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countless companies have learned--to their chagrin--doing business
in China can be like dueling blindfolded. So what keeps Jeffrey Bernstein going for a dozen hours a day in a drab warehouse in an
out-of-the-way corner of Shanghai?
He's found a small wedge into an underexploited corner of China's booming trade: logistics--getting goods to the right places at the right time. Because its distribution is so fragmented, the nation spends about 15% of its GDP (which was $1.2 trillion last year) on logistics, well above the U.S. rate. Thanks to Great-Wall-high barriers to foreign entry, few outsiders
even try to get into this business in China. Which leaves an opening
for Bernstein, 33, who spent six years as an energy and retail
consultant for |
McKinsey & Co. in the U.S., Korea and China, grew fluent in Mandarin and has developed basic survival skills. "You have to be prepared to be swindled all the time," he says--from the business-software vendor who absconds with your money to the customs official who fingers a new shipment of Oakley sunglasses and broadly hints that he'd like a pair in exchange for not hassling you. Such constant perils are the biggest selling point at Bernstein's Emerge Logistics. "Typically, customers come when they're stuck," he says of the 15 Western corporations that do business with him. "They don't trust Chinese companies with their goods or money. And they don't want to open their own company in China in order to store goods,because of the cost."So clients like |
DaimlerChrysler
(nyse: DCX - news - people ) (selling gears, hydraulic pumps and
the like), Gates Rubber (windshield-wiper blades, hoses) and Columbia
Machine (machines that make concrete blocks) have Bernstein's three-year-old
outfit take possession of their goods, get them to customers and
fill out all the paperwork. Paper? That must have been a
Chinese invention. From initial sale to delivery, getting goods
through customs requires 100 forms and an additional wait for clearance
so that Emerge's data terminal can print out the government's okay.
And still there can be mishaps. "You often receive a statement
that clears goods for import--but then find out those goods really
don't belong to you," sighs Bernstein.Such errors can't be
corrected online, however. To get the right customs clearance form,
he says,you have to bring your computer |
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To import wine, you need to register the label for each type of grape or varietal, which takes at least two months, and supply four sample bottles. Even after approval it can take several weeks (and many more samples) before the wine reaches stores. Bernstein also offers accounts receivable collection, and, unlike most rivals, he's willing to take title to goods. He pays his U.S. clients only after the goods are sold and the money collected. Then there's insurance, with its welter of regulations and the government's insistence on dealing strictly in yuan-denominated policies, which then must be converted to dollars in case Bernstein needs to put in a claim. Headaches aside, early returns |
Bernstein is still learning as he goes. His first year in business he set up in Shanghai and was obliged, as a wholly owned foreign logistics concern, to operate in a "free-trade zone." That meant he had to swallow rents that were up to three times what his Chinese rivals paid outside the zone. There were high capital requirements for foreigners. Bernstein thought he could circumvent them and get by with the $80,000 he and his wife had between them. |
In theory, at least, China's membership in the World Trade Organization obliges it to make it easier for foreigners to invest. By the end of next year, for example, Beijing has promised to let anyone set up 100%-foreign-owned logistics firms outside selected trade zones. More foreign competition could make it tough for Bernstein and push him to raise more capital in order to expand his operations. But then, he figures, most people would be pretty crazy to undertake what he's done. WTO or no, he explains, "no one really thinks distribution in China is about to become easy." |
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