Tips & Information Regarding the Chinese Business Landscape
To thrive in the Chinese business environment, American companies must establish a well-planned strategy based on decades of economic experience. While our list isn’t necessarily comprehensive or exhaustive, it provides an excellent guideline for initial Chinese market evaluation.
Have Clear Contract Terms
Nothing in China is “fixed” when it comes to business, but you can even the ever-changing playing field by establishing clear contract terms. Avoid entering any agreement discussions without having your own legal counsel present. Hire a lawyer to write up a contract that everyone can comprehend. Specify exact terms of payment and expectations of performance. Dig deep into the details and be sure they play in your favor. Verify each claim from independent sources and, perhaps most importantly, question each & every claim.
Make Sure Your Project is Economically Viable
After you have established legal protection, it’s time to move onto the next no-brainer: make sure your project can actually make money. Profitability of goods & services should not rely on subsidies, special conditions, incentives or non-related sources of income to make money. Make sure incentives augment profit – not create it. Despite popular advice, do everything you can to reach profitability in the foreseeable future. Sure, sacrificing profit in the early run may sound like a selfless idea, but this can be dangerous. Make money early & establish your sustainable business model for the medium & long term.
Know Your Business Partner
The first rule in the art of war is “know thy enemy.” But in business, it’s even more important to know your partners! Make sure that your partner isn’t just a shell subsidiary of a larger corporation. Pay attention to personal investment. Don’t move forward unless your contract is a “win-win.” Trust is important to make a business grow, but don’t always take your partner’s word. Explore your own options. Use your best judgement to make sure your partner will actually fulfill his or her end of the contract. If you strike a good deal with a bad partner, your great idea could lose money.
Know the Rules
When handling international business relations, there’s no “bending the rules” in your favor. Side agreements are not upheld in the court of law. You must be prepared to obey all Chinese regulations, even if you’ve avoided them previously in the US. Do not associate yourself with corrupt or blacklisted officials or any illegal business practices. If it seems shady, it most likely is. Meet with your legal counsel to ensure you’re in the clear. For more information, visit the BIS regulations website.
Research Problems Before They Happen
Know the limits of your business. Create disaster protection plans & strategies for getting out of worst case scenarios. Establish contacts at every level of legal office – local, provincial & national. These contacts will help you moving forward because your foot is already in the door. You’ve performed your due diligence. Should the worst arise, you’ll be ready to weather the storm.
Perform a Thorough Risk Analysis
Don’t rely on news media as your primary source of market information. Contact a reliable risk analysis company or provider of SOC audit services. If the risk appears to be greater than the reward, do not take it.
Mind the Store
Much like a storefront, Chinese projects need constant attention and transparent communication. You cannot assume that your business will run itself. Being on the ground is essential for economic growth in the ever-changing Chinese business landscape. Keep your finances organized and ensure that your accounting numbers are in order at all times.
Expect Competition & Pricing Pressure
It’s not easy to thrive. Recent economic analytics show that the majority of Chinese industrial markets are in oversupply. Competition is very high. But you can make it if you keep into account high levels of competition & the low costs of some companies’ capital (which drives very low market prices and aggressive pricing pressures).
This one is pretty simple: Make sure you get your money! Insolvent customers and partners help no one. Pay attention to how you get paid. Is it on time? Is it routinely late? Which currency is each customer paying with? Have a system in place to remit funds after converting profits. If you’re not looking to use a letter of credit, you should require your partner to make payments in advance. Many American businesses offer a 50% now, 50% later deal, but that’s not advised here. We suggest a 70% now, 30% later model. Do not agree to unsecured payments.
Secure Your Intellectual Property Rights
If your product or service can make money & can be copied, you can bet your bottom dollar that it will be. Take aggressive measures to ensure that your intellectual property rights are upheld and that your market vulnerability is minimized. Register your copyrights in China. Confirm this copyright with your legal counsel. Closely monitor the markets and pay attention to products related to your industry. Don’t lose out on other companies duplicating your unique services.
For additional information regarding establishing a presence in China & creating a Chinese subsidiary, we highly suggest you read China: Doing Business & Investing in China Guide Vol. 1, particularly pg. 235,available here via Google Books.