The Chinese economy continues to boost investor confidence for businesses looking to tap into its enormous market. Official state figures reveal Foreign Direct Investment (FDI) grew by 26.1% in the first quarter of 2022 when compared to the previous year. This growth stems from various factors. For one, the large population of over 1.4 billion people presents a massive and diverse market for international businesses.
So, where do the opportunities lie exactly? One only needs to dive into China’s e-commerce sector to find out.
The Chinese e-commerce market will be worth US$4 trillion by 2026, according to Statista figures. Coupled with a large tech-savvy population of over 1 billion, reports the China Network Information Centre (CNNIC), the country is a prime bed of opportunities for international businesses
However, penetrating into this competitive market can be challenging with strict regulatory requirements and intense competition. Yet, it’s not impossible as long as you understand the complexities and plan the best entry strategy. Here are three tips to start with when you consider expanding your business into China.
Market entry strategies into China
1. Understand regulations and policies on foreign investment
China’s socialist market economy means that international businesses wanting to make an entry will need to prioritise public interest over commercial pursuits if they want to thrive. This is also exemplified in Article 20 of the Foreign Investment Law, which states that the government may confiscate foreign investments in the event they are found counterproductive towards public good. Despite the strict trade policies and regulations of China, entering the market is still possible as long as businesses familiarise themselves with the rules and adapt their business operations accordingly with a well-conceived strategy. For a start, consult the Catalogue of Industries for Encouraging Foreign Investment (2020 Version) which details goods that are prohibited, restricted, encouraged or permitted for sale by international businesses.
- Prohibited: These industries are not open to foreign investors.
- Restricted: These industries are subjected to limitations.
- Encouraged: These include mainly commodity industries, such as food and drink, as well as software product manufacturing.
- Permitted: Industries not included in the above categories will be permitted in China.
Businesses should also acquaint themselves with the Negative List for market access which changes every year. This list shows industries that are prohibited or restricted to private investments by Chinese companies. A business might eventually be delisted from the prohibited category, which eases market entry.
Once you have confirmed that your business is admissible, the next step is to identify your target audience.
2. Identify and target the ideal market
China’s market is characteristically diverse because different regions in the country have their own political, economic and cultural norms. This means identifying the most relevant sub-markets is key to a successful expansion. Look out for consumer behaviours, industry-specific regulations, values, and ease of doing business in these regions.
The city-tier classification is commonly used to differentiate Chinese markets. Cities in second-tier classes and below have lower spending power. However, they offer stringent entry barriers and greater scope of opportunities due to reduced competition, which makes them attractive to most businesses. This should not stop investors from targeting consumers in first-tier markets if their business offering is meant for prospects in these regions. For instance, businesses in the luxury goods industry will find Tier 1 cities the perfect target market.
3. Plan a rewarding approach to entering the Chinese market
Essentially, one can enter the Chinese market by forming a joint venture with a local company, as a direct exporter, or exporting through distributors. What you choose will depend on certain factors. These typically include the industry you’re diving into, the geographical size of the target region and access to technical and on-ground support. Businesses need to strategically weigh the different options available and see what works best for them in order to succeed.
Break into the Chinese market with DHL Express
DHL Express has helped multiple businesses and investors in Indonesia take advantage of the market in China. Through our global shopping solutions as a reliable courier service provider, businesses do not need to worry about logistical capabilities and reaching their target markets. Learn why shipping with DHL express is your answer to a seamless global expansion. If you’re ready, open a business account with us to get started.
