International Law

China's Service Sector Will Reign. Part XX.

By Dan

This is part 20 in a long existing (but of late somewhat dormant) and intermittent series of posts on China's service sector. We wrote Part 1 back in January, 2006 and that post can be found here.

I was spurred on to write this post after a ultra-long conversation with co-blogger Steve where we updated each other on the matters on which we are working together. Like everyone else in China, Steve took last week off and this was our first opportunity to talk so much had piled up.

At the end of our conversation, we talked of how foreign service companies are doing so well in China, but of how there has been so little media on this. As Steve put it, the real market is still the "sale" of good technology to Chinese companies and to foreign companies doing business in China.

The bulk of our discussion centered on the following matters, stripped of anything that might identify the actual client or project:

1.  We talked of a client who has been contacted by the foreign manager of a foreign-run building needing repairs. The manager has become convinced that no Chinese company is capable of figuring out the plans for the building and then effectively repairing it in such a way as to maximize quality while minimizing disruption. The Chinese companies simply cannot do the engineering and the project management to the standards required. This same foreign engineering outfit is doing an engineering analysis of a foreign company's facility to reduce energy consumption.

2.  We talked of another company that has been retained to do the annual internal audit on the stores in a foreign retail chain. This foreign company does not trust a Chinese company to do this audit because it is concerned with corruption. We have been told that corruption has two impacts in this sort of situation. The first is the obvious impact is the risk of bad information because of payoffs. The second is the less obvious impact that since payoffs are so common, the auditors who take the payoffs never actually learn how to do the work to high standards. 

Run of the mill Chinese companies are used to this system and simply accept it. The foreign owned and ultra high end Chinese companies are not able or are not willing to accept this. So there is a growing market for providing this kind of technical service to foreign owned companies in China. 

I have written of this previously in the area of technology, in a post, entitled, "That's Hot: Made In China For China. By Foreigners." In that post I talked of how my law firm was working on a large number of technology licensing contracts between U.S. companies and Chinese companies that were seeking to improve their quality to meet international standards. Similarly, in "China Law. Making Money Off The Misery Of Others," in discussing the areas in which our China law work had actually increased due to the West's bad economy, I mentioned technology licensing deals:

Licensing deals. This is a strange one, but both of us attribute this to the bad economy as well, or at least to the fact that China's economy is doing so much better than the West. We both talked about how over the last year or so we have been seeing a marked increase in Western companies licensing their technology and/or name out to Chinese companies. Struggling companies are more likely to jump at this chance for extra revenue. 

And when I was asked the other day on a public radio interview to list out what I saw as the best opportunities for foreign business in or with China, all or nearly all of my list were in the service sector:  

I was asked where I saw the most opportunity for foreign businesses in China. My answer was education, healthcare, food, cleantech/greentech, and software. It is the same five industries I have been saying for years and the one that always seems to draw the most surprise is food.

I know food is a product, but when I am saying food, I am thinking more of the quality control and logistics and service that go into it as I am of it in its natural state.  

What are you seeing out there?

Full post as published by China Law Blog on October 15, 2010 (boomark / email).