The business environment of the Chinese market is considered to be dynamic and especially in its essence. The business environment welcomes new business entrants from various countries and demands commitment, skills as well as long term strategic planning in order to stay afloat. Foreign companies that intend to start business in China need to carry out extensive business research and careful crafting and execution of their business strategy. There are various modes of entry into the Chinese market.
Different modes of entry into China
The first mode of entry is exporting. Companies that wish to conduct business in or with China but not intending to invest in the country directly, exporting can be a potential option for high profit gains. However, the companies may need considerable time investment (Tiscini, 2011). Exporting involves direct export and indirect export. Direct export involves shipment of goods, provision of service across boarders or transfer of technology from a country to another directly to end customer. Indirect export involves the use of intermediary such as agent or distributor in China. Risks associated with exporting include demand for more people power to establish a customer base and controlling the work of agents requires a lot of communication.
The second mode of entry is licensing and franchising by ensuring that their IPR is registered in China as well as their own country. The risks associated with this mode include lack of contact with the end customers, potential risk of infringement of the IPR, and risk of the trade name being spoiled by dubious partners (Tiscini, 2011). The third entry mode is selling online using standalone website outside China or inside China, third-party platform inside or outside China. The risks associated with this mode include need to tailor the website to the Chinese consumers and site needs to be registered as a company in China. The fourth mode of entry is representative office which involves a physical presence in China (Tiscini, 2011). The risk is that the representative office should undergo annual inspection and only limited number foreign staff members are allowed.
Five things foreign companies need to do as preparation for entering the Chinese market.
The first thing that foreign companies need to do when preparing for Chinese market entry is identifying the market and the challenges involved. The second thing is choosing a strategic business location especially in China’s Tier 1 cities of Beijing, Shanghai, and Guangzhou as well as identifying the distribution channels (Hedley). The third thing is assessing the understanding the Chinese government policies and regulations. The fourth thing is carrying out an extensive market research which involves how and when to enter into the market. The fifth thing to do is identifying the potential staff and preparing on the hiring process of the staff (Hedley).
Two factors critical to success in entering the Chinese market
The first critical factor to success in entering the Chines market understands the Chinese market. Even though China is a huge and potential market for foreign business, Chinese people are said to be very strongly conscious of a brand and concerned about the status. In addition, when viewing the market, companies should consider targeting customer and size, demands of consumers, purchasing behavior, and generation group. The second critical factor for success is that companies should consider refreshing themselves very often. Business competition in China is coupled by rapid transitioning or change of products to more and improved quality products.
Guanxi and the role it plays for companies entering the Chinese market.
At the standard, Guanxi refers to interpersonal connections. Various other descriptions include personal favorites, and tight close-knit (Yang, 2011). Guanxi especially Guanxi with the government of China can help foreign companies entering the Chinese market to obtain sources of information which mostly includes government policies and business opportunities. With regard to business opportunities, strong Guanxi network of a business translates to more opportunities for its business (Yang, 2011). In addition, Guanxi can help business to access the sources of resources.
In a nutshell, foreign companies should understand the different entry modes into the Chinese market and decide on the best and appropriate entry mode. Foreign companies need to carry out market research, select location and distribution channels among other actions to succeed in the Chinese market. Guanxi is part of the Chinese culture which commonly refers to personal connection. This can help foreign companies to establish close relationship with the locals and the government to succeed I their respective business.
- Hedley, M. (n.d). Entering Chinese Business-to-Business Markets: The Challenges & Opportunities. Retrieved 15 January, 2015 from https://www.b2binternational.com/publications/china-market-entry/
- Yang. F. (2011). The Importance of Guanxi to Multinational Companies in China. Retrieved 15 January, 2015 from http://www.ccsenet.org/journal/index.php/ass/article/viewFile/9446/7998
- Tiscini, R. (2011). Emerging Markets: China Case Modes of Entry, Cultural Barriers and Geopolitical Implications. Retrieved 15 January, 2015 from http://www.crccasia.com/assets/Eugenio-Cibruscola-Bachelor-Thesis.pdf