China remains one of the most critical global markets with its 1.3 billion people, the largest in the entire world for a single country. Not only is China outstandingly populous, but it also has a vast consumer base with an economy with a nominal GDP of 14.242 trillion dollars. This makes it only second to America in terms of its nominal GDP, and many have speculated with good reason that China is the next superpower. Previously, China was known as a closed economy, which made it difficult for foreign firms to get a foothold in the Asian giant. However, the process of liberalization has meant that progressive policies are now in place to encourage trade and investment. The current trade deal with the USA; notwithstanding, China is one of the most important trading partners for any country in the world. In Europe and North America, Chinese products are holding their own on the market. China is now a dominant player in the developing world, with particular emphasis on its China in Africa policy of engagement with countries that are primarily on the periphery of international trade. There are increasing opportunities for investors across virtually all sectors in the Chinese economy. For those that want to take advantage of the potential growth market in China, there are a few ground rules for success.
It’s about who you know
Chinese business is mainly transactional, with an emphasis on personal relationships and communication. You need to know people in the local business community to make it. This is not one of those markets where multinational corporations can adopt a standoffish attitude based on homogenous market penetration. If you are working in China, it is in your best interest to seek and make use of the advice from local entrepreneurs who will have had significant experience of operating in that environment. Although it usually is advisable to always seek sage advice in a foreign market regardless of your business size or experience, in China, you have to go beyond that. You have to build partnerships and actively court the local business community into working with you. Everything is more accessible when you have a Chinese partner to vouch for you. Even those that are not willing to join a full partnership with a Chinese business, there are other options such as the Global Innovation Forum, which offers advice to foreign investors that are interested in China. This advice is provided free of charge and can be invaluable when penetrating this complex market.
The smart money is on those foreign businesses that can build relationships with local businesses. Selling in China is a unique experience and very different from the process that is involved in other parts of the world, such as Europe and North America. Having successful partnerships with local businesses will give you some critical insights into how business is done here. For example, it will help you to reconfigure your marketing strategy to suit the local context. The differences between China and the rest of the world are not merely superficial. They are real, with specific reference to the local culture. Grant Tarrant of Writinity has this to say about trade in China:
“The cultural considerations when accessing new markets should never be overlooked. From the way that you brand and market your products to the way that you negotiate with local businesses and retailers, everything you do will be influenced by different rules: rules to which you are unfamiliar. Get the help you need to pass through this difficult phase.”
Understanding how governments work
The government is an essential stakeholder in all Chinese businesses, even if the country continues to pursue a liberalization agenda. You need to take the time to develop a clear understanding of how the Chinese government operates in terms of its rules and practices. One of the observations that foreign businesses have made about the Chinese government is its rather conservative attitude when creating rules for trading with international companies. China is not a fully liberal economy like the one you might encounter in the USA and Canada, for example. The rules that are put in place by the Chinese government are not mere courtesies because they can have serious legal consequences for those that do not adhere to them. If you are ever in doubt, err on the side of caution. A case in point is the intricate bureaucracy that underpins all business activity in China. This bureaucracy must be carefully negotiated because it saves time to follow the rules rather than seeking risky shortcuts. As an illustration of this point, you may need to set up as a Wholly Foreign-Owned Enterprise (WFOE) to operate. In reality, this can be a costly and time-consuming exercise that may delay your sales strategy significantly, yet you cannot avoid it if you do not want the authorities to come for you. When you are setting up your business plan, ensure that you allow enough contingency time and resources for all these little details that are the heart of the Chinese business environment.
Understanding how businesses work
Despite all the efforts you may have taken to ensure that you follow the government rules, all will come to nothing if you cannot convince your Chinese customers to buy from you. Ensure that you fully understand the Chinese consumer, regardless of whether they are part of your supply chain or if you are delivering an end product to them. One of the mistakes to avoid is thinking that Chinese consumers are identical to other consumers you may have dealt with in other parts of the world. They are different, and Chinese consumers have particular expectations that must be met if you are to succeed in that context. A case in point is the routine use of haggling, something that may be unheard of in the USA or Canada. Chinese consumers expect that you will bargain on price. They also need to know all the little details about your product before they can even consider buying it. The internet is an excellent place to advertise, but you have to ensure that any e-Commerce platform that you eventually use has lots of reviews and images to inform the Chinese consumer. Rachel Walliston of Draft Beyond has this to say about Chinese consumers:
“If you study Chinese e-Commerce sites such as Taobao, you will see that it facilitates the Chinese custom of haggling down prices. In the West, we are unfamiliar with this practice as we are satisfied that the price is the price. Be prepared to change your approach accordingly.”
Understanding the culture
Chinese culture is the glue that holds together all the transactional relationships that you will inevitably encounter as you operate in China. Culture is a critical element in determining whether or not you can provide good customer care. Chinese consumers expect exceptional customer care from all retailers. Knowing the language is a good starting point. You can also pick up tips from other established companies.
The take-home for any business seeking to penetrate the Chinese market is to understand the context first and then use it to communicate with the local people effectively. This is not a country that receives template marketing strategies very well. Chinese consumers require bespoke marketing techniques that address the needs and expectations of the local population. You may find surprising things in this market, such as the fact that WeChat is the dominant social media platform in China but figures very little elsewhere. You will not get very far in China if you decide to base your marketing strategy on Facebook.