When planning to conquer the Chinese market, remember that even large international companies do not always succeed.
Subsidies of the PRC
The PRC provides government grants and subsidies to support key industries. Today this list includes:
- Energy security,
- AI and biotechnology,
- Automotive industry,
- Green technologies.
Local authorities also develop those spheres of the economy that are important for each region, attracting investments in them and creating favorable conditions for foreign startups.
When entering the market of your eastern neighbor, you should not rush – it is better to divide the preparation of a product for entering the PRC market into seven steps.
Identification of promising market segments
China holds a leading position in the world in terms of investment in a range of technology niches, including EdTech and BioTech.
These niches are considered potentially promising for foreign projects in China, as evidenced by the numbers.
China’s education market is considered the largest and fastest-growing in the world, with 283 million students of all ages (from preschoolers to university students).
Language programs make up 9% of all distance learning courses. The specificity is that the Chinese actively use VR and AI in teaching languages (for example, the Liulishuo application), and the main users of online courses are children from three years old.
According to the National Information Center of the PRC Pharmaceutical Industry, Chinese biotech companies increased their profits by 12% in 2018. The local population has begun to pay more attention to their health, which means an increase in demand for relevant goods.
The service sector remains in demand, despite the goals of the “five-year plan”. Now the main direction is the popularization of the sharing economy. Baidu CEO Robin Li said the sharing economy is in line with the country’s socialist demands. This sector is projected to account for 10% of China’s GDP by 2020.
Acquaintance with the mentality and business culture
It must be remembered that the Chinese sacredly honor the centuries-old customs and traditions. Therefore, it is so important to be attentive to the national and cultural characteristics of the country. Some of the features of business etiquette may surprise, and therefore it is better to get acquainted with them in advance.
For example, local partners may be late for meetings, but a foreigner shouldn’t do this so that his actions are not perceived as an intention to humiliate the Chinese side.
It is necessary to enlist advantageous acquaintances to further expand the business network of contacts. It is important to find common topics of conversation, and not to act too bluntly.
Selection and verification of local partners
Attracting Chinese partners is a necessary step at the scaling stage, but it is better to start a business on your own by launching a company with 100% foreign capital (WFOE). This model maintains control over the situation, and in the case of the first success in the market, the negotiating positions with Chinese partners are strengthened. In addition, at this stage, it is possible to single-handedly attract grants from the PRC government.
At the stage of scaling, it will be necessary to look for local investors, transforming the company into a joint venture (JV) with a division of shares in one proportion or another with the Chinese side.
The selection and verification of partners can be done by specialized consulting companies, many of them have representative offices in most cities in China, as well as in the CIS countries, which will simplify the negotiation process.
Localization of the company
At first glance, large cities such as Beijing or Shanghai seem to be the most attractive for launching and developing a project. However, in China, business is developing in clusters, so it is worth considering the sphere to successfully localize.
- In Zhongguancun (Beijing), the IT and EdTech sector is highly developed,
- in Shanghai – BioTech and the pharmaceutical sector,
- in Shenzhen – hardware,
- in Guiyang – Big Data.
You can start the launch of the project based on the technopark – it is they who mainly provide versatile support when launching the pilot version of the project. Each technopark can include several incubators, accelerators, and other service companies.
It is also worth remembering that incubators are not suitable for foreign companies to enter the market.
First, they are mostly targeted at Chinese small businesses.
Secondly, they have limited opportunities and tools for foreign projects.
Support should go to science or technology parks and, in some cases, accelerators (depending on the business model, strategy, type of project or technology, stage of development, resources).
Adaptation of the product to the specific needs of the local market
Many Western giants have been building their business in the Chinese market for decades before they managed to conquer it. A striking example is a fast-food chain Domino’s Pizza. Their main mistake was that they were based on a Western business model (branches in large cities, emphasis on product delivery).
When planning a strategy for entering the Chinese market, one must mentally prepare for the investment of more resources – time, financial, human – than might be required in other countries.
But understanding the specifics will help build a successful business model and strategy for entering the Eastern Neighbor market, attract significant investments and take a niche in this market.