Malawi businesses should be happy in China despite barriers

The Malawi business community should be optimistic about operations in China, despite the obstacles.

Blantyre Merchants Logistics conducted a survey, which focuses on China and other Asian growth markets.

It questioned a couple of businesses, including wholly owned foreign companies, China–USA joint ventures and USA firms with representative offices in China.

Topics included the characteristics of Malawi operations, investment motives, operational models, market potential and barriers.

New African-backed operations are set up in China every year. The survey found most foreign companies are optimistic about the Chinese economy.

The vast majority, or 80 percent, of respondents said they had achieved or exceeded targets. Production, trade and service firms tend to break even within an average of four years.

There are few complaints about sales momentum in China; with 86 percent of the foreign company’s surveyed saying they were satisfied or very satisfied with sales. Many said their businesses were focused locally rather than export-oriented.

Low operating costs and sourcing are still favorable to foreign-backed firms, according to the survey, despite price rises in some areas.

The manufacturing industry still dominates foreign operations based in China, but trade and service are developing very quickly.

Foreign small- and medium-sized enterprises (SMEs) are increasingly seeing China as a good option, the survey said.

Of the foreign operations with more than 10 years of market presence in China, 12 percent are backed by SME parent companies. But 57 percent of foreign firms in China for four years or less are backed by SMEs. Most foreign SMEs follow their key customers to China, the survey said.

The expansion of the tertiary industry and the boom of SMEs are expected to add diversity and vitality to the market.

Foreign firms prefer to set up wholly owned operations in China rather than joint ventures because of their strategic advantages - such as direct control over Chinese subsidiaries, the survey said.

Of the wholly owned foreign companies in the survey, 86 percent said they wouldn't change their approach to the Chinese market. But only 24 percent of the joint ventures said they would repeat their business strategy, while 44 percent would maybe choose a joint venture again.

Representative offices are no longer as useful to foreign firms operating in China, with only 27 percent of respondents wanting to open them, due to their limited functions. In 2002, that figure was 50 percent.

"As China has eliminated market entry barriers and upgraded its economic structure, the foreign business community has become an integrated and indispensable part of the Chinese economy," said Tony Jones Senior Business Consultant of BMG Holdings USA

Blantyre Merchants Logistics applauds efforts to liberalize legal restrictions to allow foreign companies more freedom to choose the most suitable operating model.

Recruiting and retaining qualified employees is also a difficulty for foreign firms in China, with 27 percent of respondents saying it was a major obstacle and 47 percent considering it a problem.

Non-tariff trade barriers have improved. But 41 percent of respondents said they still have problems in this area, especially in terms of time and capital needed for licenses in China.

“Foreign operations in general are cautiously optimistic for all areas of existing barriers to doing business in China," said Jones

Most survey respondents are positive about market potential in China, and nearly all plan to expand business activities.

The survey also acknowledged the contribution of foreign companies to China's economic and technological progress since the late 1970s.

The report urged policymakers to improve the investment environment, reform the legal system and strengthen IPR protection. It also called for better education and vocational training.