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Ten things to remember when doing business in China

Strategy

From The TMF Group

China is evolving into a consumer economy with ample opportunities for international investors to gain exposure to rapid growth markets and an expanding middle class. The once export-orientated powerhouse is now much more internally-focussed, creating ample opportunities for companies looking to expand abroad.

Official figures recently revealed that China had been pushed into deficit as imports overtook exports during March 2013. The results confirmed what many analysts had long hoped for - that the country’s future growth would be less dependent on exports, and that the new leaders are focused on delivering sustainable, quality growth.

The effect of increased wealth and consumer spend in China is already being felt around the world; recent tourism numbers showed that visitors from the country spend more than any other country in the world with a record $102bn spent away from home.

“For growing companies with overseas aspirations, China seems like the perfect destination for expansion,” says John Thorman of TMF Group, a global outsourcing specialist. “But with lengthy bureaucratic procedures and an unfamiliar consumer environment awaiting those who try, it is crucial to have local advisors on hand to help navigate the complex market.”

John says there are 10 things to keep in mind when looking to expand into China:

1. Market access

Local distribution networks, buying habits of local consumers and regulatory requirements can make China a very difficult market to access. It is estimated that 37% of products that pass for the US market fail in China.

2. Consumer preference
There has been a sizeable class shift in China over the past few decades, and the consumer environment is far more diverse than it once was. It is also completely detached from markets elsewhere in the world, and many companies have sunk in China because they failed to take into account consumer preference.

3. Bureaucracy

Overseas firms often struggle with laws and regulations in China; 31% of 338 respondents in a recent business survey listed bureaucracy as their top concern when expanding into the country.

4. Governmental challenges
Transparency of government procedure and corruption are chief concerns of companies moving into China, although this is likely to change as new leadership is ushered in.

5. Standards and conformity assessment

All products entering the Chinese market must comply with rules stating how products are designed, manufactured, sold, used and disposed of.

6. Intellectual property
This is an area that has been notoriously difficult in China, although recent reports suggest things are improving. US ambassador to China Gary Locke recently said that “for every foreign company calling for stronger IP protection, there are more Chinese companies calling for the same".

7. Competition

Many Chinese companies are looking to improve the quality of their products and services so they can sell them abroad, which has increased competition. Consumers can, in some cases, give preference to native companies over those from abroad - as can the government - making it difficult to disrupt the market.

8. Labour costs
The US-China Business Council recently published a report that showed 62% of respondents said they had delivered 5-10% wage increases; 8% had hiked them by more than 15%.

9. Human resources

Demand for trained, professional labour still outstrips supply, meaning companies find it hard to keep hold of their best staff. Some job changes can mean salary increases of up to 30%.

10. Administration
Administration, licensing, product approvals and many more operating tasks can leave managerial desks flooded in paperwork. For many firms, overcoming the bureaucratic hassle is the biggest task to successfully breaking the Chinese market.

The TMF Group assists companies globalize their business whilst reducing the risk, controlling the costs yet simplifying the operations of an international business by providing a single point of contact anywhere in the world. We do this by allowing management to focus on their core competencies whilst we look after the corporate and reporting compliance that arises from companies doing business in different countries. We use our network of 114 offices in over 80 countries by providing legal compliance, payroll and accounting services using local staff in each country. We are not just an alliance or group of affiliated businesses, but all entities in the TMF Group are fully owned subsidiaries so we have a united perspective on our client’s international business.

For more information please contact John Thorman in Auckland, +64 9 9278861, John.Thorman@TMF-Group.com, or Stado Kiewiet de Jonge in Shanghai, +862 6135 6000, Stado.KiewietdeJonge@TMF-Group.com , www.TMF-Group.com.