China’s economy has continued to grow by double-digit rates. Despite the trade war and the economic slowdown, China continues to rack up one of the most enviable growth rates in the world. With a population of 1.3 billion, China is the world’s second largest economy and has made impressive economic and social development gains. This is the main reason it becomes highly important to understand how to enter the large and complex Chinese market.
What Chinese Government Want from the Foreign Companies–
Overseas companies willing to invest in China need to understand the requirements of the Chinese government first. Chinese authorities want several things from foreign enterprises who are willing to sell to the Chinese population. Here is a rundown of their requirements-
The Chinese government wants that foreign companies must open factories to employ and give preference in employing Chinese workers.
Foreign companies must share their technology and forcing foreign firms to hand over their technological secrets as the price of entry to the massive Chinese market.
Foreign firms must strictly adhere to the China employment law and do business over here in a Chinese way.
What Foreign Companies Want from China–
According to the Bloomberg, faster licensing and full control topped the list of what foreign companies want most from Chinese policy. They want to be able to open branches more easily across the country, a process that takes as long as one year because local governments need to issue permits. Financial firms also seek 100% ownership of their units, which will give them absolute control over strategy. Removal of capital controls and less government intervention are also on wishlists.
We are highlighting the basic strategy foreign companies can follow for entering Chinese market:
Have a long-term business plan with adequate financial and staffing resource–
In the view of the China business lawyers, foreign businesses need to come up with the long-term business strategy before entering Chinese market. You must have a business plan with road-map for the first 18 to 24 months in China. Forming WFOE, modelization of revenue generation, recruiting strategy and the allocation of investment are the key factors for your success in Chinese market. You must be clear in your mind on type of objectives you want to achieve and the return of investment you are expecting. Foreign businesses need to have a tailor-made market entry strategy for China.
Be Prepared to Face Technical Difficulties–
Do keep in mind that many international services are blocked by the Great Firewall of China. The first realization that foreign companies often need to make is that China is in no way a uniform and homogenous market. Yet there are intricacies native to the technological landscape that one needs to be aware of. Intellectual Property vulnerability is another major difficulty you have to face while doing business in China.
Joint Ventures and Profits–
If you want a safe start, it is a good idea to go for a joint venture in China. A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Chinese investors, who together share the profits, losses and management of the JV. Foreign companies can invest in businesses that are restricted by the government to Chinese companies. Certain sectors are reserved only for Chinese entities or JVs.
Your objective in entering China should be to become operational as quickly and efficiently as possible and creating a WFOE and obtaining a business license are just parts of that process. It is best to already have a warm business relationship with potential Chinese partner.