(June 2, 2008) — Injection molder Lisi Group Co. Ltd.'s 15-year journey exploring the U.S. housewares market sheds light on how a typical Chinese exporter starts from scratch and secures a foothold in global trade in a relatively short time period.
Lisi's founder Li Lixin has distinguished himself from the crowd with strong entrepreneurship, vision, courage and perseverance. His most impressive achievement, however, has been the utilization of resources — manifested in his talent search and hiring process.
Like any average Chinese factory, all Lisi had to offer was cheap labor and the willingness to learn and accommodate customers. The other essential factors, such as product design, international marketing and management, have depended on Westerners. It's fair to say Lisi's success in the U.S. market has been built with the hands of Chinese and American businessmen.
Now, with sluggish consumer confidence and spending in the U.S., and continuously rising cost in China, can Lisi sustain its success? What does it take for the company to maintain profitability and retain vitality?
In an interview in Shanghai, Lisi Vice President Allen Luo confessed that although the business is still aggressively expanding its size, profit margins are razor-thin. The ongoing adjustment of product mix — supplementing plastic products with stainless-steel items — may render some relief. But I asked him the obvious question: Have you ever considered giving the thriving Chinese domestic market another chance?
Difficulty with payment collection deterred Lisi from domestic sales in the mid-1990s, a direct result of a dysfunctional credit system. The Chinese government has since cleaned up the market and improved the financial system for the manufacturing industry.
But Lisi doesn't see the option of returning to the home market. Back to the basics, Lisi would be standing at ground zero: no product, no market, no distribution channel. The commonly held belief that exporters are scrambling to switch to domestic sales is, at best, wishful thinking.
Therefore, these formerly export-led companies pose no strong competition for American companies that are set to beef up sales in China. Nor do they fit as a local partner.
Beware, investors. A Chinese businessman who speaks perfect English and shares your business ideas may not be the help you need.
If we reverse-engineer Lisi's success story, it's clear what American firms need to do to score sales in China.
This to-do list includes providing products Chinese consumers need or want (never overlook the high-end market in China), getting marketing and sales veterans who have proven their grasp of the local market, and securing capable managers with the virtue of patience who can best inspire local talent.
Certainly, there are vital differences between Americans selling in China and Chinese selling in America.
Lisi started low.
His company offered low-cost, copied products and swallowed loss for a market breakthrough. It didn't need to worry about American competitors copying its products.
On the flip side, American firms don't have a cost advantage and also often suffer from the lack of intellectual property protection in emerging markets.
But the era of competing on dimes and pennies is ending in China.
Multinational and local companies are moving to cheaper nations, teaching the Chinese a lesson that a world factory, without adding value via design or innovation or branding, can easily collapse.
To keep up economic growth, they have no choice but to move up the value chain. And that is fostering more sophisticated businesses and a more affluent consumer base.
That's good news for Western exporters, isn't it?
Nina Ying Sun is Plastics News' Akron, Ohio-based staff reporter and Asia specialist.