Businesses planning to expand globally often consider China their first option. Due to its large consumer population, market size, and steadily growing economy, China offers lucrative opportunities for businesses.
However, foreign businesses face a range of obstacles when entering the Chinese market.
In this guide, we address some of the most common challenges foreign companies face when operating in the Chinese market. Importantly, we also discuss business strategies that can help you enter and survive this market.
Challenges foreign businesses face when doing business in China
The Chinese e-commerce industry has been growing steadily, despite the initial impact of COVID-19. Statista reveals that the Chinese e-commerce market’s revenue is expected to reach US$ 1,626 billion by 2025. The same report shows that user penetration is expected to reach 83.9% by 2025. While these figures may tempt one to enter the Chinese market, it is not an easy market to access. New businesses often face several challenges when entering the Chinese market. These challenges include:
Language and cultural barriers
One of the biggest challenges foreign businesses face in China is the language barrier. The Chinese language is a complex system that comprises various dialects and accents. Knowing basic Chinese is often not enough. Furthermore, Chinese culture is very rich and can sometimes prove to be unfathomable to an outsider. Taking the time to speak to locals and understand the culture is crucial for foreigners seeking to tap into the Chinese market.
Fierce competition
Although China offers opportunities for businesses to grow, competition in the country is fierce. Foreign companies are increasingly entering the country as local industries continue to boom. This creates fierce competition, as new businesses struggle to expand into an already competitive market.
Local market access
Accessing the local market is crucial for succeeding in China. This includes identifying the right marketing strategies and distribution channels to reach the right customers. In a country of 1.4 billion people and a heavily regulated business environment, this is certainly a challenge.
Government regulations
China enforces strict regulations for businesses operating in the country. This includes obtaining various permits, licenses, registration, and providing documentation. Foreign companies, in addition, face strict compliance regulations, with little to no official guidance. Bureaucratic barriers also present a challenge for companies looking to expand into China.
Tips for entering the Chinese market
The aforementioned points mean that it is rather difficult for entrepreneurs to tap into the lucrative business opportunities in China. However, there are several business strategies companies and individuals may adopt to navigate these challenges and fight off competition.
1. Adopt a targeted, regional approach
First and foremost, identify the right market. China is a heterogeneous society with large disparities among cities in terms of the population, per capita GDP, income levels, education, and lifestyle. Each city or province possesses unique characteristics, demographics, buying power and habits. Therefore, companies seeking to enter the Chinese market must carry out extensive research to identify the right geographic region and target population.
For instance, China’s Tier 1 cities, such as Beijing, Shanghai, and Guangzhou, are highly populated areas with high-income populations. These cities serve as a good starting point for businesses as they entail the lowest risk, despite the high competition. On the other hand, Tier 2 cities including Tianjin, Wuhan, and Nanjing offer low operational costs, but difficult entry processes.
Businesses can also choose to explore SEZs (Special Economic Zones) – areas designated by the Chinese government for foreign investors to set up businesses in. These zones are designed to encourage international trade and economic growth within the country as they offer tax breaks and access to affordable labour.
2. Understand government policies and regulations
Understanding government policies and regulations can also go a long way in succeeding in the Chinese market. Many industries are heavily regulated; some are even off-limits for foreign companies. China divides its foreign investment projects into three categories: encouraged, restricted, and prohibited. Each category has its own set of regulations and limitations.
China also has strict laws regarding importing goods. There are many different regulations governing the importation of goods, ranging from requirements related to documentation, inspection fees, and penalties for bringing in prohibited goods. Understanding China’s trade policies and regulations can help you better navigate the entry process. Moreover, you need to constantly monitor the landscape for changing laws and regulations.
3. Choose the right logistics carrier
Choosing the right business partners in China, such as a trustworthy and reliable logistics partner, is important. When it comes to supply chain, management, distribution and retail, the right logistics partner will not just offer the safe and reliable transport of goods, it can help you operate smoothly and also navigate language and cultural barriers.
A reputable and reliable carrier like DHL Express will help you navigate the various regulatory hurdles and complex processes discussed above. Our Certified Specialists are the best equipped in the industry to help you navigate sometimes complex local Customs clearance processes. With our intimate knowledge of each country’s system, we can solve issues before they occur – ensuring your deliveries speed through Customs and reach their destination as quickly as possible. With highly transparent, automated, and streamlined services, DHL Express can help get your products into the Chinese market. From offering fast, convenient and versatile international time or day specific export delivery services to offering an array of Customs services which include key aspects such as export declaration for shipments exceeding a value threshold, multiline entry when importing shipments containing multiple commodities etc., DHL Express offers a number of additional services that anticipate your needs and offer the right solution to aid your business grow globally. Open a DHL Express account today and let us bring your business to the Chinese market.
