It is true that opportunities for businesses in China are great. But all too often foreign businesses repeat the same mistakes. Jean Yves Lavoie examines the most common
1. Misunderstanding Chinese consumers
Chinese consumers are not the same as consumers in the UK or the West. Their tastes, styles, budgets and requirements are all different and therefore products and services that sell in the UK might not necessarily sell in China. It is therefore absolutely vital to conduct thorough research about Chinese consumer habits and preferences to find out whether your product will work in the China market.
Nevertheless, many brands have had success when localising their products to the local market. From different clothing sizes to targeted milk products to crab flavoured Pringles – those that understand their consumers will certainly fair better. Also, China’s appreciation of soft skills, consultancy and services is not yet as financially valued as in the UK, therefore market research, competitor analysis, testing and focus groups are all strongly advised before a full-on launch.
2. Underestimating the time involved
Unlike other territories, expanding an existing business into China is not a quick and easy task. The legal, financial and regulatory processes can be complex depending on which sector your company is in. And leaving it all to local staff and partners to manage can be costly in the long term. Allocating appropriate funds, hiring and training local staff and dedicating time for senior staff to get to know the market, the local office and the local staff is essential.
3. Ignoring KOLs and KOCs
Key opinion leaders (KOLs) and key opinion consumers (KOCs) are the Chinese equivalent of social media influencers and are instrumental in a brand’s success or failure. While KOLs can be celebrities or other types of influencers paid to promote brands on their social media posts, KOCs are regular consumers, albeit with a large social media following, who are trusted for their reviews and brand preferences. Choosing the right KOLs or KOCs to advertise a brand can be key for foreign businesses when reaching out to consumers.
“It’s essential for brands to be very clear about their objectives for their marketing campaign,” says CBBC’s Demi Ping, Director for retail and e-commerce. “Top KOLs can drive brand awareness and sales conversations, but they can be costly; micro-KOLs and KOCs, on the other hand, can be more affordable for SME brands and can generate decent sales.”
4. Choosing the wrong partners
When spearheading a first foray into the China market, domestic business partners can mean boom or bust. A number of businesses have had bad experiences with business partners who did not share the same vision; or worse, partners who own an illegitimate business. It is thus best not to rush into any partnerships with people or businesses that you do not know and to conduct a proper background check.
5. Misunderstanding the business culture
Although business in China is conducted much in the same way as it is in the West, there are a few important subtleties that can make a difference. Preparing appropriate gifts, knowing the holidays and the bonus structure is important, as is understanding the concept of ‘giving face’. Giving face is all about preserving a good image for your team, your counterparts, your partners or your host, and learning about ways to ‘give face’ – as well as avoiding things that can make you or others ‘lose face’ – is vital when conducting business in China.
Likewise, many businesses have also missed the mark in some of their advertising and branding and fallen foul of their consumers, sometimes even causing their China operations to close.
6. Ignoring lower-tier cities
China is the size of a continent and just as companies wouldn’t treat Europe as one territory, nor should China be treated as such. First-tier cities such as Beijing and Shanghai might be household names but they are just one part of a much larger market. Many of China’s smaller cities have huge populations in the tens of millions, and many domestic brands have done very well by specifically targeting third- and fourth-tier cities.
7. Not securing your IP
It may seem self-evident, but having IP protection from your home country does not extend that protection to other countries; IP rights are limited in scope, duration and geographical extent, and foreign businesses often make the mistake of misunderstanding their IP rights in China. Since China uses a ‘first-to-file’ system for patents and trademark protection applications, it is thus highly advised to obtain IP protection for your business in China as soon as possible.
“Before expanding any business in China, it is essential to obtain the necessary rights to ensure that you maintain a competitive advantage in this market,” says Yuan Yuan, director of business environment at the CBBC. “Legislation for IP protection in China has made leaps and bounds in recent years, and the current system now rivals other IP protection systems anywhere else globally. Registration of your IP rights is the first line of defence.”
8. Not getting to grips with China’s local digital landscape
Navigating the complex digital landscape in China, and capitalising on its innovative sites and platforms, can be a real challenge for businesses as many do not get properly acquainted with its unique characteristics. Facebook, Paypal, Uber and other foreign websites are restricted; instead, China has WeChat, Alipay, Didi and other domestic platforms that cater to Chinese consumers. Foreign businesses would do well to establish themselves on these platforms and ensure they comply with domestic internet regulations, as failure to do so could lead to losing a platform, or worse — getting locked out of the market.
9. Missing frequently changing regulations
While there are negative lists for market entry and foreign investments – meaning that listed areas and sectors are not open for access and investment – cross-border e-commerce (CBEC) in China uses a positive list, meaning that only items included on the list can be eligible to sell through CBEC. These lists are updated frequently, and so foreign businesses are strongly advised to stay abreast of the newest changes.
10. Getting the legal jurisdiction wrong
Many businesses may want to handle contracts and legal agreements under their home country’s laws or under the laws of the Hong Kong SAR, but in most cases, this cannot be done when doing business in China. Businesses often do not adequately prepare the legal side of business, and it is important for them to use the proper legal jurisdiction and abide by the jurisdictions’ laws and regulations.
In order to mitigate risks, consider using China Gateway, the CBBC’s market advisory service, to help demystify the process of doing business in China, as well as CBBC’s Launchpad service, which provides simple, low-risk, legal means to enter the China market.