China is one of the world’s largest and most alluring markets, and as it continues to become a more attractive destination for foreign investment, entrepreneurs and investors are flocking to the country to take advantage of the many benefits of doing business here.
The country is notorious for its tangled bureaucratic web, and it has gained a reputation as a place where deals and contracts are often treated more like suggestions than concrete agreements.
In recent years, however, the Chinese business climate and regulatory structure have improved, and experts and businesspeople say that with a little effort and knowledge, launching a venture in China can be easier than ever.
Find a Chinese partner
The first and most important thing anyone hoping to set up a business in China should do is find a local partner. A local partner will most often be an established Chinese-owned company, or a businessperson with good contacts in the country who can navigate the complicated regulations and legal processes and, most importantly, deal with China’s government directly.
Having a Chinese partner, he says, is essential.
“It’s not like you just get money and you’re up and running, like in America,” Adriaens advises. In China if you want to get a company up and running, you typically do need a Chinese partner. If you’re an entrepreneur and you say, ‘Oh, there’s a big pot of gold in China; I’m going to go over there and get in on that without having a Chinese partner, then you’re going to get trampled.”
Having a Chinese partner does pose some risk — the partner company could take your intellectual property and leave you behind, for example — so it’s critical to vet potential partners thoroughly before making any decisions.
A good partner is an incorporated company that is about the same size as your firm, at least partly Chinese-owned, and well-connected in the Chinese market, Adriaens said. You want to avoid partnering with massive state-owned enterprises (they’ll out-leverage your firm every time) but ensure that the partner has the network necessary to get things done in China. You will likely work with these large state-owned enterprises anyway, as they end up being involved in much of the significant business that takes place in the country.
It’s a good idea to retain a Chinese lawyer before attempting to enter the Chinese market, as the paperwork and regulations, while nowhere near as opaque and complicated as in the past, are still difficult for a foreigner to navigate.
Understand the business culture
China is a world away from America or Europe, and more than a world away when it comes to doing business there. In America, contracts, deals and other arrangements are fairly transparent between businesses working together. Not so in China.
“If you know what you’re doing, it’s not hard, but if you don’t know what you’re doing, it can be very hard and costly,” Nair explained. “There are some complications, but if you’re talking to someone who knows what they’re doing in China, then they can navigate all these options and obstacles and help you get through it.”
That said, you should educate yourself somewhat so that you’re not blindly led by your partner during interactions with the Chinese. One of the key things to know about China: “Nothing is aboveboard,” counsels Adriaens.
In China most business gets done over drinks in social settings, as opposed to in America, where it often goes done in the boardroom or on the golf course. And decisions are more often made informally during conversations rather than on paper, a fact that helps keep the country’s “old boys network” alive.
“When you set the deal terms, because you’re dealing with a Chinese firm the deal terms could change at any time while you’re invested in the company. What’s on the paper is not necessarily ironclad,” Adriaens said. “They often do all sorts of things that were not agreed to on paper.”
It’s also important to be aware that the government will generally have a hand in almost everything that happens in China.
Realize unique opportunities
It may sound like doing business in China is quite the nightmare, and it can be in some ways. But if you can deal with the headaches, you can get access to a wide range of unique and lucrative opportunities.
The Chinese government is emphasizing innovation as one of the keys to its future economic success, and as such, it’s providing a number of unique incentives that can make doing business there very profitable.
One such opportunity comes from the abundance of state-funded tech parks and incubators. These massive projects have been set up in hopes of bringing innovative companies together in self-sustaining communities, and the government is doing everything it can to attract foreign investors and firms to these sites.
Elite Stage is a platform that provides One-stop business Solution for start-ups and foreign enterprises, founded by Venture Capital and Elite Stage Consulting Company, individual Lawyer Partners and Deloitte Auditors. For over 8 years, Elite Stage successfully assisted more than 800 companies from all over the world with their China market entry.