China is home to a growing middle class with a big appetite for consumer goods
Western firms looking to tap China should be innovative and flexible, analysts say
They also need to adopt a long-term approach and build a strong local team
Competition, corruption, business etiquette and language are some of the hurdles
As western countries remain mired in financial turmoil, business people are looking to get a foothold in China, hoping to tap its growth and expanding middle class.
Solid economic expansion, coupled with a rapid market transformation and a series of government reforms, mean China – the world’s second-largest economy – is no longer just a country for low-cost manufacturing. It is also an increasingly attractive destination to do business.
Several western companies – including global giants such as Starbucks, Volkswagen, Boeing and Procter & Gamble – have established a presence in the country.
But despite China’s increasing influence, challenges remain for those looking to do business in the country. Intense competition, corruption, business etiquette and language are some of the barriers that can be faced.
Here are five things you should know before doing business in China.
A mosaic of markets
China is the world’s most populous nation, with its sprawling 1.3 billion people making up a highly diverse market.
“There is no such thing as the Chinese market,” says Martin Roll, a business and brand strategist who provides advisory to global and Asian brands on China. “You have to look at China more like a mosaic of cultures,” he adds.
There is no single consumer profile, and analysts suggest companies remain flexible and innovative, while understanding how their company would fit in each specific market.
“You need people who’ve been in the market, you talk to trade associations, you talk to trade promotion bodies, you talk to people and bit by bit you get to understand the dynamics,” says Stephen Perry, president of the 48 Group Club, an independent business network promoting business relations between China and the UK.
“There’s no simple answer in China – it depends so much upon the specific market and upon the specific characteristic of your own company,” he adds.
Business culture and etiquette
Operating in a country with a history of thousands of years – and ways of doing business that go back as far – it is valuable to develop insight into China’s business culture and social etiquette to avoid misunderstandings that could scuttle deals and harm working relationships.
One key aspect of Chinese culture is the concept of “face.” In “China Uncovered: What you need to know to do business in China,” professor Jonathan Story describes face as a mix of public perception, social role and self-esteem than has the potential to either destroy or help build relationships.
Story says that a foreign CEO can give face by attending meetings, accepting invitations, providing suitable expensive gifts and showing sensitivity to Chinese culture.
In contrast, entrepreneurs can lose face by insulting someone in public, refusing invitations and gifts or by behaving inappropriately, like losing their temper or crying – acts that are seen as lack of self-control and weakness.
Business outsiders can impress with their knowledge of local customs, acknowledging hierarchy, offering gifts, addressing people by their designation – especially when dealing with state representatives – and appreciating the food. Such awareness of cultural nuances illustrate respect and sincere interest, says Roll.
On the flip side, Chinese business people generally respect cultural differences and won’t expect westerners to be fully customized to their tradition, analysts say.
“At the end of the day, the Chinese are very pragmatic,” says Perry. “If you have something they want, they’ll do business with you no matter whether you can hold chopsticks or not.”
Jack Perkowski, a Wall Street veteran who’s often referred to as “Mr China” for his entrepreneurship in the Asian country since 1993, says developing mutual trust is key to success in doing business in China. “The most important thing is, whoever you’re meeting with or whoever you’re dealing with, to treat them with respect,” he says.
Taking a market-based approach
Western businesses looking to tap the Chinese market should be aware of local preferences, and adapt accordingly.
For example, Starbucks started serving green tea lattes in a bid to get a traditionally tea-drinking nation hooked on coffee; McDonald’s adapted its menu to include items like spicy chicken wings and chicken burgers in an effort to appeal to local tastes.
“No matter how good you think your product is, no matter how well it sells in the UK, the United States or anywhere else, you need to really look at that product in the context of China and say is that the right product, is it too high-priced, do we need to do something different, do we need to adapt?” says Perkowski.
Procedures in China take time, patience and money
Western companies looking to tap China also need to show a long-term approach that will prove that they’re in the country to stay, analysts say.
“It’s very important when a western company tries to go to China they have to realize that success in China takes time, it requires patience and it costs a lot of resources,” says Roll.
Perry says that people have got to be very open-minded about anticipating what China is going to be in the coming decades.
“(China) is growing in the field of consumer goods and it will grow fast so people have got to find a way to match the future impact of China with the current characteristics of China,” he says.
Build a strong local team
Newcomers wanting to crack China will need to move, get someone from their organization to relocate or find an experienced group to represent them, says Perkowski, who’s also the author of “Managing the Dragon: How I’m Building a Billion Dollar Business in China.”
“When you’re just starting, you’ve got to recognize there’s going to be a limit to what you can do travelling back and forth to China,” he adds. “You’ll never going to get a deal done [without basing yourself there].”
Surrounding yourself with local talent can help you break deals, understand the culture and the complexities of the market as well as compensate for the language barrier for those who don’t speak Mandarin, analysts say.
“The only way you are going to ultimately be successful is by putting together a good team,” says Perkowski.