Entering the Chinese Market

Overview

Success in China is all but guaranteed. Many large international companies have tried entering the Chinese market and failed. However, do not be discouraged. Learn from the mistakes of Western market leaders.

Article Highlights

  • Regulations regarding market entry of foreign companies are important in China.
  • Cultural differences should be considered early on for every venture.
  • Intellectual property rights are organised and enforced differently in China.

Entering the Chinese market is no easy task. Famous brands from the Western world have tried and failed. Even e-commerce giants Amazon have struggled to penetrate the market they dominate in the US. With over 1 billion residents, The Chinese market is substantial. If a company successfully manages to capture their target audience vast profits can be waiting. However, this market is one of the most difficult worldwide to break into. In this article, we will take a closer look at the problems you might encounter.

Regulations

China entering into the World Trade Organization (WTO) was the countries first step to liberating free trade. Prior to this, the majority of markets were heavily regulated and closed too foreign investment. While there has been significant progress since China joining the WTO, there are still many markets restricted to foreign companies. Energy, telecommunications and petrochemicals are prime examples.

Alternatively, you may consider the option of partnering with a Chinese firm in the form of a joint venture. While you would lose a degree of control, and encounter other challenges, it may be the only way to break into the Chinese market. Many companies skirt around restrictions through this method.

Investing into research and due diligence is essential prior to entering the Chinese market. Consult with a professional regulation expert and discuss what options are on the table. Many industries are open to foreign investment without the need of working in partnership with a Chinese firm. Regulations in China are frequently changing. Continue to monitor the market regulation environment for your firm. Since China is continuing to relax outside investment regulations, if you are put off by the thought of a joint venture, the near future may allow you to do it alone.

Respect Differing Cultures

Another essential factor when you are considering entering the Chinese market comes down to the differing cultures. China, has a vastly different culture to the West. International companies continue to fail in China due to being unwilling to adapt.

McDonalds and KFC both struggled in China. Chinese citizens initially enjoyed Western fast food seeing it as a luxury brand (for fast food). However, the different tastes quickly saw citizens visit other Asian fast food brand restaurants. KFC eventually begun to add more domestic style items to their menu in China. Though this did help sales, the company has struggled regardless.

Intellectual Property

Another key aspect to consider before entering the Chinese market is protecting your intellectual property. The best defence is to consult with lawyers and intellectual property rights experts to try and mitigate the risk your company is exposed too. Strategies include registering trademarks and patents domestically, as well as carefully selecting employees to hire.

Practical measures such as non-disclosure agreements may be useful. As well as actively monitoring the market for any potential infringements. Preparation is key. Without sufficiently protecting your IP, it may be much harder to bring infringers to justice.

Conclusion

Success in China is all but guaranteed. Many large international companies have tried entering the Chinese market and failed. However, do not be discouraged. Learn from the mistakes of Western market leaders. The Chinese market is challenging, but if you can crack the environment you can benefit greatly.

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