My wife Dong, who runs HappyMudan, is from China. I’ve always been interested in travelling to and understanding other cultures, so she’s indulged my interest in spades just by answering my stupid questions (”Do they have Christmas in China? What’s a typical Chinese breakfast? Are there pizza parlors in China?”)
Anyway, one shared interest we have is in doing business with and perhaps in China. (We’d like to live there for a few years.) Recently, while researching what became HappyMudan, we began talking with her cousin Xi in Beijing. Xi is a bright young man of 21 who wants to start a business. He’s interested in doing something over the Internet, so we’ve been helping him get started. He still hasn’t decided on the exact business model, but he wants to do something with Google AdWords.
Google is fairly popular in China, but it’s not the dominant force it is here. There, Baidu is the #1 search engine. In contrast to the US, where seemingly every search results in a ton of AdWords ads, Google China is almost virgin territory.
Why am I writing this? Posterity. We belive China is poised for explosive growth on the Internet. I want to document the experiments we do there and perhaps help others see the way.
So, to wrap this up, here are a few pros & cons to consider about China.
Pros
- Over a billion people live there! Actually, that number is misleading. It’s better to think of China as a series of smaller markets in the major urban centers – Beijing, Shanghai, Hong Kong etc – encompassing perhaps 100 million people
- Gigantic manufacturing capacity. It seems like everything – everything – is made in China. Much of it is exported to the West, of course, but the Chinese middle class is growing, as evidence by the emergence of Christmas as a major gift-giving holiday. (Remember when I asked about that before?) They don’t celebrate the Christian aspect of Christmas, just the naked capitalism of it.
- China is 2-3 years behind the US on the Internet. This is a good thing for entrepreneurs. It’s hard to believe, but AdWords is less than three years old. During that time Google has grown into a billion dollar company, and a lot of other companies are making money on its strong back. Most Chinese companies have not discovered how powerful search engine marketing is yet. Given that it’s only the most important development in the history of direct marketing, there’s a lot of money to be made showing Chinese companies how to use it.
Cons
- Credit cards not as popular. This is a biggie. Credit cards are gaining in popularity in China, but the penetration rate is very low. The idea of buying product over the Internet in China is still very foreign.
- Piracy is still a big problem. Another biggie. Chinese companies rip off everything from DVDs to Calvin Klein logos. Given the chance, they’ll probably rip off e-books and software too.
- The Chinese currency is undervalued. Part of the reason Chinese goods are so cheap is that the government of China keeps the currency artificially low relative to the dollar. For US consumers, this means great prices. For US investors, it means more bang for your investment buck. But for companies selling products in China, it could be a disaster. For example, a book that costs $20 in the US may sell for as little as $2 in China. How can you make a profit on that?