More and more companies do business in China.
Currently, China is showing itself more and more as a country open to new possibilities for investment and doing business. In the last 10 years, many companies have decided to enter into business relationships with Chinese partners. Reaching these agreements benefits derived from economies of scale or lower margins that only this Asian giant can offer.
However, there is a great challenge when considering China as a business option: ignorance. This generates uncertainty and can even cause fear when making the decision to do business there. But one thing is clear, we are at the moment to go and invest in China, a country of opportunities.
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Why invest in China?
There are 2 ways in which, mainly, they seek to do business with China.
There are companies that see an opportunity and seek to sell their products in China. For the success of this purpose, strategic planning, local partnership and constant investment of capital and time are essential. It is also important to adapt the know-how of the company to the characteristics of the country, always advised by the local partner. Lastly, having clear expectations is vital given that obtaining results will be achieved in the long term.
An example of this is Mapfre. It began its presence in the country through an alliance with the state-owned company PIIC China. Through constant investment and cultivating long-term relationships, it went from a limited roadside assistance operation to the distribution of life, health, accident and travel policies.
On the other hand, there are also companies that use China as a purchasing or production outsourcing platform. The advantages of this strategy are the rapid returns on investment obtained compared to the construction for sale in China, given only in the long term and with very patient work behind it. The chances of success are higher than those given by the installation and sale of products in the Chinese market.
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The sectors that most clearly stand out for investment are high technology, services, the recycling economy, clean production, the use of renewable energies and environmental protection. Sectors where, according to Banco Santander, the investment of foreign companies is necessary.
The next Five-Year Plan will seek to double the country’s gross domestic product (GDP) and annual per capita income in 2020, which the country had in 2010. In addition, an important place is given to innovation, encouraging entrepreneurship and putting labor, technology and Capital into your service.
The keys to doing business in China
It is essential to understand that in order to be successful in doing business in China, a detailed strategic planning study is important, taking into account that the keys are long-term work, constant investment and patience in negotiations. There are many cases where companies have not taken into account the particular characteristics of business in China and have failed in their attempt to implement a global strategy.
On the other hand, the collaboration of a local partner in opening the business is very important. Because of the knowledge, they have of the market and the relationship with companies “in situ”. A partner makes negotiating with manufacturers, quality control, and Chinese bureaucracy much easier.
The Walmart case
A very representative case of a company that made mistakes for several years in its strategy is the Walmart case. The giant supermarket chain has acknowledged in 2014 that China is one of its worst-performing markets. The main problem was to apply the same commercial and operational structure that they had in their original operation when the situation in China in 1996 was not on par with the West in terms of technology, consumption habits, HR development and infrastructure.
On the other hand, in the business they are in, the relationship they have with suppliers is fundamental. At the time Walmart began operations, there was no supplier network (especially food) with process and quality standards similar to what is customary in Europe or North America. Without suppliers, it went through an arduous process of restructuring its value chain, losing ground to Carrefour, which entered with another strategy, developing the entire supply chain, collaborating with its suppliers and patiently and constantly educating its customers. Today, Carrefour is one of the leaders in the great Chinese market and Walmart tries to overcome its crisis.