Successfully breaking into the Chinese market comes with a set of challenges, especially for companies with limited or no experience of doing business there. Here are three tips to integrate into your market entry strategies and expansion plans, ensuring a smoother transition.
For businesses looking to expand internationally, the Chinese market offers an exceptionally appealing and tempting prospect. Since its economic reformation in 1978, China’s GDP growth has averaged almost 10% per year, achieving a GDP volume of a whopping US$ 14.8 trillion in 2020 alone. In terms of market size and purchasing power parity, China serves as a treasure trove for business opportunities.
That said, the Chinese market is notorious for being difficult to access. Local distribution networks, regulatory requirements, intellectual property rights, and competition – these are just some of the difficulties that firms can expect when they do business in China. However, with a thorough understanding of the complex market and an effective market entry strategy, firms can look forward to revelling in the abundant opportunities that the powerhouse can offer. Here are three tips to help you kickstart your business growth.
1. Identifying your market
Apart from being the fourth largest country in the world, China boasts a massive population of 1.4 billion people in 2021. While this presents ample potential, it is worth noting that China does not have a homogenous market. While the country is unified geographically, the same cannot be said for other aspects of the society. Politically, socially, culturally, and even economically, each province has its own standards and definitions. Rather than a unified market, it is more apt to define China as a collection of sub-markets represented with differing characteristics.
It is thus important for companies to identify where these business opportunities lie and discover ways to access them. Given the sheer size of the Chinese marketplace, Australian companies should consider breaking down the markets and think carefully about which geographical location has the highest probability of meeting their business needs, as well as the best vantage point to access the broader China market. For instance, compared to first-tier cities like Shanghai, second-tier cities, such as Chengdu and Qingdao, offer a lower entry barrier as they are open to foreign companies and investments. They also do not carry the same competitive environment as first-tiered cities do, which gives you a relatively easier time to make your mark. The same considerations should be given when you are looking to start an e-commerce business in China.
2. Understanding government policies and regulations
Unlike many other free markets, China’s economy is heavily riddled with government policies and regulations. According to an AmCham survey, a total of 31%of 338 respondents listed bureaucratic processing as their biggest challenge when it comes to expanding their business ventures into China. While China’s entry into the World Trade Organisation has helped to somewhat liberalise its trade environment, many of its industries are still heavily regulated or out of bounds for foreigners. Telecommunications is one such example.
Before setting up a business in China, Australian companies will need to consult the China foreign investment catalogue. This catalogue would specify which of the three categories the incoming business projects would fall into – ‘encouraged’, ‘restricted’, and ‘prohibited’. If you obtain permission to do business in the country, the next step is to navigate and discern industry-specific regulations and standards. When dabbling in the Chinese way of doing business, expect laborious procedures and assessments before gaining permission to produce locally. Since government regulations can significantly impact your business’s timeline and costs of market entry, companies are advised to protect their business when trading internationally. Spend time researching and understanding the regulatory requirements and their implications before making a definite decision to enter the market.
3. Identifying your market entry mode
When breaking into the Chinese market, operating with the right vehicle of entry is crucial. There are a couple of ways to go about it – alone, as a joint venture, or using a small representative office or local intermediaries. Deciding which mode suits you and your business best is dependent on a few factors, including industry landscape, geographical size, technical support, and the like. All of these factors will vary according to the size and scope of your business, as well as the characteristics of the specific market you are targeting.
The Chinese market is undeniably lucrative for businesses looking for opportunities to expand. With the support of the global network and reliable import-and-export solutions provided by DHL Express, companies and organisations can expand their logistic capabilities to make their mark in the Chinese market. In fact, we also have operations in China. Our North Asia Hub facility located at Shanghai (PVG) airport operates continuously 24 hours daily. If you are trying to work out how to navigate shipping in China or any other part of the world, have a look at our international shipping toolkit.
