Set-up of the company: Administrative mistakes
When starting your business in China, you will have to choose a set-up strategy. There are several ways to start doing business: setting up a WFOE, doing a joint venture, Merger and Acquisition… Whatever strategy you choose, there are a lot of very specific procedures and rules you should be aware of. In order to minimize the risks of making mistakes and of complications during the business set-up, you should consider seeking the help of experts who are able to assist you throughout the process.
Insufficient financial resources
Relying too much on financing within China may be a mistake. Foreign exchange control in China is limiting loans from mother companies overseas. Local and foreign banks are quite reluctant to lend to new companies without a high level of securities. From the origin, allow generous financing to be available for the project, yet be aware of potential cash traps due to foreign exchange control.
Hiring the wrong people & other HR mistakes
Without the right staff, your business is not likely to sustain for long. So, take special care when hiring. First of all, your people should match with your company’s values, vision and motivations. That is the best way to take your company forward.
Then, your hiring strategy should also take into consideration potential staff retaining issues. Indeed, there is a common misperception that China with a population of 1.3 billion provides access to a limitless pool of workers. Currently, staff turnover rates are high in China. It is challenging to find and retain trustworthy employees and quality managers.
Expatriates or local contracts? The benefits of employing expatriates are greater operational control and transparency. However, expatriate packages are often very costly in terms of salary, relocation costs, insurance charges, etc. More and more companies are offering local contracts to their foreign employees and more and more foreigners are working this way.
In case you face difficulties with your hiring process, the best thing to do is to contact recruiting agencies who are specialized in the Chinese market.
Underestimating the specificities of the local market & culture
Never underestimate the differences of the Chinese market and culture. This could be fatal to your company. Therefore, make sure to conduct in-depth market research prior to the launch of your activities in China. This will help you to adapt your product, strategy and sales pitch to local tastes. McDonald’s for example slightly changed its menu in China, adding shrimp burgers to satisfy local demand. You should also get to know and use local platforms such as WeChat and Baidu where all the business takes place. This is the best way to get to your local target customers.
However, be careful not to lose your company’s identity in the adaptation process. You should still present a strong brand and identity, as branding is a crucial element for business success in China.
Also, be aware of language barriers and cultural differences. Many companies fail to succeed in China due to a lack of knowledge of Chinese business etiquette and traditions.
Have a look at one of our previous articles: Chinese Business Culture: What You Need to Know
Forgetting to innovate
It is very important not to forget about adapting to the fast-paced world you are dealing with. Especially in China, it is crucial to stay innovative and not only to rely on old methods or products. Additionally, focusing on digitalization and e-commerce is a must. E-commerce is not only a cheaper and faster way of selling than traditional shops, but also a particularly wide-spread practice in China. Not staying up-to date on these matters can be problematic for your Chinese business activities.
Don’t underestimate your competitors in China. There are probably plenty and they are strong. Generally, competition is going to become harder in the next decades. That is why you should not only thoroughly research your local competitors, but also try to cooperate with your Chinese counterparts. They will be able to provide you with more insights on the local market and strategies to implement in China.
Lack of support and reactivity
The key to a successful business in China is support from the mother company and the managers. Without it, no business can thrive. Distance, time differences and novelty of problems requires mother companies to dedicate plenty of time and provide constant support to the local teams. The majority of this time will be needed during the implementation period. However, even after this period, managers from the head office should still visit regularly in order to supervise the personnel on-site and be up-to date on local business matters.
Also, try to be as reactive as possible and to reply quickly to any inquiry. This may help to resolve issues quickly and prevent potential trouble from emerging.
Doing business in China takes time and requires patience. You will have to build strong personal relationships with Chinese counterparts before being able to close a deal. This is a Chinese specificity and is often referred to as guanxi. The negotiating part may also take some time, so be prepared.
On top of that, there is a myriad of authorities, rules and procedures to follow on all levels when doing business in China. It concerns HR processes, legal matters, as well as tax regulations, and much more. Therefore, to avoid administrative issues make sure not to cut any corners. Take the time to know and to go through all the required procedures. Some information may be found on the website of The State Council of the People’s Republic of China. If needed, you may also contact specialists on some matters who will help you to avoid making mistakes.