China is the second largest country in the world, and has over one billion more people than the U.S.The sheer space between this dense population has fragmented the Chinese market, making it difficult for foreign business owners to fully understand how to position their brand effectively. The higher income areas are generally clustered along the coast. However, industrial plants and manufacturing typically thrives internally. Choosing your location according to your industry will also help you find local distributors and retailers.
Your market also varies among economic divisions of China’s cities. The tier system categorizes cities by the number of households and the gross income generated. Different tiers host different consumers, overall purchasing power, and skill in human resources. You typically see manufacturing outsourced to tier three and four cities, while retail locations are centered in tier one and two cities, depending on the status of the product.
China heavily regulates commerce, and restricts foreign entry in some sectors. The Chinese Foreign Investment Catalogue labels foreign investment areas into certain categories based on the level of regulation.
Your operations within the country can take several structures. You can set up a WFOE, which has maximum level of control, but at a high startup cost. A joint venture, which many companies prefer, gives less control to the domestic company but is easier to integrate. Some industries are required to set up joint ventures in China. Your third alternative, to set up a satellite or representative office, has minimal mobility and function, but at the lowest startup cost. You can also choose to enter the market through export or franchise models. However these modes to entry are less popular, because of the loss of both marketing control and profit maximization.
Your company will not be the first to export or engage in a global marketing strategy. Yet you could be an industry leader if your timing is optimized. A research paper by professors Joseph Johnson & Gerard J. Tellis advises, “… early entrant can lock-up access to key resources such as distribution channels and suppliers. Second, early entrants also have the opportunity to set the pattern of consumer preference.” Early adopters in the China market will quickly consume your products with the right marketing, distribution, and global expansion concepts.
To reach your end users, your WFOE, JV, or satellite office will need to hire local staff, preferably with Chinese senior management rather than relocated staff from your home offices. These senior managers understand the business culture of China, and will recruit the top-level human resources to put your products into the market.
Understand that China has different International Property Rights regarding patent and trademark ownership. They follow a first-to-file system, which means your brand could be registered in China before you enter the country. Property right infringement is commonplace, especially against foreign companies. You will need to register under any relevant sector of your industry, as trademarks do not translate across all industries or fields.
Baysource will do this all for you. We help you develop a global expansion project plan, connect you with a physical and online presence, find human resources and management teams to run your Chinese operations, and manage the entire back end logistics. You give us direction, and we will put in into action. You’ll also receive reports to understand how your business is growing overseas, provided with suggestions to maximize new market opportunities. Call us today for a consultation.