Blood Bath or Bubble Bath?
October 4, 2004,
We all know the old fable from India about the blind men and the elephant. One man grabs the tusk and concludes that the elephant is very like a spear. Another slams up against the elephant's belly and declares it is very like a wall.
During a visit to China last month, I asked an executive of a long-standing Chinese/American company what he foresaw happening in 2005.
“It's going to be a blood bath,” he said. “A lot of companies are going to collapse.”
He was talking about companies in China.
Many of them are small enterprises, he explained, and because of quota restrictions, they've not been exposed to the rigors of American business. These companies, he predicted, will get chewed up in the new world of free trade.
Chinese executives I met during the same week at a trade show, a government conference and during factory visits expressed what was, by American standards, a curious passivity about business post-2004.
Adding capacity to expand your export business? Yes.
Planning to open an office in the United States? No.
Planning to start visiting potential clients in the United States? No.
Planning to hire a U.S. sales rep? No.
How then, do you expect to expand business in the United States? One of two answers: 1) When they find us, we will be ready to take their orders; or 2) You need to send us a list of all the important buyers in the United States.
Last week, another executive from China was visiting the United States. His company began doing business directly with retailers only recently. What's up, I asked, with the passive attitude coming from factory owners?
Trading agencies, he said. They tell the factories it's too difficult to deal with U.S. clients directly. And when a factory tries making a run around the agency, the agents trash its reputation.
His company was even called on the carpet by his U.S. client's sourcing office in China for having visited headquarters in the United States.
Rather than a blood bath, he foresees a slow thaw in which trading agents lose their stranglehold on the market over a period of two or three years.
Another textiles executive, this one from a sizable company in India, e-mailed a complaint about U.S. customers' expectations for pricing after quota drops.
HTT has to make them understand, he wrote, that quota prices were always amortized and factories absorbed most of the cost. Make them understand that just because quotas are going away doesn't mean prices will drop 15 percent.
And so it goes. A tusk here. A belly there. None of us has gotten his arms around the elephant yet. It appears that is going to take some time.