In this six-part business guide to doing business in China produced by Hawksford, we’ll give an overview of what you need to consider before entering the market. Ranging from localisation, to the legal and banking systems, to type of company set up. This series is a great jumping-off point to understand the many nuances of doing business with China.
Part 1: What to know before you go
China is a unique country, historically, politically and culturally, and there is a lot to understand if you are a new entrant. Although many foreign companies have succeeded, many have also crashed on its shores, so it pays to do as much research as possible and get a good understanding before you embark on your China journey.
Understand the regulations
Bureaucracy is the number one concern for many foreign investors. Common complaints are often related to licenses and permits, and the laborious processes relating to them. Once you decide to enter the Chinese market, it’s very important to clearly define the business scope of your Foreign Invested Enterprise (FIE) to avoid any unintended self-imposed limitations, which could hinder the company’s business and potentially even lead to legal problems.
Be culturally sensitive and treat each city as a new jurisdiction
Doing business in different regions of China is like doing business in different jurisdictions. The same national tax regulations may be interpreted and applied in radically different ways by the respective local authorities in Beijing and Shanghai. Entrepreneurs have to become familiar with the unique characteristics of each region and plan specific strategies according to practical implementation of national corporate, labour and fiscal policies.
Learn from the local competition
With different purchasing habits, China’s market environment is unlike those of many other economies around the world, making it potentially difficult to take the first steps. The new generation of Chinese consumer is more demanding, highly educated and wealthier. Several international market leaders have already dived into this challenge, and managed to turn it into new opportunities, leapfrogging the competition through innovation.
A digital strategy is a must
A strong digital presence is critical for businesses looking to engage with the Chinese market. Incredibly, 62% of Chinese luxury consumers are likely to purchase online. The younger generation is comfortable using messaging, short videos, live streaming and social media apps as part of their shopping journey.
Banking and financial restrictions
New investors looking to tap into the Chinese market need to understand and come to terms with the peculiarities, and most importantly the restrictions, imposed by local banking and capital flow regulations. Unlike most of the major world economies, there are tight restrictions in place in China with regard to capital inflow and outflow, as well as on cross-border transactions and foreign currency transactions, which can have dire consequences for an FIE’s cash flow.
The need for a local presence
In light of the most recent regulatory developments, a trusted local presence has become crucial for coping with local requirements. From initial tax filing to ad hoc applications with local customs officers or overseas bank transfers, it is becoming increasingly necessary for FIEs to identify a trusted professional that will act in good faith as their chosen local representative.
Work with a professional service provider
Registering and establishing a Wholly Foreign-Owned Enterprise (WFOE) in China can be a lengthy process. While many foreign companies look for consultancy services to help them register WFOEs, the ultra-cheap prices and promises are often too good to be true.
Before you appoint a service provider, it is important to first check their background and website for a high level of transparency regarding their services. Customer testimonials are a great and straightforward way to find out whether the company is reliable.
Your company is a direct representation of who you are as a businessperson, so choose carefully and work only with those who understand your unique needs and challenges so you can make the most of your expansion in China.
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