How to do business in China
Entering the Chinese market can deliver huge business growth but it's certainly not for the faint hearted. Mike Norfield advises on the steps you need to take to successfully enter the market and avoid getting burnt in the land of the dragon.
China is one of the world's most rapidly growing economies, with over 5,480 British-invested projects. And its improved international relations, government reforms, increased foreign investment, diverse markets and strong GDP growth rates at around 9% per annum make China an exciting opportunity for any business looking to expand internationally.
But approaching China is certainly not for the faint hearted. Firstly there's its size, with a geography made up of 34 provincial-level administrative areas with their own character, languages, traditions and economic profiles. Secondly China is undoubtedly the most culturally sensitive of markets in which to achieve successful market entry, meaning there are often more failures than successes - especially at SME level. It therefore makes sense to treat China as a global region in its own right rather than just a country.
Chinese demand for British expertise is particularly strong in:
- Financial services
- Energy
- ICT
- Healthcare
- Water
- Aerospace
- Automotive
- Construction
- Chemicals
- Electronic and mechanical equipment and components
- Information and communications technology
- Precision instruments (medical, optical, photo, technical)
- Chemicals and plastics
- Pharmaceuticals
- Metals and ores
- Energy
- Financial services
- Construction/Infrastructure
- Retail
Source: UK Trade & Investment
However for British companies that can get to grips with China's sheer size and unfamiliar business culture, there are huge trade and investment opportunities for the future. In order to overcome these barriers and ensure you maximise your chances of success, here are some key steps to achieving successful market entry in the land of the dragon.
Bridging the cultural divide
The first thing to consider when doing business in the Far East is the difference in culture. China's culture is significantly different from the West, and having such a different approach to society and way of life necessarily means having a different approach to doing business.
China is still largely a planned economy with a carefully thought-out system, which by looking at its GDP obviously serves the country well. So rather then blazing in with your own approach, be prepared to study theirs and learn the Eastern way. Demonstrating a willingness to be flexible in your approach and fit in with their system and values will stand you in good stead to achieving your goal.
It's not all about the money
Traditionally, many UK SMEs have entered the Chinese market on the basis of the 'one percent rule'. That being, one percent of Chinese market share would double, treble or more, most SME revenues. It's a logic that acts as a magnet to entrepreneur after entrepreneur but frustrates and offends the Chinese, and is an approach which will not serve you well.
The Chinese view this approach as mercenary self-interest, and frankly, with tired but patient disinterest. Put bluntly, they see this minimum commitment as you simply trying to make a quick buck and will politely oppose you. They want to know what's in it for them, not just you, and if there is no clear and resourced strategic plan they will quickly conclude that the answer is 'little or nothing', severely hindering your chance of success in the market.
Chinese influencers will only support you if you can demonstrate to them your commitment to more than just money. Show an ambition and appetite for growth, which goes beyond the western entrepreneurial approach. Making money will not be reason enough to support your market entry; you have to show them that you doing business will bring social and cultural benefits too. Achieve this and they will believe that there is enough profit for all to share in.
Making a difference
Next, you need to convince key in-country and industry influencers of your purpose and capability, both in terms of differentiation from existing, local, players and your commitment to a concerted and long-run sales and marketing plan.
Bring new ideas to the table and devise a strong strategy. Your plans need to demonstrate a clear understanding of how your products and services add value to the current products or services in your targeted market areas.
Falling at this hurdle will only prompt the question: so why can't a Chinese or local company satisfy these market needs? You need to prove to them you can give them something they haven't already got - or could get locally. Your product must be effective enough to make a difference.
A rite of passage
Market entry in China is a fairly ritualised and formal process. The general notion is that you are applying to enter the Chinese market; you must prove your worthiness upfront before you are allowed to prove it in practice.
In this respect there is nothing hugely different from the kind of strategic planning normally associated with market success – but the difference is that Chinese influencers and partners will take you through that strategic plan, in great detail, whether you have prepared for it or not.
Know your markets and don't embarrass yourself with language bigotry. They show you respect, not weakness, by speaking your language in their country. Speaking even a little Mandarin will demonstrate mutual regard that will benefit you throughout your business negotiations. The Chinese constantly seek harmony and reciprocity 'within the group'. Deal other than as peers or demonstrate selfish or opportunistic intent and you may as well catch the first flight home!
The concept of Guanxi is central to Chinese society and also to the way they do business, and refers to the importance attached to forming relationships and close networks based on mutual respect and understanding.
Influence is effected through Guanxi networks by word of mouth. Obligations and dependencies built up over many years can be 'called on' often from an individual indirectly connected through two, three or more steps in the network to facilitate an action or introduction. Guanxi needs constant reciprocation. Having called on the network you will be expected to actively offer goodwill back to the group. The value of your Guanxi lies in the amount of dependency you have built up rather than that which you have consumed.
When doing business in China you will engage with a social elite steeped in a planning culture. Centralised planning in China is a highly intellectual process, driven by the elite and the Chinese are good at it – and they will expect you to be good at it too. As such, careful preparation and command of the facts is crucial in order to avoid unforeseen barriers and potential cultural clashes.
Embrace the locals
A successful market entry means adapting to local conditions and requires significant commitment - Chinese influencers and partners will just reject any other approach.
The importance of working with local businessmen and establishing a firm and visible local presence cannot be underestimated. Tangible commitments such as utilising and investing in the skills of the local workforce and establishing in-country offices and facilities will be considered as major and positive milestones and should be communicated throughout your network influence.
It's necessary to cultivate relationships with Chinese influencers, and potential employees, and make best use of local contacts and partners with industry experience to draw in expertise and local knowledge, without it your approach will seem crude and opportunistic in a world where the process is well defined.
Getting over the Great Wall
As with any new relationship there are many things to think about, but it's especially important to keep an open mind and respect cultural differences when dealing with an unfamiliar entity such as the Chinese market.
Trying to overcome such a number of cultural barriers can seem a daunting prospect, but remember, they are looking to you for a new frame of reference and will readily respect UK and Western product quality and innovation.
China represents a tremendous opportunity and there are many UK companies of all sizes currently succeeding in the Chinese market. And if you stick to the strategy and play by their rules there's no reason why yours shouldn't be one of them.
Mike Norfield is managing director of Team Simoco.
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BusinessZONE - 25-Apr-2008
Categories: Money matters
Story read: 3059
