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5 Factors To Consider When Doing Business In China

China's slowdown shouldn't detract from potential business expansion

15Jun

Having a global perspective on business opportunities is essential for modern companies and at present China is a key battleground. Where western companies used to teach Chinese industries the best way to become profitable, the tables have now turned. Fast developing industries and an improving business environment make China an attractive location for foreign investments, despite the recent downturn. Here are 5 factors to consider when doing business in China.

Understand Chinese Culture

The first aspect to consider is the culture. Different mentalities and development levels shouldn't be underestimated, as they play a significant role in creating either very good or very bad deals. Despite the recent slowdown in economy growth, almost nothing can change the fact that the majority of the leading companies have some kind of Chinese link and that many large companies can't succeed on their own without a strategic partnership with Chinese entrepreneurs. Every country has a unique mentality meaning that imposing, for instance, Western values to Chinese culture would make little or no sense. The Chinese audience does not demand sophisticated products, although they are e-savvy enough to turn their back to any poor quality or performance device or service.

For instance, in many Chinese cities, it’s been only a decade since modern shopping malls appeared. People are still getting used to the ‘traditional ways’ of shopping and are eager to switch online. According to McKinsey, consumers would rather go online than experience a poor service in a bank or shopping mall. It means that almost no consumer-facing business in China can survive without both an online and offline strategy.

Make Friends

Organizing an effective and affordable deal is what every company wants when moving to China, but it's more challenging for foreigners because local entrepreneurs already have an intimate knowledge of processes and contacts. They are likely to have established networks meaning better connections if something goes wrong or if they need to make quick business changes.

It means that it is beneficial to forge strong links to those who already operate in the area, to take advantage of their networks and pre-existing knowledge of the customs and requirements of working in that environment.

Take Your Investments Slow

Despite China being the world’s second largest economy, the country is still considered to be underdeveloped with a lot of potential risk. It may be tempting to make big investments to instantly drive revenue, but in reality, it may end in costly mistakes. Instability of the emerging market causes risk related to not returning the capital and investing too much in a short period of time. Gavin Haynes, Managing Director at Whitechurch Securities pointed out that investing in China won’t always be a smooth ride and volatility will be a necessary evil for anyone getting involved in emerging markets.

Instead of jumping straight in, it is worth dipping your toe and slowly investing more as you gain trust and understand the . This way you can build relationships and even if you have a few that don’t work out, you don’t risk losing too much if they don’t work.

Do Your Homework On Legislation

Chinese law can be tricky and requires a lot of research. Special attention should be given to the Anti-Monopoly Law and one of its sections about the regulations on foreign investors' merging with and acquiring domestic enterprises.

In order to exist in any new market, complying to laws, regardless of how complex they seem, is essential. In China this is not always simple or quick, for instance, if a company wants to carry out a 'concentration' that exceeds certain thresholds, it has to notify the Chinese government about the coming transaction and be given clearance. This process alone can take up to 180 days. The Law also requires review and approval from the government before foreign companies are allowed to make investments or acquisitions that may impact national security.

A Playground For Investments

China offers multiple areas for investments. For instance, the amount of shopping done through the internet is currently 12.9% which is higher than the U.S but still has a huge potential. There are many flourishing sectors to invest in, such as education, with private universities gaining popularity, and preparation of children to study in the U.S, UK, and Australia turns is a multi-billion dollar business. More opportunities are available in Healthcare, IT Services, and Tourism which have all had almost continuous growth over the past 5 years.

Getting it right can open many doors and create considerable wealth. Doing business in China is not always easy but it's rewarding when done correctly.

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