China, Sourcing, and the Plight of Small Businesses Worldwide

Power in Numbers

Breakneck economic growth, the Beijing Olympics of 2008, the ongoing preparations for the 2010 Expo in Shanghai – just a few of the major events that have catalyzed, streamlined and showcased what China is capable of.

But what is going on behind the big party on the world-stage? What developments in trade and production are making this parade possible?

While the spotlight shines on China’s large, state-owned companies and joint ventures, the majority of the growth, innovation and success, are achievements of the small and mid-sized enterprises. And, as usual, it is this cross-section of exporters absorbing most of the impact of the economic downturn; facing factory closures with limited access to credit to stay afloat.

How big is small? As defined by the Chinese government, the smaller ventures employ anywhere from five to ten workers, while the biggest mid-sized companies will cap at 2,000 people. During the last three decades, the estimated number of this type of business has gone from 1 million to 60 million. Approximately 57 of these 60 million are private entities – offering greater bureaucratic flexibility, filing 66% of all patent applications and accounting for over 60% of China’s total GDP.  And on the whole, they produce close to 70% of the nation’s exports while supplying 50% of all revenues in tax.

What do all of these figures mean to the world of small-scale sourcing?

Now more than ever, small businesses worldwide need each other to survive this period of tight credit, slowed consumption and bloating fat cats. And, sharpening a cost-efficient edge is imperative. So it seems likely that more and more small-scale contracts will be made between China and the West — trust permitting.

The bottom line is that the small and mid-sized producers and service providers of China are in a unique position to offer sophisticated, fully certified services at competitive rates – both in cost and speed. And, the infrastructure has reached a point, especially in the last decade, to where the foreign buyer is no longer the lone Nabob taking big risks and loses by sourcing from China. No more stabbing in the dark. Policy, technology, and a host of expatriate-run services (particularly in the sourcing sector) are now operating in China and facilitating trade on ever-accommodating terms. Add the recent drop in China’s export-driven market, and doors open to opportunities in product sourcing ventures of almost any size – waiting to be seized.

Written by Parker White

Some notable sources:

Written by Parker White