Doing Business in China

Western and Asian business people shaking hands

Today's business owner looking to expand into international territory and increase profit often looks to the East. China is one of the world's fastest growing economies, in both the business owner and consumer sectors. There are certain crucial legal and societal factors and trends to be aware of before doing business in this country.

Government Considerations

One of the easiest ways to find discover the ins and outs for running a successful business in China is to get in touch with the appropriate government and economic offices that oversee business development in China. This includes actually traveling to China and participating in local trade shows or making appointments with governmental authorities in the province or city in which you plan to run your business.

The Chinese government offers potential business owners a five-year plan that provides businesses with information on the types of industries China is looking to establish within its borders. This is especially important considering the government's heavy influence in the business world.

Location, Location

The location of your business and the type of business you are starting are definitely intertwined. China's major metropolis areas are:

  • Shanghai
  • Beijing
  • Guangzhou

This is where the largest network of business, government offices, and industrial centers are located. Here are some important things to consider when selecting a location:

  • The types of successful businesses already ongoing in a particular location
  • The type of goods you are selling and if you will be importing any goods for sale
  • A location's access to suitable transportation

Once you've picked a location, the next step is to find a space and sign a rental agreement. Before your business can get the required permissions to operate, this step must be completed. Rely on the services of a real estate professional based in China, especially if you are not familiar with viable rental rates and location zoning requirements.

Gather a Team

Choosing a location in China and dealing with Chinese law can quickly become a complicated task, particularly if you are not very familiar with China to begin with. This is where a team of consultants or employees familiar with Chinese business practices will prove invaluable.

You need individuals who are familiar with China's business world. This will probably include:

  • An international business lawyer
  • Consultants to help you get your business started
  • Individuals to run your business

Consulting human resource companies or headhunting agencies that specialize in Chinese business can be a great way to find employees/managers that are bilingual and qualified for managing your business. You will need a team that is well-versed in handling business matters and legal matters to navigate China's heavily regulated waters on a daily basis when you are a viable operating entity.

Registering Your Business

Business is still under the control of the state, which means in order to operate you must go through numerous channels and cut through red tape. Frequent business advice from professionals warns newcomers that patience in these matters is key. In order to do business in China, you must register your business, which first requires that you select your entity format.

There are three major entities that can be formed in China:

Joint Ventures

This business type means that you have to form a partnership between your business and a Chinese citizen. Cultural differences and lack of business congruity may create a situation in which you and the Chinese citizen differ in significant and major business methodologies. If anyone loses in this spectrum, it is the Western outsider.

Representative Office

This is the most cost-effective way to form an entity, but you can't earn revenue or sell products. This option is most frequently used in the beginning of business creation, when you are seeking to build business relationships and develop your Chinese brand.

Wholly Owned Foreign Enterprise

This is the most common business entity and the most complicated. Governmental approval is required along with large amounts of capital investment. In addition, commitment to conducting your business in China must be shown by depositing a certain amount of capital in a Chinese Bank. This amount can vary from industry to industry and business to business.

Know Your Market

A big challenge in starting a business in China is getting to know your market. China is home to over 1.3 billion people and is notorious for having an extremely diverse market. Unfortunately for your marketing team, no one single consumer profile adequately depicts China's consumer.

Martin Roll, a consultant who provides marketing advice on Asian markets, related in an interview with CNN.com that "China is more a mosaic of cultures." In order to figure out your market, take tips from ongoing international and domestic entities within China. In addition, trade associations are also wonderful sources for advice on what the dynamic is for your market and what you are offering. Flexibility and innovation are key.

Cultural Influences on Marketing

The following are cultural nuances that should be taken into account when developing your marketing message:

  • Four and seven are unlucky numbers, but eight is a lucky number.
  • White is a color associated with grief whereas red, yellow, and gold are lucky colors.
  • Using animals like the dragon, Phoenix, tortoise or unicorn are looked upon favorably.
  • Avoid the use of black borders, which mean death.

China's New Middle Class

Thanks to the booming economy, China's middle class is growing by leaps and bounds. It's no wonder that luxury good sales for brands like Tiffany, Gucci, and Louis Vuitton are increasing. This group has been noted to spend discretionary income to increase social standing and to increase living comforts.

China's middle class also tends to be more loyal to brands than individuals that fall in lower income brackets and like U.S. consumers, are spending less time in brick and mortar stores and instead using online shopping methods.

Consumer Culture and Business Transactions

Chinese customers have their own set of customs and rules when it comes to spending money, including:

  • Using cash - A business should be aware that Chinese consumers are not allowed to convert their money into foreign currencies, so making shopping easy for consumers is key.
  • Haggling and negotiating are a business custom.
  • Conservative spending - Even with the fast growing middle class, Chinese households spend one-fourteenth of what American households do, which is important to remember when setting your business pricing scales.

Important Business Etiquette Rules

Offending your business partners, contractors, potential investors and prospective customers is not the way to get started off on the right foot. Jonathan Story, a professor and author of China Uncovered came up with the term "face" when dealing in China's business world. Face is basically a jumble of public perception, social role, and self-esteem. Face can include being open to social invitations, giving gifts for business-related favors, and being sensitive and aware of Chinese culture.

Other tips for keeping your business relationships in China positive include:

  • Always be punctual.
  • Address business officials or governmental officials by their title.
  • Get a proper introduction to individuals you want to do business with; to not do so is insulting.
  • Remember that rank is important, so be aware of who does what to be aware of any hierarchy and respect it.
  • Work on building long term relationships; the Chinese business culture values these over the quick business relationship.
  • The nuances of Communism still play a role in how decisions are made.
  • Make sure your business cards are printed in both Chinese and English. Present them with both hands and with the Chinese version facing up.
  • Patience is key, nothing is rushed, and showing impatience or anger is considered rude.
  • Keep negatives out of replies if possible, if your answer is no, use neutral language as much as possible

Eye contact is also an important part of business etiquette. There is a thin line between looking at someone as they are speaking to you and holding prolonged eye contact. In China, prolonged eye contact is seen as aggressive, disrespectful, and in business contact, can be seen as challenging. Since the U.S. eye contact rule is almost the exact opposite, make sure to be aware of your eye contact so as not to throw a wrench in your business plans.

Business Communication and Media Marketing Concerns

Creating an ad in China for marketing -or even for recruiting new employees- requires more than having copy written and then published. There is a process involved that could include submitting the copy to up to four different governmental agencies. Generally speaking, all communication or advertising must adhere to the following guidelines:

  • It cannot be detrimental to the physical or mental health of citizens.
  • It has to conform to Chinese social and political ethical standards.
  • It cannot effect or corrupt the dignity and interests of the State.

Since these guidelines are interpreted differently depending on the region your business is located in, the best way to ensure you know the proper way to communicate your message to consumers, or to even procure the services of others, is to contact the General Administration of Press and Publications which oversees all publishing in China, including digital and print.

The Big Picture

Respect of Chinese culture and business traditions are crucial when getting a business started in China. Chinese businesspeople don't expect Westerners to have their cultural map down pat, but it is best to understand as much as possible about this interesting culture in order to avoid inadvertently hurting your business prospects. Combine your knowledge with effort and having product your customers will find desirable.

Doing Business in China