By: Don Shen

In the global textile and clothing market, China has been a major player for almost two decades. Since becoming a member of the World Trade Organization, China's textile and clothing manufacturing and sales have increased dramatically, largely due to increased business from the West. In order to inform foreign businesses about current practices in trade with Chinese textile and clothing companies, a study was conducted examining major changes in China's textile and clothing industries over the last two decades.

Specifically, this study intended to provide an overview of China's textile and clothing industries to foreign companies interested in doing business in China. Interviews were conducted in the greater Beijing and Shanghai regions with government officials representing different regional levels (country, province, region, and city), owners or general managers of import/export companies, state-owned manufacturers, joint-venture enterprises, foreign direct investors, and private enterprises.

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Before 1992, under the planned economic system, state-owned enterprises enjoyed preferential treatment by the Chinese government. However, with the transition to a market economy, most state-owned enterprises have not only lost government protection, but are facing a huge financial burden: the obligation to support an increasing number of retired and laid-off employees.

On the other hand, because of past support, many state-owned enterprises have a solid foundation in technology and equipment, enabling them to offer quality products. At the same time, their managerial systems and market adaptability tend to be dated.

Joint-venture enterprises were the first group of enterprises to emerge after economic reform in China. Originally, most of these companies were state-owned enterprises. When these companies changed ownership from state-owned to joint venture with incoming foreign investment, money was paid to the government by the foreign investor to settle their obligations (e.g., provide support for retired and laid-off employees).

By doing so, joint-venture companies were able to have a fresh start without any long-term financial burden related to their former state-owned enterprises. As a result, joint-venture companies are in a more advantageous situation than state-owned enterprises because they possess a good technical and production foundation developed when they were state-owned companies and, at the same time, more capital and support from their more recent foreign investors allowing them to be more flexible, efficient, arid competitive.

For foreign direct investor companies (referred to as FDls), the advantages of doing business in China are some-where in between joint-venture companies and state-owned enterprises. The government requires all company types to follow the local business laws and regulations, which includes paying employees' monthly salary, retirement benefits, social security benefits, and health insurance.

Also, state-owned enterprises and joint-venture companies have some advantages left from their lives as state-owned enterprises (e.g., more display space and lower rent at trade shows), while the FDls have no such advantages from the government. Also, FDls may face an unfamiliar business, cultural, and social environment, thus encountering many obstacles to doing business in China.

However, since many FDls have the best and latest equipment and technology, and they often share marketing concepts, managerial models, and business operational traditions with other foreign companies, doing business with other foreign companies comes more naturally.