Doing Business In China: Five Tips For Success

Dunhuang market, Gansu, China

Image via Wikipedia

With more and more companies from all parts of the world coming to China, the topic of doing business in China is as timely as ever. So, when CNN called and asked for my opinion, I was happy to oblige.

The CNN segment, which came out last week, advised that new entrants to China keep in mind that China is a mosaic of markets, the importance of business culture and etiquette and taking a market based approach, that procedures in China take time, patience and money, and my favorite, the importance of building a strong local management team. While none of these tips are particularly new, they are worth repeating because they are often forgotten when companies get into day to day operations in the country.

A Mosaic of Markets

Martin Roll, a business and brand strategist who provides advisory to global and Asian brands on China, said that companies have to look at China more like a mosaic of cultures, adding that there is no single consumer profile.

I agree in general with Roll’s comment, but believe it dangerous to take that analysis too far. Regional and local differences are quickly being homogenized as more Chinese and foreign companies create national brand strategies. Instead, I prefer to think of China as being divided between a foreign/local market that wants the latest and greatest products from around the world — and can afford them — and a purely local market which tolerates lower quality and lower technology products because affordability is the key concern. China’s vast income disparity where 400 million of its population has average per capita incomes of $9,000, while another 900 million have average per capita incomes of $900, creates these two markets.

Business Culture and Etiquette

In “China Uncovered: What you need to know to do business in China,” Professor Jonathan Story highlights the importance of “face,” describing it as a mix of public perception, social role and self-esteem that has the potential to either destroy or help build relationships. That is certainly true. To that comment, I added the importance of developing mutual trust, which begins with having mutual respect for your counterparts in China. For all of its size and economic prowess, China is still a work in progress. As a result, managers coming from more developed economies frequently underestimate their China partners and counterparts. That can be fatal.

Taking A Market Based Approach

It is important for companies to analyze the China market separately, in isolation from their home markets. Even though China is now the second largest economy in the world, it is still embryonic in nature and in a very different stage of development than a country like the United States for example. A product that sells well and is reasonably priced in the U.S., therefore, may not be suitable for the China market and may be too high priced. Often, products from developed countries have features and quality and technology levels that a large number of Chinese consumers simply cannot afford. If a company wants to address the entire Chinese market, which I urge our clients to do, then thought needs to be given as to how to tailor products to the China market.

Procedures in China Take Time, Patience and Money

China is not a flash in the pan, it will not go away. While there will certainly be ups and downs, there’s little question in my mind that China’s economic development in the 21st century will mirror that of the U.S. economy in the 20th. Given the fact that China will ultimately be the single largest market for any product, companies need to take a long term approach to building their businesses in the country, and must focus first on building a solid foundation.

Build a Strong Local Team

One third of my book, Managing the Dragon, is devoted to this topic, and I cannot overemphasize its importance. Part of building a solid foundation in China is building a strong local management team that is empowered to make decisions by the home office. Once you have it, you’d be surprised how much easier doing business in China becomes.

 

 

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