Setup Business in China
April 26, 2017 | business planning & strategy, structures
Recently, I asked by one of my clients to reflect on the past 3 years of doing business in China. “I don’t mean to scare you away or stress you!” was his response. When we first met, he was positive, full of energy and drawing up his blueprint on how he would like to do this and that in China. So, what happened in those three years?
To give you a bit of background, my client is the owner of a shoe shop in the Illawarra region south of Sydney, with three generations of footwear making and trading experience. Our conversation started from his desire to learn Mandarin, acquire a business visa for China and find leather and manufacturing partners to create his own shoe line. He also required help with factory visits and hiring trusted staff on the ground in China.
It was a tough first 6 months to begin with. While he’s full-time managing the shoe shop, we had twice weekly 2 hour Mandarin lessons focus on listening and speaking in the areas related to factory, shoes, color and number for pricing, all the practical stuff he needs for business conversations. In the mean time, he started to prep on the business visa to China as well as searching for factories in China who could make samples based on his shoe design.
That’s where the level of hecticness jumped to next level. He went to China and visited factories that he never been to before, far-flung provinces and remote locations, all by himself, without any partners or alliances formed. He encountered quite a few difficulties including samples made not as discussed when met; contract changed when context lost in translation; massive pricing points between one place and the next, etc. He realised he need to have staff on the ground that he can trust to bring the business up to speed. It’s also the way to form the best partnerships, to be actually in the market, experience what’s going on, and don’t give up.
I asked him, after all the frustration and hardship, what he would change if he could go back. He said, “Nothing. It's part of the experience and learning, part of the process!” “The only frustration is not being patient with achieving the final product ... we all want perfection at first attempt.”
Fast forward three years; he now has ongoing partnerships with two manufacturing factories in Shenzhen, his own designer shoe line he sells in Australia and he’s also considering investing in small factories in China in the near future. To top off this list, his Mandarin speaking skills constantly amaze me. So, hey, if he can do it, I believe you can do it too.
So if you’ve been seriously considering doing business in China then congratulations! You’re about to tap into a 1.3 billion population with huge market potential (see diagram below).
Given the estimated growth of Chinese consumption in the next five years, I constantly get asked questions around setting up business in China. With the power of search engines, you can pretty much find any information you want. If your business is in the design, fashion, arts, retail, wholesale and tourism industries, I have identified the following tips to help you create a smoother path to China.
Social media beyond the ‘wall’
As long as the ‘firewall’ still exists in China, you will need to consider local social media to stay active in the market and to be found by your desired customers. I can’t recommend enough the set up of an ‘Official Wechat Account’ which will enable you to send newsletters, broadcast and open online shops to connect your potential customers.
‘WeChat’ started out as a simple social platform (think What’s app), it now provides more value-add services that benefit its users’ lifestyle such as Wechat payment, games and news.
According to the latest Wechat 2016 report, they have 700 million monthly active users and 200 million of those users have linked WeChat with a credit card. 2 million businesses accept ‘WeChat Offline Payment’ in-store and 46 billion ‘WeChat Red Envelopes’ were exchanged during the Spring Festival in 2017. 62.2% of users use the lifestyle features including; mobile top-up, purchasing movie tickets and paying for restaurant bills.
More than 25% of WeChat Official accounts are in the ‘General News’ category; of which the service industry makes up around 20% of all official accounts. You can also consider ‘Wechat Moment Ads’ which launched in 2015. This is their in-platform ad function which offers several templates to choose form to create your own ads.
Form a relationship with local trusted contact
Whichever industry you are working in, it is critical to have a contact in the field in China to help you.
First up, create an alliance with a trusted interpreter — even if you don’t have local office just yet, having a Mandarin interpreter who knows and understands your business goals, and is willing to help you in China is a great asset. It ensures you can clearly and effectively communicate with local factories during meetings, and nothing is lost in translation!
Be prepared to meet and try a few companies/factories to compare services and products. Keep your options open, think through fully before making a final decision. For example, if you are in the manufacturing business, be very patient as there will be lots of trial and error before you sign a formal partnership deal. You can always ask for samples or demos to test out your relationship.
Once you’ve made a deal, it is important to regularly connect with your business partners in China. Schedule regular catch ups via video conferences, or I recommend a quarterly visit to China as team bonding is very important to ensure everyone understands your business direction and that you are on the same page.
If there’s no one to guide you in this process, don’t give up when meetings don't go very well. Keep asking questions and getting introduced to people and keep trying. You will get there in the end.
Payment channels open for business
It no longer matters where your office is based, if you are trading with China, you need to sort out pay channels. When targeting onshore (or offshore) Chinese clients, they would use either ‘UnionPay’ or ‘Wechat Pay’, or both.
‘WeChat Pay’ now works at 100,000 retail locations, 80,000 restaurants, 44,000 vending machines, 400,000 parking spots, and the number continues to climb at a fast pace. In 2015, ‘Wechat Pay’ processed over US$1 trillion in payment volume VS. US$281 billion for Paypal.
Here’s a tip for you. In China, there’s a ‘Singles Day’ on the 11 November. It’s a special shopping holiday to celebrate being single, or simply an opportunity for anyone to get a sales deal, and here’s a compelling stat to get you onboard with Singles Day: Amazon on Prime Day: $525 million vs Alibaba on Singles Day: $14.3 billion.
Got extra energy? Learn Mandarin
If you think that sounds hard then I refer you to one of my favourite quotes from Jack Ma, founder of Alibaba: “Today is cruel. Tomorrow is crueler. But the day after tomorrow is beautiful.” Try it!
*Interview with my clients
*$ are US dollars in the post