8 Tips for SMBs Doing Business in China
The fast-growing Chinese market offers a huge opportunity -- even for small and midsize companies. These invaluable suggestions can help your company take advantage of the potential, without getting burned.
China will soon surpass Japan to become the second largest economy in the world. Never on earth has a country moved so quickly to become a significant economic global player. China’s GDP is up 7.5% this year despite a worldwide recession and the average Chinese income now tops $3,000 -- and runs much higher in the countryh's more developed regions in the East. In the next 20 years, some 300 million Chinese are expected to move from the countryside into more than 100 emerging cities. The sheer size, scale and speed of what’s changing in China is difficult to fully grasp.
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And so is the size of the business opportunity, even for SMBs. More than 60,000 foreign companies are already doing business in China. During the past 20 years, large multinational companies began doing business in China via outsourcing. Increasingly, many companies are not only taking advantage of low in-country production costs but are also starting to do business in in the Chinese market itself.
The potential isn't the issue, but there are a number of strategic choices, tactical implementation issues, and local-management requirements that can make all the difference between success and failure. Small and midsize companies thinking about getting into the Chinese market would do well to follow these eight best practices -- remember, 8 is a lucky number in China:
1.Focus on developing relationships strategically
Relationships matter more in China than in Western countries. Though it’s not exactly what might be called in the West “an old boys network,” many things get done only after you're able to build a network of Chinese contacts. It’s not exactly who you know, but a combination of who introduces you, how you know who you know, and how your relationship evolves and matures. “Guanxi” is the Mandarin term for these kind of connections. Be sensitive and aware that developing and nurturing your relationships in China is something that requires thoughtfulness, effort, dedication, and finesse.
2. Seek out and leverage colleagues already in the market
There are millions of foreigners doing business in China already. Seek out the companies and individuals in your industry. They can be an enormous help in terms of their experience and guidance. They will already have overcome many issues that all newbies face. In addition, they will have their own developed network of contacts on the ground in China and can be a fantastic source for referrals and introductions.
3. Be thorough in evaluating and selecting a Chinese partner
Quite frankly, it is difficult to determine whom you can trust in today’s wild, wild East. One source is the large numbers of experienced and business-savvy Chinese nationals returning to Mainland China after having been educated in the West. These so-called “sea turtles” can be great business partners since they were born global -- they know how China operates, speak Mandarin, but also understand the dynamics of business in the West.
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4. B2B, B2C but never C2C (Copy to China)
China is not like any other market. There are many “Chinas” and one size does not fit all. Most people know that Hong Kong is London-like and not at all like Mainland China. But many do not realize that what works in Beijing or Shanghai may not apply in Chengdu or Xian.
Mainland China has 33 different provincial administrations, 22 provinces, 5 autonomous regions and 4 municipalities directly under Central Government. Plus, Hong Kong and Macau are special administrative regions (SARs). Each locale has its own dialect, culture, style of food, government procedures, and in many cases variations in what business practices work best and what may not.
5. Learn 100 functional phrases of Mandarin
Foreigners who take the time to learn more than “ni hao,” “xie xie” and “gonbay” -- "hello," "thank you," and "cheers," will do much better getting around Mainland China -- and be able build better relationships. Make an effort to learn enough so you can order in a restaurant, ask directions, and carry on a polite simple exchange. The fact that you have made an effort to learn the language makes a very positive statement and impression.
That said, remember that there are more English-speaking people in China than in North America. Many Chinese prefer that you speak English with them so that they can practice.
6. Identify savvy service providers who know China
If you plan to do business in China, you will need help with basic business issues such as accounting procedures, local taxes, human resources, locating office space, and so on. All of these processes will go much smoother if you spend time up-front sourcing and evaluating the best possible third-party resource providers. A good way to do this is to join local organizations and attend meetings -- usually monthly -- and ask others who have already been through these stages. In fact, there’s a fantastic American Chamber of Commerce organization that can be quite helpful.
7. Show up – Commit to being in country
It truly matters that whomever is the keeper of your company's China strategy is actually in the country. Don’t make the huge mistake of thinking that things will continue to move ahead once the key market manager has “set things up” and returned to the West. The leader needs to be present -- regularly if not continuously -- to make sure that everyone on a growing China team understands what needs to be done. This is true in any business venture and even more necessary on the ground in China.
8. Act now, getting started in China takes longer than you think
China is now the world’s fastest growing market. Small and midsize companies simply can't afford to wait and think that they'll simply be able to step in later on when the market is more mature. Now is the time when things are open enough for even smaller companies to find a place. Once the market matures, doors may start to close for companies without global resources.
Just as important, it takes time for outsiders to get things done in China -- almost always longer than expected. To cope, you need to manage your expectations, and get started as soon as possible to learn how things work and develop the local skills your company needs.
If you're looking for impetus, the Shanghai World Expo 2010 opens on May 1 for six months. This major event should be a great way to get a sense of the Chinese market and begin building your company's toehold.
Sure the challenges are large for smaller companies, but the potential opportunities are even greater.
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