Doing Business in China with the Chinese: Opportunities & Challenges

Thuthukile Mbanjwa

China’s speedy advancement over the past 50 years will never stop being impressive. When discussing rapid development, it is very difficult for one’s mind to not be drawn in by China’s fascinating industrialization.

The Chinese government has been known to repeatedly play the “hero” to Chinese companies. Thus, many Chinese corporations have well-established government alignments that have ensured that they stay afloat amidst unforeseen economic turbulence. As a result, doing business in China with the Chinese has generally been the best and safest way to cut on expenditure while maximising profits.

This article looks at the opportunities and challenges external corporations such as Multi-National Corporations (MNCs) may face within the China business arena as well as mitigation measures and solutions for these challenges.

Capturing Opportunities within the Chinese Market

There are several reasons why companies looking to expand abroad should consider doing business or collaborating with Chinese enterprises; one of these being labour costs. In 2006 it was estimated that doing business in china could cut costs and other operating expenditure by 30 % to 80 %. Of course, this was dependent on the type of product being produced or purchased.

Although more and more corporations are looking to Africa for even cheaper labour (including Chinese ones such as the Huajian Shoe Factory in Ethiopia), the Chinese labour market remains gigantic with a significant majority content with providing low-cost labour. In fact, China is still treading quite far from the Lewis Turning Point[1] and labour costs remain within reasonably affordable margins for many corporations.

Several researchers suggest that the increasing aging population poses serious implications for China with far-reaching geographical ramifications. However, some view this as more of an opportunity in that the pool for the labour capable age group is increasing as more than 30 % of the country is over 50 years.

Companies should really seize the opportunity to gain access to increasingly competitive and exclusive research conducted employing Chinese science and technology methodologies. Asian countries are at the forefront of technology and therefore gaining access to these developments provides a gateway into another world of efficiencies and competitiveness for external companies.

China contains the most cities regarded as the largest hubs of manufacturing in the world and this is something external companies should be really “milking”.

Essentially, establishing a shop in China and collaborating with Chinese enterprises would allow for close proximity to the actual manufacturing headquarters and in turn astounding efficiency for businesses especially in the intermediate goods industries. Mores so as an added bonus, consumers would have easier access to affordable products as production costs in China would be lower, thus, the markups in selling prices for most products would be lower than those produced in cost intensive environments. Consumers would also be spoilt for choice as the industry intensive market would offer a wide variety of selections for consumers to indulge. For example, there are over 100 electronics homeware appliance brands that are exported from China. This brings an element of competitiveness amongst businesses and ultimately more value for the consumers.

Challenges and Solutions

While there are a lot of opportunities in not only doing business in China but doing it with the Chinese, there are also a number of Challenges. One of the biggest and most popular is that of product quality assurance. While Chinese product quality has been rated highly by organizations that have operations in China, there are several bodies outside of China that suggest otherwise.

The key to overcoming the challenge of failure to meet quality standards rests in organizations ensuring they employ designated quality control managers to implement rigorous quality control systems. These managers would overlook operations in China, hence enforce and ensure that the final output is of good quality. This is critical to addressing the issue of inferior goods to maintain the brand’s credibility and gain the confidence of the customer.

Navigating the treacherous regulatory minefield is another challenge external company’s face when doing business in China. Company’s need to therefore  exercise better control of their China operations by taking back aspects of the business that previously would have been outsourced. In controlling the value chain and being constantly aware of the current status of the business and the market they will be able to offer the value that they want to customers.

It is also important that they be careful with their intellectual property (IP) because this is probably their single most important asset in China. IP protection may appear to still be a concern in China, however, it is definitely improving and is no longer at the crux of major challenges. Additionally, external companies also need to involve local partners, so that their IP can meet local needs better. A good example of this is The Beijing Axis. They have managed to employ a sound business model which involves a cross-cultural management structure. Subsequently, through constant innovation and capability building they have grasped and seized the opportunities presented by dynamic China.

Other unique challenges that are presented by doing business within the China arena include but are not limited to; the stringent commercial laws which erode freedom in terms of supply chain, funding and intellectual property protection; the anti-monopoly legislation used against foreign firms; large parts of the economy still being closed to full foreign participation; strong competition from well-resourced and positioned state-owned enterprises; finding and retaining the right skills in the local workforce; extremes weather conditions across the country and high levels of pollution in certain urban centres; the complex business culture (the concept of “guanxi” as well as bribery and corruption) and of course the language barriers.

There are certainly more opportunities than challenges for external companies looking to do business in China with the Chinese but these may not easily be realised if the challenges are not addressed. Challenges of doing business in China need to be overcome by gaining an in-depth understanding of the Chinese business environment and adapting accordingly. Many companies have the technologies and expertise and therefore need to make sure they translate that to the best product for the market. They need to recognise the significance of collaborating with local enterprises if they are to succeed. Even though China has only recently opened up, emerging cities like Shenzhen show that there are certainly more opportunities than barriers to doing business in China with the Chinese.

In my next article, I will provide insights gathered on a visit to the Shenzhen Municipal Development and Reform.

[1] The Lewis Turning Point refers to the situation in which an economy moves from one with abundant labor to one with labor shortages (Das and N’Diaye, 2013).

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