10 Tips to Do Business in China

1. Geography matters – China is massive and diverse, which will affect your market-entry strategy and business partner selection. The interior provinces are inherently different from coastal provinces, and the southern provinces are substantially different from those in the north and west in terms of consumption levels, habits and even business culture. It is important for companies to understand their target market rather than assuming the potential market is “more than 1 billion” in size.

2. The type of Chinese company matters – Avoid the concept that “Chinese companies” all behave in a certain way. It is more practical to distinguish companies based on their structure, e.g. the state-owned enterprises under the Central Government, local state-owned enterprises, private companies, joint-stock companies, each having its own unique way of operating and decision-making. Each type also has its own set of strengths and weaknesses. Therefore, depending on a given project or industry, one may be more suitable over the rest.

3. Talk with other foreign firms – Companies should appreciate that they are most likely not the first foreign firm to attempt to engage in China. Rather than re-invent the wheel, they should learn from those already in the market. It is especially crucial to focus not only on the success stories, but also failures and learn from these. Although this should not replace thorough due diligence, it remains a useful approach to complement other information sources.

4. Go to China, don’t wait for China to come to you – Given China’s sheer size, in most industries there are hundreds, if not thousands of companies (see 2) yet only a small fraction of these have ventured overseas, and even fewer to Africa. Moreover, it is not always the strongest companies that have ventured out. African firms should take the time and effort to venture into China just as Chinese companies are “going out.”

5. Chinese firms’ knowledge of Africa still in infancy – Despite booming trade and investment figures, most Chinese firms still have a limited knowledge of Africa’s 54 distinct countries, just as most African firms are still unaware of China’s internal idiosyncrasies. This means foreign companies are tasked with explaining to their Chinese counterparts the value proposition of their project, location etc. and providing substantial information to validate their assertions. This is especially effective if they are engaging with a Chinese firm that is only beginning to consider “going out.”

6. Understand the investment regulatory environment – If foreign investment is coming into China, the government provides a Foreign Investment Industrial Guidance Catalog detailing areas foreign companies may not engage in. In terms of going overseas, Chinese firms are still bound by regulations inside China, which may affect what they may or may not do.

7. Engage a local lawyer for larger transactions, especially inbound investments – It may sound obvious, but a lawyer who understands China’s regulations in the specific industry is an indispensable asset, especially as regulations are constantly evolving. A local lawyer can assist foreign firms to navigate the complex national, local and sector-specific policies and regulations.

8. Find a reliable local partner – It is difficult to point out cases of successful foreign companies in China without a local partner. On the other hand, the list of failed Sino-foreign ventures is also long. It is therefore crucial to understand a potential partner’s weaknesses and strengths, take time to conduct a thorough due diligence and understand the risks, have a clear conflict-resolution mechanism in place, and in case of failure, have a clear exit plan.

9. Understand the basics of Chinese culture – Although China has opened up rapidly in the past decades, understanding its business culture will go a long way toward ensuring success. This may range from simple formalities to understanding negotiation tactics that may differ from those in other countries.

10. Be patient – Whether it is market entry, partner identification or engagement for overseas projects, one must remain patient as China is unique in many ways i.e. culture, system, company structures, regulations etc. Be aware of the macro, but business success likely lies in the micro-economy – channels to market, local regulations, market segmentation, supply lines etc. It takes time and patience to understand all these factors.

This article originally appeared in the Chinafrica Magazine, 10 Tips to Do Business in China

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