5 Biggest Difficulties When Entering the Chinese Market
China’s economic and business environment has changed over the past few years.Before, it was obvious that the main focus of foreign companies was exporting from China. Nowadays, the scope of business activity has been increasingly re-oriented towards having a presence in the internal Chinese market. Due to the slowing growth of western economies, foreign enterprises have begun to understand that the Chinese market is a wise choice for those looking to expand their enterprise.
According to China Internet Watch, a recent study revealed that buying power of Chinese consumers is expected to grow by about 50% to $6.5 trillion by 2020. Undoubtedly, this means that the mainland is the perfect market to be for businesses wanting to grow within the next few years. Every company coming to China will not only come face to face with a variety of new and diverse consumer behaviors compared to western markets, but also unknown bureaucratic procedures and legal frameworks. Hence, collaboration with local advisors is recommended in order to avoid any irregular situation that can harm a business’s integration into the new market.
Which Are the Main Difficulties for Foreign Companies Coming to China？
Some market aspects such as distribution channels, purchasing behaviors and legal requirements make China a difficult market to access. Many foreign companies have failed to establish themselves as they have tried to apply the same business model as in other countries; Home Depot or Best Buy are the best examples. Therefore, it is essential to understand and adapt one’s business strategy prior to rushing into the market.
It is not a coincidence that foreign companies have legal issues due to China’s complex legal framework. The Spanish-based news platform Libre Mercado stated that 31% of foreign companies think that bureaucracy is their first concern when expanding to China. Most of the complaints are related to obtaining licenses and permits.
When creating a team in China, it is important that the human resources can cover a series of aspects that will add to the company’s well being.These aspects include: understanding Chinese business traditions, a fair Chinese language proficiency, a clear understanding of the Chinese market in their respective industry, and experience in building relationships with Chinese and foreign connections (guanxi). In order to accomplish this, there are two main options: internal transfer and promotion or professional recruitment.
The administration of employees in China varies whether they are locals or foreigners. Foreign employees do require more administrative efforts, and these must be managed by someone who perfectly understands China’s labor laws and legal environment. Foreign employees will require the management of the following: invitation letter, visa procedure, local contract registration, work & residence permit, payroll, tax declaration and expenses management. Hence, it is recommended to collaborate with a local administrative consultancy at least at the entry stage in order to avoid issues when migrating into China.
Due to a massive number of foreign companies coming into China, competition has risen. Considering that Chinese consumers have increasingly been attracted by foreign brands, innovation is now needed more than ever before in order to stand out from the crowd on the Chinese market. Another factor to take into account is that the government has the chance to give preferential treatment to national firms rather than foreign ones.
In conclusion, a decent understanding of how to manage these 5 difficulties when entering the mainland’s market is the key to a successful migration. Although, it is not mandatory to collaborate with a local consultancy to have managed one’s legal and administrative procedures at the early stage, it is recommended. However, we have to mention that if the foreign company possess of an administrative team who has an excellent Chinese language proficiency and understanding of China’s legal framework, all management requirements can be achieved. Even though it would suppose a much bigger economic and time investment at the end of every month.