For many people, growing a business can be one of the greatest challenges we willingly face. Getting the right message delivered to the right people and then turning that into capital can be difficult no matter where in the world you are, so to try and do this in a country or region other than your own is just asking for trouble. Despite this, over the years there have been many success stories of foreign businesses starting up in, or moving to China.
From my own experiences in starting and growing multiple businesses in this country, I would like to share with you a very simple three-step checklist to go through if you’re considering growing your business in the middle kingdom.
1. Do I fully understand the demand for my product/service in China?
Chinese culture is fundamentally different from Western culture in just about every way you can think of. Domestically, too, Chinese people are extremely diverse. With 34 different regions, 56 ethnic groups, and 7 major dialects, there are people at all ends of all spectrums with different business and consumer habits.
In order to justify committing the time and effort to grow in China, you need to be well aware of these differences and how they are likely to influence consumers’ interest in your business. Just because your product or service does well in one market, doesn’t necessarily mean it will do well in another. Spend some time researching how some of the world’s biggest brands either outright failed through a lack of cultural understanding and an overestimation of demand for their products, or recognized these differences and localized appropriately.
– Home Depot notoriously failed after it saw an opportunity to expand into an unfulfilled market in China (DIY and home improvement), only to realize Chinese people in bigger cities live in apartments and prefer to hire tradesmen due to cheap labor costs.
– Starbucks had made a very commendable effort to change in response to Chinese consumer habits. Traditionally a nation of tea drinkers, Starbucks faced a monumental challenge in pushing coffee to the masses. Their solution, instead, was to focus on serving high-end consumers with a more international palette. In addition, outside of internationalized neighborhoods, Starbucks found a great deal of success in marketing themselves as a dessert/pastry store, selling cakes to children and their grandparents who would not have formerly been target customers of the chain.
– Uber was entirely replaced by a home-grown rival. As Uber pushed their global rollout, they found stiff competition in China when they were engaged in a cash-burning war with local big-tech supported unicorn, Didi Chuxing. After months of spending, Uber was forced to concede and sell their China operations to Didi. The defeat prompted commentators to speculate that Uber should have cooperated with a local partner instead of trying its ‘go it alone’ strategy.
2. Do I know what resources I will need and do I have them?
There is a common misconception with businesses looking to expand into China and that is that the population is so large, ‘If only I could corner 0.01% of the market, I would be made.’ The mistake here is that although 0.01% market share seems easy to attain, the level of competition for that piece is relative to its base size, not the percentage. There is much more competition at every level of the game, and it can take a lot of resources to eke out even the smallest of gains.
The notion of ‘resource’ in China is also different from many places around the world. As money is so cheap and plentiful, it takes much more than straight-up out-spending the competition to win. ‘Resources’ means more qualitative measures of capability. Relationships (also known as Guanxi), personal reputation, and professional skills can often prove to tip the scale for the winner who is able to amass more influence.
When considering China, take a considerable assessment of what resources you actually have at your disposal and (referring to point #1), consider how useful those may be in your China strategy. It may be that you do not have the relationships or personal reputation needed to lift off and that your time may be better spent on developing or accumulating those important relationships before you spend time and money on expansion.
3. Have I considered the inherent risks of succeeding or failing in China?
The Chinese business landscape is so infinitely complex that as an outsider, it can sometimes seem very daunting. For the last box in our checklist, we’re going to walk through some of the less-ideal outcomes of your China move.
– Copyright/Intellectual property troubles. Chinese businesses are often in the news for rather unsavory business practices of registering trademark of international brands in China, and then either selling the rights back to that brand at extortionate prices, or launching their own copycat business. There have also been stories of brands showing off their products at various international trade shows in China before launching to China, and then later finding out their business trademark has already been registered by another party.
– Regulation clampdown. China’s political landscape is unique and often difficult for international observers to read or predict. As foreigners, it is important to read up and frequently consult with locals in your field. Regulations provide a set of guidelines for proper business operation but can also point to incredible growth opportunities.
– Media scrutiny. If you are the special combination of fortunate, talented, and persistent, you can find success in this country. Business success, however, does not come without its drawbacks. As a foreigner, you may be subject to media or legal scrutiny. Be aware that everything you say online can be traced back to you, and that the Chinese are a very proud people; they do not take lightly to ungrateful guests in their country.
So, if you’ve made it this far and you’re still feeling confident, congratulations! China is a wonderful place to live and although there are considerable challenges with growing a business here, there are a whole host of upsides to appreciate. I hope that these questions have challenged you to consider your next moves and given you an appreciation to this unique and wonderful country.