We have listed top 10 problems of foreign Businesses in China, with solutions.
- Cultural Problem
- Adaptation and localization of Business
- Intellectual Property Right (IPR)
- Logistics Challenge
- Build Trust
- Sales & Distribution
- Increasingly competitive market
- Fake marketing challenge
- Lack of maturity and experience of local partners
- The management of Chinese People
China… paradise of hell for foreign Businesses?
China’s consumer goods market is massive. It is expected to overtake the U.S. to become the world’s largest consumer of goods this year despite a slowdown in the economy and retail sales, according to a research report.
Analysts from eMarketer predict China will end this year with total retail sales of $5,074 trillion, exceeding that for the U.S. by more than $100 billion.
However, China continues to be a challenging market to businesses and marketers due to a variety of factors.
In this article, we would discuss top challenges facing foreign companies generally and marketers, particularly when doing business in this country.
10 Challenges of foreign Businesses in China
1. Cultural challenge and adaptation
You think it is will not happen to you, but actually, 95% of our clients are facing these problems.
- China is one of the big emerging markets with strong leadership, hardworking and intelligent people and a habit of self-reliance.
- China represents political, traditional and business cultures with their own unique characteristics and distinctiveness.
Cultural misunderstandings leading to miscommunication are one of the biggest challenges which foreign companies face in China.
Although there is an increasing number of Chinese people highly proficient in English, it is uncommon to find someone who understands the subtleties of the language and possesses a strong enough understanding of both Chinese and western culture to navigate delicate business negotiations.
What started as a promising prospect for both sides often breaks down due to misunderstandings.
To avoid such problems, it is important to have an international team in place which can bridge Chinese and western cultural differences.
- Sell to Chinese Men … not that simple
- how to deal with Chinese Companies
- B2B in China, totally different
2. Regulatory challenges
The lengthy administrative procedures, especially with respect to permits, registration, and licensing remains a constant challenge in China.
Most businesses are required to have a standard business license, which contains a “scope of business” that details the activities the firm is permitted to undertake and is issued by municipal Administrations of Industry and Commerce, together with permits or permissions from other regulators.
Example Health Firms in China
For example, a distributor of medical devices will need both a business license with the appropriate scope of business from the Agency of Industry and Commerce as well as a permit from the local Food and Drug Administration.
Despite significant Chinese government efforts to streamline bureaucracy and reduce red tape, foreign companies continue to complain about bureaucratic barriers that hinder their plans to expand in China.
In addition, a lack of transparency in the regulatory process and inconsistent & unfair interpretation of regulations makes it further difficult for foreign businesses to compete.
Besides, international marketers also face the unfair market access due to strict testing and standards requirements for some imported goods, foreign manufacturers, and foreign services providers, while offering substantial government guidance, resources, and regulatory support to Chinese industries.
In China, rules are changing all the time…
3. Intellectual Property Right (IPR) Challenge
China has long been the number one source of counterfeit goods marketed across the globe.
80% of the world’s counterfeit goods come from China, and many of the market’s consumers are in China as well.
Foreign firms have long complained that enforcing their intellectual property rights in China is difficult due to local judicial protectionism, challenges in obtaining evidence, small damage awards, and a perceived bias against foreign firms.
Since joining the WTO in 2001, China has strengthened its legal framework and amended its laws and regulations regarding IPR, but weak enforcement continues to impede the IPR system prevalent in China.
As Chinese firms, focusing on global expansion abroad and high-tech innovation at home, increasingly demand effective IP protections from the government, we can be hopeful that legal reforms and new enforcement mechanisms would improve the situation.
4. Logistics Challenge
Despite the government’s recent progress in improving the nation’s logistics environment, shipping goods to consumers in China can be costly and complicated.
Logistics in China is a highly fragmented industry. With more than 730,000 registered logistics operators, according to the Global Supply Chain Council, coordinating supply chain capacity and material handling often affect material flows.
Additionally, large trucks are restricted from some urban areas during certain times of day, so product shipments have to be transferred to smaller vehicles before they can reach consumers. This complicates distribution and batch shipment optimization.
Besides, most of China’s warehouses, distribution centers, shipping yards and cargo hubs are outdated and lack automation while a wide range of complex and frequently conflicting logistics rules and regulations makes it further challenging for foreign consumer product companies to get their products into the mass market in China.
5. Sales & Distribution challenge
With 1.4B people, there is a customer for any product in the world. The challenge is finding the right distribution channels to reach them & knowing how to manage these channels.
There is still a void between Chinese distributors and western brands. A lot of brands have been abused by their distributors. Chinese distributors have a history of selling copied and fake products, or just dumped brands when other brands are more profitable with better margins.
Meanwhile, it is difficult for brands to have a discussion with Chinese distributors because of the language and culture barriers.
The expectations from both sides are also usually different: Chinese distributors often want to see quick and significant profits when brands want to set up their Business in the medium-long term.
Therefore, it is advisable that companies ensure partners are reliable, have the right motivation, can perform everything specified in the contract, and are allowed by law to fulfil the promises in the contract by checking the reliability of partners via independent third-party sources. Local partners you trust can help you access the quality distribution networks.
Brands should also invest to develop a strong relationship with distributors since “guanxi” or relationship is fundamental to business culture in China.
6. Increasingly competitive market
China market is viciously competitive, and competition is not just from global corporations but also and increasingly from “national champions” that China aims to build to compete with foreign companies.
The rising incomes of Chinese people over the past years have both increased the size of China’s middle class as well as their purchasing power.
Moreover, Chinese government also aims to continue its economic growth through domestic spending due to US – China trade war.
So more multinational companies come to China and domestic rivals attempt to take advantage of that growth in consumer spending.
This intensifies the competition, making it more difficult and costly for brands to recruit and retain its customers.
7. Fake marketing challenge
Roughly one-third of Weibo’s 337 million users have shared or liked Chinese pop idol Cai Xukun’s new music video Wait Wait Wait, but it is almost certainly a bogus figure.
Fake followers are a fundamental part of Chinese social media platforms, threatening e-commerce credibility and eroding trust among consumers.
Chinese consumers trust peer reviews more than brand advertisements. Before making purchases, they usually check how well and often the products were mentioned on social media as well as how popular and active the brands are. They also check product reviews on e-retailer platforms.
As buying decisions are influenced significantly by such social indicators, KOLs or merchants buy fake accounts or fake reviews to increase their credibility.
These services are cheap, currently around US$0.003 per account.
Many of the agencies that buy and deploy bogus accounts also sell the services of low-paid humans employed to spend their days liking and forwarding content.
When Western brands open their Chinese social media accounts, they may not even be aware of the practice of fake followers, let alone how much of the engagement they seem to be getting is from fake accounts.
This problem not only raises the costs of marketing in China, makes it harder for brands to measure the real ROIs but also forces Chinese consumers to be cautious against branding and marketing in general, which will hurt brands in the long run.
SMCP “[Chinese consumers] have been through all sorts of scams, fake companies, fake products, fake services, etc. They have reached a point where they don’t trust what a brand says about itself,”
8. Lack of maturity and experience of local partners
Here are two factors explaining the lack of maturity and experience of local agencies:
- First is the “recent” opening of China to the capitalist world after years of hardline communism led by Mao during the Cultural Revolution.
Before, Chinese media had only a single voice that is of the state; besides, there were no real communication.
Once things started to change, communication agencies have to develop and expand fast in order to deal with the opening of China to the world.
- Secondly, China’s education system pushes students to learn by heart instead of to think creatively.
What for? Just because they need a good memory to be able to memorize thousands of characters that make up Chinese language.
Therefore, Chinese students have had not many chances to develop a sense of creativity, which results in a lack of quality profiles in the world of communication and marketing.
Despite numerous challenges, many international brands have managed to yield admirable achievements in this market.
The key to success is to keep your brand DNA while being flexible enough to adapt according to China’s unique business, media and consumer culture.
Having a reliable local partner who not only knows Chinese market and culture but can also understand and work well with their foreign clients would be invaluable to guide you along the way and help you avoid unnecessary mistakes.
Learn more about GMA
- We advise foreign entrepreneurs wishing to enter the Chinese market, work on their SEO and e-reputation.
- We accompany them in their search for the local distributor best suited to their brand.
- Thanks to our services, your visibility on the Chinese market increases significantly and the launch of your brand in China is a success all along the line.
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