Avoid These 6 Mistakes When Doing Business in China Market

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China is fast becoming the consumer capital of the world. The Chinese market is large, but it is by no means easy. For the right companies, it can be massively profitable. But many other businesses have made some common mistakes and later slink away in defeat. Therefore, it is important for foreign companies to avoid the common mistakes. Jingle Office has summarized the top 6 mistakes that foreign companies should avoid in order to have a chance of success in China market.

1. Lack of due diligence

For any foreign company, no matter the size of the company, due diligence is an important and indispensable step when you decide to enter China market. Due diligence helps you know the market better, including the customer’s buying habits. Lack of due diligence may result in poorly structured, and, most of the time, failed investments. Many successful foreign companies fail in China because they do not conduct due diligence.

In 2009, Mattel built a Barbie store in Shanghai. Mattel designed a localized doll named Ling, hoping to appeal to Chinese customers. But it failed, because Chinese would not pay for expensive Barbie dolls like Americans, and Chinese prefer blond Barbie dolls to the ones with Asian features. So the store was shut down. After deep research, Mattel redesigned a Barbie doll for Chinese customers with an appropriate price. Its sales in China market tripled since it returned Chinese market in 2010.

Advice: Do due diligence before entering China market, and understand what Chinese customers need and like. Otherwise, no one will pay for your failure but yourself.

2. Not adapting products or services to fit local market demand

China is a unique country and totally different from the Western countries. Products or services that are successful in your domestic market, however, do not always meet with the same reception in China. Although there is a growing demand for high-quality foreign products, you will fail in the Chinese market unless you have a strong understanding of the local market and are able to adjust your products or services to fit the local customers. Many foreign brands are eager to share the China market, but only the companies that well combine their brand features with local tastes and preferences will succeed in China market.

A case in point would be Kraft’s Oreo cookies. When they first entered the China market, Chinese consumers did not like the cookies because they thought they were too sweet. In response, Kraft lowered the percentage of sweetener in the cookies to cater to Chinese taste. As a result of their adaptation, the company’s sales surged dramatically and Oreo achieved great success in China.

Advice: Make a deep investigation about local customers’ habits and preferences before entering in China, and adapt your products or services to meet the requirements of local market.

3. Treating China as one large, unified market

With nearly 1.4 billion populations, China is bound to be a highly diverse country. Cities in China are unofficially classified into four and even more classes. Tier 1 cities, such as Shanghai, Beijing and Guangzhou, have much higher per capita income than the other cities. And tier 2 cities are more developed than tier 3 and tier 4 cities. There are still poor regions in the west China. Therefore, do not treat China as one unified market. Make sure you design your marketing strategy and product positioning based on regional differences between these cities. Targeting China as a whole, you will likely dilute your efforts and drain your resources.

Philips shaver does well in designing its different price structures according to different areas. It sells its high-end products in the most developed cities, such as Beijing and Shanghai; While in less developed areas, it offers a less advanced product for a lower price. Because Philips realizes and values the regional differences in China, it holds the most market shares in the shaver market.

Advice: Fully recognize the regional differences, and design different marketing strategy based on per capita income, city or region and consumer behavior in different.

4. An inadequate understanding of Chinese culture

Cultural difference is an intangible but important factor for business success in the China market. The reason is that consumers grow up in a particular culture and become accustomed to that culture’s value systems, beliefs. Consequently, they respond to the messages that are congruent with their culture, reward advertisers who understand that culture and tailor product information to Chinese values. Lack of a comprehensive understanding of Chinese culture will result in marketing failure, let alone business success.

A typical example was the advertisement of Nike designed in 2004. Nike designed an advertisement in which an elderly Chinese man, a Chinese woman and two dragons were all beat by an American basketball player named LeBron James, hoping to express an encouragement of Chinese adolescents to be brave and defeat their fear. However, in fact, it was a huge failure in the Chinese market, and eventually was banned by China’s State Administration of Radio, Film and Television, because it was considered that the advertisement insulted Chinese traditional culture. The cause of its failure lies in the inadequate understanding of Chinese culture.

American fast food KFC clearly understands Chinese tradition and culture. KFC advertisements try to reveal the background of common Chinese families. KFC even uses the traditional Chinese Tang dress to attract more customers in Chinese Spring Festival. And it succeeds.

Advice: Find a local partner who is familiar with Chinese culture to offer help when designing marketing strategy.

5. Underestimating competitors in the China market

Don’t underestimate competitors in the China market. They know the market better and they have more experience than you do. Even if local companies are usually leading the low-end market and seem to be no harm, do not underestimate them because they already won Chinese consumer’s trust and this is the most important in the market. Learn from your competitors and find ways to do better than they do. Your ignoring the competition in China market may result in your failure.

In fact, many Chinese firms are winning not by competing just on price but on product quality, innovation and branding. Walmart has seen market share plummet. Its market share is not being taken by foreign competitors like Carrefour and Tesco but by large domestic chains like Lianhua that are opening small, neighborhood stores that sell key products consumers demand. Walmart did not adjust to the local competition by shrinking store sizes or selling higher margin products.

Advice: Investigate your key competitors in the China market, and figure out their strengths and weaknesses and yours. Clearly know in what aspect you can do better than your competitors. Keep an eye on the trend of your industry in the China market, and never underestimate your competitors.

6. Conflicting with the government

Do not underestimate the government power. In China, everything is connected in one way or another to it. Thus, you need to have good relations with it, respect it and adapt your strategy. Both foreign and Chinese companies can and do push the envelope from time to time, but any direct challenge to the government, or refusal to abide by its directives, is going to lead to a one-way ticket home.

Google is a classic example of this. Although the company had other problems in China, too, what ultimately proved its undoing was its failure to get along with the Chinese government. The back story here is long and complicated (and involves some alleged hacking on the part of Chinese authorities), but the endgame came when Google decided to stop censoring search results in China, which meant shutting down its mainland China search engine entirely. Since Google left China in 2010, its services are consistently either blocked or throttled to the point of being near-useless here.

When a foreign company takes on the Chinese government, there can only be one winner, and it won’t be the foreign company. Very few foreign companies have challenged the Chinese government outright in the way that Google did, but this is still something almost every company struggles with on a smaller scale. It can lead to big losses if you don’t account for it before entering.

Advice: Ideally you should select a local representative who is connected to the local government or who are experts in your industry.

Foreign companies should always keep in mind that China is different, and should have a thorough understanding of China. And Jingle Office is always here to offer advice and solution for you. 

Related reading: 12 Things to Do When Starting a Business in China

7 Potential Risks of Doing Business in China

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As the second largest economy in the world, the GDP of China continues to grow about 10 percent annually. Therefore, many articles about the China market stress the opportunity in China. Indeed, the appeal of the China market is strong, and there are great opportunities in the China market for foreign companies. However, you have to realize that with each opportunity there are commensurate risks.

Jingle Office, over ten years’ experience in China market, would like to share with you some insights about the potential risks of doing business in China.

1.  Cultural differences

You do not have to be fluent in Mandarin but you have to keep sensitivity to the Chinese culture and the way it impacts business. Chinese are proud of their thousands of years of history. They value family ties and relationships, and at the same time, have high priority in business dealings. They also place great importance on social network (guanxiwang in Chinese), personally or bureaucratically. Understanding the social network in China is challenging for a foreigner, and building your social network with Chinese is even more challenging.

2. Unfamiliar market

Confronted with a totally different and unfamiliar market, Western companies have many things to do to understand the China market before entering. A deep investigation is essential. Research everything about the market, including business environment, regional differences, consumption habits, target customers, potential distributors, etc. to make a detailed assessment of all the potential risks. Some foreign companies that are successful in their country, such as Google and eBay, failed in Chinese market. One important cause of their failure may point at inadequate investigation.

3. High cost

It is expensive to do business in China. Office rent is extremely high with advance payments, government permits and other bureaucratic procedures are time consuming and expensive; Chinese pressure for technology transfer is costly to foreign companies; Maintaining your relationships with customers, distributors, partners and government officials also cost you much. Other support services like drivers, security, office maintenance, obtaining necessary permits, etc. are also costly.

4. Inadequate infrastructure

While China has made significant progress, the infrastructure is still lacking for efficient business practices. There are still issues to deal with, such as road networks, port access, delivery schedules, dealing with suppliers and distributors, etc. This requires someone fluent in Mandarin and familiar with Chinese business practices.

5. Government involvement

The degree to which the government involves in the business is the substantial difference between China and Western countries. The Western government promotes transparency for doing business; While in China, the Communist Party exercises absolute power over legislation and economic & cultural institutions. Although China’s economic pattern is changing from the planned economy system to the gradually diversified market economy system, major business decisions are not made without some government involvement.

6. Legal challenges

Strict laws in the Western countries protect both domestic and foreign businesses; While in China the legal system is not so developed as that in the West, giving rise to various loopholes in the law. Protection of property rights including intellectual property is vague and inconsistent, and can be interpreted in many ways. These law loopholes leave room for manipulating the law further by the local lawyers against western businesses. One of the reasons that joint ventures are difficult to establish in China is that the Chinese side of the joint venture utilizes the loopholes to prevent Western partners from selling assets or ownership.

7. Inefficient negotiation

The negotiation style of Chinese is different from that of foreigners. Chinese are not pressed for quick solutions and agreements. The patience of Chinese is a strong negotiating tool which they use very effectively. Another point confusing foreigners is that Chinese seldom respond a straight yes or no answer to your ideas or suggestions. They usually use the terms such as “we will think about it”, “we have to study the case somewhat more” and “maybe”. In addition, contracts only result after a letter of intent, followed by an agreement, neither of which are binding and, finally, a contract which is not always enforceable.

To succeed in doing business in China, it is essential for foreign companies to realize these potential risks of doing business in China and do some investigation & preparations before entering the China market.

Related reading: 6 Steps to Pave Your Way to China Consumer Market

Launch Your Chinese Franchising Business: 5 Points to Consider

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Today, as many in the global market are aware, China is becoming the land of opportunity. China’s economic growth led to an increase in personal incomes, especially in larger cities. The emergence of a large middle class, often consisting of well-educated professionals, added to the consumer demand for globally recognized, quality products. While the fast developing market is driving the demand for franchising, franchising became a very popular business model in China after the Chinese government opened the door to foreign franchising investors in the 1980’s. A number of well-known foreign franchisers such as McDonalds, KFC have entered the Chinese market during the past 20 years and are operating very successfully in terms of market shares and profitability. However, Chinese franchising business is not without risks, so understanding the following 5 points before starting your Chinese franchising business is essentially important for foreign franchisers.

1. Franchising Models

Generally, Chinese franchising business is most likely to be engaged in the following three models:

Joint Venture: A limited liability corporation in which both partners invest in and manage operation through a Board of Directors. In this arrangement the partners share in the profits/losses in proportion to their investment. For example, McDonald’s. Although this form may be suitable for some franchisers, it is often problematic in that a well-know international franchiser may be unwilling to share profits with a local partner. Conversely, a strong local partner may be unwilling to work with a weak international franchiser.

Wholly Foreign Owned Enterprises: All capital is provided by the foreign investor who has full control over the operations of the enterprise. This form has become an increasingly popular entry vehicle into China. For example, Yum! Brands, which owns KFC and Pizza Hut. This option, through using a foreign direct invested enterprise, can be an ideal way to build and manage a franchise network in China. Having local presence and staff will benefit the management of business resources, the supervision of the uniform business format and the brand awareness leading to later expansion. This construction can under certain circumstances moreover be strongly advisable from a tax perspective.

Master Franchising: Many international franchisers sell master franchising rights to interested Chinese companies. This leaves the international franchiser the critical decision of finding the right local partner, and using the appropriate entry structure. In many ways, successful market entry depends upon the quality of the local partner. Local knowledge and connections are extremely valuable for both short-term and long-term success. For example, Century 21 China Real Estate.

2. Franchise Registration

According to the the Regulation on Administration of Commercial Franchises (Regulation), a franchisor must, within 15 days after signing a franchise agreement for the first franchised location in China, file an application with the appropriate commercial authority in the Ministry of Commerce (COM) to register its franchise. The registration requirement of Chinese franchising business is an administrative measure to regulate franchise activities, and also provides potential franchisees with public access to more information regarding the franchisor and its business. Although the failure to register does not impact the effectiveness of the franchise agreement, a franchisor that fails to timely file the franchise registration could face a fine from the commercial authority ranging from 10,000 to 50,000 Chinese Yuan (CNY) (approximately US$1,600-8,000). In connection with the franchise registration application, the following documents must be submitted for Chinese franchising business:

• Business registration certificate of the franchisor.
• Registration certificate of the franchised IP right: Where the franchised trademark is not owned by, but instead is licensed to, the franchisor, the trademark license must first be recorded with the Chinese Trademark Office, and the franchisor must submit the certificate of trademark license issued by the Chinese Trademark Office with the franchise registration application.
• Franchise agreement: To comply with the requirements of the Regulation and relevant laws, the franchise agreement must include certain language regarding consumer protection, quality guarantee, and training, as well as several other matters. In addition, the agreement must also grant the franchisee a “cooling-off period” during which the franchisee can end the relationship without penalty. The term of the agreement must be at least three years; however, the franchisee can waive this requirement.
• Certification for the 2+1 Requirement: To meet this requirement, the franchisor must submit a certification from a competent commercial authority or franchising association (such as the International Franchise Association). The certification must contain information about the franchised brand; the opening date, address, and business scope of the two stores; and the relationship between the franchisor and the stores, all of which demonstrate that the franchisor (or, if applicable, its parent or subsidiary) has directly operated two stores operating the franchised concept under the franchise brand/marks for more than one year.
• Marketing plan for the franchised operation.
• Other documents required by the Regulation.

If there are any major changes to the original filing (e.g., changes concerning the business registration of the franchisor, business resource, and distribution of the Chinese franchisees), the franchisor must, within 30 days, file a notice and supporting documents with the MOC for modification of its franchise registration. An annual update regarding new franchise agreements and those terminated in the past year also must be filed with the MOC by March 31.

All certificates or documents generated outside of China must be notarized by a local notary public, legalized by a Chinese Embassy or Consulate and submitted to the MOC with a Chinese translation.

3. Opportunities for Chinese Franchising Business

Many trends indicate that the China market is ripe for franchises.

The consumer class is expanding fast. The large group of middle- and upper-class consumers can afford to buy more than basic necessities, and many members want to show their wealth through what they buy — for example, by purchasing a cup of expensive foreign-branded coffee and walking around with it. They are purchasing big-ticket, branded items — often on their credit cards.

Western brands are highly regarded. Many consumers perceive Western brands as providing quality, convenience, and customer service. This is true especially in the retail and food sectors, where most major food franchises are either already present or are entering China.

Western franchises bring new and modern business systems. Successful US franchises bring a complete business system, management processes, job training, and the potential for healthy and reproducible bottom line margins. So franchises like US ones in China thus have high potential to succeed.

Second- and third-tier cities in China are open to foreign companies for Chinese franchising business. First-tier cities offer developed infrastructure, business-friendly governments, and a multitude of services and internationally standard amenities. These cities are generally “easy” for newcomers to enter, but labor and real estate prices have risen and competition has intensified in recent years. Second-tier cities have millions of potential consumers and often have lower labor and real estate costs and local governments that encourage the creation of new businesses. In addition, US food franchisors are increasingly allowing small companies to own franchises — a trend that KFC and Papa John’s started in second- and third-tier cities in the last few years.

4. Challenges for Chinese Franchising Business

Foreign franchises must also overcome problems that are specific to the China market.

Intellectual property protection is uneven. Weak intellectual property enforcement and an inadequate legal framework are key reasons early foreign brands opened as company-owned stores or JVs, instead of franchises, in China. Many US brands have seen local companies take their name and logo and open fake, unapproved outlets. For example, after a local coffee store chain violated Starbucks’s trademark by nearly duplicating its name and logo, Starbucks took the company to court and won the dispute in 2006. China has a range of intellectual property laws, and landmark court cases have defined the right of foreign brands to protect their trademarks and business systems. Intellectual property laws, however, are not uniformly enforced throughout the country.

Local managers lack strong management skills. Franchises in China often experience difficulties finding local managers who understand how to run a business. Training costs are high and so is the rate at which good employees quit to take higher paying jobs after they receive Western business training.

Finding and evaluating licensee candidates is tough. The most important part of Chinese franchising business is finding, evaluating, and signing a qualified company as the local, regional, or country franchisee. Due diligence resources to fully check on a local company are improving, but it is still difficult to find companies with the management skills, business track record, and capital to acquire and properly develop a US franchise business. To help find appropriate licensees, companies can check with various organizations, such as US Commercial Service offices in China, legal firms with US ties, consulting firms, or American Chamber of Commerce offices.

China has many markets. The sheer size of China, and its diversity of business and food culture, makes franchise development difficult. Companies that function well in one region seldom function as well elsewhere in China. Accordingly, franchisors rarely grant companies a country franchise for China. More typically, franchisors grant regional franchises (for a province or group of provinces) or first-tier city franchises (such as for Shanghai). This means the foreign franchisor must manage multiple licenses in China, requiring more time and energy.

Franchises must adapt their products to new markets. Some franchises face difficulties in China when they do not adapt — or are slow to adapt — to the needs and tastes of Chinese consumers. For example, restaurants should conduct appropriate research before planning their menu and offerings. Sales may increase simply by adding chicken dishes and rice to the menu, or by changing a spice or bread. Adding a trendy “foreign” item to the menu, such as coffee or ice cream, may also increase sales. In addition, foreign companies should take care when translating their brand names into Chinese. Ideally, the Chinese name should convey what the brand is and sound similar to the English pronunciation.

5. Suggestions to Foreign Enterprises

Despite the great economic potential, doing business in China can be difficult for many foreign companies, evident by the many failures of multinational companies. The following suggestions might be helpful for foreign franchisers to start Chinese franchising business:

Register the brand when entering the China market at inception. Without the official registration, even a well-known company can find itself in a difficult position when someone else has registered their brand name. Starbucks filed a trademark infringement suit against a Shanghai coffee chain in 2004. But lawyers and industry executives say things are moving in the right direction.

Carefully seek local partners who can help them navigate the local business environment. Needless to say how important it is to choose a partner in the same industry with channels of distribution, industrial connections and good relationship with government organizations.

Understand the cultural difference and adjust market access strategy accordingly. For those franchisers that can navigate China’s way, the prizes can be big. Unlike in other countries, where KFC helps franchisees set up stores, KFC is taking a different approach by selling well-established profit-making stores to Chinese franchisees in order to effectively reduce the risk of damaging brand names. Of course, minor modifications will be required to adapt to local habits, if they want to earn more chances of success.

Minimize the price of the final products and the franchising fee to achieve rapid expansion. The Chinese are price-conscious because their income is substantially lower than that of Westerners. It is the same for Chinese investors. Actually there are not so many Chinese people who have one million USD and are interested in franchise business. So it is important to the new-to-China foreign franchisers to lower the franchise fee.

Conclusion

Many signs indicate that Chinese franchising business will become easier over the next few years. China’s regulatory and investment environment is developing and becoming more transparent. Lower-tier cities are becoming ripe markets for franchises, and China’s rapidly rising middle- and upper-class consumer base desires Western brands with their well-known name and association with convenience, quality, and service. In addition, more Chinese are reaching an income and savings level that will allow them to invest in a franchise. Despite the challenges of the China market, the opportunities are too great to ignore, and foreign franchisors are entering China in great numbers.

Related reading: 9 Keys to Successfully Sell Your Product to China

12 Things to Do When Starting a Business in China

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Starting a business in China is quite different from that in your own country. You need to take all its region-specific factors and conditions into consideration. Before launching your business in China, a systematic market research and a carefully planned implementation strategy is crucial. It will need more attention for its complication. We’ve mapped out 12 guidelines to help you Starting a Business in China.

1. Market Research

Market research plays a crucial role during your preparation and business planning, and protects you from reinventing the wheels. At the very beginning of your market research, two points need to be confirmed: First, make sure your product or service is legal in China. Do not start if it is illegal in China. A typical example is the gambling business. Second, make sure your industry is open to foreign companies. Although many industries in China are open to foreign companies, it is better to make a confirmation in advance. If it is open, it is important for you to understand the evolution of your industry in the China market. If not, just wait and you will be the first on the market when it is open.

• Learn from your friends: Because doing business in China operates in a totally different way from that in the rest of the world, it is beneficial and instructive for you to learn valuable experiences and lessons from your friends and acquaintances who have successfully distributed their products in China.

• Learn from your competitors: Wanna understand the Chinese market? Then learn from your competitors. It is the best and most effective way to know their location picking, market positioning, pricing structure, and marketing strategy. All the information you have learned from your competitors can teach you how to shape your business plan, and offer you some hints about the ways of adapting your products to the Chinese market, developing marketing strategy and pricing structure, and identifying your target customers.

• Visit China: Of course, the direct way to conduct market research is to come and visit China in person. Visit your potential partners, potential customers and government officials, and talk with them to learn their needs or ideas of your products, and start networking in China. And attend trade shows and conferences to know about the trend of your industry in China. In addition, you also have an opportunity to visit your competitors as a customer so that you can know more about your competitors.

2. Location Selection

Before you pick your location to start business, you need to realize that China is in no way a uniform and homogeneous market. So the cost of living and government policies toward foreign companies are different from one region to another. Due to the convenient transportation and availability of talents, it is considered that 1st tier cities, as Beijing and Shanghai, are the ideal locations to headquarter in. Nonetheless, with the development of the 2nd and 3rd tier cities, several foreign businesses are headquartered in these cities. After identifying the location to start your business in China, you have to look for the office space through a realtor, you’ll need proof of a lease to register your business in China.

3. Establish a Legal Entity

When registering your business in China, you have to choose a form of the entity. The most common models are:

• Representative Office (RO): A Representative Office (RO) can represent the interests of a foreign investor by acting as a liaison office for the parent company. Although ROs do not have a minimum investment requirement, ROs are not allowed to engage in any profit making activity. So given more options, most business owners will not choose this form of entity.
• Equity Joint Venture (EJV) & Cooperative Joint Venture (CJV): A joint venture is a partnership between the foreign company and the Chinese company. Mutual trust between them is the key factor for win-win. There are two forms for joint venture: Equity Joint Venture (EJV) and Cooperative Joint Venture(CJV).
• Wholly Foreign-Owned Enterprise (WFOE): A WFOE is fully invested by one or more foreign investors. A WFOE owns the full control over its business transactions in the China market, so it is the most popular form for foreign companies. A WFOE is becoming easier to register than before, however, it is still quite complicated and takes more time to get approval from the government.

4. Find a Local Partner

An experienced and trustworthy partner in China will bring a lot of benefits for a foreign company, especially small and medium companies. In Chinese culture, relationships mean a lot. Sometimes, relationships even bring you more than what contracts do. So a good relationship with your partner in China is helpful to develop your business in China.

The partner could be: Your local representative, your distributors, your major suppliers, a digital marketing partner, a PR partner, a freight forwarder, a China customs clearance agent, other subcontractors.

5. Find a Consulting Agent

Finding a local representative or a reputable consulting agency in China to register your business for you will avoid unexpected and unnecessary troubles and problems. By building a good relationship with the consulting agency, you can also get some constructive suggestions for your taxation, legal issues, accounting, bank account setup, recruitment, payroll arrangement, and custom clearance, and more.

6. Write a Business Plan

Develop a long-term and short-term plan respectively, including your location, projected revenues, product or service description, expected number of employees and budget requirements. When developing your business plan, pay attention to China’s policy trend toward your industry. Do not hesitate to seek help from your local representative if you need.

7. Register Your Company

We strongly advise you to get a good Chinese name for your business to match your brand image. Finding some Chinese naming professionals to help you can avoid foreign names, names with unlucky meaning, ridiculous names, strange names and awkward names. If you already have name candidates, you can evaluate and analyze them. Always keep in mind that starting your business in China should first pay attention to intellectual property.

Company registration name: You’d better prepare several company registration names in advance, in case your intended name has already been registered by other company. It is OK that the registration name is different from your formal brand name.

Trademark: In China, a trademark belongs to the person who first register it, but not to the one who first use it.

Domain name: Check to make sure your domain name has not been used by other company.

Social media accounts: You also need to make sure your social media accounts, such as Company Official Weibo, Official Account on WeChat, are available.

8. Obtain Business Licenses

The policy in one place may vary from that in another, so it is important to identify all the licenses needed for your business and the documents required for each license in your region of China. Then prepare the necessary documents before you go to the relevant government agencies for license application. Usually, a long list of documents are needed for each license, and even sometimes additional materials are required; therefore, seek help from your local representative, which will save you more time.

9. Open Your Bank Account

Opening a bank account can be quick and easy in China if you can communicate with the bank staff or have someone help you with this.

10. Recruit Staff in China

During the preparation phase, you can work with freelancers to work on your tasks occasionally. For the sake of your company’s better running, after you officially start your business in China, find one professional recruitment agency to select suitable full-time candidates with a good command of English which is important for your communication. Do a research on the salaries and social benefits you should pay in China, but do not trust online statistics of average salaries. Instead get more hints from your friends and recruitment agencies, and pay what your employees deserve. Once you have your first reliable manager on position, he will help you hire the rest of employees.

11. Design a Chinese Website

The integration of Chinese payment gateway makes it possible to sell products or services directly through your China website, therefore, it becomes necessary and important to build a Chinese website if you sell products or services in China. You can find professionals to design a Chinese website for your company, or localize your existing website. In addition, make full use of Chinese SEO, PPC and social media marketing, drive more clicks to your website and increase your online visibility. Meanwhile, apply for a web license and host the website in a China server in order to make the site faster.

12. Start to Sell in China

Then you can open your door, and sell your products or services through online platforms (Tmall, JD, YHD, as well as your official web store), telephone sales, and/or local distributors, which depends on your market strategy.

Related reading: 9 Keys to Successfully Export to China

6 Priorities for Successfully Entering Chinese Retail Market

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China has become a destination where companies come with hopes to strike gold in one of the world’s largest and fastest growing markets. But successful expansion into Chinese retail market presents some serious challenges for foreign brands, and establishing a Chinese presence can be a big undertaking. So who will succeed? There is, of course, no easy answer to that question. However, based on our extensive experience from helping leading international retailers enter and expand in the Chinese market, Jingle Office would like to share some of the guidelines with you to help successfully enter Chinese retail market.

1. Understand “one country, multiple markets”

In order to understand Chinese retail market, you first need to be aware that this vast country, in size similar to the USA or Europe, has a high level of diversity despite sharing a common language and culture. There is a saying “one country, multiple markets”, which refers to the wealth gaps between the highly developed mega cities, the moderately wealthy provincial cities, the poorer country-level cities and the poor countryside. You have to understand the differences between these markets to make your Chinese retail market entry to the point.

China has, over the last decades, experienced rapid urbanization, especially along the east coast, and today the country has well over 100 cities with a population of one million people or more. A tier system is used to rank the many cities in a scale 1 to 5. Tier 1 includes the four mega cities Beijing, Shanghai, Shenzhen and Guangzhou, each one with a population of approximately 20 million people. Understanding the differences in consumer behaviour by city tier, and also by geography will allow you to develop effective entry/expansion plans, marketing campaigns and brand strategies.

2. Build strong brand awareness for Chinese retail market

Looking out into the world today, it’s easy to see why brands are more important now than at any time in the past 100 years. Brands are psychology and science brought together as a promise mark as opposed to a trademark. It not only increases the voice and consumer awareness of a brand, but it also gives it an identity and worth. Building strong brand awareness in Chinese retail market can be the key to long term performance by providing the retailer with considerable advantages:

• An existing retail brand strengthens brand awareness and differentiation from the competition in Chinese retail market, because it can serve as an anchor for associations with the brand.
• From the consumer perspective, strong retail brands simplify the purchasing process because there is already some knowledge about the retailer and buyers do not have to search for additional information about as sortments, prices, service etc. Strong retail brands also reduce perceived purchasing risk.
• Strong brands exert halo effects. A positive general attitude towards the brand in total positively influences the perception of all specific brand at tributes. Considering the impact of these evaluations on the general attitude, a virtuous cycle can develop.
• Strong brands not only represent functional benefits, they can also serve as symbolic devices. They represent different values, traits, and characteristics. Shopping at a certain retailer might, therefore, allow consumers to project a certain self image to themselves and others.
• A strong brand can be used as a platform for expansion. This already occurs when retailers open new outlets, which, from the very start, are loaded with a certain image. Franchising concepts, in which the retail brand is transferred to independent shop owners, clearly illustrate this advantage. A strong retail brand can also facilitate diversification into new product ranges. This type of brand extension occurs when retailers use their image in one merchandise category to expand into additional categories.

There are many examples showing the importance of the brand. Retailers with a strong brand, and using single-brand stores, have been the most successful in increasing their presence in the market. In China, there are approximately 70,000 single brand sport stores, for example. On the famous shopping street, Nanjing Road in Shanghai, you can find almost 40 single-brand Nike stores on the same street! Apple, H&M and Louis Vuitton are other good examples that have succeeded through building a strong brand in China.

3. Attract and retain Chinese customers

The arrival of the Chinese consumer is widely acknowledged around the world. The remaining skeptics are increasingly hard-pressed to deny the incredible spending power of Chinese shoppers who come knocking at their doorstep.

The unprecedented rise in disposable income has largely been responsible for China’s increasing consumption. Chengdu, for example, has seen the average disposable incomes, or the amount of money residents have to spend on non- essentials, increase by double digits annually for the past five years. Retailers now exert massive efforts into attracting and retaining Chinese customers.

Chinese consumers in general are very open to trying out new brands. The problem is that they are just as open to trying the next brand or trend that comes along. This creates an ever-changing dynamic in which consumers chase the next new thing. Brands need to prepare for the end of the honeymoon period, when previous customers will demand more attention for each subsequent purchase.

4. Correct pricing is important for Chinese retail market

Your pricing strategy and the price of your product is one of the most important factors influencing decision making. This can be explained with a suitable example. You enter a branded showroom and you find a shirt or a dress to your liking. You immediately check the price tag, and if the price is right, you will buy the product. If however, the price is too high, then you are likely to avoid the purchase. And if the price is too low, then the store you have entered, loses a part of its image, because it has such low priced products. What this tells you is that your pricing strategy needs to be laser sharp. Pricing plays a role in decision making as well as building an image for the company.

Understanding the value of a product is correlated to the sophistication of the consumer. Twenty years ago, China had very little foreign influence. Since then, the speed of change has gradually increased and many new products and categories have been introduced. Still, there are many products to which many Chinese consumer have had no or limited exposure to, especially in lower tier cities. For those products, of which they have limited knowledge, consumers often make a direct connection between price and quality. A low price is associated with low quality or fake products, which are abundant in China.

What Media Markt, Home Depot and Best Buy all have in common is that they failed in their pricing strategy. In China, as there are many low-cost options, they could not compete on price and it seems they misjudged the value perceived by the consumers for the added services they offered.

International brands are normally considered high-end and a low-price strategy can result in mistrust towards the brand. Danish shoe retailer Ecco is one example of a retailer who raised their prices when entering China and successfully managed to positions themselves more high-end in the Chinese market than back home.

Chinese consumers also love to make a good deal. They have grown up bargaining and this can’t be ignored by you as a retailer. Design your offers and empower your store associates to allow them to reward a good and loyal customer (e.g. a discount voucher for the next purchase, buy two items and get one free offers etc.). You will also need a loyalty program, but don’t let your Chinese customers wait too long for a reward.

5. Look pretty in Tier 1 cities, make money in Tier 2 and 3

We believe that most retailers aiming to establish themselves in China will need a strong physical presence, including brick and mortar stores. An online business will likely be an important factor to maintain long term profitability, but the optimal balance between online and offline will vary between different brands and segments. So where should you establish the operations and open your first stores?

Retail rents in Shanghai and Beijing are expensive on a global scale, and climbing every day. Even staff and other costs, while lower than in most other global cities, are still on the rise. However, efficiency of stores in China is mostly lower on a per square meter basis than stores in other countries, thus making the economics very difficult in Tier 1 cities in China. Given the immaturity of the market and so many new malls coming on line, competition for the best retail spots in Tier 1 cities is steep. Since most operators in Chinese retail market come to shop in Tier 1 cities for brands to open in their home-towns, many brands use Tier 1 cities to create flagship or concept stores in high-street areas, which are a great brand showcase, but typically lose money. These brands treat these image stores as a type of “marketing” expense, and don’t mind losing money on them, as it helps them build brand awareness and open retail stores elsewhere in China where they do make money. Additionally, consumers in Tier 1 cities are spoiled for choice, and therefore not as hungry for new brands as customers in Tier 2 and 3 cities.

Despite the hassles and costs that come with operating in Tier 1 markets, opening stores there is necessary for your brand to expand. All retailers train their eyes on Beijing and Shanghai, so looking good in these markets is essential to your ability to sign up retail operators in Tier 2 and 3 cities. If you can break-even or make a small profit running your own retail in Tier 1 cities, you are doing well. For most brands in China, expansion in Tier 2 and Tier 3 cities is where brands really profit. Therefore, it is advised to use some of that patience to start by building the required knowledge in a tier 1 city, before setting out to conquer the lowers tiers.

6. Develop a robust online retail strategy

The flourish of ecommerce in China brought a massive wave of new competitors for traditional retailers. Offline retailers are taking different approaches to win the intersection between physical and digital retail. Online business can leverage existing offline resources and expands the business to city downtown and rural areas. Traditional retailers going online creates different approaches and opportunities for consumer packaged goods companies to work with retailers and early movers in this area will establish tough-to-trump positions and advantages in the long term. The following three key elements will also help you to develop a robust online retail strategy:

• Your brand’s position and online value proposition (OVP). Identify your online customer value proposition which defines where your business sits in the marketplace amongst the competitors. Determine what you offer that differs from that of your competition and identify how you might use these differences to your advantage.
• Customer segmentation and target marketing strategy. Analyse your existing customers to segment and target them into distinct customer groups with distinguishable wants and needs. Once you understand the principal needs of each group you may then set about defining a marketing strategy that targets each customer group with relevant material.
• Content strategy. Segmenting your existing customers helps you understand the type of visitor who is most likely to be interested in your business. Plan a content marketing strategy based on typical customer demographics you want to attract.

A combined strategy of on-site search engine optimisation (SEO), in-bound content marketing and off site content marketing can all focus on producing marketing content of interest to the key demographics you want to visit your website.

An e-commerce strategy should define the target audiences/customers and how they will be reached; marketing, social media and content strategies and tactics, sales targets and details of any plans to diversify into new product or target markets. Strategies which define how each objective will be achieved are crucial, as is splitting breaking down these strategies into tactics and actions assigned to individuals with set deadlines and specific responsibilities. The best way of ensuring you develop a comprehensive and robust strategy that not only identifies objectives but also precisely how you’re going to get there, is by using tried and tested planning frameworks.

Conclusion

When entering Chinese retail market, your first need is to localize your concept and create brand awareness. We believe that Shanghai, or another tier 1 city, is the best stepping stone for entering the Chinese retail market and this will not change in the near future. Here, you can build your brand, concept and operations with skilled co-workers and among consumers who are open to foreign brands. When you have created a platform for your business, it is time to move on to the lower tier cities where the future growth is forecasted to be.

Online shopping is growing rapidly in China and is predicted to continue to do so. To become successful online, an effective online retail strategy is essential. The young generation in China have high expectations on you as a retailer and they influence many other consumers. Make your brand visible in the online channels they use, and know that in China those channels are different to the ones you are familiar with. The retailers who understand how to please the young generation will be best positioned for the future in Chinese retail market.

Related reading: What You Need to Know about China Consumer Goods Market

6 Tips for Launching a Successful Business in China

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For those in business community of other countries, the news over the last decade or so focused on the supply chain advantages of China. China became a massive export machine and manufacturing juggernaut, with its low labor rates, stable currency, highly disciplined workers, and excellent logistics infrastructure. Although there are still supply chain challenges with sourcing from China, China has proven to be nimble and capable of producing ever more complex products. Ongoing quality improvements, productivity gains, and increased management sophistication will further solidify China’s manufacturing prowess.

Most successful companies today, regardless of revenues, have created a concrete China supply chain strategy, thought about a China supply chain strategy, or figured out a way to combat a China supply chain strategy. However, moving forward it is clear that most global businesses will be talking about something else with respect to China — market-entry opportunities.

China has roughly 1.4 billion people, with 56 percent living in cities, which are poised for considerable growth. New research shows that the country’s urban population will reach 926 million by 2025, and top 1 billion by 2030. There will be an enormous opportunity for global companies to support this trend with products and services.

It is no secret that 2015 GDP growth in China increased by 6.9 percent. China has had the fastest growing major economy in the world for the past 30 years, with an average annual GDP growth rate above 10 percent and per capita income growth at an average annual rate of more than 8 percent. China now ranks as the second largest economy in the world behind the United States.

As per capita income has risen and wealth creation has exploded, Chinese consumers and businesses have become bolder in their purchasing habits, buying Western brands and looking to utilize strong cash positions to purchase more. Consequently, in 2016, instead of further refining a China supply chain strategy, companies of all sizes will find it necessary to execute a China market entry strategy.

Jingle Office, has compiled many best practices that companies should consider when implementing a China strategy, whether taking a supply chain or market entry focused approach:

Strategic Fit

Truly understand why China makes business sense. Certain business models have a very strong China angle, while others do not. Just because everyone else is going to China does not necessarily make doing so a fit for every business.

Relationships

Relationship (guanxi) is extremely important for your business success in the China market. Often, Once a good relationship is built with your potential partner, business deals will be smooth and secure. Building good relationships with local authorities can help you avoid unwanted difficulties and frustrations.

Local Support

There are a number of complexities involved in setting up business in China. A company should be comfortable working with government officials and should understand the legal landscape. The best way for foreign companies to manage these challenges is to have a strong, trusted local presence on the ground in China.

IP Protection

The laws, practices, and challenges associated with intellectual property in China are significant. There are several strategies that companies can use to protect IP, so be sure to give this due consideration before jumping in. Many Western companies have gotten burned in this area.

Flexibility

Things move and change very quickly in China, so be prepared to adapt and adjust business models and practices. Don’t be afraid to recognize and correct mistakes. Chances are that most companies will not get everything right the first time and even if they miraculously do, the capricious business environment will force them to make large and fast changes to keep up. That is why it is so helpful for foreign companies to have local support and experts who can help them be successful.

Be Patient, But Have Fun

There is an enormous opportunity in China. It is truly a unique place and many businesses will be wildly successful here. Take some time to soak in the culture, the atmosphere, and have fun. Western businessmen are often impatient, but the Chinese way of doing business is different. Respect and learn from it. The road to business success in China can be challenging and long, but be patient and enjoy the experience.

Jingle Office is always in the position to offer help, so do not hesitate to contact us if you have any questions.

6 Steps to Pave Your Way to China Market

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Planning a market entry strategy for China has the same elements as your domestic marketing strategy, but several key variables make the chances of success of the plan more difficult to predict. Products that are immensely popular in your country do not always meet with the same reception in China. Lack of knowledge of consumer behavior in the China market makes it more difficult to determine the best message to reach target customers. Hence the following 6 steps will help you plan a perfect China market entry strategy:

Market Research

Determine your target China customers groups in the China market. Verify the size of the market by conducting customer surveys to determine whether your products or services fit an unmet need in the Chinese marketplace. Find out whether there has been any resistance to foreign companies entering the market and why. Evaluate which China customer segments have the financial resources to purchase your products or services and are most likely your target China customers. Determine the pricing structure for your products that will give you the best chance of generating sales while still maintaining profitability.

Competitive Profile

Evaluate the companies you will be competing against in the Chinese market and gauge their strengths and weaknesses relative to your own. Particularly focus on their brand-name strength and customer loyalty. Assess whether it is feasible to draw customers away from key competitors or whether to concentrate on market segments the competitors are not currently serving.

Set Revenue and Unit Sales Goals

Do a conservative projection of unit sales and total revenue. Do not assume that sales growth in the China market will occur at the same pace it would in your domestic market. You are in effect starting over—trying to build a new brand in a new place. Make sure your company can commit the financial resources necessary to see the Chinese marketing development project through until your products gain sales momentum.

Put Together a China Marketing Team

Determine how many staff members will be located in the China market. Add individuals that not only speak Chinese but have experience developing marketing programs here in China and have local contacts that can be used for business development. Develop the organizational structure and reporting relationships between the Chinese division and the marketing team in your country to ensure open communication and accountability.

Develop Marketing Message

Make sure all elements of your communication with Chinese customers (product packaging, advertising and promotion, local event participation, public relations activities) are designed with sensitivity to the customs, traditions and even the religious beliefs of China. Hire local advertising professionals to advise you if necessary. The advertising humor of your country style may be lost in translation on Chinese audience. Take the time to craft your message correctly so you do not have to undo mistakes later on that have cost you sales and time, and damage your company’s credibility in the China market.

Arrange Distribution Channels

Initiate contact with local distributors and sales reps. Assess their reputation for reliability and the scope of their market presence as well as the financial terms of the distribution arrangement. Consider a licensing arrangement with a local company to market your products under their established brand name.

Related reading: 9 Keys to Successfully Sell Your Product to China

9 Keys to Successfully Sell Your Product to China

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Since China is a complex and diverse market, it is challenging for a foreign company to take most of their products (no matter industrial or consumer) into China and distribute them successfully. Given this, for those plan to sell in China, finding an experienced and long-term cooperating distributor in China is imperative for your sales success.

The possibility of selling to China’s rapidly expanding market is becoming increasingly difficult to ignore for international companies of all sizes. While your company may be excited by the opportunity to establish distribution channels in the Chinese market, it may also be daunted by determining how to actually achieve this goal.

Jingle office has rich experience helping a variety of international small and medium sized enterprises develop and manage their distribution networks in China, we have gained valuable insights into the process of entering the Chinese market.

Below we offer a guide on the key approaches needed to effectively develop and manage the distribution of your products in China.

1. Determine Demand

Conduct an initial market research to determine the demand for your product in the China market, and evaluate if there is a chance for your company to enter China. While the appeal of the Chinese market may be strong, assessing the needs of the market, understanding competing brands’ strategies, and possessing a unique product are important considerations for initial market research.

2. Learn Legal and Regulatory Requirements

Since some industries are not fully open to foreign companies in China; during initial research, you should also make sure if foreign companies are permitted to operate in your industry in China. In addition, your company should next learn what, if any, certifications are required before your products can be sold in China. These applications should be started immediately since they can often be time consuming.

3. Identify End Users

When deciding your company’s target customer, you will need to determine if you will be engaging on a business to consumer, business to business, or business to government basis. One thing to keep in mind is many of China’s largest industrial companies are State-Owned Enterprises (SOEs) and thus under the control of the Chinese government. If your company’s potential end-users are SOEs you should keep in mind that they often operate according the characteristics of a government agency rather than those of a private company.

4. Identify Key Players and Distributors

Once you have identified the market for your product in China, you will need to identify who the key players and potential distributors are in your industry. There are variety of tools you can use to identify these players, including internet research, services of consulting companies in China and your country, trade organizations and government agencies, and referrals from other companies in related industries.

5. Meet with and Qualify Distributors

Once you have identified key distributors in your industry, it will be necessary to visit potential distributors in-person. By meeting them you will have the opportunity to both market your company and confirm that the distributor is qualified. By visiting you will also be given the opportunity to see their operations directly, learn their business model, and understand their strengths and weaknesses. Based on this information, your company can make necessary adjustments in your business plan so that it matches with the needs of the potential customer. At this time, it would also be helpful to check with local government agencies to verify the quality and reliability of the company.

Before meeting your potential distributors, your company should also develop a pricing structure, sales terms, and an distribution contract. Having these ready to present to potential distributors when you meet with them will accelerate the sales process.

6. Develop Marketing Materials and Strategy

After identifying the distributors you want to cooperate with, you will need to develop marketing materials and a strategy on how to engage with the key distributors you have identified.

When developing marketing materials such as brochures and websites, make sure to have them written in simplified Chinese characters. Another thing to take into consideration is that the brochures and websites for Chinese audience are quite different from those in the West. It is important to consult with people familiar with Chinese business culture to make sure your marketing materials will match with Chinese preferences.

7. Establish a Local Sales Team

In order to achieve sales it will be important to have a local sales team which can guide you through China’s unique business culture in the negotiation process. Local staff will have a better understanding of how Chinese businesses and government agencies operate and how to access key decision makers in order to make a sale. A local sales team can provide your company the local know-how needed to complete business deals.

8. Achieve Sales

Now that your company has identified qualified distributors, developed marketing materials and strategy, and established a local sales team, you can enter the next stage of the sales negotiation. Your company should expect extensive negotiations with distributors before a deal can be struck. You should be willing to devote time to develop a close relationship with your potential distributor during this time in both formal business settings and more informal occasions such as tea sessions and meals. In general, this time commitment means business deals can take three to five times longer to complete in China than they do in the West.

Even if a company is ready to buy your products, finalizing a distribution or sales contract can also be a lengthy and complicated process. When drafting distribution contracts it is important to work with a local partner who is familiar with local legal practices. A good local partner will help you draft a contract that protects your company’s interests in the complicated international arena.

9. Manage the Relationship

Even after you have completed sales with a distributor in China it will be necessary to manage the distributor to ensure long-term cooperation. Having a local presence is also essential for this process. You will need staff on the ground that will be able to communicate regularly with the distributor, provide technical and marketing support, and continue to develop both a formal and informal business relationship between you and your distributors.

Jingle Office is always in the position to offer help, so do not hesitate to contact us if you have any questions. Visit our website for more details.