Disruption, exponential growth and acceleration are just some ways to describe China. Its advances in technology and innovation have put the country in a never-before-seen transformation that presents great opportunities for companies looking for global presence and growth. That being said, China’s political, financial, legal and cultural trends are constantly changing making it extremely difficult to navigate the Chinese business environment.
theDesk interviewed Members and Neighbors with a vast experience of running businesses in China to share their knowledge and identify the common misconceptions that hamper international companies on their way to success in China.
Here is what we learned!
The first misconception is believing that all roads lead to China
With its sustained economic growth, China has become the promised land for businesses who want to get big fast. But as theDesk Member Jason Gerber, Managing Director of Robert Franz Limited, points it out “if you are entering China just to have a presence there, then you are doing it for the wrong reason.” His sentiment is shared by another member Axel Scholz, COO of Think it Twice: “China is a hot topic but every business which thinks about entering the market needs to be clear on why they want to be there.”
The second widespread misconception is the belief that China has still a lot of catching up to do
With 120 Chinese companies making it to Global Fortune 500 list in 2018, China is a close second to the U.S. with its 126 companies. For aspiring businesses, it conveys an unequivocal message: while planning your move to China be clear about the unique value-add of your product or service.
As Axel puts it “if a company thinks it will simply bring something that China has never seen before without a careful analysis, they are wrong. These days are long gone. ” Furthermore, Axel shares “competition is fierce, so never underestimate local companies and the speed with which Chinese can build businesses. Let’s face it, locals know the market way better. So for an international company it is vital to be able to answer the question of what value-add exactly they bring to Chinese market.”
The third misconception is “China is so big there is room for everyone”
With the largest population in the world of more than 1.3 billion people, Chinese market may seem boundless. But experts warn, China is not homogenous and before moving in, companies have to analyze the sub-markets and segments to identify the location that will offer the optimum product-market fit.
The fourth misconception is “Strike the iron while it is hot” Approach
While jumping on the opportunity when it arises is a common strategy, in China it is better to slow down and take time to do homework. A lot of homework. As Axel said “don’t just drop in there and try to figure it out on the way. Do research, find partners and advisors, learn the nitty-gritty of your industry government regulations and requirements. Get boots on the ground and research opportunities, barriers and special arrangements for your industry.” Jason mentions “investing in China typically requires a significant capital investment and mid- to long- term commitment. Even if you are hoping your China enterprise will generate enough income to at least support your company’s ex-China operations, which is certainly not guaranteed, dividend repatriation, supply chain transfer pricing, intra-company royalty payments, and any of a myriad of other means of extracting monies from a China venture are all highly regulated and almost always take far longer than expected. Do your due diligence and manage your own expectations before diving in.”
“Put your mind to exploring the nuances, otherwise they can create major difficulties in the future,” – advises theDesk Neighbor George Lam, Partner at Crowe Tax Services. In his practice, he encountered a company who did not take time to familiarize with the Chinese commercial setting. As a result, due to the mis-forecast of cash flow, the registered capital stated at the moment of the company registration was not appropriate for the business and affected the available financing options. In the end, the company had a hard time applying to different departments to sustain the business.
At the same time, Jason Gerber warns to avoid extremes. “We all know that there is a slew of rules and regulations with which anyone doing business in China must comply, but it’s vital that the company maintains its focus on the core value proposition of their product or service. If management and staff are spending all their time dealing with regulatory issues and not on the ongoing commercial development of the company, things won’t end well.”
To learn more about the nuances and intricacies of starting a business in China, join theDesk Inspiring Thursday the 6th of June, at 6:30 pm.
We have invited 4 speakers with extensive experience of setting up and running business in China to share their expertise and answer your questions!
Hurry up, spaces are limited.
To learn more and register, RSVP here!
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