China accounts for 13.3% of global GDP and is a world export leader and the number one economic powerhouse. According to the International Monetary Fund, since 2014, China's GDP and purchasing power have consistently surpassed those of the United States. Over the past 30 years, China has undergone waves of reforms encouraging foreign investment and exports, leading to annual growth rates of nearly 10%.
As an avid consumer, this middle class is attracting more and more foreign companies. To encourage this trend, the Chinese government has made domestic consumption a new priority. Although the Asian giant has successfully attracted a large number of foreign companies, for many, the market remains a mystery.
Success in the Chinese market requires a lot of time, research, and investment. Not only are China and Western countries very different, but the markets themselves are also different. It is usually best to find an experienced local partner to guide you.
That's why we outline several critical factors for successful entry into the Chinese market and show you how to enter the Chinese market through several examples successfully.
1. Study the Chinese market
China is far from a homogeneous country: with 56 different ethnic groups, and 94% of the population concentrated in a few regions, the country has always maintained a balance between modernization and tradition.
Consumer behavior varies in different regions and active cities in China. For example, the minimum wage is set at the local level and maybe twice as high in some areas as € 120 per month in Yinchuan and € 245 per month in Guangzhou.
As a market of this complexity, it is essential to do a lot of research in advance to successfully adapt your product to local preferences.
2. Understand the complex legal environment
Commercial law is a relatively new field in China and is continually evolving. The state strictly regulates foreign investment, and obtaining approval from the authorities is a crucial first step for all businesses.
To know what kind of investment is approved by the state, you need to consult the foreign investment catalog, which is divided into three categories:
Sectors to encourage investment: subway construction and management, creation and maintenance of nursing homes, industrial design, architectural design, textiles, etc.
Departments with limited investment: the establishment of educational institutions, automobile manufacturing, and aviation maintenance, etc.
Investment prohibited sectors: production and maintenance of nuclear fuel, tobacco sales, production of sound recordings and online publications, etc.
Departments not listed above are authorized.
The latest updated catalog in 2019 opens new investment opportunities for foreign companies, for example, direct sales, remote sales, and online sales, which have been restricted by the government so far, but have been authorized. It is good news for international online retailers, as China is a leader in global e-commerce sales.
There are several legal options for companies looking to establish a presence in China:
Representative Office: This is the simplest company model, but it does not conduct sales or direct purchase activities.
Joint venture or cooperative enterprise: This model is highly encouraged by the Chinese government, including alliances with Chinese partners.
Wholly foreign-owned enterprises: This is the most common option for foreign companies because it allows them to bypass cooperation with Chinese investors. The main advantages of this option are greater autonomy, control, and flexibility.
Before entering China, companies need to pay close attention to China's tax system, administrative requirements, and intellectual property laws.
3. Find the right local partner
It is difficult to occupy the Chinese market on its own. Finding the right local partner is not easy, but it can help your business avoid common pitfalls and adapt to the market faster. It allows you to enter an established network better to understand culture, market specificities and regulations, etc.
In specific industries that are considered sensitive or strategic, foreign companies often need to work with Chinese companies. These include alternative energy sources, biotechnology, and advanced industrial machinery.
It is essential to pay attention to the conditions of partnership and clearly outline the legal structure of cooperation to avoid possible differences in the future. Intellectual property protection is a sensitive topic in China, and some precautions need to be taken to prevent potential technology leaks.
Foreign companies have a range of organizations that can seek advice and guidance in the Chinese market, such as the UK Trade and Investment Agency and the UK-China Business Council. If in doubt, seeking help is a necessary step to overcome the legal challenges of working in China.
4. Understand and attract Chinese consumers
Chinese consumers prefer international brands, which carry a specific status symbol. However, this does not mean that foreign companies can replicate their national strategies in China and hope to achieve the same results. They need to fully adapt their products and take into account Chinese culture and values.
Decide whether to translate your brand name, and if so, find an accurate translation that is easy to pronounce and remember
Adjust your marketing channels, as China's online norms differ from those of the West
Create ads that meet consumer needs, such as following promotions and reviews
Faced with so many cultural differences, administrative obstacles, and government oversight, China appears to be an unrealistic goal for many companies. However, looking at the success stories of IKEA, Starbucks, and Apple, it is essential to discover that this is a market with great potential.
If you want to enter the Chinese market but are not sure what problems you may encounter, you can contact us. We can solve various issues for you in the early stages, including market research, policy consulting, website construction, brand promotion, partner recruitment, etc. You can even entrust us to help you develop your business in China.