Determining Your China Strategy in 8 Important Steps
Determining Your China Strategy in 8 Important Steps
How do you become successful in the largest consumer market in the world? It is the billion RMB question people ask themselves all around the western world. The answer is not as simple as the question and is subject to multiple coherent aspects. Success in the Chinese market, like any other market, is dependent on market opportunities and market demands. Furthermore the quality of the product/service offered and the strategy of the company are vital components in determining the success.
This article zooms in on the strategic component regarding becoming successful in the Chinese market. A seemingly necessary success factor one might say, but we are saddened to see many strategies are determined at random. Examples of chance-based strategy are numerous. Many Western organizations base their China operations on a Chinese person they stumbled upon at a congress, hotel or bar. The following points will help you choose and plan a strategy, determining your strategy in 8 important steps;
Step 1: Research based strategy
Any company with aspirations in the Chinese market should base their strategy on solid research. It is imperative for creating the highest chance of success. Such research should include the rules & regulations within China regarding your market segment. These rules & regulations might influence the decision of moving into the Chinese market and, more importantly, via which framework (own company, partnership, distributor, etc.). Besides the rules & regulations it is very important to know all ins and outs about the market. Who are the big competitors, where is your segment located geographically, etc. Finding this information is impossible using Google alone; hence this kind of research needs to be done locally.
Step 2: Trademark your intellectual property
Intellectual property or patents need to be reregistered in China. Many organizations believe that because they have a trademark back home, it will be valid in China. This is most definitely not the case; trademarks need to be applied for per region. Chinese law dictates that the first person or entity who registering a trademark in China generally obtains the trademark and owns the rights. This is regardless of the fact whether this trademark was registered in another country, or an entity using the trademark in China.
Step 3: Determine your framework
Based on step 1 it is time to determine the framework needed to enter the market. The market information combined with the Western company’s own preferred way of entering the market should determine what type of framework a company needs. Some of the options are to set up an own company (Wholly Foreign Owned Enterprise) or to set a JV (Joint Venture). Otherwise finding a partner, distributor(s) or agent(s) are other options possible, which still can lead to great success.
Step 4: Pick the right location to start your business
The choice between Shanghai, Beijing or Guangzhou might seem easy, but a long term plan is needed to define the right location for one’s new entity. Moreover, different districts have different rules, and one cannot change their entity to another district without hassle or opening a new office. Consequently, in depth market research is required to define what the best location is: tech companies could register in Shenzhen or Beijing, financial advisories could be in Shanghai and trading companies could register in Guangzhou.
Step 5: Determining a budget
After knowing what your best market entry strategy would be, it is crucial to determine a budget needed to establish yourself in the Chinese market. In China, it could take quite a while before you get a solid return on investment. Planning out what you are willing to spend in order to set up your business is a very important part of your strategy.
Step 6: Find the best possible partner
If and when a company decides to collaborate with any type of partner, they have to find the right type of partner(s). This depends on multiple aspects but should always be a strategical decision made by the Western company themselves. Factors that might influence the choice of company to pair up with could range from size, reach, state-owned (or not), etc.
Step 7: Be patient
A key part of a successful strategy in China is patience. Patience is needed during meetings but is also needed in the whole process of building up your business. A big influencer on time is the importance of building up a relationship. Such relationships, regardless off type of strategic framework, are time consuming to build but will have great impact on your success. Especially when managing the startup phase from your home country, progress is only made when someone of your organization is in China. Communicating through email of telephone as a sole means of communication is near to useless. The Chinese have been doing business in a certain manner for nearly 5000 years. Please do not think that you can change the Chinese way of doing business individually and via a few emails, meetings and or phone calls.
Step 8: Learn about China!
Cultures and habits have a lot of influence on succeeding within any other country. Part of the strategy should be to envelop yourself in learning about the do’s and don’ts of Chinese (business) culture. This does not mean you should deny your own culture but you should understand the effects your own culture could have on the potential success of your business in China.