Doing Business in China: 14 Insights Gained on the Ground

Last week I met with Kevin Lai, Asia General Manager for Actronic Technologies (a New Zealand multinational that successfully markets electronic weighing equipment around the world). We talked at length about the insights he has gained since he arrived to China three years ago. Here is a summary of what we discussed:

1. Language Barrier: It’s not the Only One.
Lots of companies do not appreciate how different China is. They assume language is the barrier but there is a lot more to it. Culture, taste and behaviour add to the difficulty to interpret what is going on. And the value system is so completely different that at times you don’t know whether to react outraged or ignore a situation.

2. Understand Value System, Culture, Taste…It will Help You Navigate in China
This is obviously a consequence of the previous insight. You really should devote some time to gaining some insights about culture, taste or value system or you will just feel lost.

3. Plan in Advance
Often companies land here without too much preparation or without a first-hand in-market assessment. You need to understand the market (or at least try to), talk to a few potential partners and customers, assess the resources you will need and plan accordingly.

4. High Price Sensitivity…Not Always.
This market is very surprising. Sometimes money expenditure is far from rational. People earning just 3000 RMB per month will be saving in order to buy a real LV bag (not a fake like lots of foreigners here do!). So if the perceived value is high or if it satisfies a highly valued need (like status) price sensitivity is low.
Another surprising example of price not playing an important role comes from the B2B context. Sometimes your product may be cheaper and better (Western approach of value proposition) and still not be good enough.  The decision maker may continue buying from his friend, simply because he is in the circle of trust.

5. Statistics are Good but Don’t Let them Fool You.
Statistics may provide you with a good overview, but don’t forget they’re just an average and they hide a lot of information. As I explained when I talked about price sensitivity, average wage may be low, but there are lots of high ticket items that those low wages will be buying.

6. Market Research & Reports: Be Ware of Polite or Aspirational Answers
Reading market reports is good, but you need to understand what you are reading. You may be asking somebody: Would you go to New Zealand? And they will say yes, but it is more their aspiration than a reality. Same goes for polite answers. Some people would be embarrassed to say no.

7. “Do It Yourself” … Not Worthy Here (for entrepreneurs)
This is a very challenging market and the DIY approach is a bit of a waste of time and resources. You need to seek help in order to settle here so that you can focus on the core business. Helps is available for free. Just ask!  Contact your own country’s expat networks, your Government Agencies. In my case, many fellow Kiwi companies and NZTE were only too eager to help.

8. One-Man Show: It just doesn’t make sense
Lots of companies send somebody here and do not give them resources. Overheads are most of the cost of setting here, and those don’t change if you recruit some good local employees. It helps the company representatives focus on the business and relieves them from the huge burden of Chinese administrative requirements.

9. Educating your Head Office Back Home.
One of the things I underestimated is how much education you need to do back home. It is very difficult for people who have never been to China to understand what is going on here (in general and with customers). I do recommend devoting time to “educating” your head office. I’ve realized how much it helps if they come to China twice a year and see things by themselves. If you really want to market your product here you really need to understand the local people perspective and to have everybody on board.

10. Trust- not just an Empty Word. Once you Gain Trust lots of Doors Open.
The value of trust is not a China myth. Chinese people are very caring when it comes to their families, friends and network. They will ignore you if you are not in the circle, but once you make it, once you gain their trust and become part of their network they will start caring about you in a very personal way. It does not matter where you are from, they want to know how you are doing, if you have any issues… you become part of the circle.

11. Secure your first Customer.
This market is really tough, so if you are able get your first customer before you start all the set up here, things will be a lot easier.  Your first customer gives you an early win to boost confidence.  More importantly, it enables you to fine tune your market strategy, work out the logistics, and better understand the China market

12. Hire Somebody you Can Trust.
Lots of companies send people here who don’t speak the language so they’re completely relying on their Chinese employees. It’s quite common to hear stories about people hiring a local manager who initially performs really well but turns into a bad story. Power is tempting, and a lot of people can’t resist the temptation to divert money or other perks to their personal benefit because they feel nobody will find out. I mentioned already the different value system. It is just a reality.

13. Your Clients and their clients really value your expertise. They are eager to learn.
I often do sales calls with our distributor’s sales force. I play the role of the overseas expert and that really helps them in their visits.

14. Keeping your Employees… You may need to pay for it.
In general people like to work for big companies. It gives them status and security. So when you are part of a small/medium business you may need to pay above the average when you hire your local employees.