Doing business in China is a notoriously tricky thing, with many barriers to entry and a diverse consumer base which can be difficult to navigate. However, for businesses that get it right, the Chinese economy offers endless opportunities, which is why doing plenty of due diligence and forgetting the ‘rules of the West’ is crucial.
China has been heralded as an export economy for the last 30 years, with vast manufacturing operations and a willingness to export at a good price. Yet there has been a change in tide of late as the middle class grows and consumers become increasingly affluent. This presents a huge opportunity for overseas businesses to expand within a rapidly growing economy. Still, the age-old challenges remain.
Think East
China is a country of more than 1.3 billion people living in some 274 cities and rural areas. Spread out over the world’s third largest country, China is as diverse as it is big.
As the country rode an economic boom that has lasted for some 30 years, traditional towns have been replaced with vast city landscapes, leaving gaps and niches for savvy entrepreneurs to fill. Having local representatives in the country to help identify where these opportunities are is essential, and good relations with the local Chambers of Commerce can help as well.
Businesses in China are very excited by the prospect of overseas investors and growth in imports, but they are looking to deal with Western companies on an equal footing. Forging alliances may be the best way of acclimatising to the local environment, and would also be a less disruptive move for the consumers. But choosing the right partners can also be daunting, and due diligence should be carried out.
The internet also plays by a different rule book in China, with Google replaced by Baidu, and social networks also shaken up. Google-centric search engine optimisation (SEO) techniques are not likely to work on the Chinese search engine, and overseas companies must be registered in China (with an ICP licence) and hosted within the Chinese governmental firewall.
Which consumers?
Overseas investors are frequently finding that their products appeal to high-end Chinese consumers, who are interested in investing in branded goods from overseas. New innovations are also desirable, although businesses should first assess whether their patents are valid in China, and seek legal advice to confirm.
Luxury brands fair particularly well with affluent Chinese consumers, with a HSBC report in September 2012 estimating that 25% of the world's luxury purchases were made by Chinese nationals, a jump up from a 5% market share in 2007.
How we can help
We have a number of offices in China where our dedicated professionals can give you valuable insight into the market. Aside from the financial investment risks, understanding the varying compliance, business licenses and reporting requirements across the 33 Chinese provinces and administrative departments represents a huge drain on any management team’s time. We can help ensure your plans stay on track by taking care of the administrative hassle.