Chinese philosopher Laozi said, “A journey of one thousand miles begins with one step.” The first step towards success for businesses in China is taking the time to form an appropriate strategy.
China is a huge market with great potential but can also be very complex and expensive. From my experience, when people ask me how to be successful in China, I mention 4 ‘Ps’ - Planning, People, Patience, Profits.
Another old proverb says, “Good planning is halfway to success”, and many business failures have been due to lack of planning and poor execution. Regardless of a companies’ size, asking ‘How would you want your business to grow in the next 3-5 years?’ and ‘What is the objective of your China strategy?’ are the guiding principles for businesses planning to enter the Chinese market.
When I was working in Beijing, I met the General Manager of a large overseas company that was trying to set up a franchise chain of western restaurants and asked him, “What is your China strategy?”
The answer was vague but he assured me that it was all covered and he had very experienced Chinese friends in the hospitality industry to help in the execution of the strategy. Six months later, with no clear strategy and poor planning, the project was in trouble.
Restaurant locations were not right, there were numerous compliance issues and all of which cost a lot to rectify. A further six months later, the global head office lost confidence in the local team and closed it down. It was all a very expensive learning exercise.
Another client who started their business in China (without proper legal structures) had problems collecting money from their clients. Their strategy was simply to sell more in China but they’d forgotten that in China foreign currency is controlled and the sales proceeds can get trapped in China. Without a proper business model, even a successful sales model is no guarantee of profitable growth.
A China strategy requires more than a fancy document. It requires thoughts, experience and senior management buy-in, like any strategy. It should include clear objectives but needs to be based on real, knowledge of how China differs from your home market.
The management team should use this to work out what research needs to be done, identifying the target market and what is still to be learnt about it. It is vital to realistically assess how well you know a potential business partner, and how you can validate their strengths.
In planning a strategy, an experienced CFO must be involved as compliance and structuring is very important to get it right at the beginning.
Each company needs its own business model and bespoke strategy. Elements to consider when preparing a China strategy may include:
-What geographical markets will you target?
-What are the regulatory requirements for your products or services in China?
-Should we enter? If yes, what are the key success factors?
-What are your competitive advantages in China? Have you done a recent SWOT analysis in relation to China market?
-How much can you localise?
-What are your short term and long term goals for business growth?
-Can you go it alone or should you seek a local partner in China?
- Do you know that China is a foreign currency controlled country? How will you get your profit/cash home?
-Have you considered the relevant tax and legal requirements for each business model?
-Do you understand the financial implications of each business model?
-Do you have the patience and resources to implement your China strategy?
-How long are you prepared to wait for success and what could that cost you?
-Do you have the skills and competencies needed for execution, e.g. do you have bilingual staff fluent in both English and Chinese?
‘People’ are critical to success. This is not just people in your business but also means the right partners including distributors, suppliers and business advisers. Bilingual employees in your team must also have the right capabilities and skills. Knowledgeable and experienced staff can make a huge difference.
‘People’ and ‘Patience’ go hand in hand in China - patience is vital to building relationships and overcoming the challenges of language, cultural and businesses differences. In China, relationships come before business, and getting the right introduction and building trust can be time consuming. Patience with a long term investment strategy is very important and it will take time for this to pay off.
And finally, if ‘Planning, People and Patience’ are all carefully considered and well executed, ‘Profits’ should follow!