China’s market has grown by leaps and bounds in the last 20 years, making the country’s economy the second largest in the world. Foreign companies are increasingly venturing into China, either via direct investment or through cross-border transactions.

However, expanding your business to China requires you to acquire a sound understanding of the complexities that stem from the cultural, historical, and political background of the country. Here are some of the prime challenges of doing business in China:

Cultural Understanding

China has a rich culture that continues to have a dominant influence on the daily lives of the modern Chinese population. For instance, in China, the leaders and senior management of organizations expect strict compliance.

A crucial concept that the Chinese adhere to is the “face”. It symbolizes a leader’s elevated reputation within the workplace, friends, family, or society. In the west, it is common for a subordinate to raise a question, offer an alternate suggestion, or voice their disagreement during a meeting.

On the contrary, in China, this would be considered a rather face-losing situation for the boss, employee, and even the organization as a whole. Refraining from pointing out mistakes and granting credit where it’s due are both top face-saving tips in China.

As China has a history of being exploited by different countries, it is vital to demonstrate respect as a foreigner doing business in the country. Accepting invitations, giving gifts, attending meetings, addressing people according to their designation, and acknowledging hierarchy are all ways to respect the local culture of the land.

Legal Climate

In order to do business in China, you need to quickly recruit qualified people and take care of some important overhead expenses. There are several taxes levied on foreign firms that you need to know about before establishing your business in China.

There are certain lengthy administrative procedures you need to go through involving registration, permits, and licensing. Most companies are required to own a regular business license.

This contains a “scope of business” with details about the activities your organization is allowed to carry out. The license is issued by the municipal Administrations of Industry and Commerce.

If your business happens to deal in medical services, not only would you require a business license but also a permit from the local Food and Drug Administration.

Bureaucracy

Firms often face a tough time complying with the various corporate laws and regulations in China. Many business owners complain about the tedious process of obtaining the relevant licenses and permits.

The bureaucratic hurdles involved with negotiating with the government can substantially slow down the progress of your business venture. Lack of transparency along with strict requirements can make it hard for foreign businesses to get established in China.

China forbids foreign investment in some sectors while encourages it in others, which is why foreign companies do not get a level playing field when operating in the country. You may observe that most local firms in the industry would not face the same sort of investment restrictions.

You also have to consider how many firms and assets are in the hands of the Chinese government. This can make it difficult to form joint ventures because chances are that you may have to partner with the Chinese government in some way.

Hiring Employees

In order to grow your business, make sure you hire dedicated employees with the right skills. Employees represent your company to the outside world. For instance, if an employee is rude to a client, it would leave a negative impact on your company.

According to research, many foreign companies in China find it hard to search for and attract the right kind of employees. China’s labor market generally lacks employees with high job performance skills who are suitable for working in a foreign firm.

Another challenge of doing business in China is the problem of staff retention in the long run. Not only is it difficult to find qualified workers, it is also hard to retain them. The HR department of your company should focus on providing a fair compensation package, good training, and attractive prospects for success.

As the Chinese economy is growing in size, due to which manufacturing labor costs are also increasing. “Made in China” no longer symbolizes cheap goods, as the companies operating in the country now face mounting production costs.

Market Entry

When venturing into the Chinese market, make sure you choose the right distribution channels. It is important to conduct proper market research in order to ensure that your product or service reaches your target audience.

The consumer buying patterns in China are quickly changing. Consumers are increasingly looking for options that are in line with their budget and quality preferences. Failing to stay updated with consumer demands can negatively affect your company’s expansion strategy.

Moreover, the level of competition in the Chinese market is quite high. You are likely to discover many local businesses in the same industry thriving side by side. Consumers may end up preferring local products over foreign ones. This is why it is important to ensure good quality products along with a sound marketing strategy.

Final Thoughts

China has a rapidly expanding economy, but the government is selective about the kind of foreign firms that are allowed to flourish in the country. Before expanding to China, it is important to conduct thorough market research and understand consumer preferences.

China is a country with deep-set values and unique culture. If you are hiring local employees, make sure you adapt to the code of conduct they are comfortable with. If you are able to surpass all hurdles and acquire a solid footing for your business in China, there are several benefits you can reap.

China has a growing consumer base. After identifying your target market and producing good quality products and services, you would be able to easily increase your revenue and profits. For further insight about expanding to different markets around the globe, click here to explore our website.