China is on course to become the world’s largest economy by 2030 and its political, technological, cultural and economic influence will continue to grow at pace over the coming years. Any company who is looking to secure its continued success has to have a China strategy.
That strategy might take many forms. A strategy might be purely defensive as organisations struggle to envisage how they will cope with the future competitive pressures coming out of China across a wide range of products and sectors. Hopefully though, most corporate strategies which address China will look at how companies can capitalise on the burgeoning domestic consumer and B2B market within the world’s most populous country.
Any strategy needs to take into consideration certain key aspects of doing business in China and in this article, we look at the top ten areas to focus on:
China is different, and it therefore needs a different approach. Ditch your preconceptions about how business ‘is’ or ‘should be’ done. Take off your own cultural bias and look at China afresh. You cannot hope to succeed in the China market unless you study the local business culture. At Global Business Culture we run very regular cultural awareness training courses for people who are starting their China journey as well as people who have been operating in the China context for a while. People often want to focus on the superficial cultural issues like business cards or the use of chop-sticks but these areas are largely irrelevant. You need to start to understand the mindset of Chinese consumers and business partners. What makes them tick? What are their hot buttons?
You need to really focus on understanding some key Chinese cultural concepts and how they impact on day-to-day business interactions. In the China cultural awareness programmes, we run at Global Business Culture we always dig deeply into such core issues such as the importance of ‘face’, how a strongly hierarchical mindset impacts on information flow and decision-making and why building deep, lasting relationships are key to success.
China is vast, and it is very regional in nature. It might not be too much of an exaggeration to say that you cannot really have just one China strategy – maybe you need multiple strategies. Where will you start on your China journey? Do you go to the well-trod areas such as Beijing or Shanghai or would you be better looking further afield where the competition might be less fierce and the pickings potentially richer?
What are your competitive advantages from a China market perspective? Are your prices competitive? Will you need to develop a lower pricing point to compete with low-cost local companies or does your ‘foreign’ product have the potential for a price hike? You might find that your product could actually bring a premium due to its uniqueness and attractiveness in the market. Whatever the answers to these questions, you absolutely have to get it right from the outset as this (along with getting your cost structure right) will probably ultimately determine success or failure.
You need to do thorough and effective research. Don’t try to penny-pinch at this stage – it really is a massive false economy. And China research cannot be solely desk-top based. You need to get out into the field, and you need to work with local advisers who really understand your objectives and who will talk the hard truths to you.
Get your structural approach to the market right from the beginning. How do you intend to approach the market? Do you want to set up your own Permanent Establishment in China from the outset? If so, why and under what legal structure? Getting these issues correct from the get-go will probably determine your ability to repatriate profits, ensure the maximum tax efficient structure is in place and just as importantly how easy it is to retrench should you decide that China is not the market for you in the long run.
Is there a different route into the China market that doesn’t involve the cost of setting up your own permanent establishment? Could you put your toe in the water by trying an online strategy to start with and if so, how might your online China strategy need to differ from your online strategies in other, more familiar markets.
Might a distributor or agency model work for you in the early stages and if so, how do you find a distributor who you can trust and who will have your best interests at heart? (We know of distributors who have taken on overseas partners to keep them out of the market…).
Recruiting good employees in an overseas market is much more complex than people imagine and needs really careful consideration.
Firstly, as a new entrant into China with no track-record, why would ‘good’ people want to work for your organisation? The obvious answer might be that you can afford to pay them above the going market rate, but this is a very dangerous route to take. If you pay the first employees well above the market rate to tempt them in, you’ll need to do the same for all subsequent hires and how can you hope to develop a profitable local company when your cost base is out of sync with your competitors?
Secondly, when it comes to hiring local Chinese employees do you really know what ‘good’ looks like? Imagine you interview six candidates for a role which is China market facing – how can you tell which of those six candidates will be most effective in a China context? It’s difficult enough to get recruitment right in your own cultural context but infinitely more difficult when operating in a market and business culture which you might have only a superficial understanding of. People are often guilty of recruiting locals in China who fit into the mould of people we might recruit ‘back home’. This is usually a mistake and comes back to haunt you in the future.
Who will you get your tax and structuring advice from regarding your potential China strategy? It seems like a naive question, but organisations often look to their historic advisers to help them look to the future. Your current advisers may have served you well over the years and they may understand your business, but do they understand China and all its myriad complexities?
We often advise our clients to review their panel of strategic advisers when they start to aggressively grow across the globe. You really need advisers who ‘get’ China and who have a proven track-record of helping clients like you navigate its often turbulent and difficult waters. This doesn’t only apply to your accountancy and tax advisers but also to your lawyers. Not all law firms are competent on China-related matters and getting, for example, contract issues right in the early stages can help you avoid difficulties down the line.
You might also need in-country China advisers to help with issues such as market research, distributor search, translation, recruitment, office space and a host of other ‘nitty-gritty’ stuff. Lots of providers offer these services (often under one roof) but not all of them deliver what they promise. Take your time to choose the right local advisers and always ask to speak to previous clients from your neck of the woods so you can get an honest appraisal of their capabilities. (Don’t necessarily expect local, on the ground advice to be cheap in China. Good people know their worth).
English language levels in China are patchy at best. You come across a thin layer of good English speakers, but that layer is quickly exhausted. How will you deal with the undoubted linguistic challenges you will be faced with? Do you have Mandarin speakers within your organisation at home and, if so, how can you utilise those resources? If not, will you need translators and how do you know if they are accurately translating what you want to convey. Difficult messages are difficult to convey Chinese to Chinese and your words are often ‘adapted’ to make them acceptable to the Chinese counterparty.
Do you need product literature to be translated or maybe a new website based in China, SEO’d for Baidu and designed in a way that will be attractive to a China audience? Who will do all of this for you and how much might it cost?
Don’t underestimate the language challenge and put your approach to this issue at the heart of your China strategy.
Your products and services need to be fit for purpose in a China context. Don’t think you will just be able to ‘pick and pack’ everything in its current format and just place it successfully into China. You might be able to do this – but you’d be very, very fortunate if you can.
Adapting effectively to local market conditions and expectations is essential but you will not be able to do this unless you have a good understanding of what those market conditions and expectations actually are. This is again where good quality, in-depth research is so important. Get out into the market, study your local and international competitors and how they do things, test your findings and adapt accordingly.
As I said, China is enormous, and you might find that you need to adapt your products and services differently in different regions. That’s a big task but the potential rewards are also sizeable.
We have worked with clients who have taken one of two attitudes. Some clients say, ‘we have a global approach to things [could be product design, could be recruitment criteria, could be contracts] and we apply this in every country we operate in.’ This rarely works in China. China has its own dynamic and it plays by its own rules China is big enough and strong enough to do this where places like Vietnam, Taiwan or Indonesia might not be.
Other clients have said, ‘we entered the India market five years ago, this is the way we did it and we have been reasonably successful. Therefore, we are going to take the same blueprint and apply it to China.’ Again, this approach rarely works.Start with a blank piece of paper and a set of objectives. Work back from that – don’t let past experiences (good or bad) cloud your approach to new markets.
Things take time in China for a number of reasons. It is important to keep front of mind the importance of relationship-building within a China market context. People are loath to do business with you until they have decided that you are the type of person they would be happy and comfortable to business with in the long-run. Relationships unfortunately are not formed overnight but take time, patience and funding. You can’t really hope to go to China on a one-off trip and come home with a bunch of contracts in your pocket.
You need to factor in a longer lead time and all the associated costs and cash-flow implications of this. The organisations who fail in China are often those who don’t have the stomach or deep enough pockets to play the long game. The Chinese respect people who are obviously investing in China as a long-term strategy. Be patient and you’ll be rewarded; push for quick results and you are likely to push the end result further into the distance.
These top ten tips are not really in any particular order of importance. Don’t think that you can use this list as a shopping list from which you can buy some and ignore the others. All nine tips form a holistic whole. All are important.
Global Business culture runs China cultural awareness and strategy workshops for clients on a regular basis. Although our clients vary in size, sector and level of maturity in relation with regard to China, they all have one thing in common – they recognise that China is different and can be difficult if not approached in the right way.
If you would like to discuss how we might be able to help you with your China issues, please contact us for an initial conversation.