China’s economic and business environment has changed in recent years. Previously, it was obvious that the primary focus of foreign companies was exporting from China. Nowadays, the scope of business activity is increasingly re-oriented toward having a presence in the internal Chinese market. Due to the slowing growth of Western economies, foreign enterprises have begun to recognize that the Chinese market is a wise choice for those looking to expand their business.
According to a recent study, Chinese consumers’ purchasing power is expected to increase by about half to $6.5 trillion by 2020. Without a doubt, this means that the mainland is the ideal location for businesses looking to expand in the coming years. Every company that enters China will encounter not only a variety of new and diverse consumer behaviors in comparison to western markets but also unknown bureaucratic procedures and legal frameworks. As a result, working with local advisors is recommended to avoid any irregular situations that could jeopardize a company’s integration into a new market.
Which Are the Main Difficulties for Foreign Companies Coming to China？
Access to the market
China is a difficult market to enter due to factors such as distribution channels, purchasing habits, and legal requirements. Many foreign companies have failed to establish themselves because they attempted to replicate the business model used in other countries; the best examples are Home Depot and Best Buy. As a result, before entering the market, it is critical to understand and adapt one’s business strategy.
It is no coincidence that foreign companies face legal difficulties as a result of China’s complex legal framework. According to the Spanish news platform Libre Mercado, 31 percent of foreign companies are concerned about bureaucracy when expanding to China. The majority of the complaints are about obtaining licenses and permits.
When forming a team in China, it is critical that the human resources cover a variety of aspects that will contribute to the company’s success.
Understanding Chinese business traditions, a fair level of Chinese language proficiency, a clear understanding of the Chinese market in their respective industry, and experience in building relationships with Chinese and foreign connections are some of these aspects. There are two main ways to accomplish this: internal transfer and promotion or professional recruitment.
Employee administration in China differs depending on whether they are locals or foreigners. Foreign employees necessitate more administrative efforts, which must be managed by someone who is intimately familiar with China’s labor laws and legal environment. Management of the following items will be required for foreign employees: invitation letter, visa procedure, local contract registration, work & residence permit, payroll, tax declaration, and expense management. As a result, it is recommended to work with a local administrative consultancy at least at the entry-level in order to avoid problems when migrating to China.
Competition has increased as a result of a large number of foreign companies entering China. Given that Chinese consumers are increasingly drawn to foreign brands, innovation is more important than ever before in order to stand out in the Chinese market. Another factor to consider is that the government has the option of giving preferential treatment to domestic firms over foreign firms.
A good understanding of how to deal with these five challenges when entering the Chinese market is critical to a successful migration. Although it is not required to work with a local consultancy to manage one’s legal and administrative procedures at an early stage, it is highly recommended. However, we must point out that if the foreign company has an administrative team that is fluent in Chinese and understands China’s legal framework, all management requirements can be met. Despite the fact that it would require a much larger financial and time investment at the end of each month.
Contact us if you have any questions about starting a business in China.