Because of its sheer size, growing economy and expanding middle class, the opportunities to do business in China are very appealing. There are buyers ready to purchase many consumer and b2b products and services that were never available in that country or for which there is insufficient supply, e.g. petroleum, integrated circuits, cars, phones, machinery, equipment, designer clothing, fast food, and cosmetics.
What is a good market entry approach?
To begin, a few basic questions need to be considered and answered:
How much do you know, and what else to you need to know, about China?
Before considering a major investment, there are several key facts any foreign company should know.
China is an enormous country. With a population of just over 1.3 billion, it has 100 million more people than India and more than 4 times that of the United States. No wonder so many companies feel that if they can capture even a fraction of 1% of this market they would be successful in China.
According to different sources, China has at least 14 cities with over 5 million inhabitants.
- By comparison, the United States has only 8 cities of comparable size. India has 7 and Europe has none. You may also note that most of the big cities are along the coast by the East and South China Seas.
- While there are these very large cities in China, many “smaller” ones still dwarf the size of most major European and U.S. regions.
Geography plays a big role on where major industries such as manufacturing, agriculture, technology, shipping and financeare located.
- The top 10 cities in size are identified in the map below. It could be useful to also know all the countries (in green) that border China, both in terms of future market opportunities as well as nearest geographical competitors.
Next, consider a few more of the challenges or obstacles to be aware of that need to beovercome across any of the regions of China when trying to define the market and decide where to enter it.
- Languages/dialects (yes, plural!)
- Employment/Income levels
On a broader level, there is a need to be familiar with
- Government regulations, laws, taxes and policies that relate to foreign investment
- How to find educated and qualified workers
- Local sources of equipment, materials and parts
- Infrastructure/distribution channels
- Suppliers of services such as transportation companies
Do your research
At some point, you will want to consider doing some market research.
- SIS can help you to get a lay of the land and can save you a lot of time in gaining a basic understanding of the market.
- Market research firms and consultants can help foreign businesses to
- scope the market
- determine the need for your product or service
- estimate the potential share of market you might attain in 1, 2 or 5 years
- identify the competition, e.g. reputation and pricing
- better understand and interpret local laws and regulations and avoid costly mistakes.
- Ideally these companies will have staff located in China, or a local partner, that can conduct in-person or phone interviews, focus groups, andcreate properly worded (not merely translated) online surveys.
When to enter China
Research findings can assist in testing assumptions, evaluating needs and informing crucial decisions.Analyses of market research studies can keep you on the right track and identify problems early enough that changes can be implemented.
If you have spent the time and money to identify potential partners early in the planning stages, the ability to enter China will be significantly easier. Without “feet on the ground”, a foreign business will face an uphill struggle to enter this market.
- Have a plan.
- Have adequate resources — time, money and people. Don’t go “half in”.
- Get some help from a consulting, market research, financial, or other company that has experience in entering foreign markets. They are more likely to have a template or checklist of tasks that need to be done, the sequence in which to do them, and the staff or established network to facilitate each step.
- Despite the many obstacles that may lie in the way of achieving success in China, the rewards of navigating this difficult course can be immense.