For quite a significant amount of time, China has become one of the largest and most attractive markets for entrepreneurs and investors. Out of the desire to reap as many benefits as possible for doing business in China, more and more investors are interested in tapping into the atractive Chinese market.
Still, this is easier said than done. If you’ve ever considered doing business in China, you probably know by now how the bureaucratic web is tangled. Moreover, if that wasn’t enough, China is renowned for being the place where agreements and deals are perceived not really as actual agreements but rather more like suggestions.
Still, in recent times, China’s business environment and regulatory structure have registered significant improvements. But what does this mean? In layman’s terms, entrepreneurs are able to launch a startup in China far more faster and easier with only a bit of knowledge and understanding.
So what is the first thing you should do? Experts believe that, first and foremost, you should try and find a local partner when you’re trying to start a business in China. How should this local partner be like, you may ask. Well, he or she should be the owner of a Chinese-based company or an important businessperson who has lots of contacts in China and who can help you sail through the rough waters of legal processes and complicated regulations. And if needed, he or she could also aid you with dealing with the Chinese government directly.
According to Peter Adriaens, a professor at the University of Michigan’s Stephen M. Ross School of Business and a professor of entrepreneurship at Sichuan University’s Suzhou Institute in Suzhou, an essential part of starting a successful venture in China is having a Chinese partner.
The professor says that the Chinese business environment is so much different from that of America. Doing business in an unfamiliar environment is something you should never do. Don’t believe me? Go ahead and ask every successful entrepreneur and business owner and they’d tell you the same thing. Sailing in uncharted waters will probably mean the demise of your ship.
Also, you need to remember that partnering up with a Chinese businessperson does pose a certain degree of risk, like he or she stealing your intellectual property. Thus, you absolutely must do a solid background check on your potential partners before you actually make a decision.
The professor believes that the best partner out there for you should be the owner of a company that is similar in size as your business. Moreover, the business will have to be at least partly Chinese-owned and well-established in the Chinese market so that the company is able to get everything done. The biggest risk of partnering with a behemoth state-owned business is that they will certainly out-leverage your enterprise every single time. Remember that you won’t really be able to avoid working with huge state-owned businesses given the fact that they tend to be involved in pretty much any important sector in the country.
In addition, you should probably hire a Chinese lawyer before actually entering the Chinese market. This is essential given the high-level of sophistication of both the regulations and paperwork. And while they aren’t as complicated as they used to be, for someone who is not familiar with them, they still pose a difficulty.
Furthermore, you will have to grasp a solid understanding of the chinese business culture. From a business standpoint, China is far away from Europe or America. While in America, deals and contracts are transparent and set in stone, this is rarely the case in China. Understanding how business is conducted on the Chinese market and working with a businessperson that knows the ins and outs is something every business person that is interested in tapping into the Chinese market should be aware. Having a Chinese business partner is great and all, but that does not mean he or she should do everything. Even though that person may pose as the monument of trust, you should never be blindly led by your partner during his/her interactions with other Chinese businesspeople. That being said, you need to educate yourself to some degree.
You should also know that the Chinese do most of their business deals over drinks or during social gatherings, as opposed to how Americans do this. As a consequence, the decision-making process is informal and takes place during a conversation and not really on paper. Another important aspect you should take into consideration is that the Chinese government usually has its hands in all the pies. This means that they are involved in pretty much everything that happens in the country.
Quite a lot of decision-making rests on the shoulders of provincial or investment-zone officials as they determine whether a certain project is in accordance with their needs. This is something that entrepreneurs and investors should be far more cognizant of when they plan to do business in China.
Although this could pose as an impediment for some entrepreneurs to do business with Chinese individuals, the situations seems to be improving given the fact that both the Chinese government and companies have seen that they absolutely have to adapt to the current times and accepted practices.
By now you may be asking yourself why would I ever do business in China? It seems like a nightmare. Bear with me for a moment because if you are able to surpass all these potential problems, you will have quite a wide range of lucrative and unique business opportunities. Thus, take advantage of each and every unique opportunity that suits you best.
Nowadays, the Chinese government has emphasized the importance of innovation as it has realized that it is one of the key drivers that will determine the future economic success. As a result, it now provides quite a handful of unique opportunities that could potentially help businesses become more profitable.
The government has done everything within its power to attract foreign investors and entrepreneurs. They have even gone as far as creating state-funded incubators and tech parks out of the desire of bringing innovative enterprises together in self-sustaining communities.
According to Sylvia Zhu, a representative of the Chine Investment Bureau’s Talent office, tech hubs and parks spans dozens of buildings and offers rent-free flats for the first three years of employment. Thus, it’s a great place for non-Chinese enterprises to start their operations here.
Another great benefit of conducting business in China is Chinese government-backed venture capital. This has quite some important benefits over your usual American-style venture capital.
Given that venture capital funds are state-backed, the ROI is about 20% or lower, which is less than what companies would see in America. The bad news is that your company in return usually has to give around a 50 percent stake in the company, as opposed to 20 or 30%, usually yielded in the States.
Nowadays China has become a dynamic place where entrepreneurs and investors with knowledge about the Chinese market and who are interested in making a bold and informed decision are able to trade quite a small degree of risk and uncertainty in exchange for a great reward or return on investment.