Tips on Doing Business in China
UK Trade & Investment and the China-Britain Business Council already have a huge amount of published guidance on doing business in China. Look at the Useful links section to the right for these and other helpful sources of information.
Areas you should focus on:
Understand the market
Success in China, as anywhere, depends on having good market information. China is a country of such size, diversity of peoples, cultures and business environments that market research that identifies specific markets for specific locations and groups of people is highly recommended before any serious commitment is made. At the outset, however, it is usually best for a company to simply visit the market to do some initial investigations first hand rather than paying for bespoke market research. Primary, bespoke market research is expensive and is carried out by people that naturally are not as passionate or familiar with your product or service, and your customers, as you are. More general market research that uses secondary data sources can give a useful overview, but the data on which it is based is often patchy, is backward looking and is of dubious reliability given the sometimes poor quality of public data sources. So do as much research yourself with your own eyes and face-to-face by going on a trade mission or on an individual visit, both of which the Essex International Team can organise. China requires persistence. Selling is a process of repeatedly re-visiting China to meet as many people as possible connected to your specific market. The person you need is usually several introductions away from the initial contacts you make. This takes time and patience and means you should plan for several visits at the outset.
Get away from the crowds. Don’t fish in the same river as everyone else (Shanghai, Beijing, etc.). Go inland to some of the major second-tier cities. This is especially the case for businesses on smaller budgets that need to be able to stand out from the pack more and where they can take advantage of cheaper rents and labour and a more willing local government.
Build the right team in China and at home
Having the right partners in China does not always guarantee success, but having the wrong partners almost always guarantees failure. The Chinese term 'guanxi' may be familiar to you. It literally means having the right connections. I regularly see the idea put forward that opportunities in China are dependent on having good 'guanxi'. Certainly it is true that in China more than many countries you will need to work hard to build up strong relationships at a personal level with those people that have some sort of influence on your business, be they suppliers, customers, distributors, agents or government officials. But I believe that no Westerner can ever really establish true 'guanxi’, which is a complex set of relationships based on intricate reciprocities, crafted by people steeped in social techniques perfected over centuries. The Chinese can use these contacts to create market opportunities, for example by influencing a distributor to favour their product over a competitor’s, possibly superior, product. As a foreigner, however, your starting point should be your product or service, which must be excellent (and preferably a strong brand) and meet a defined need in the market. Then, certainly, you will need to work hard to build the network of relationships in the businesses and government offices that you will need to make this opportunity succeed.
You should be sure about every link in your China ‘team’. This means agents, suppliers, distributors as well as partners. Do some level of due diligence on all of them. Do company checks. Ask for and check out references from other foreign companies. Once you have made these choices be prepared to spend a lot of time developing the relationships and keeping everyone clear about objectives and responsibilities. Once things get going, don’t try to manage by remote control from the UK. Ideally you should employ a local Chinese person to manage the China end. But again, select them very carefully, checking them out thoroughly to establish their competencies. You will then need to work hard to maintain their loyalty through financial incentives but also through such things as training and visits abroad. Be patient in building the team. Meet many people. I have often seen the tendency to seize on someone met on the initial visit or at a trade fair.
After a few meetings this friendly contact may indeed seem to offer a comfortable way forward. But in a country the size of China they are literally only one of a million such people and chances are there will be better business partners out there. Be prepared to invest enough resources to build the team. Staff time, logistics costs, consultant fees, legal fees, air fares, will all add up to a significant commitment for the company, but are essential. Be proactive in managing your ‘team’. Chinese business people can seem less forthcoming than we in the west are used to. You will need to take the lead in keeping a frequent channel of communication open. A final word on this topic of building relationships. Take time to understand the Chinese business culture. Have the courtesy to translate all your materials and correspondence into Chinese and learn some of the language. Just by doing these two things you will stand out from most other foreigners and will build your relationships more quickly and deeply.
Navigate the regulatory environment
The regulatory environment is improving but is still challenging. Setting up a company in China is not straightforward. For example, 20-30 steps are involved and much relies on choosing the right company structure and its scope at the outset. Take professional advice on this. The International Trade Team can put you in touch with local companies in Essex that can advise you. IPR loss should be a concern, but you can do a lot to mitigate this. As a minimum register all trademarks and patents in China, otherwise you don’t have a leg to stand on. This is not expensive but is vital. Register even before you attend a trade stand.
China operates a first-to-file system so if you re-appear in China six months after attending a show you may find that someone has seen your idea on the stand and filed all the trademarks for it already. If you are a manufacturer, keep your core technology away from China, inserting it separately. Some companies scatter the production of their product around different manufacturers so that no-one knows what they are making. This is not easy and another option is to consider using managed outsourcing companies. Overall, do not skimp on getting professional advice on matters such as establishing a presence in China, tax, human resources, etc.
