Chinese Businessmen: Maybe Strategy Matters

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  • Strategy matters when you’re a complex business, operating in a market at the margins of what is possible. This might be true when you’re a cutting edge tech company. It matters less when you’re selling commodities, as we were.
  • The majority of traditional Chinese businessmen don’t think strategically. They think opportunistically. And that’s perfectly fine — by and large, the business domains they work in don’t demand it.
  • The SME loop is as follows: Imagine that you’re a traditional small-to-medium-sized enterprise, or ‘SME’. The business model doesn’t matter for this discussion. You could be making and selling physical items, in which case you own equipment and hold inventory and require a fair amount of cash on hand. Or you’re a software consultancy and you turn programmer hours into code. Or you’re a distributor: you buy some product, and sell it to consumers for a markup. After a few years of execution, most SMEs stagnate. They remain small-to-medium sized. Growth slows to a crawl. If we treat this study of businesses like we would organisms, there appears to be an invisible ceiling that constrains the growth of many of these small businesses
  • The common thread amongst all these companies — or at least, the ones that successfully broke free from the SME loop — is this: they had access to a line of capital that enabled their growth.
  • Maybe strategy matters. Maybe trial and error works only for starting small businesses, but breaking past the SME loop requires picking markets or businesses strategically.