Although a challenging marketplace to western companies, China’s vast size, growing wealth, changing demographics, and economic transformation continues to create business opportunities.
“China is the EU’s most important trading partner”
Ursula von der Leyen, President of the European Commission
Over the past two decades, the China’s middle class has experienced one of the fastest growth rates in the world. The shift from the traditional low-wage, labor-intensive manufacturing economy towards more technology-intensive high value-added production has fostered a burgeoning middle class in China that has generated consumer demand for a broad range of products. Indeed, local consumers play an increasingly significant global role, now the world’s largest market for many products from vehicles to air conditioners to video games. This growing consumption power means the Chinese market is increasingly influential in global consumer trends, making success in China ever more critical for their ability to compete globally.
Many of the headwinds that the Chinese economy faces, including a rapidly aging population, shrinking labor force, falling return on capital, and the need to provide services to a population with greater expectations, will continue to provide significant opportunities for international companies. Despite geopolitical tensions, many western products continue to be viewed favorably by Chinese consumers.
Undoubtedly, there are countless advantages of doing business in China. However, it is also essential to consider the possible risks and disadvantages of doing business in China alongside its many benefits before expanding your business.
Pros
China as a major world trade hub
In accordance with its sheer size of land and population, China had directed its growing economy toward international trade. Many Chinese companies understand the importance of accommodating the global market, and even government policies are getting better and more favorable toward foreign companies. It is safe to say that China became a vital factor of international trade and should be significantly valued in every global-focused business.
China as an innovative landscape
China’s 14th Five-Year Plan (2021-2025) would improve business environments and develop innovation within the country. Scientific and technological innovation has played an essential role in promoting China’s economic development. It appears that China has changed from a major technology user to a technology producer, and technological innovation has gradually become an important driving force for China’s economic growth. Business innovation can thrive in China, more so than anyplace else.
China as a low-cost country
While the minimum wage and the working standards had increased through the years, China is still relatively cheaper than most developed countries when it comes to manufacturing. China is undoubtedly a manufacturing powerhouse and has gained the title of being the world’s factory’ not only because of its low cost. China’s robust business ecosystem, low taxes, and competitive currency practices are some of the reasons why the Chinese market is unmatched.
Cons
Challenging market access
Businesses who wish to enter the Chinese market must be well prepared. The Chinese market is not an accessible market to navigate for foreign companies, and there are many things to consider before taking the first step. There is a need to explore the various regulations, registration processes, and rights protection strategies that apply to one’s business.
Furthermore, there must be a basic understanding of Chinese consumers’ buying habits, which includes investing in the many Chinese social media platforms to stay in touch. Chinese social media could be quite challenging to navigate for those who are unfamiliar with the various platforms. However, it is an essential tool of e-commerce, especially in China.
Understanding Chinese’s etiquette
Knowing Chinese business culture and etiquette is indispensable when doing business in China. Chinese business etiquette is very different from the West’s, and it could be quite challenging to create a common ground if you are unfamiliar with the subtle mannerism. It is also essential to be aware of all the social taboos and avoid any sensitive conversation topics. Chinese domestic politics, for example, is a subject that is best to avoid.
A fierce competition
China’s competition is inevitable, considering that it is the most populated country globally and has the most middle-class urban consumers. The top tiers cities in China, like Shanghai or Beijing, are extremely popular locations for foreign investors. Therefore the competition within these cities is especially fierce. On top of that, the competition is between foreign companies and Chinese domestic companies, both private and state-owned.
However, the fierce competition can be a huge advantage of doing business in China. The intense competition often encourages businesses to improve the quality of goods and services they sell to gain more customers and increase the market share.
Government influence and regulations
Chinese company relationships with the Chinese government aren’t like those of the West. Because the Chinese government plays a much more active role in the national economy, the regulations and rules can be considered stricter than those of the West. It may be hard for foreign investors to follow all of the government’s rules and regulations, and it can become a frustrating thing to keep up with along the way.
Takeaways
China’s dominance and potential is too important to neglect in a global context. Understanding Chinese tech-giants, start-up environment and investor perspective will give you a solid foundation, that in most cases will change your view on Chinese business opportunities.
