How to do business in China: 6 tips exporters need to know
Read time: 4 minutes
China can be an extremely high-potential opportunity, but it’s also an extremely competitive market because a lot of companies are trying to fill that gap.
Canadian businesses can also underestimate the cost and time commitment needed to do business in China and they can wind up squeezed by unfavourable contract terms or sign on with a partner who can’t deliver on distribution expectations.
Here are six tips for doing business in China.
1. Make sure you’re ready
The first thing you will want to do is make sure your business is ready to take on this project. Do you know your motivations for wanting to do business in China? Why China and not another country in East Asia? Why now? What is your competitive edge?”
China is a market that requires a long-term commitment. Setting up your business and not returning regularly to China isn’t a successful formula for building your company’s profile or gaining market intelligence. You’ll need a steady presence with frequent executive visits or you will need to set up an office there.
Further, a successful product in Canada may not work in the Chinese market. You may need to adapt your product to accommodate local tastes or regulatory requirements in China. You can get additional information on Chine import requirements on the Canadian Trade Commissioner Service’s website.
2. Narrow down your market
Due to China’s huge population, it’s generally not a good idea to target the whole country in your initial efforts. Instead, choose a specific region or large city.
When selecting a market, you’ll want to start by comparing the benefits and risks of various regions. Look at market potential criteria such as the size of potential markets, GDP growth and demand for your product or service. Then, compare them to risk criteria such as your team’s knowledge and experience in that market, ease of doing business and tariff rates. This exercise will provide you with measurable data to narrow down your list of potential markets.
One option is to target a more developed area as a way to get to know the country. An example is Hong Kong, with its sophisticated infrastructure, duty-free port, abundance of suppliers and concentrated large population.
3. Consider your distribution strategy
Think carefully about your distribution strategy and canvass potential partners. It can be common for Canadian businesses to jump into a venture with a Chinese partner without due diligence.
Distribution options include hiring a local sales rep, doing a joint venture or partnering with another Canadian exporter that’s already exporting similar products to China to piggyback on their sales.
Businesses should not rush their distribution strategy. Signing a deal before talking to other potential partners or failing to do the proper research can have pitfalls. It can turnout that either the wrong partner, wrong approach or even the wrong region has been chosen for doing business in China.
4. Get external help
Getting solid advice early on is critical to your success. Plenty of information on doing business in China is available from the Canadian Trade Commissioner Service, Global Affairs Canada and Export Development Canada (EDC). You can search their websites for information and get advice from these agencies’ experts in Canada and China.
It’s important to take advantage of their services before getting on a plane to China.
The agencies can also help you find local advisors in China, such as lawyers, consultants and accountants. You can also get references for advisors from other businesses active in China and trade groups.
5. Consider your financing and insurance needs
Talk early with your banking partners to discuss any financing needs. Companies often underestimate the cost of expanding to China. Your working capital can also face a crunch due to longer payment terms, or be affected by currency fluctuations.
It’s useful to find out ahead of time what financing is available to you, instead of having to run to your bank in the middle of a cash crisis.
EDC and BDC offer financing geared to Canadian businesses seeking to export. EDC also provides credit insurance to cover for foreign buyers who don’t pay their bills. Insurance may be a requirement for certain types of financing.
6. Carefully negotiate contracts
Carefully review contracts, including tricky questions such as payment schedules and provision of letters of credit. Be sure to get solid expert advice before finalizing any terms.
The terms can affect whether you’re able to get financing or insurance, so be sure to review contracts with your banker and insurance partners before you sign.
EDC or your bank may say they can’t insure or finance the deal if they’re not comfortable with the terms. As a first-time exporter, remember to check the terms of your contract because it’s often a common mistake.