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Chinese Markets: Entry Strategy

 China business knowledge

How do you become successful in the largest consumer market in the world? It is a billion RMB question people ask themselves all around the western world. The answer is not as simple as the question and is subjected to multiple coherent aspects. Success in the Chinese market, like any other market, is dependent on market opportunities and demands. Furthermore the quality of the product, service offered and the strategy of the company all are vital components in determining the success.

This article focuses on the strategic components which grant you the success in the Chinese market. A necessary success factor one might say, but we are saddened to see many strategies are determined randomly. Examples of a chance-based strategy are numerous. Many Western organizations base their China operations on a Chinese person they stumbled upon at a congress, hotel or bar. But, is it enough? The following points will help you choose and plan a strategy that lead you away from failure.

 

Research based strategy

Any company with aspiration in the Chinese market should base their strategy on solid research. It is imperative for creating the highest chance of success. Such research should include rules & regulations within China, which are related to your market segment. These rules & regulations might influence the decision of moving into the Chinese market and, More importantly, via which framework (own company, partnership, distributor, etc.)? Besides the rules & regulations it is very important to know all ins and outs about the market. Who are the competitors? where is your segment located geographically? etc. Finding this information is impossible by using Google alone; hence this kind of research needs to be done locally.

 

Trademark your intellectual property

Intellectual property or patent needs to be registered in China. Many organisations believe that since they have a trademark in their home country, it will be valid in China. This is definitely not the case. Trademarks need to be applied for per region. Chinese law dictates that the first person or entity who registers a trademark in China will obtains the trademark and owns the rights. This is regardless of the fact whether this trademark was registered in another country, or it has been used by any other entity China.

 

Determine your framework

Based on the market research, it is time to determine the framework needed to enter the market. The market information combined with the Western company's preferred way of entering the market should determine what type of framework the business needs. Some of the options to concider when setingt up your own company are WFOE (Wholly Foreign Owned Enterprise) or to set a JV (Joint Venture). Otherwise finding a partner, distributor(s) or agent(s) are among the possible options.

 

Pick the right location to start your business

The choice between Shanghai, Beijing or Guangzhou might seem easy, but a long term plan is needed to define the right location for the business new entity. Moreover, different districts have different rules, therefore the business can't change their entity to another district or open a new office without a hassle. For this reason, a market research is required to define what is the best location to start the adventure. Tech companies could register in Shenzhen or Beijing, financial advisories could settle in Shanghai and trading companies could register in Guangzhou.

 

Determining a budget

After knowing what is your best market entry strategy, it is crucial to determine a budget needed to establish yourself in the Chinese market. In China, it could take quite a while before you get a solid return on investment. Planning out houmuch you are willing to spend in order to set up your business, is a very important part of your strategy.

 

Find the best possible partner

If and when a company decides to collaborate with any type of partner. This depends on multiple aspects but it should always be a strategical decision made by the Western company management. Factors that might influence the choice could range from the size, reach, state-owned (or private), etc.

 

Be patient!

patience is a key part of a successful strategy in China. Patience is needed during meetings but is also needed in the whole process of building up your business. A big influencer on time is the importance of building up a relationship. Such relationships, regardless of the type of strategic framework, are time consuming but will have a great impact on your success. Especially when managing the startup phase from your home country, progress is only made when someone of your organisation is in China. Communicating through email or telephone as a sole means of communication is near to useless. The Chinese have been doing business in a certain manner for nearly 5000 years. Please do not think that you can change the Chinese way of doing business individually and via a few emails, meetings and or phone calls.

 

Learn about China

Cultures and business etiquettes have a lot of influence on succeeding in Chinese markets. Part of the strategy should be to occupy yourself in learning about the do’s and don’ts of Chinese business culture. This does not mean that you should deny your own culture but you should understand the effects your own culture could have on the potential success of your business in China.

 

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