I first came to China in 2007 which is over 15 years ago. I founded a company called China Admissions which helps international students apply to Chinese universities. Here are some of the things that I’ve learnt from doing business in China in these years which may be helpful for others who are considering a Chinese (ad)venture!
China is a fascinating place and I’ve really enjoyed the process and journey. It’s come with a series of unique challenges but I’ve also seen large opportunities.
Trends
One of the constant trends of China is of change. There are frequently new buildings being built all around the city. China is always changing. For this reason, my lessons may not apply to you and may not work in the future.
There also seem to a change in the types of foreigners in China. When I first came to China, it was not uncommon to meet expats who were posted to China from US or other European headquarters to manage operations in China. They were often given hardship allowance to cover the costs of their relocation and life in China. There seems to have been a decline in the number of expats in China, those who have been sent from their home country, and a trend towards hiring local talent, who are often lower costs, and more familiar with the local language and culture, wiht more relevant experience.
Is China unique?
It seems that many people say that doing business in China is hard, possibly together with the learning the language, but I’m not sure its any more difficult than doing business in other countries such as India, Italy, Russia or Ghana. Every different country has it’s own challenges. Here are a few of the challenges of doing business in China:
- The language – the Chinese language is complex, with thousands of characters and takes longer to learn than many other languages. Typically it takes 2200 hours of active learning, compared to french which might need 500 hours.
- Chinese cultural mindset – differences between China and UK
- Long term time horizon – people typically think in a longer term than in the west in terms of plans and business.
- Relationship Vs contract based business – business is typically more relationship than transactional. This has advantages and disadvantages but is just different to what many are used to.
- Product vs Service based – because of China’s background as a factory of the world people tend to think more in terms of products. There are fewer saas companies, and they are usually more practical when buying a service, considering what exactly they are going to get for it. Clear KPI and return on investment is important.
- Lower cost – the cost of living and general costs are lower in China than other countries. Chinese consumers are much bigger savers than spenders, and so it’s challenging to sell commodity products in China. It’s important to differentiate your product with brand and superior quality.
- Group Vs Individual – people tend to be not very individualistic and think of themselves more in terms of the company, family, and group. This is important to consider when doing business and having a company.
- Large competitive market – China has over 1.3 billion people and so there are many possible local competitors for your product or service.
- Aligning with government targets – the government plays an important part in the Chinese economy that it doesn’t play in other western economies. It’s important to understand what the Chinese government wants in different industries. Usually this is quite transparently shared and long term government plans are quite clear. Sometimes people are surprised by this.
Being successful in China
There is a misconception that it is difficult to be successful in China compared to other markets. There is a big list of foreign companies, especially tech companies, in China who have failed. I believe the reason for this is that 1) they have not aligned with what the government targets, and 2) they have approached the Chinese market with the same strategy as all the other countries they have targeted. Because of all the factors that make China unique, I believe in order to be successful in China it is necessary to:
- To focus on specific business or product that is not a commodity and that the foreign company has a specific advantage compared to locals. It’s impossible to compete in a commodity product in China, and in a business where there can be 100 competitors. The best food delivery company or search engine is always going to be a Chinese company. One of the key reasons for this is that there are so many potential competitors, that they are going to be far more comfortable with ambiguity and taking risks, they are going to have better connections, and being a foreigner is a complete disadvantage. The area where foreign companies can win are those where they have an advantage that local companies can’t compete with, this could be areas where the home country has an industry advantage, such as LVMH, or food, or wine in the case of French or Spanish. Education in the case of British companies. In these industries Chinese people see foreigners a having advantages compared to locals.
- Have a strong base in China and decisions to be made locally. Either by a long term Chinese speaking expat or a local Chinese manager. This local team needs to be given autonomy. Husband and wife teams seem to be a successful combination in China that I have seen many times, particularly if they can bridge the gap between the home country that has the advantage and understanding and relationships in the Chinese market, and also because they can invest in China for the long term.
Raising Investment in China
I don’t know of many foreigners who have raised investment from China. I believe that’s because they lack the connections or ability to convince the local investors. It also seems that many of the local investors aren’t looking to invest in foreign led companies. I think the main reason, though, is that those local investors have many more opportunities to invest in local companies who are more likely to be bigger companies. Cross-border companies, are those that foreigners seem to have advantages in, are usually going to be smaller and have slower growth, than the local businesses that can grow much faster. As a result it’s necessary to build a sustainable old fashioned investment to grow a profitable business.
Some of the things I’ve learnt:
- Learning the language to localise, investing significant time to build relationships, or developing a leading global brand
- It is necessary to hire right – building out a GM in China
- The importance of wechat
- Finding local partners and networks and connections
- The importance of localising
- I’ve realised that the best times to do sales in China is between 8.30-10.30 AM. That is typically when people are most responsive and open compared to the afternoons.
Conclusion
Doing business in China does have it’s own unique aspects. By focusing the business on certain advantages compared to the local companies and not being a commodity then it’s possible for a foreign company to have a better shot.
