Chinese Business Launches Itself on a New Learning Curve

Commentary

Tariffs and the trade war have contributed to an inevitable evolution in Chinese business, leading to increased interest in direct sales overseas through e-commerce.

For most Chinese businesses, this is still a novel approach, and it will be a steep learning curve for producers to gain insight not just into the technical aspects of the process, but also into areas such as market research, branding, and advertising. So far, the big money in these areas has gone to Mandarin-speaking consultants, Chinese and foreign.

As these businesses try to penetrate the U.S. market, direct sales offer a clear advantage in navigating the worst of the new tariffs. Chinese interest first rose when shipments of less than $800 could enter the United States tax-free. That loophole has been closed, but with careful management, direct sales seem to be able to avoid some of the tariff levies.

But there is something more fundamental. Chinese businesses’ decades-long approach to overseas sales has begun to lose viability. In the past, Chinese producers exported through bulk sales to large foreign retailers and wholesalers who would then sell to final buyers in their respective domestic markets.

For foreigners in past years, the primary allure of Chinese production was the low cost due to low Chinese wages, as well as to minimal work, environmental, and safety regulations. But Chinese wages and other costs have risen to the point at which such advantages have disappeared, especially compared with other economies in Asia and Latin America. That original allure had begun to fade even before U.S. President Donald Trump’s tariffs and certainly has continued since they have been implemented.

Since e-commerce promises Chinese businesses one way to respond to these matters, interest these days has grown. One operator, Miao Shou, which helps companies sell abroad mostly through TikTok, said it now has 800,000 customers and has gained some 200,000 in just the past six months.

But the turn to direct sales is far from simple and will require a huge change in Chinese business culture. While heretofore the emphasis has been on low costs and reliable deliveries, the e-commerce route and the lack of a low-cost claim will demand work on branding and even advertising in foreign markets, both novel to Chinese management.

Thus, a new opportunity has opened up in China: the entry of consulting firms—some domestic, some foreign-based—to guide Chinese managers in taking these steps. Most consultants rely on artificial intelligence to speed the process.

A new Chinese startup, AIGC Empower, is an example of this effort. A senior partner in the firm, Tina Hsu, told CNBC that Chinese management is sophisticated when it comes to “supply chain integration,” but not so much when it comes to branding or direct sales. This consulting firm, along with others prospering from the trend, will offer quick research on customer preferences in different markets and whether, for example, a producer needs a warehouse in the United States or perhaps Mexico.

While it will take considerable time for Chinese businesses to become facile enough in this new space to use their flexibility fully, there is another consideration. If Chinese businesses are to use e-commerce successfully, they will have to interact much more than in the past with end users in the United States, Europe, and elsewhere. The Chinese Communist Party (CCP) might not like the loss of control implied by such arrangements. In the past, the relationships between Chinese and foreign buyers went through licenses issued by the CCP. But that cannot be the case with e-commerce.

No doubt, the CCP authorities were willing to let matters take their own course when direct sales occurred on a relatively small scale. But as they increase, those same authorities might take a less accommodating approach, and such an attitude could make all the present efforts ultimately pointless or, at the very least, a lot more complicated.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.