Entering and growing in the China market can be a daunting and sometimes frustrating task for foreign-invested enterprises. The way in which a company’s management addresses these challenges is critical to success in this highly dynamic and competitive environment. Although hurdles will vary according to the specific company, sector and location, there are four key issues that are common to nearly all enterprises doing business in China:
- Market knowledge – Gaining market knowledge in China is significantly more challenging than in more mature economies due to the size and diversity of the country, the lack of reliable official data, and constant and extremely rapid change. China is also a country where information is coveted and not freely accessible. As a result, there are generally no single reliable sources where information on an industry or company can be obtained. Market knowledge has to be obtained ‘on the ground’. It is a mistake to assume that it can be obtained through several visits to the market or through a few insiders. Acquiring reliable market knowledge on which to base sound business decisions requires considerable investment in time and effort.
- Immature markets – Most of China’s markets (if not all) are immature. As a result, foreign-invested companies face challenges that they would not experience in mature markets, such as a lack of consolidation, limited brand recognition and a highly price sensitive customer/consumer base. Companies need to analyse the best way to approach and manage doing business in a developing marketplace.
- Regulatory environment – There are situations when regulations may be difficult to understand or are inconsistently enforced. This is often due to loosely interpreted regulations or the involvement of multiple authorities, both central and local, in oversight. Companies must ensure that they fully understand the regulatory environment before entering the China market.
- Local company advantage – In most markets, local companies tend to have an advantage relative to overseas entrants. This is especially true in China. Domestic companies have a better understanding of customers and market conditions. It is especially important for foreign companies to gain market knowledge and insights if they are to mitigate local company advantages and, in some cases, foreign entrants may need to work with local partners in some capacity.
Understanding opportunities and challenges within an industry, or those facing a specific firm, are necessary to make informed market entry or growth decisions. China’s rapidly changing economic environment, inconsistencies of interpretation and enforcement of regulations, together with the general lack of transparency, make understanding opportunities and challenges all the more daunting.
Sovereign China can provide an understanding of markets, competitors, distribution channels, as well as help identify and vet potential partners, and will substantially improve the chances of successful market entry for foreign investors.