Is China the right destination for your business?

 

China is often viewed as a sure-fire market for business growth, but it isn’t necessarily the right destination for every company. Mark Hedley, Director at the China-Britain Business Council (CBBC), weighs up the pros and cons of doing business in the world’s second largest economy.

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How should I begin scoping the business opportunities in China?

Preliminary research is a vital starting point, especially since China is a very different market to the UK. Even basic market research can help you to gauge the demand for your company’s products or services in China. Part of this initial scoping exercise must involve competitor analysis. Are you offering something unique, or ubiquitous? Can you compete on price with local providers?

What challenges should I be aware of?

Understanding market restrictions, such as regulations or legal barriers that might prevent a UK company from entering the Chinese market is critical. China has something called the Catalogue for the Guidance of Foreign Investment Industries*, which lists industries that have bans or restrictions on foreign investment, such as telecommunications, automotives and financial services.

Can these barriers be overcome?

It depends on the sector and where the company sits in the value chain. For example, gambling is mostly illegal in China, and so gaming companies will find it impossible to enter the market. Companies facing significant or numerous restrictions, such as those in the banking or infrastructure sectors, might want to consider a joint venture (JV) with a local Chinese partner to gain access to the market.

What can I do to avoid any potential pitfalls of a JV?

In-depth due diligence surrounding a JV would need to be undertaken. This must cover everything from the background of the potential partner company – including their financials – to their reputation in the market. It’s also important to make sure that they have the right sales channels and capacity to help grow your market share.

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How will I know if my business model suits the Chinese market?

The devil is always in the detail when it comes to China. Many companies find that they need to alter their business model to adapt to what is possible in the local market. With China, you can't simply just scale up your business and transfer it to the local market. You really need to create a tailored strategy, which means doing your research beforehand. This is likely to increase the cost of doing business however, as you have to almost start from scratch. Often we find that the Chinese market is too much for companies who haven’t exported elsewhere before or that are very new start-ups.

What do I need to know about marketing to Chinese consumers?

It’s important to understand how Chinese consumers shop, what their tastes and preferences are, as well as how to communicate with them. Will your brand message resonate with them, for example? And how will you reach them, given that Western social media channels are largely off limits?

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How can I navigate cultural differences?

Understanding the unique way that business is done in China is non-negotiable, and building up personal relationships with business partners is very important. It can be worth learning a few words in Mandarin as an icebreaker. It is a very difficult language however, and so few business executives will be able to commit the time to becoming fluent Chinese speakers. Thankfully most business can be conducted in English.

Do Chinese political policies affect business opportunities?

Knowing what the policy priorities are for the Chinese government can be helpful in understanding the full extent of the opportunities for your company. The current Belt & Road Initiative, for example, holds great potential for UK businesses in the areas of infrastructure and project financing.

It’s often billed as the land of opportunity, but China isn’t an easy market to enter.

Are any common perceptions about China true?

There is an outdated perception that China is an underdeveloped, industrial economy where copying is rife, and companies have their intellectual property (IP) stolen as soon as they step off the plane. At the other end of the spectrum is the naïve view that the streets are paved with gold and that success is almost guaranteed. The truth lies somewhere in the middle – IP such as technology and branding is protected under Chinese law but there are still challenges, and although China does present opportunities, succeeding takes hard work and patience.

How long does it take to see results?

China is a market that requires a long-term commitment. There may not be immediate payback to business meetings in China, which can be a challenge for cash-strapped SMEs, but manageable for midmarket businesses with long-term ambitions. The culture in China is predicated on patience, so businesses need to be prepared to take the long view.

Where can I access more information about doing business in China?

The CBBC runs regular seminars to help UK companies understand what it takes to collaborate with Chinese businesses and can assist them in deciding whether they are ready to seize the opportunity. Nevertheless, there is no substitute for going out to China and experiencing the country’s dynamic business environment first hand.

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*China’s 2017 Foreign Investment Catalogue Opens Access to New Industries, Alexander Chipman Koty, China Briefing, July 2017 http://www.china-briefing.com/news/2017/07/11/china-releases-2017-foreign-investment-catalogue-opening-access-new-industries.html

While all reasonable care has been taken to ensure that the information provided is correct, no liability is accepted by Lloyds Bank for any loss or damage caused to any person relying on any statement or omission. This is for information only and should not be relied upon as offering advice for any set of circumstances. Specific advice should always be sought in each instance. The views and opinions set out in this article are those of the author, and do not reflect the views of Lloyds Bank plc nor are they endorsed by Lloyds Bank plc.

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