By: Olga Filatova, China business expert.
China is a tough country to do business in.
Working in China, I have seen many cases when entrepreneurs have come, spent time and money, but had to leave the country with nothing. The reason is that people most often come to China without preparation and rush to conquer the market, hoping to be lucky.
The Chinese are markedly different from the citizens of any other country. Market laws and business etiquette in the China are very specific.
In this guide, I will tell you how to properly plan the start of your business in China in order to save time and money.
Step 1: PREPARATION
First, you need to become a “detective” and conduct your own “investigation”. What do you need to know in the beginning? Start with the numbers, namely, study the general economic indicators for the country, as well as statistics for your field of activity and type of business.
Where can you find this information? On the Internet!
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It is important:
China has the highest growth rate of its middle class. These people make up 40% of the entire population, or about 600 million people. According to the Chinese government, members of the middle class here earn from 60 to 500 thousand yuan per year (600 thousand – 5 million rubles per year).
When you look at the numbers, it becomes clear that China is one of the fastest-growing economies in the world, with a steady increase in per capita consumption. It is a very promising market for business development.
However, is every entrepreneur welcome here? There is no easy answer. You have to do your own research and look at the following aspects:
- Competitors and the business models used by them.
- Potential partners.
- Possible programs of state support for your business, grants, and technoparks.
- Potential investors and recent deals on similar products and services.
VERY IMPORTANT! You will need to analyze the local Chinese legislation for your business area.
STEP 2: VISIT A LAWYER
Once you have decided that you are ready to enter the Chinese market, you need to legitimize your activities in the PRC.
In China, an enterprise can be organized in the following forms:
● a representative office of a foreign company – Representative office;
● A wholly foreign owned company (a company with 100% foreign investment) – Wholly foreign owned enterprise (WFOE);
● Joint venture (foreign and Chinese partners) – Joint venture.
Alternatives for starting your own company:
● Umbrella company – a subsidiary of your company in the PRC.
● An offshore company is a company registered in a special jurisdiction where the government allows you to operate under relaxed rules of taxation, accounting, etc..
● Intermediary company or distributor company – your Chinese partner takes over the services you need on outsourcing (there are a number of limitations).
Each form has its advantages and disadvantages. You will need to clearly define the scope of your business in the PRC and operate within that scope, and find out the need for and amount of share capital for your particular case.
In addition to registering a company, there are other legal procedures depending on the area of activity: obtaining a license, registering a trademark or patent, hiring employees.
STEP 3: FINDING PARTNERS
One of the key concepts of Chinese culture and philosophy is guānxì (“social connection,” “relationships and connections beyond the family”). Anyone with experience in doing business in the PRC will confirm that before you start your “business” you will need to establish personal relationships with potential partners.
“It doesn’t matter what you know, it’s who you know” – this proverb accurately reflects the realities of local business life.
Long-term experience of foreign entrepreneurs in China proves the fact that the more money you spend on gifts or treats for your business partners, the more respectful the Chinese perceive you. This business “military trick” is probably the most justified of all that can be recommended when entering the market.
STEP 4: NEGOTIATIONS
Business communication with the Chinese is a delicate, subtle process. You need to know its peculiarities in order not to break these fragile connections with one wrong move.
The people of China are quite sociable. They greet Europeans with a handshake, a slight nod or a bow from the shoulders. The most common way of addressing people in the business world is “Mister” (“Madam”) or calling the title (position) with the surname.
For negotiations and meetings, double-sided business cards (in English and Chinese) are desirable. When introducing yourself, be sure to hold the card with both hands.
Important cross-cultural features relevant to the Chinese:
● Listen carefully, learn to read between the lines, understand exactly what your partner means. Does he say what he thinks? Is he afraid of upsetting you? Doesn’t he want to “lose face”?
● Criticize less and avoid any provocative remarks. Treat your conversation partner with respect and keep your competitors out of the conversation.
● Keep in mind some of the body language used in China. Modesty and restraint are signs of discretion, while direct eye contact and a firm handshake can be perceived as intrusive pressure.
STEP 5: MARKETING
Marketing channels work differently in China and Russia. You probably know that many Internet resources are blocked in China by the internal censorship system, “The Great Firewall of China. In China there is no familiar websites such as Google, Facebook, Youtube, etc.
The main search engine in China is baidu.com. Weibo is used here instead of Twitter. The most popular messenger with a huge range of services in addition to texting is WeChat. In addition, Douyin, known to us as TikTok, is becoming more and more popular.
From among the world’s largest social networks, Linkedin works here (Lingying领英). The Chinese version has its own features related to censorship and is widely integrated into Chinese social networks.
One of the important features of Chinese social networks is their integration with Alipay (Alibaba) and WeChat pay (Tecent) payment services. This allows Chinese people to make purchases directly through social networks.
The Chinese are active Internet users and prefer online to offline. A new phenomenon KOL (Key Opinion Leaders) was born in the country – online celebrities with millions of subscribers and enormous influence. People in the PRC are eager to do everything as their favorite KOL, and it is the channel that is now recognized as the most effective for advertising.
I hope that you have an idea of the first steps to start a business in China and that you can avoid the mistakes made by most foreign entrepreneurs in China!
I wish you the best of luck on this exciting journey!
Olga Filatova is a international business strategist. A contributor to Forbes, she helps companies open the Chinese market securely and safely. You can reach out to her at firstname.lastname@example.org.
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