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How to do business in China: 6 tips exporters need to know

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Everyone knows China has huge market potential for Canadian companies. But doing business there can be risky and fraught with missteps. And every other exporter is eyeing the same market as you.

It’s common for Canadian businesses to underestimate the cost and time commitment needed, wind up squeezed by unfavourable contract terms or sign on with a partner who can’t deliver on distribution expectations.

“China can be an extremely high potential opportunity,” says Alison Nankivell, Vice President for Global Scaling at BDC Capital. “But it is an immensely competitive market. A lot of global companies are trying to fill that gap.”

Here are Nankivell’s 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. “Be clear on your motivations,” Nankivell says. “Why China? Why now? What is your competitive edge?”

Going to China requires a major commitment of resources and time. You need to be sure your team and investors are fully onside.

“China is a market that requires a long-term commitment,” Nankivell says. “Visiting once and then not going back for a year is not a successful formula for building market intelligence and a company profile in the market. You’ll need a steady and continual presence through frequent executive visits or an office presence.”

You may also find you need to adapt your product to accommodate local tastes or regulatory requirements in China. A successful product in Canada may not work in the Chinese market.

2. Narrow down your market

Because of 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.

“The biggest mistake businesses make when going to China is not narrowing down their focus to a specific region,” Nankivell says. “A region in China is the same size as an entire country anywhere else.”

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 carefully canvass potential partners. It’s 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 often rush their distribution strategy,” Nankivell says. “People go to a trade fair or meet a Chinese contact and then sign a deal before talking to other potential partners or doing their research. Then, it turns out to be the wrong partner or approach for their business, or even the wrong region of China for them.”

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.

These sources can help you with background research on topics such as the Chinese market, regions to target, taxes, duties, regulations, setup costs, competition, labour availability and shipping options.

“I’m amazed by how few businesses take advantage of government services before getting on a plane to China,” Nankivell says.

The agencies can also help you find local advisors in China, such as lawyers, consultants and accountants. You can also get references to 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. “It’s extremely important to get good advice before finalizing terms,” Nankivell says.

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,” Nankivell says. “Not checking terms with them is a common mistake for first-time exporters.”

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