Table of Contents
- Doing Business in China (intro)
- Growth Strategies for Businesses – Increasing your Global Footprint
- Global Expansion – Selling into China
- China Market Entry
- Supply Chain in China
- Distribution in China
- Marketing in China
- eCommerce in China
- Chinese Business Etiquette
Chapter 1. Doing Business in China
Capitalizing in China has been influencing western business for almost forty years. In America, the mentality has always been to expand through market penetration. Though the west has become an apex of technological innovation in recent years, the corporate world still puts heavy emphasis on globalization for maximum potential. But doing business in China is not a simple question of exporting and distribution anymore. The mindset of your overseas partners will be different in terms of company values, business culture, negotiation and networking, and socioeconomics.
There are too many case studies of American-based businesses that failed in their China market entry strategy. Most did not have a grasp on the level of competition already established in China and how subtle cultural differences can dramatically impact customer acquisition and retention. Let’s take a look at a case study in e-commerce. In 2002, eBay acquired a Chinese e-commerce platform, EachNet, in an attempt to increase market share. They remodeled EachNet.com to resemble the U.S. eBay user experience, without adapting to Chinese buying behaviors or maintaining elements of the EachNet platform.
Unfortunately, in three years they had to downsize operations in China, because competitor TaoBao had not only maintained their own customer base (which eBay barely scratched the surface), but managed to attract almost 80% of the market through guerilla marketing tactics. They held the advantage with television rather than exclusive online marketing buys, better suited payment structure for Chinese commerce, and offering better communication between buyer and seller (essential in Chinese customer relationships). By the end of 2008, TaoBao had effectively pushed eBay out of their market space.
eBay’s flop in China is not uncommon. Most American businesses are accustomed to speed, rushing into Chinese strategies that do not sustain themselves. While a global expansion plan is essential to any major corporation’s strategic and tactical planning, there is a method for success that is unique to the multi-national level. To increase global footprint, you must start with a bottom-up approach, first understanding the Chinese people, their social structuring, then their national infrastructure of commerce.
The term “guanxi” can best illustrate the core principle of Chinese business practice. Guanxi is best translated as “network” or “relationship.” But in context, its many layers and applications are unlimited. Guanxi is the foundation of trust between business partners, not only as colleagues but as friends or confidants. China is a collectivist society, both politically and socially. The family unit encompasses more than immediate kin, and the network of friends is comprised of many more layers than that of the American. The reputation you establish with potential partners does not have the same professional boundaries. You may find yourself engaging in more personal meeting and conversations, because for the Chinese, profitability is not the only factor for decision-making.
The same is true for your customer. A Chinese consumer will opt for a local company if possible, because their culture values loyalty and prosperity of the community more than they do material prestige. This is where the concept “think globally, act locally,” bears weight in the business mindset. Your marketing plan should focus on grassroots efforts, and an increased focus on individual customer relationships. Western consumers have been acculturated into accepting mass marketing tactics, understanding their low-level impact on corporations. But the Chinese consumer will not respond to an impersonal interaction founded on marketing alone. As a community, they will shut out companies that cannot adopt into the local culture.
Exploring opportunity in China will open your eyes to innovative business development strategies and strengthen your status in the west. You will learn how to handle social dynamics with a more insightful approach. And your depth of knowledge in business development will open doors for more progress. The Chinese business world will challenge your company to make uncomfortable decisions, but if you follow the best practices in this guide you will have a greater chance for success.
This guide will cover some of the essentials to global expansion strategies, the best practices for initiating Chinese business relationships, and will help you through the process of maintaining a strong presence overseas. It will then answer questions about the operational and tactical levels of market segmentation, marketing tactics, supply chain management, and distribution. Finally, it will uncover secrets to Chinese business culture that can make the difference between nominal success and market domination.
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Chapter 2. Growth Strategies for Businesses – Increasing Your Global Footprint
Traditionally, companies saw China as an asset in manufacturing. There was very little discussion about the prospect of growing in the Chinese market. The cultural and political divides kept U.S. based enterprises for capitalizing off the growing Chinese economy, even though in 2014 they were considered by Business Insider Magazine as the world’s largest economy, taking over the U.S. by 0.2% in the third quarter of that year. Though the average income in China is lower, they surpass U.S. when taking into account the adjusted purchasing power. In relation to GDP, purchasing power in China is leading. New opportunity exists for companies who strategize growth in the Chinese market properly.
The easiest way for companies to make their global footprint in China is to take older products and introduce them into the country. For most of the 20th century, the average Chinese population spent their money in investments – small business ventures, stocks, land, and real estate. As opposed to the individualist culture in America, the Chinese value familial assets that can be passed on from generation to generation, including wealth and property. It was not until recently that the Chinese market introduced a consumerist culture. They now resemble the buying behavior of American baby boomers in the 1960s through 1980s. Plus, with China’s one-child policy, the “only child syndrome” of constant consumption from familial wealth has turned the Chinese millennial into a highly profitable consumer profile.
The Chinese are not used to the product choices that a consumerist culture brings, therefore the products that are at the end of their lifecycle in America could still be novel and desirable to a Chinese customer. By introducing an old product into a new market, companies can continue to profit from innovations that are considered “old news” in the U.S. For example, the smartphone mogle Apple introduced some of their older model iPhones, gaining traction in 2012; by 2015 they saw a 71% increase in quarterly profit. The foreign customers crave technological innovation, and the status that a “Made in America” good will bring them.
Of course, there are many other techniques to global expansion. Many companies begin with franchising, because it’s easier to create consistent branding and gain customer loyalty across China’s massive landscape. Food and business services are some of the biggest players in Chinese franchising, and have seen success because western companies are associated with more innovative business models and typically do well in second or third tier cities. But, franchising poses problems with localized marketing efforts and discrepancy in intellectual property rights. To combat or avoid these issues, some businesses choose to export, or engage in joint ventures. In this way they do not have to fully immerse themselves in navigating a foreign market, without prior knowledge or stakeholders with experience.
Companies can also attempt to take market share in a current Chinese market. A market expansion strategy will pose its unique challenges, however, especially if you’re competing with domestic companies. The Chinese consumer, though excited to benefit from foreign quality and the prestige of American products, still maintains a strong commitment to the prosperity of their community. They will opt for local small businesses if the quality is comparative, even if the good can be bought more cheaply from a foreign entity. You absolutely have to be better and cheaper than your competitor. If you’re going to challenge a Chinese corporation, you need to have a strong marketing and tactical plan in place, preferably as a joint venture with an established Chinese company. Competing with other foreign brands will not pose these same challenges.
The final option for global expansion is through acquisitions, both horizontal and vertical. Your company can buy market share through control of the front end of your business, by purchasing retailers, wholesalers, or the back end of distribution and development. You can lessen the competition by acquiring other companies in your industry, as eBay did with EachNet. But be wary that acquisitions are much riskier. You should partner with a respected Chinese business development agency, who will guide you through the process of selling into China.
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Chapter 3. Global Expansion – Selling into China
Once you’ve worked through a strategic plan with a Chinese business developer, you can begin with a tactical plan on selling into China. There are as many methods as there are markets to successful execution. But depending on your industry, you may find that certain outlets do not yield the same results. You must consider how much control you want over your branding, whether you want to sell directly or through a distributor, if ecommerce is a viable option, and what sort of business structure is best for your model. You may not be familiar with intellectual property rights in China, how licensing agreements work, or if your business would be considered a WFOE. These questions are important to approach prior to launching a foreign expansion initiative.
One of the most common sales methods for foreign companies is indirect sales, specifically through retail. To do this you can either become a wholesale partner with a retail entity, or reach an agreement with a local distributor who will choose compatible retail outlets for you. The mistake most foreign brands make is misunderstanding property rights and contractual agreements when they enter Chinese trade. Negotiation plays a big role, but the practice is different in China. Be especially clear in regards to returns policies and intellectual property licensing. IPR is not protected in China in the same way it is in the U.S. You need to set firm guidelines with your partners to protect trade secrets, licensing agreements, technology transfer, and patents.
E-commerce is another viable option for foreign entities. The first step is to decide if you would rather have a branded platform, or if you should go through an established online retailer. Ecommerce in China is vastly different from a marketing perspective. For example, Google AdWords is not as popular for PPC campaigns in China. SEO practices are very different because of this. Certain aspects of your website, such as customer service and online payment transactions will require a tailored solution, which is why many business use a third party platform for ecommerce. You can use a branded site, but the optimization will take significant effort and a different marketing effort that your domestic site.
Exporting to local sellers has both pros and cons. You will have far less control, coupled with less responsibility. This is similar to the retail approach – you must present a firm, clear agreement with your exporter. Consider first how you want payment to be set up. With a trusted foreign exporter, you can offer a letter of credit to the buyer, or ask for cash in advance. Another option is consignment sales, which allows the exporter to retain rights to the product until it is sold, when they receive a payment at the point of sale. This works well for the exporter, but only if you can establish sales metrics for the distributor. An open account, where the buyer is billed under a contractual agreement for a future date, can be established with trusted partners. This is an easy option logistically, but you want to ensure that your buyer is in a good position to reach sales targets and that you have a clear understanding of the business relationship.
The selling strategy you choose will determine whether you need to set up as a WFOE or joint venture, versus going through a distribution partner. A WFOE, or “wholly foreign owned enterprise,” is the structure for companies to fully incorporate within China. While you will have to recreate all legal aspects and infrastructure of your business in China, this option provides the most control in regards to sales. A joint venture with a Chinese company will provide you with resources for navigating market entry, but you will lose some control, which can be risky. To determine which structure will fit your business plan, talk with an experienced Chinese market strategist. Baysource Global helps clients direct their sales efforts in China towards profitable strategy, and can guide you through the process of selling into a foreign market.
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Chapter 4. China Market Entry
Most companies begin by asking, “How do I enter such a complex, fragmented, foreign market like China?” There are many possibilities, but you need to consider when business in China makes sense, and when it doesn’t. Doing business in China is by no means easy; many who made investments during their historical economic boom are still trying to grow and develop their strategies effectively. Some of the basic challenges to market entry are:
- Understanding regulatory practice and requirements for WFOEs.
- Favoritism towards domestic enterprise by the Chinese political and economic systems
- Ensuring IPR protocol is enforced
- Recruiting qualified Chinese employees and management teams
These problems deter many U.S. based businesses from succeeding in China. Many who attempt to enter China either cease to invest or are run out by domestic competition. Baysource Global’s goal is to help our partners overcome these challenges to market entry, and instill good business practice from the start. It only makes sense to take your products into China if you have a reputable partner to leverage overseas relationships and develop a plan for your international expansion initiatives.
There are four basic entry methods, similar to the sales strategies discussed in the last section. You can go through an exporter, contractor, representative office, or establish a joint venture or WFOE. Your method will determine much of the latter strategies in sales, distribution, supply chain management, and marketing. Joint ventures and WFOEs require the most planning and involvement from the U.S. decision makers. In these strategic models, you will essentially be starting a re-creating your business in a completely new market. Going through an exporter or contractor allows you to operate in the U.S., while increasing sales through market penetration. You will not need to go directly to a Chinese sales channel to have your products distributed to retailers, wholesalers, or other intermediary. However, you may want to set up a representative office to coordinate Chinese business activities if you have a third party operating your sales.
A representative office (RO) is ideal for companies wanting to increase sales through international commerce, but who don’t want to fully invest in a Chinese business entity. ROs have limitations in their scope of permissible action on behalf of the parent company. They can manage communications and partner relationships, conduct market research, and establish new relationships with Chinese businesses. However, they do not engage in activity directly related to operations or sales. Your RO is your business development agent, which streamlines growth strategy without the added expense of your time and attention. Baysource Global helps our clients set up these offices, and coordinate communication between the Chinese and domestic locations.
The next step to Chinese market entry is creating your customer segments. This is especially important for joint ventures and WFOEs, but even when exporting you want to ensure your products are present in strategic locations and available to the most profitable target markets. Segmentation based on location and tier structure will help you determine how, when and where to implement your strategy. The tier structure in China ranks cities based on population size, density, development of infrastructure, dominant industries, and availability of different service sectors. Tier one and two cities are characterized by affluence, large urban populations, well-developed infrastructure, and a variety of prosperous industries. These cities are where luxury consumer goods are best suited. Tier three cities are similar to the American middle class, and have become a more popular market for companies looking to sell their older products.
Before you even consider your strategy for going into business in China, you have to know the steps to IPR protection. Be well versed in the regulatory language of China. You should go into the registration process with a thorough understanding of licensing requirements and procedures. Because public access to licensing and IPR protection is often limited or inconsistent, you need to partner with a reputable resource for IPR protection. Just because you have registered international trademarks, patents, and copyrights, doesn’t mean your IP is protected in China. You have to register everything separately through the Chinese IP Registration Office. Even then, sometimes a company’s understanding of what they have protected is not compatible with Chinese law. Aside from registration, you should monitor all business relationships, and implement strategies to fragment your business operations, so that IP infringement is more difficult.
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Chapter 5. Supply Chain in China
Supply chain management intimidates some businesses when entering China. While the infrastructure is well-established, Chinese suppliers fluctuate more often than they do in the U.S. But for those who can excel, supply chain management is a significant competitive advantage against other foreign companies. Some of the problems foreign companies face include: lack of quality control measures, unreliable communication tracking, and inconsistent regulation enforcement by the government. You must be prepared to implement your own quality control and communication procedures, rather than relying on your partners to do so.
The six steps to supply chain management go in this linear model: planning, purchasing, manufacturing, storing, distributing, and finally selling. The planning stage comprises of choosing your partners, creating quality control protocol, and setting up an infrastructure that harnesses the advantages of IT in communications. Once you plan the supply chain flow from point to point, you can then choose where to allocate your own resources for representative offices and manufacturing in China. It may be cost-efficient to move your manufacturing into China, and operate your supply chain through an RO. Your partners will handle storage and distribution of products, and your other intermediaries can help you reach sales goals in your target markets. Each key player should understand their role in this process, and develop a strategy based on your goals from the planning stage.
In China, the practice of “hubbing” or collecting goods from multiple suppliers to group and reroute large shipments across a country, is logistically much more simple than traditional distribution. China’s landmass and population size make small distribution centers less efficient. These “consolidation” centers provide a cost-savings, but are harder to manage quality control. You essentially divert from the distributor, and put your products directly into your retail location or storefront. However a small-scale but highly reputable distributor can be worth the investment if they deliver increase of sales or better partnerships with sellers.
Create agreements with your distributors that guarantee transparency at all levels. Again, China’s size makes shipment and rerouting of products very complex, so you have to take extra measures to ensure that your service providers are providing you with up-to-date, accurate information. Not only do you want to ensure that you are receiving the best service from your partners, but you must avoid a market failure from distribution malpractice.
A clear example of the repercussions of distributor ambiguity is the 2008 Chinese melamine scandal. Over 20 companies in China’s food industry went belly-up when it was discovered that partners in their supply chain were adding melamine to their dairy products, which inevitably caused health problems in infants across the country. The state-owned enterprise Sanlu Group (which was the leading producer of baby formula in China) admitted that they knew the additive was coming from their dairy suppliers, but that thy could not identify the source nor stop the problem short of a recall. The lack of strict supply chain management caused this company to lose reputation and months of revenue.
A well-structured information technology system will accelerate supply chain management and provide the level of transparency you need. Many solutions are available, but the right choice will make the difference of efficiency and acceleration between you and the competitor. Using the principles of Lean Six Sigma for your supply chain management requires a process for handling tracking, data storage, systems design and management. Effective IT increases the level of transparency, but unfortunately it becomes an afterthought for many companies who trust Chinese business practice more than they should. Unless your supply chain partners have a vested interest in protecting your IP and product management, you will have to implement these solutions on your own. Baysource Global walks through these processes with our clients, to find the right solution for communications throughout the supply chain network.
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Chapter 6. Distribution in China
The Chinese government has made efforts to optimize distribution across the country, encouraging the consumer market in recent years. But because China is so geographically segmented that distribution channels have difficulty reaching the entire country. Most distributors have a small pool of partners, with whom they maintain very close relationships. This helps foreign businesses connect to major retailers that target niche geographic markets which would be otherwise difficult to enter. Subdivision in distributor networks created a high level of competition, which is beneficial to foreign businesses. While many domestic entities choose to go directly to the retailer, a solid relationship with distribution partners will make market entry more efficient.
Finding the right distributor starts with your market analysis. You must find distributors in the right location, who have partnerships with your optimal wholesalers and retailers. The distributors are your gateway to a successful expansion. Localised distributors compete with state owned enterprises (SOEs), both having their unique advantages. A private company will likely run faster, but they have limitations on their territory and scope. Many private companies will set price limitations with their retailers that may work to your disadvantage if they undercut for the sake of their own sales goals. SOEs are more stable and generally have a good reputation for foreign business relationships, but it’s harder to terminate agreements or negotiate with a state-owned rather than private enterprise.
To find the right distributor, ask for a Request-for-Proposal from many potential companies. Outsourcing distribution requires you to set clear guidelines for a RFP, and then set your goals and guidelines for a working business partnership. Your RFP should include a brief outline of your company goals for expansion into China, and the specific goals for the distribution partnership. You will need to include the scope of work, expectations, resources given to the potential partner, and timeline requirements. You should establish a point of contact, who will manage the relationship and set the criteria for selection. Once you’ve received several submissions, then you can begin to evaluate and choose your partner.
Whether you choose a private or state-owned distributor, your main responsibility will be to create a clear distributor agreement. First and foremost, protect your name and branding; this is the most valuable asset you have. China does not recognize international trademarks until they have been separately registered in the country. In addition to the threat of IPR infringement, some foreign businesses have trouble with enforcing contractual agreement, or terminating distributor agreements unless clear guidelines are set from the start. These are the essential elements to include in your distributor agreement:
- Exclusivity agreements – Some Chinese distributors can assume another business identity and sell your competitor’s products if this portion of the agreement is not clear. It is legal, and will likely happen inevitably if you’re not careful.
- Market territory – Where will your distributor be allowed to sell or makes sales relationships? You must make sure they are looking after your best interest, not just theirs.
- Pricing and Sales Goals – You don’t want your distributor to allow price wars between your sales channels. Set clear pricing goals and limitations, while providing a sales quota for them to aim. You need to guarantee that your investments in China market entry are successful based on distributor performance.
- Ordering and Payment – Some distributors will pay upfront, but most prefer a consignment or open account agreement. This depends on the industry and target market, and how quickly of a return you expect to have. Only offer open account or consignment contracts to distributors who have maintained a strong reputation with many clients.
- Dispute resolutions and termination of agreements – Chinese distributors are well-protected under Chinese law. It is very difficult to terminate a bad relationship once an agreement is made, unless you set clear goals and expectations. If there is a conflict, provide the distributor guidelines on how to report and follow up.
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Chapter 7. Marketing in China
The basic principles of marketing tell us that within any market segment, there is only a small niche which we can reach effectively (between 1% to 5% for startups or new market ventures). Finding that niche through market research determines your marketing plan. While in the U.S., you may have a clear understanding of consumer buying behaviors and market trends, Chinese customers act entirely different. Again, they are a few decades behind in developing a consumer culture as compared to the U.S. Their incentives to buy and socioeconomic needs are subtly different, but these nuances should define your new marketing strategy.
Greg Paull, Forbes Magazine contributor and international marketing consultant, describes three major mistakes that most U.S. companies mistakenly bring to their China marketing plan. He says that, “The lesson for U.S. marketers is that “China is different” and the ones that succeed here will be the companies that truly get under the fabric of the country from the inside.” Domestic companies in China will always outpace American entities. Chinese businesses work around the clock, and their culture is much more driven on speed than American corporate culture. The U.S. simply can’t compete with Chinese efficiency, so it’s best to not bother. Paull also points out that digital marketing cannot be approached with the same mindset for China, because their internet policies block or limit the consumer’s’ access to information, especially when it comes to marketing.
In America, consumers are used to mass media marketing. Most businesses use this tactic in China, thinking that they will be able to increase market share because the country has such a huge geographic identity and population density. However, experienced marketers often answer the question, “Should branding be local, or should it be a mass marketing effort?” differently for China. The Chinese people adopt lifestyles depending on the tier of their current hometown. Those in Tier 1 cities (such as Shanghai, Shenzhen, or Beijing) will respond quite differently to a mass marketing effort than Tier 3 cities (Taizhou or Daqin). In general, it’s better to localize marketing efforts, because Chinese trust and prefer to support local brands.
Competition from domestic companies typically poses the greatest problem for foreign business. The Chinese are accustomed to domestic goods and services, and while they are willing to buy from outside the country for quality goods and higher social incentives, most middle-income customers will opt to support local business whenever possible. This is why mass marketing is considered ineffective, and at times even taboo, for the Chinese expect strong customer relationships pre and post sale. Domestic business often has the upper hand in providing a better customer service experience, because they can attract local talent and understand social norms that a foreign business can’t incorporate as easily into their business culture.
Positioning your product as valuable on a local level requires a shift in several components of your brand essence. Your brand values or benefits should emphasize feelings of community and support for the local economy. Create associations with your company that support these values, such as choosing smaller retail locations or finding local partners that share your values. Brand drivers, mainly identity, awareness, differentiation, value, and emotional connections, will help position your brand more effectively. Focus on grassroots marketing, building relationships with local partners and creating a brand personality that is individualized to each customer. Chinese customers will respond better to this positioning than traditional American mass marketing tactics.
To support your grassroots marketing efforts, build a talented sales force that aligns with your brand personality. Eight out of ten Chinese customers reach out to a sales or service representative at least once in the buying process. Most American customers would prefer to never speak to a salesperson; we are in the mindset that everything can be ordered online without any human interaction. While Chinese e-commerce is still booming, they expect a human interaction at some point, through virtual communication or sales calls to make the brand connection. If you have U.S. based sales training implemented in your company practice, lifetime customer value will diminish. Talented, well-trained and, most importantly, local Chinese sales teams are essential to creating a positive buying experience.
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Chapter 8. eCommerce in China
E-commerce in China has been encouraged through public policy to facilitate their shift from an investment-based to consumer-based economy. It is now easier to start an e-commerce enterprise under China’s internet censorship than in prior decades, but the barriers to entry are still high. However, many U.S. based companies have seen success, with minimal capital investment, by targeting Chinese customers through online sales. Chinese consumers use online retail differently from American consumers, however, and the differences should reflect in your marketing plan. Their culture, rooted in strong business-to-customer relationships, should be respected and mirrored in the way you deal with customer support and online transactions.
Customer support and service is handled differently in China. Remember that 80% of Chinese customers need a touchpoint before or after the point of sale. Unlike an American, who prefers fast shipping and minimal time spent on the transaction process, the Chinese expect to be approached by an online sales representative. They will also be more likely to research products and reach out before the sale to ask about product features and company benefits. You want to sell the brand value rather than product benefits, however, for the Chinese connect more to businesses who personalize their message. As with business-to-business relationships, you must spend time with each individual customer, embracing social formalities and providing a constant point of contact. This is where a solid customer service and sales team becomes crucial. The front line of your company should be accessible to customers at all hours, pre and post sale.
The three most important factors that incentivize Chinese online shoppers are: mobile accessibility, online reviews, and method of payment. Over half of China’s e-commerce first impressions come from mobile searches and use. While the percentage is higher in America, mobile is still crucial to reach your target market. The first step should be mobile optimization for websites and display ads. Then, you should tailor your transaction process to a Chinese customer. Very few Chinese customers use third party platforms to pay for goods. They typically prefer credit or debit cards, or bank transfers to methods like Paypal (Alipay is the most popular “e-wallet” platform). Some Chinese companies will allow cash on delivery, which facilitates brand trust. Customers do not run the risk of paying for faulty products, which is more common in China. Lastly, you want to provide constant communication between you and the customer. A chatroom or call center (as the Chinese prefer calls to virtual communication) is essential to receive lifetime value from a customer relationship.
Online marketplaces are much more popular than branded websites. Primarily, they provide a customer-centric rather than product-centric experience. Categorization based on interest or demographics are more popular than product lines or category listings. For example, categorizing your product for “women,” “sports,” or “gift,” will be more appealing than listing the make and model. Online marketplaces also provide their own customer support, which lifts the responsibility from the foreign company to find Chinese employees and integrate their staff into a completely different business structure. The expense of managing a Chinese representative office is unnecessary when you sell through the marketplace. Branded websites are also more challenging to rank in the search engines. However, you give up control and encourage comparisons among competitors on the marketplace. You will have a more difficult connecting your customer to the brand for repeat sales, which may hinder your chances for expansion. Choosing your online platform truly depends on the investment in time and human resources you’re willing to put into e-commerce.
Learn the business regulations on licensing and censorship. While China has lifted some of its business regulations, many are still set to ensure fair competition and advantages for domestic and SOE businesses. Regulations on content and advertising are sometimes ill-enforced or hard to fully understand. But compliance is crucial for foreign businesses. You can often find a hosting service that will monitor your content for you, based on Chinese law and requirements. Baysource Global specializes in e-commerce regulation and business development; we can connect you with hosting services and content monitors who will keep manage your online reputation. Once a plan is set, we show you how to move forward and reach out to customers online and in-store.
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Chapter 9. Chinese Business Etiquette
The eastern culture is so different from the west, in important aspects from the way we perceive communicate non-verbally, to the way we view interpersonal relationships. Historically, the Chinese have always been a collectivist society, valuing family units that extend into community and national loyalty. They invest in family and community preservation, and embody an entrepreneurial mindset in the form of family business and support for local production. The Chinese also have higher respect for familial hierarchies than American culture. Whereas the west places emphasis on individual growth and achievement, the Chinese work towards improving the livelihood of the next generation. They focus on speed and efficiency in business, but base all business decisions on the connections built in a network. Therefore, as a foreign business partner, you should take time to learn Chinese business etiquette to leverage these relationships.
The belief “mianzi” encompasses the overall attitude of Chinese businesspeople. Mianzi is equivalent to practices that avoid tension or conflict-essentially politeness. Americans value drama and dominance (individuality), whereas Chinese value collaboration and integrity (collectivism). So avoiding tension in discussions will be more effective than asserting yourself as a dominant figure or “change-maker.” Never use overly aggressive behavior in body language. This includes any sort of physical contact – the Chinese rarely shake hands, but rather bow slightly, and wait for the eldest or highest ranking person to initiate contact. Dominance is not appreciated or respected; it is considered rude and overbearing. The Chinese communicate through facial expressions rather than hand gestures. Abandon traditional public speaking tactics, such as using your hands and projecting your voice, when going into a Chinese business meeting. In general, you should act conservatively, and wait for the Chinese partner to take the lead.
Business cards are a sign of significance. Your title and rank is very important, as it resembles hierarchy in business and community. You should give your card to the senior first, then hand cards to any other important figures. This symbolizes your understanding of the hierarchy, and respect for the people who you are greeting. Hand cards with both hands, then take a slight bow of the head or if offered, you may shake hands. These little nuances will show that you have made an effort to learn the Chinese customs. This invites the business partner to establish trust with you, and to begin a new relationship outside of work. Never deny the opportunity to meet a business partner outside meetings and scheduled visits. Your time is equally well-spent learning about the personal life of your Chinese business partner. There are thinner barriers between friendships and working relations in China.
Gift giving is highly sensitive. Gifts border between true signs of friendship, and unethical business practice. Depending on your relationship with the partner, it may be best to wait for he or she to give the first gift. In America, certain occasions merit gift-giving, such as birthdays, anniversaries, business luncheons and incentives for employee excellence. In China, gift giving is a symbol of the advancement of a relationship, from cordiality to a true partnership. The best gift to give is a meal or banquet of some sort, for this signifies celebration and bonding. You should taste everything prepared, but don’t feel obligated to finish your plate. Business is never discussed over meals.
Appointments and timeliness are essential to good impressions. The Chinese obsess over speed; therefore there is very little forgiveness for delays. On your first visit to China, plan your appointments and ensure that you are early for every meeting. In America, timeliness expresses excellence and dedication. In China, it is simply expected. As you progress through the meeting, balance efficiency and warmth in your communication. While you want to move fast as to not waste time, you cannot afford to seem cold or brash. Allow the Chinese business associate to lead the time frame and structure of the meeting, and if you have an interpreter, ensure that they are feeding information to you simultaneously. The most ineffective meetings typically occur when you have one interpreter, who takes their own timeline and feeds the information both sides want to hear, rather than what’s actually being said.
Understanding Chinese business etiquette will give you an advantage over other foreign business trying to take your market share. Partnerships with retailers, business developers, distributors, and other stakeholders can either make or break your Chinese expansion project. The proper communication is most important. You need to effectively present your value to Chinese partners, to show them how your company will benefit their business ecosystem. By establishing trust in the business world, you have a greater chance of seeing your products reach the Chinese consumer. In B2B business models, you cannot afford to misinterpret Chinese business culture.
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Chapter 10: Conclusions
The globalized economy in which we now live and operate demands that all businesses, both big and small, expand to all potential markets. China is no different, and their developing consumer culture is irresistible for corporations to target. But the margin of error is slim; you cannot afford to implement a flawed strategy and lose market share when you enter into Chinese industry. With Baysource Global as your strong business development partner, you can go far to expand your global footprint.
Creating a viable China market strategy demands a well-developed project plan and the right connections to knowledgeable business leaders. You must consider whether you want to expand your market through new product development, market expansion, or acquisitions. This choice will depend on how feasible it will be to either start a WFOE, joint venture, or simply export your products. Your growth strategy is primarily determined by the methods you choose to sell into China. Again, you have options as to whether you want to enter a distributor partnership, sell directly to retailers and wholesalers, or go a more direct path.
After you’ve developed a strategic plan, work on the parts of your tactical plan, such as distribution and supply chain management. If you plan on operating from the U.S., you may want to establish a representative office rather than a fully-incorporated joint venture or WFOE. As you advance closer to initial market entry, take the time to research product licensing and IPR protection, regardless of what international trademarks or copyright you already have. The most dangerous decision is to forego this step in a race to market entry. If you have any question about your intellectual property rights or business licensing, ask immediately. Your understanding of these regulations sets the precedence for any successful Chinese business venture.
Marketing in China, either through grassroots tactics or digital marketing, will teach you a different mindset on how to relate to customers and creating a positive buying experience. You cannot treat the Chinese customer like the mass marketed American profile. You cannot ignore their need for direct communication, and the cultural aspects that shape buying behavior. E-commerce must be involved in your strategy as well. The Chinese customer is constantly connected to the web, and your online presence is essential to Chinese buyers finding, connecting, and engaging with your brand. Your brand image is arguably more important in China than the U.S., because a Chinese customer will not buy based on product features alone. Branding and company values are weighted much more heavily in the Chinese consumer market; invest wisely in your marketing tactics to develop a strong brand personality.
Before you fully integrate your Chinese market strategy, spend some time studying the business culture. The rule that people do business with their friends rather than the most qualified person or business is universal. Chinese businesspeople do not accept transactional relationships, and if you go into a business deal with that mindset, you are set up for disappointment. Understanding the hierarchy and common practice of Chinese business culture differentiates you from your foreign competitors, who will also be vying for the relationship with your prospect. This is no different than American business, but the tactics to succeed require practice, and a mentorship relationship between you and a trusted Chinese business developer.
Entering the Chinese market comes with its own unique set of challenges, from legal to cultural differences, and major changes in the way the Chinese treat business and customer relationships. This guide has taught you the basics, but there is still more to learn. If you have questions on any of the topics discussed, visit our resource center. We also have a Beginner’s Guide to Outsource Manufacturing if you believe that this strategy fits into your global expansion plan. Baysource Global not only specializes in China market strategy, but can connect you to trusted outsource manufacturing partners for product development, manufacturing, sales, and distribution.
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