What are the mistakes to avoid when entering China?
- TCP Growth Partners
- Feb 4, 2020
- 6 min read
Co-published by Brainsfeed and TCP Growth
With the growth of investment in Chinese markets, it's easy to run into pitfalls that are new and different from what you might be used to in your home market. Read on to learn about 11 common mistakes so you can avoid them in your endeavors.
1. Lack of Market Insight
When starting a business in China, you have to do your homework. If you head in there with too many assumptions about what it is you are up against, the likelihood is you will end up losing money. Experts say that what you think you know about business won’t be the case when starting in China, you need to have the mindset of someone who is just starting out. Do your research and make sure you have taken the necessary time to understand how your product or service will fit into the Chinese market. You need to understand the spending habits and local business culture. You need to suss out how much locals will pay for your product or service, as overpricing is a common mistake people make. Try and learn from the companies that have come before, what they did wrong and the success stories too. Basically, when you are preparing to enter the Chinese market, leave no stone unturned.
2. Copy/Pasting Their Original Business Model
Similar to what was discussed above, you have to be willing to adapt your business to fit the Chinese market because the market will not adapt to accommodate you. You have to be willing to change your product if and when necessary. That means being flexible in your approach. It can be hard to admit that your product or your service needs to change but remember that Kraft had to adapt the Oreo to please Chinese consumers, and if it happened to them, it can happen to you.
3. No Chinese staff onsite
Hiring locally in China has numerous benefits. One of those benefits is having people on the ground who understand the local culture, practices, and language. This can save you all sorts of problems as they will be able to help you deal with any partners you have, be able to advise you on the best way to approach situations and help you communicate with the business community. Still, there are some things to take on board before hiring locally. China has a strong social safety net system which means employers have to provide a lot in the way of insurance and coverage for their employees. That being said, with the local knowledge you gain and the difficulty of hiring a foreign national, hiring locals often proves to be the most beneficial move.
4. Wrong company set up
As touched on in the previous chapter, there are numerous different set-ups you can opt for when setting up your business in China and it is important to choose the right one. Experts suggest people are better off opting for a Wholly Foreign-Owned Enterprise (WFOE) over a Rep Office. A Rep Office is a simple way for a foreign business to set up in China, but only allows a limited amount of operations and does not allow you to make a profit. Despite that many people think they can get around the minimum capital requirements and administrative costs of setting up a WFOE by opting for a Rep Office, but taking that supposed easy route does not pay off. Experts warn against trying to circumnavigate China’s bureaucracy by starting a Rep Office and suggest that it is worth opting for a WFOE despite how difficult it is to set up. Another warning for those who think a Rep Office is a better route for their business is that if you think that choosing a Rep Office and planning to change to a WFOE once you get established is a good option, you will find yourself wrong again. Either, the Chinese authorities will make you become a WFOE at some expense, or when it comes to the switch on your own accord, you will have to pay to shut your Rep Office down. This could prove very expensive and the cost will be on top of the money you paid originally to set up the Rep Office and the money it will cost to set up your WFOE.
5. Treating China as one unified market
You only have to look at how many people there are living in China to know that it is quite clearly a diverse place. A country of that size and that population is obviously going to have areas that are unique from one another and understanding that is a must when entering into the Chinese market. Too often companies will go in and conduct research in Beijing or another big population centre and believe that what they have found will ring true for anywhere they decide to set up in China. This can be a fatal error as many people advise that China is more of a continent rather than a country and should be treated as such. Always remember to think locally and research locally. China is a big place.
6. Inadequate understanding of Chinese culture
China has an ancient culture with deep-rooted traditions. It is a culture that is very unique and wildly different from that of Western nations. It is important when setting up in China to understand this, as if you do not you will easily turn away potential clients. One way this will happen is with branding. There have been many companies, Nike being one of them, that have failed projects in China because they released advertising that did not play well with the local audience, who found it distasteful, offensive or not to their own set of values. Other companies have had great success because they find ways to advertise and brand that is well thought out and connects with a Chinese audience. Often, a good way to do this is to connect with a local and hire them to help you with your brand strategy. This way you have on the ground knowledge of how Chinese culture operates.
7. Underestimating Local Competitors
China has had a strong economy for a few years now and with that, strong businesses that have come up on their own selling to their ever-growing domestic market. It would be foolish to underestimate these competitors because you think being a Western brand will bring you cultural capital. Observe your local competitors and learn from what they are doing right.
"DO NOT THINK YOU CAN AUTOMATICALLY COME IN AND TAKE CUSTOMERS FROM THE LOCAL BUSINESSES"
8. Trying to Do it All Yourself
You need to find some people to help you with the processes of getting set up in China or you are going to find it very difficult. Luckily, there are many companies that will help you navigate the complicated process involved with getting your business set up. This means helping you translate and filling out official forms and helping you to understand the protocols. You have to be careful though, as there are companies that will seem like a good deal but then deliver sub-par results. Experts advise that you get what you pay for, so it is worthwhile seeking out a well-established, well-known outfit to help relieve yourself of some of the burden.
9. Hiring a Foreign-Owned Agency in China
This one hardly needs explaining. A foreign-owned agency is not going to offer you the same kind of on the ground access that a Chinese agent can. Some businesses have tried foreign agencies and they have failed. It’s been said plenty, trust local sources.
10. Taking Too Long to Launch Your Products
You should not rush your product out when starting out in China, so make sure you use that time to get yourself prepared for launch when the time comes. You also do not want to take too long to launch either. Try and capitalize on the momentum you have upon arrival. This means timing the marketing right so it leads smoothly into the launch because if you continuously delay people will lose interest in your product.
11. Conflicting with Government Initiatives
Simply put, if you go against the interests of the Chinese state, you will fail. As discussed earlier, the Chinese government has initiatives to either encourage foreign investment in certain industries and initiatives that keep other industries strictly under Chinese control. There is little point trying to go against these initiatives, you are much better flowing with the tide. You are much better off using the initiatives of the Chinese state to your advantage, that way you avoid conflict and may find yourself with a favorable leg up into the market.
Excerpt from Market Entry 10x Series (2020), co-published by Brainsfeed and TCP Growth
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