China has been a leading destination for businesses and entrepreneurs to expand and grow within their field. Exporting goods and services in China has given massive returns to many investors worldwide. Many international companies have used the advantages of doing business in China since it opened to the world. Since the last few decades, China has earned its place in international trade from an agriculture-based economy to one of the top tech-driven countries globally.
The Asian giant has the largest economy by Purchasing Power Parity and the second-largest economy by nominal GDP. Chinese consumer spending is expected to triple over the next few years as it is transitioning from an investment-heavy to a consumer-dominated market.
Why do business in China?
Even as economies worldwide are struggling due to the Covid-19 outbreak, China is the only major economy to have expanded in 2020, with a 6.5% GDP growth in the final three months of the year. That data alone shows the great potential and stability of the Chinese economy.
Undoubtedly, there are countless advantages of doing business in China. However, it is also essential to consider the possible risks and disadvantages of doing business in China alongside its many benefits before expanding your business.
Pros and Cons Of Doing Business in China
Pros
- China as a major world trade hub
In accordance with its sheer size of land and population, China had directed its growing economy toward international trade. Many Chinese companies understand the importance of accommodating the global market, and even government policies are getting better and more favorable toward foreign companies. It is safe to say that China became a vital factor of international trade and should be significantly valued in every global-focused business.
- China as an innovative landscape
China’s 14th Five-Year Plan (2021-2025) would improve business environments and develop innovation within the country. Scientific and technological innovation has played an essential role in promoting China’s economic development. It appears that China has changed from a major technology user to a technology producer, and technological innovation has gradually become an important driving force for China’s economic growth. Business innovation can thrive in China, more so than anyplace else.
- China as a low-cost country
While the minimum wage and the working standards had increased through the years, China is still relatively cheaper than most developed countries when it comes to manufacturing. China is undoubtedly a manufacturing powerhouse and has gained the title of being the world’s factory’ not only because of its low cost. China’s robust business ecosystem, low taxes, and competitive currency practices are some of the reasons why the Chinese market is unmatched.
- China as a symbol of work ethic
Chinese culture values hard work and diligence, and it directly affects employee’s job performance. Doing business in China guarantees to work alongside goal-oriented, professional people who are keen to excel. Chinese’s strict work ethic allows a well-organized and good work environment, with employees who would work for their gain- but also for the sake of the company for which they work.
Cons
- Challenging market access
Businesses who wish to enter the Chinese market must be well prepared. The Chinese market is not an accessible market to navigate for foreign companies, and there are many things to consider before taking the first step. There is a need to explore the various regulations, registration processes, and rights protection strategies that apply to one’s business.
Furthermore, there must be a basic understanding of Chinese consumers’ buying habits, which includes investing in the many Chinese social media platforms to stay in touch. Chinese social media could be quite challenging to navigate for those who are unfamiliar with the various platforms. However, it is an essential tool of e-commerce, especially in China.
- Understanding Chinese’s etiquette
Knowing Chinese business culture and etiquette is indispensable when doing business in China. Chinese business etiquette is very different from the West’s, and it could be quite challenging to create a common ground if you are unfamiliar with the subtle mannerism. It is also essential to be aware of all the social taboos and avoid any sensitive conversation topics. Chinese domestic politics, for example, is a subject that is best to avoid.
- A fierce competition
China’s competition is inevitable, considering that it is the most populated country globally and has the most middle-class urban consumers. The top tiers cities in China, like Shanghai or Beijing, are extremely popular locations for foreign investors. Therefore the competition within these cities is especially fierce. On top of that, the competition is between foreign companies and Chinese domestic companies, both private and state-owned.
However, the fierce competition can be a huge advantage of doing business in China. The intense competition often encourages businesses to improve the quality of goods and services they sell to gain more customers and increase the market share.
- Government influence and regulations
Chinese company relationships with the Chinese government aren’t like those of the West. Because the Chinese government plays a much more active role in the national economy, the regulations and rules can be considered stricter than those of the West. It may be hard for foreign investors to follow all of the government’s rules and regulations, and it can become a frustrating thing to keep up with along the way.
For that reason, it is highly recommended to consult or hire a local expert to avoid any complications with Chinese law.
Conclusion
After analyzing both the advantages of doing business in China and risks that come with it, it is easier to determine whether you should or shouldn’t expand your business in the east. If you decide to take a step further, it is crucial to have the proper tools and the right strategy to minimize the challenges above.
To enjoy a swift, trouble-free entry into the Chinese market, we at Xinergy Global provide all the services needed to make that happen. Contact us today for more information about our services, tailor-made solutions, and more.
