercial Enterprise (a new modality of a WFOE which is allowed to sell only certain specific products in China)
• Or simply go shopping!

Investing, JVs and WFOEs can be very convoluted and extremely slow to happen. You will spend at least 50% of the time unraveling conflicting directions from each level of government offices and local advisors/consultants. These larger scale options will require millions of dollars and also largely restrict your ability to take the money back out of China to only profits and for possibly up to 20 years. But, the “go shopping option” is simple and many folks from around the world make a living or at least a supplemental income while traveling to China on shopping sprees.

All you need to do is get a tourist visa for China, which is very easy to do. If you are a citizen from just about any country the cost will be $35 USD and if you happen to be a US citizen then it will set you back $130 USD, we are “special” (LOL). I highly recommend that you get your visa before coming to China, if you don’t, then you will have to enter via Hong Kong and not only the price will double for your visa, but you will have to wait at minimum 24 hours (one hotel night in Hong Kong, which could add another $250USD to your expenses, hotel and transportation).

If you are coming to Shenzhen, then traveling to Hong Kong may be actually the best financial option, flights to Hong Kong from the USA are as much as 50% less than traveling to China’s main land. The shuttle from Hong Kong to Shenzhen will only cost you about $30 US dollars and if you take the shuttle, they will actually drive you through immigration and customs, you only relax and enjoy the ride. If you take the bus, it will cost only about $15 US dollars, but at the Chinese border you will have to get off, leave your bags on the bus, go through Hong Kong immigration (exit), then go back to the bus for a few hundred feet, get off the buss and drag your bags through Chinese immigrations, customs and then as you exit face hundreds of cab drivers trying to take you to their cab while you are trying to find someone from the bus company to take you the rest of the way.

The bus company will give you a sticker which you are supposed to wear in a visible spot, but as you exit the cab drivers will try to grab it from you, you must not let this happen as this is the only means for the bus company to know that you paid to go the hotel or wherever else you are going. Once you come out on the Chinese side, the Hong Kong bus and driver will have changed to a Chinese company, so you will not know who is who.

I also recommend that you do your homework, know what products you are looking for and have a good idea of price targets for your re-selling market. By the way, bring only a very small carry on with your clothes, you can buy suit cases across the border for $20 – $30 dollars, these are not high quality, but it will be better than you hassling with large empty suit cases on the way into China or paying the $25 that many US airlines make you pay now for the second bag.

The Shangri-La Hotel viewed from the Luo-Hu Mall

If you are fairly conservative, not too adventurous person, then you probably should only go to the Luo-Hu District in Shenzhen, you can stay at the traditional Shangri-La hotel across from the Luo-Hu shopping mall, expect to pay around $135 USD per night, it is actually a low rate for this very nice hotel where many of the staff speak English. Or you can look for cheaper rates for hotels that are just few blocks from the Luo-Hu shopping mall, Trip Advisor has  a good selection of them, the critical thing is that you search for Luo-Hu (luohu district), because Shenzhen is a very large city. If you are not careful you can wind up an hour way from the Luo-Hu mall, still in Shenzhen, but in an area where no one speaks a word of English and nothing is written in English either.

Now for the business of shopping! In the Luo-Hu mall you will find just about any thing you can imagine, cell phones, golf clubs, hand bags, shoes, clothing, GPSs, pottery, chinese medicines, toys, etc, etc. Of course all the brand name stuff will be only replicas (copies) you will see brands, like Gucci, Rolex, Nike, Sony, Ping, LV, Armani, etc. Nothing will have a price as everything is negotiable. You will be accosted by “shopping guides” whom speak 10 or 20 words of english, like “hello looky hear” or “DVD movie” or “Rolex watch cheap”, you must be very careful here, in spite of the visible security, there a number of undesirables and a few poor folks that given the opportunity would disappear with you wallet or belongings, but on the other hand if you have your wits about you you will have a great deal of fun here.

A sampling of most consumer products made in China.

Bargain, bargain, bargain, as I said before pricing is not set and varies depending on your face, I am often called “money face” by my Chinese friends, the meaning of this is that whenever we go shopping together all of the sudden the prices for everything curiously doubles in this type of malls. However, you can play the game, remember do your home work, know what these products sell for in your country, many people operate on at least 50% less than back home rule. Carry a calculator, since many of these people only know the basic 20 words, they use calculators to show you the price for the items, usually in Yuan (RMB – Chinese currency). The guides are usually paid a commission by certain stores, so they will steer you to these stores. While using one of these guides can be generally OK, I would advise against it, you will be safer and be able to bargain better on your own.

The products.
As I said Luo-Hu is a good place if it is your first time shopping in Shenzhen or if your nature is not to venture too far. There are much better bargains if you venture deeper in the Guangdong Province, but you will also need a Chinese guide who is bi-lingual, as the difficulty and risks also increase dramatically. Feel free to write to me via my contact page if you want additional help on how to effectively get to the manufacturers or at least the wholesalers, as it is a much better deal altogether.

A word of caution about Luo-Hu. “Not all that glitters is gold”, while there are many good products here at good enough prices for you to take back home and at least make a 25% – 40% profit, there also a lot of “dud” products. So test everything prior to buying, they don’t mind this. There are plenty of USB drives labeled 8GB when in deed they only have 1GB of storage space, I actually found a USB drive labeled SONY  512GB for sale at Luo-Hu, the incredible thing is that their laptop confirms that is 500GB, but in fact it is not, the manufacturer hacked the software to fool Windows into seeing it as a 512GB drive.

The "fake" 512 Giga Byte USB storage device.

You must test Cell phones, DVD players, GPSs, turn them on, check out if they have the ability to switch to English or your desired language, test if they are compatible with your country’s electricity, check if the software (GSM/GPRS) is compatible with you country’s cell phone or GPS providers, if possible buy a local SIM card and have some one call the phones you are looking at buying.

If you are buying shoes or clothing, bring a tape measure and a size guide, Chinese are not only built differently than people in many western countries, but also quite often label clothing only a small, medium, large and extra large and this sizes only conform to some guide that the manufacturer uses not to western standards. If you are a little savvy about the clothing business, there are a number of tailors in the mall that will custom make clothing at a fraction of what you would pay, at least in the USA and Europe. I had a friend buy a traditional long wedding dress, custom made for $125 US dollars, it took one week to produce.

I will expand on these topics in future posts, but feel free to contact me if you are interested in setting up either formal visits to manufacturers or for some specific pointers.

From iPods to the latest Nokia phones - Copies.

Before coming to China I had many friends ask me to figure out what products we could sell to the fast growing consumer population in China. Much to my dismay and everyone else’s, my answer as I started to report back was; nothing! absolutely nothing!.. they have everything, every brand , every product, even in the poorest of neighborhoods!

Well, at least a copy of everything!

It is absolutely true that the Chinese government is trying very hard to control and implement systems to monitor the infringement of design and utility patents, copyrights and intellectual property, but it is also true that it is an uphill battle. The “copy” manufacturers  are not selectively focused on American brands, in fact they copy one another all the time. I have looked at many innovative products in China which are not copied from the Japanese or the USA or European manufacturers, but from their own neighbors in Dongguan or Shanghai or a few blocks away.

I happened to get a lesson on a cultural aspect that we in the West are not aware of or choose to ignore. This post is not about defending violations of copyrights or patents, but more of bringing a perspective that goes beyond the headline grabbing “piracy” scream. The lesson came via a documentary produced by CCTV, which followed a ceramics professor in the region of Shaanxi. The documentary was showcasing a method which this professor had perfected for reverse engineering clays, glazes and kilns for ancient Chinese pottery. With his method the professor was able to recreate “perfect” copies, that not even carbon dating could pick out as copies. The professor was honored and presented with an “emeritus – curator” status at one of Beijing art museums.

This is obviously not the only instance of Chinese culture honoring someone who’s talent for making a copy is just as revered as the original artist, after all it was the Chinese that invented the printing press, which quite simply is a mechanism to make many replicas of an original! And by the way, it was Germans that copied the technology and perfected it to what we know today as highly technological printing presses.

Can the Chinese turn the copy culture into their own highly developed technical products? I believe this is not only possible, but inevitable. I am old enough to remember when toy robots made out of tin with terribly silk screened graphics and batteries that operated blinking lights were flooding the world courtesy of the country that today makes high end brands like Lexus and Sony. For those of you who were not alive then, Japan was producing these trinkets only 30-40 years ago.

Gaming consoles and any MP3 or Cell phone imaginable!

So is it too far fetched for China to do the same?
The answer is no, it is not far fetched! In fact, given what I am able to see at factories and in retail stores in China, I would tell you that it will not take 30 or 40 years, Why? Because of their very ability to reverse engineer anything from an aircraft carrier to a cell phone. Recently a high level official in the Chinese Navy confirmed that China had purchased 3 aircraft carrier hulls from Russia, for the purpose of studying them, loosely translated: reverse engineer them!

The "new" LV cell phone. An original?

Ahhh. Enter the “new Louis Vuitton” cell phone!!! I am sure that many companies very likely don’t know that they have a product line like the cell phone featured here. OK, so it is blatantly using the LV mark to sell phones, but let’s look a little beyond this and talk about the engineering, design, creation of molds and yes, the features that accompany this phone.

• Two SIM cards (Means you can have to different cell numbers ring in one phone)
• FM radio
• MP3 player
• Touch screen
• Calendar, Contact management, etc.

First we must understand that unlike Nokia or LG or Motorola, many of these products are actually made by handful of small companies banding together. Large global corporations may outsource some components of their products but along with this have very strict quality, design and compliance rules as well as strict audits to ensure the final product is worthy of the brand name. The makers of these “copy” products are in essence mavericks that have a little money and a lot of guts. The core manufacturer will invest in the molds for the exterior shell and provide the mold manufacturer with a “sample” of what he wants made. The mold manufacturer has a 3D scanner that will render CAD drawings of the “sample” supplied and also provides young CAD operators that can help the investor/core manufacturer decide on the cosmetics desired, like the LV, Gucci or iPhone look.

The molding process although somewhat unorthodox is not much different than what a large brand name company would do, is the inside components were it gets sketchy. The investor or core manufacturer will then approach friends of friends who can manufacture the circuit boards and display (electronic components that make the cell phone operational). Many of these components are adapted from other products and made with copies of chips that have been taken out from some name brand products. The core manufacturer then decides what name the phone will carry which can vary from Golden Dragon to Apple iPhone, Gucci or whatever.

The software is quite often developed by a “hacker” who is able to recode an existing cell phone operating system so that it works with the hacked circuit boards. This is why quite often some of these phones which make their way out of China, do not work with local cell phone companies abroad or loose much of their functionality. This being said, we all have to admit that this is not a simple process and those who are involved in it are learning every day to make their products better. This leads to an eventual development of their own solid technology like it has for many Chinese companies that evolved into their own competitive brands and not copies.

It is not only likely, but probably inevitable that these Chinese “maverick-manufacturers of copies” will eventually have enough money to hire one of the many young Chinese that are graduating from MIT in the USA to design products from the ground up. Just like the Japanese, it is inevitable that the Chinese mavericks will be able to turn industries up side down, like Seiko did to the watch industry, Toyota to the auto industry or Sony to the television industry.

My personal belief is that the effects of China on globalization are only half way through the cycle, considering that China has a clear goal of reducing it’s rural population to level bellow the 25% mark. The Xinhua News Agency reports that census for 2007 put this percentage at 56%, this means that in addition to India’s push to enter global supply of electronics and autos we can look forward to the added effect of another 300 million Chinese entering industry in China!