Following an extensive debate throughout the first and second quarters of 2023, it has become evident that the emergence of a “new China” in the near future is unlikely. Should you aspire to leverage the advantages offered by the vast consumer market, a well-established supply chain, and other benefits associated with the “factory of the world,” it is imperative to gain a good understanding of the challenges foreign enterprises commonly face when venturing into the Chinese market.
Below, we briefly introduce the ten most prevalent hurdles met by the international businesses in China that S.J. Grand will be happy to help you navigate.
1. Restrictions on Financing
The Chinese government implements strict rules and regulations to financing a company, especially with regards to cross-border financing of a Chinese subsidiary. It is possible to obtain a loan in China, but Chinese banks tend to avert from foreign-invested companies due to the limited knowledge of the company in question and the collateral available.
2. Finding Reliable Suppliers and Partners
Unverified partner/supplier can post numerous risks for the China business. Fraudulent Chinese entity, involvement in illegal activities like counterfeiting or unethical sourcing, unauthorized use, or theft of proprietary information, not adhering to international environmental standards – without proper due diligence foreign businesses face high exposure to potential damage to the brand’s reputation and financial losses.
3. Absence of Regulatory Transparency
Administration, licensing, product approvals and many more laborious tasks can leave managerial desks flooded in paperwork. For many firms, overcoming the bureaucratic hassle is the biggest task to successfully breaking the Chinese market.
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4. (Lack of) Intellectual Property Rights Protection
Intellectual property (IP) rights have been notoriously difficult to enforce in China. Despite recent improvements in the ability to both register and protect IP, some companies reportedly continue to suffer commercial losses due to problems in this area.
5. Tackling Compliance
Overseas firms often struggle with laws and regulations in China, with 31% of 338 respondents in a recent business survey listing bureaucracy as their number one concern when expanding into the country. Most common complaints revolve around obtaining the required licenses and permits, with many respondents bemoaning the laborious processes.
Another area greatly impacting foreign businesses in China is legal compliance. China regulatory environment is fast-paced and constantly changing. Depending on the local development targets, policies can vary even between districts within the same city.
6. New Cross-Border Data Transfer Requirements
China data market is still developing, regulations and guidelines are issued fast, and navigating the practical application is challenging.
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7. Employee Management: Talent Recruitment and Retention
Finding, attracting, and retaining the right talent in China can be challenging even for local companies. High employee turnover is quite common in China: competition for top talent is fierce, and skilled workers are in constant pursuit of better opportunities. Besides, foreign businesses are also facing difficulties regarding cultural differences and language barriers.
8. Prevalence of White-collar Fraud
White-collar crimes in China are not only famously widespread but also became more sophisticated over the years. It is vital not only to hire the right talent but to ensure strong controls and overview in your China operations.
9. Getting Used to Local Business Culture
Chinese business culture is very hierarchical. Chinese leaders are used to quiet obedience from their subordinates. This extends to the meeting etiquette: asking direct questions or openly disagreeing with something during meetings could be a serious breach of protocol and a face-losing proposition for all parties involved. Same goes for delivering bad news to the superiors (for example, news about company’s finances).
Business in general is deeply rooted in personal relationships. It is vital when doing business in China to build face-to-face relationships and have an on-going communication with clients and business partners.
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10. Surviving in the Chinese Market
- Understanding Chinese consumer behavior
Buying habits of local consumers and competitive environment can make China a very difficult market to access. For starters, the market environment is almost completely detached from most other economies in the world: it is estimated that 37% of products that pass for the US market fail in the China market. Furthermore, in contrast to western consumers, Chinese shopper is much more pragmatic and there is no such thing as brand loyalty (even though people are still brand conscious). Also, the number of choices in China is truly overwhelming.
- Competitive e-commerce environment
E-commerce in China is highly competitive, with numerous local and international players. Foreign businesses need to develop effective marketing and be ready to invest. Related regulations are also complex and frequently changing.
We offer you 20 years of China expertise required to help you with successful navigation through these intricate challenges. Whether your goal is to establish a presence in China or to optimize your existing Chinese operations, we are well-equipped to guide you through this process.
S.J. Grand is a full-service accounting firm focused on serving foreign-invested enterprises in Greater China since 2003. We help our clients improve performance, value creation and long-term growth.