China is an Entrepreneur’s Dream, but Do Your Homework. PART 5

Posted on May 15, 2014 in Marc Sparks: On Travel | 0 comments

China is an Entrepreneur’s Dream, but Do Your Homework. PART 5

Marc Sparks is an entrepreneur who has been involved in more than sixty start-ups since the Seventies. Marc is also the founder, owner, and CEO of Timber Creek Capital, a private equity firm. This is the fifth installment in a blog series titled China: The Land of Platinum Opportunity.

By their own admission and without any shame, the Chinese are notorious for their ability to copy goods, creating knockoffs of some of the world’s most popular items. I have actually been seriously warned by the local Chinese not to bring certain things into China unless I want to see copies of them in the States before I return home. In the ultimate rip-off, they somehow managed to open an Apple store in Kunming without Apple knowing about it! Yes, you read that right. They opened a fake Apple Store, complete with everything that a real Apple store offers. Their employees were even dressed in blue shirts with Apple logos on them, and they wore the classic Apple name tags. Starting from the outside, this faux Apple Store featured a shiny exterior with a big, glowing, white Apple front and center. When I walked into the store, the place was filled with “i-everything,” Macs, and more, all showcased on wooden tables equipped with patented Apple product holders. The tables and displays were identical to those used in Apple’s official stores. No one is really sure, however, if they were selling genuine smuggled Apple goods or fakes. And the truth is, it didn’t matter. Countless unauthorized resellers of Apple and other brand-name electronic products throughout China sell the real thing but buy their goods overseas and smuggle them into the country to escape taxes. And even more Chinese sell knockoffs for a fraction of the real items’ prices.

When they were first hired, the employees of the store had no idea they weren’t working for Apple. To avoid the risk of being caught, the bosses of this fake Apple store informed their multiple plain-clothed security guards to ban all picture taking.

Want to hear the best part of all? There were three identical stores within walking distance of each other. Altogether there were twenty-two fake Apple stores in existence before the Chinese government ordered the owners to stop using the Apple logo. Only two of those stores were closed down, and that was due to permit violations, not copyright infringement. Apple didn’t do anything about the stores, either. They considered the cheap imitation as a compliment. The news was worth hundreds of millions of dollars in free press for Apple, so Apple brilliantly took the high road and said, “Wow, now that truly is incredible and quite flattering.” Apple also let the Chinese government know that they hoped they would do the right thing and shut them down, but that was the end of the pressure from Apple, as Apple wants to get along with China at all costs. (This is a clear example of being willing to let go of the banana!) Apple was also trying to launch its iPad in China and had trademark issues in China that they were looking for help to resolve.

It’s estimated that by 2015, there will be 500 million people under the age of thirty in China, and these young people are starting businesses. According to Fortune magazine, China has the highest number of the world’s richest people under age forty and eleven of the world’s richest women entrepreneurs. Last year it was reported by Credit Suisse that the income of their millennials grew by 34 percent in three years. By the year 2015, China will be the second-largest consumer market in the world, and 300 million of its people will move into cities over the next twelve to fifteen years.

China is an entrepreneur’s dream; however, before you jump into that market, I suggest you travel there and spend two or three weeks just listening to and observing the people. Then find a trusted partner in China and get to know that person really well. The Chinese people welcome Western investments, but they have many rules and regulations you must adhere to before proceeding. Don’t be dissuaded by all of that—it’s worth the effort to tap into a market with so many buyers. What I discovered is that in business, the Chinese are extremely relationship-oriented. They only do business with people they know, like, and respect. To them, a transaction is not about business—it’s about the relationship, and those take time to build. Before they will even consider doing a project with you, they want to know who you are. They’re not comfortable moving forward before they’ve had a chance to figure this out.

Read more Marc Sparks’ insights at www.whoismarcsparks.com, his views on business and entrepreneurship at www.timbercreekcapital.com, and excerpts from his upcoming book, They Can’t Eat You, at www.marcsparks.com.

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