5 tips to invest and do business in China:
To many, investing in China can be quite a headache as not many people can understand China’s culture and business practices. It is true that in order to be successful in China, one will have to truly understand China’s distinct and unique culture. The following few pointers hope to provide some assistance to investors who are interested in entering China’s market.
1. Have clear understanding of China
It is essential to understand the culture of the country before investing in it. Understanding China is vital as China is a land of vast diversity. As such it is important for the company to understand the culture and the society’s values before establishing operations in China. Only through understanding the culture and values strong foundations can be built and higher chance of success can thus be achieved.
2. Understand local business practices
Given China’s distinct culture differences from the rest of the world, understanding China’s business culture is extremely crucial. What works in one’s country will not be applicable at all in China. Understanding how the local people think and their business practices can allow one to engage better and faster with them. Original organizational culture and practices may have to change in order to accustom to China’s practices. Thus flexibility and adaptability is the key for any organization to be successful in China.
3. Acquire local knowledge and establish local presence
Establishing a representative office in conjunction with a strong domestic private sector partner that has access to all necessary information and contacts in their field is the widely practiced formula practiced by foreign firms who already enjoyed success in China. Another way will be through setting up joint venture. Most importantly it has to be the selection of the correct partner. Finding the right partner may require more time, patience and experience but it is never a hassle to spend more efforts in choosing the partner because a wrong partner will definitely guarantees failure. Chinese expertise and local talent must also be incorporated into management or consulted during decision-making since local knowledge is essential as a source of information, access to networks and social and cultural learning, especially in China.
4. Need for establishing business relationships
Guanxi (relationship) is an important element in achieving successful business in China. Top management must learn to nurture close relationships with their local counterparts. This not only helps them to understand the Chinese domestic market, but also creates avenues for help in times of trouble or in need of assistance. Building strong relationships with business partners can aid in mitigating strategic and operational risks.
5. Establish close relations with government officials
Because the China government plays an important role in influencing market movement and administering foreign investments, a strong government relationship remains an important factor to do business successfully in China. Fewer hiccups may be met during paperwork applications or achieving local authorization if a strong relationship with government officials is in place.
How to do business in China
It is not surprising at all when many foreign investors complained when they do business in China. Many wondered why their years of experience in the business world could not be applied in China immediately. Doing business is about building mutual trust and benefit amidst establishing relationship with people. If you do not understand your counterpart well, it will be quite difficult to establish good cooperation with him/her. An old Chinese saying goes: know yourself and your enemy well and you can fight a hundred battles without any fear of defeat. This greatly emphasized the importance of knowing and understanding your counterpart.
Modern economic model differ greatly from the traditional one, whereby people in the past ‘fight’ till the last man standing. Today, people seek to achieve a “win-win” situation, and pursue long-term trade cooperation under a fair and healthy competition environment. Understanding factors such as China’s history, humanity and culture will be the key to investors’ success in China. As Western thinking and China’s traditional values do differ, encountering the culture differences is therefore inevitable, thus a better understanding of the cultural differences is necessary when doing business in China:
1. Learn how to handle Guanxi (relationship)
In China, Guanxi (relationship) is a complicated field. Establishing relationship with others does not mainly deal with achieving own self-interests or personal goals. A special feature of doing business in China will be that Guanxi (relationship) in China will have to include relationship with the government body, investors, partners and even relationship with your own staff. China government plays a large role in administrating the investment in China. This is because China is a socialist state; the economy is still largely controlled and managed by the government, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government. At the same time, seeking a suitable local partner may be a shortcut and helping hand in developing your business in China market.
2. How to prevail over competition
China, at the moment, can be said to be a big, open market, and the ability to prevail over competition is a very important issue today. Investors should fully realize and maximize one’s advantages. Some investors are afraid that the China’s imitation products will hurt the sale of their products. Even though this symptom is worrying, however in a free and competitive market, it will always be one that has the superior quality that will not be afraid of competition and will prevail eventually. China market is constantly undergoing standardization, and the China government has vowed to protect the quality of the market.
The Vice-Minister of the Ministry of Foreign Trade and Economic Cooperation had previously stated in his speech that being a member of the World Trade Organization, China government will continuously rectify and standardize the economic structure of the market, and will persistently crack down illegal acts of producing counterfeit products. Technology level in China is still relatively lagging behind, thus foreign investors should fully make use of their advantages in technology and expertise to produce high-quality products and services. One should not be over worried about the negative impact brought about by new counterfeited products. Continuous development of one’s technology and emphasizing on innovation will be the key to success.
3. Route for Investment
There are three options to take when make investments in China, mainly: wholly foreign-owned enterprise, Chinese-foreign cooperative enterprise and Sino-foreign joint venture. Which option to take will have to depend on factors such as the investors’ investment direction, investment environment, and the amount of investment to be undertaken. Generally speaking, wholly foreign-owned enterprise require examination and approval from many government bodies and this process can be quite hassle and time-consuming. Government procedures for establishing Chinese-foreign joint venture and contractual joint ventures will be even more and the process will require even more from more government bodies. Thus Sino-foreign joint venture appears to be the ideal investment option as less governmental procedures and authorization time will be required. Possibility of encountering hiccups will be smaller.
How to export to China
Mainly there are 3 ways whereby one can export his/her goods in China:
1. Distribute your goods directly
2. Establish a joint venture
3. Find a qualified agent or distributor with a vast sales network
Before exporting your goods into China or choosing a Chinese partner, it is advised for you to conduct thorough market research and due diligence. Companies should be mindful of possible problems in export rights, regulations and intellectual property rights protection. If the company decides to distribute the goods directly, then it will have to be aware of the distribution rights and understand the licensing process in China.
Distributing your goods directly may be a complicated and time-consuming process as one may not be familiar with China’s business practices and government regulations. Application for distribution rights and establishment of own distribution channels will be difficult. Chances of failure will be higher as a result. Establishing a joint venture will thus be a better option. Establishing cooperation with a local partner can allow you to have faster access into China’s market and with the local partner’s knowledge and experiences of China’s market, your success rate will be higher and goods can be better distributed. Acquiring help from a local partner does give you many advantages in penetrating the China’s market. A side issue to note will be that joint venture usually requires large amount of capital and China’s government may have capital control towards outflow of funds should one transfer his/her funds back to his/her home country. The government will also need to assess the potential economic benefits that it can bring to China, e.g. does it create job opportunities for the local population before approving it.
For small and medium sized companies, the best way to enter the China market is through a reputable or well-known agent or distributor. These companies are located regionally and typically have large sales network. Thus they will be able to have a better understanding of the China’s market and can provide assistance in developing distribution strategies in China and the region. In this way, new products can be launched easier into the market and distribution network can be set up rapidly without any problems dealing with distribution rights and licensing.
Besides all these, the most important step that one must take before exporting his/her products into China will be to have a thorough understanding China’s customs, regulations and controls towards imported goods. A sound market entry strategy is also necessary in order to penetrate the China’s market successfully. An assessment of your goods’ strengths, weakness, opportunities and threats can allow you to promote and distribute your products better. Understanding the profitability and marketability of your products in the China’s market is thus vital before exporting your products into China.