With biggest market and stable, fast growing business environment China represent important destination for business expansion. Business owners however, meet difficulties while trying to enter China market, because of cultural, language, law and other barriers.
Types of Chinese companies
Before business owner enters China market, he has to make important strategic decision which type of company he will set up. The most common types of Chinese companies are Representative Office, Joint Venture and company which is in wholly owned by parent company, or Wholly Foreign Owned Enterprise – WFOE. All of this companies have their pros and cons, which owner has to be aware of before entering China market.
Representative office is cheap and simple option, but limited in what it can do. Practically it means, that company can represent and building its brand, but it can’t make any profit with products and services. But it can start to operate on the market and progressively develop relationship and later upgrade to full company.
Joint venture with Chinese partner seems like a stable option, but it has traps. In case of troubles, will outside partner always be in worse situation, than local (Chinese) partner. Laws have a lot of maneuver space and can be explained one sided. Thus, before opening joint venture, business owner has to find a reliable partner, who can be trusted and get informed what are our options in case of troubles before we set up strategic partnership. On the other hand joint venture can be a good start, especially if Chinese partner has good relationships (guanxi) on the local market.
Wholly Foreign Owned Enterprise is type, for which most Western companies decide. Pros of this company is transparency, because parent company has all supervision over business. However it is difficult to setup this type of company. Besides bureaucracy, there is also need for minimal capital, which has to be invested by Western company.
Choosing location in China
Choosing the right location is of great importance. Usually the best choices are bigger cities, like Beijing, Shanghai, Guangzhou and Shenzhen, where all main business and government centers are located. When choosing appropriate location, we must take into consideration on what type of business we run. For technology company the best option is Beijing, where is also located main technology hub Zhongguancun, which is similar to Silicon Valley. For production business, companies usually chose south of China, like city Guangzhou and for trade and services Shanghai. We must also take into consideration transportation and logistical needs and government regulations, which can be very different from city to city.
What we need to know before entering China market
Western companies has made many mistakes while entering China market, out of which we can learn important lessons. We need to know, that in China things need time to evolve and that success doesn’t come overnight.
China market is complex and very different form Western markets. For success is needed a lot of patience, understanding of cultural differences and the ways of conducting Chinese business. Companies meet bureaucracy, regulations and a lot of time to build relationships. It is also important that we protect our brand at the beginning, because it can happen, that somebody else register it first.