16

OCT
2013

What should i keep in mind when doing business in China?

Some practical advice for working there

China has been in fashion for several years now. It started out as the world’s workshop, offering a multitude of cheap products, including textiles. Today, however, it has become a market of enormous proportions for a multitude of products of foreign origin. We also speak freely of China the investor, unreservedly buying up companies, real estate and debt.

China is usually said to have a market of 1,350 million people, though this is not quite the case. Not all the Chinese population can afford the products and services we foreign firms can offer them. The segment of the population which interests us is the middle class who earn some 25,000-30,000 euros a year, or more in the case of the upper classes, who are aware of some problems with the quality of their national products and want to boast about being able to afford foreign brands.

Given the variety of restaurants, clothes and products of all kinds which are produced in China, it is business suicide to try to compete with local manufacturers. The positioning of foreign products must be in the upper middle price and quality range (high by Chinese standards).

In the case of Spain, there are some sectors which are “easier” to enter, either because there were pioneers who opened up the market with the same type of product, or because, given the nature of China, the product has a “fairly” natural market. Oil and wine producers can make use of the experience of Spanish pioneers, and, more especially, of Italian and French ones, who have been brand building over the last few decades. Other products such as milk powder, products and fashion goods for children and learning Spanish have potential because of the special make up of China at this juncture.

The majority ethnic group in China is the “Han”, who are subjected to the one child policy. With the increase in life expectancy, this only child finds itself with 2 parents and 4 grandparents ready to fulfill its every need and desire. Problems of food quality worry the families of this little emperor. And starting from school, competition is fierce. As the Chinese themselves say, in China there are a lot of people, too many. This eventuates into a lack of opportunities. Only the best from kindergarten can go to a reputable primary school. Only the best from primary school will go to a good secondary school, and so on until they graduate from one of the best universities, where the best can choose from the best job offers and join the party (also associated with privileges) The pressure on students is horrendous.

To make themselves more competitive, many students have left China, and continue to leave, in order to be educated abroad and learn “unusual” languages such as French, German or Spanish, given that English no longer makes a difference. Spanish is of interest mainly because of China’s relations with Latin America.

People also leave to study masters in schools, preferably state schools, that will improve their CVs. The preference for state schools is because in China these are more demanding of their students and not so suspect of favouring those who have most money.

The luxury sector also has great prospects, though Spanish companies must invest in their brand.

Companies which are doing business internationally, even though they may not even be in China, must keep in mind that they need to protect their intellectual property in China. The situation can arise whereby a Chinese person who is sharp and well travelled will register brands of foreign products which are unknown in China. Then, when the company comes to do business there they find they are infringing on a Chinese brand. In the rest of the world it would be theirs, but not in China as there the first to register is the one who is protected.

This is especially important to bear in mind if we are investing in our brand and exhibiting it in China.

Spanish exporters must also bear in mind that, depending on the sector, finding a distributor who will buy from us here can be very difficult. Many Chinese don’t want to do the work of an importer, don’t have a licence (although they can use intermediaries upon prior payment) or don’t have experience in foreign trade. They will buy from us if we have a certain presence in the country, as this will allow them to have a trial order in their establishment within a few days. They are not prepared to wait more than a month, or to carry out all the customs and international payment procedures. Therefore, to have a presence, your own or paid, on the ground, someone who can answer the phone in local time and preferably in the local language, helps when doing business.

Today there are more economical ways of obtaining this presence than was the case a few years ago. The downside is that the market is more and more competitive so you have to find the right niche.

Companies who wish to do business abroad must carry out a process of internal improvement: committment, procedures, training, financing… Internationalisation makes us better, locally as well. Then you will have to carry out market research in the proposed country to define the prospects for your product and the need to “Chinarise “it. Along with this must go the intellectual property protection. Going there time and time again to forge committed relationships and getting to know your consumer is vital. China is the big league and everyone is in China competing with the best of them. Getting it wrong will be very expensive, so you need to be well prepared. The rewards are enormous.

Yolanda González
Hispano-Asian Business Consulting
 
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