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Entering the Chinese market is a strategic priority for many businesses, and it is easy to see why. Rapidly changing demographics, rising national income, increased consumer spending, and an increasingly open business environment - these attributes made China one of the largest economies in the world, second only to the United States. As a matter of fact, despite the economic decline caused by the COVID-19 pandemic, China has surpassed expectations by achieving a growth of 8.02% in GDP in 2021.
Beyond these impressive features, it is also crucial to note that great rewards also come with significant risks. Developing a comprehensive entry strategy is important to break into the highly competitive Chinese market. This guide will list a few factors to consider when creating your market entry strategy and expansion plan.
The crux of any market entry strategy relies on the accrued knowledge of your target market. China is an obviously vast market, boasting a population of approximately 1.44 billion as of 2021. This means capturing a small portion of the market is enough to garner big revenues - that is, if done right. On the other side of the spectrum, this huge population also brings forth challenges when it comes to identifying and understanding where business opportunities lie and ways to access them.
Foreign companies need to first understand that while China is unified in the geopolitical sense, the country is in no way a homogenous market. China boasts more than 600 cities, all of which can be categorised into four tiers. First-tier and second-tier cities contribute over US$300 billion and US$68 billion in the country’s overall GDP respectively, and they are the first choice when it comes to marketing foreign products and services.
Aside from that, those considering doing business in China may want to look into the different industrial clusters that exist in specific cities and regions. For some, entire industry supply chains are concentrated in just a handful of cities. These clusters are helpful for foreign companies to know where their target customers and base of operations should be.
When researching your target country, there are three areas that you will want to monitor: probable short-term changes, plausible developments during the medium term, and the possible transformations that may happen in the long term. Considering China’s rapid evolution, monitoring the potential changes to the economy and market trends, especially in the long term, is crucial as they may arrive faster than any other market.
As such, setting up a solid business framework is crucial as it allows you to monitor these developments, how fast they are changing and in which direction. Ensure that you include local conditions and consumer attitudes as well. Fortunately, China and its population, even the older folks, are very tech-savvy. Conducting online market research will be relatively easy.
Understanding government policy and regulations is critical in achieving success in the Chinese market. Despite the increasingly open business environment, there are still several industries that remain off-limits to foreign companies. Some of these industries include petrochemicals, energy, and telecommunications. If you wish to set up a business in China, you will want to first consult the China foreign investment catalogue to understand where your business stands.
As China works its way up the global economic ladder, the country is also accumulating a growing number of industry-specific regulations and standards. Foreign companies are expected to unravel and comply with the web of complex laws and regulations. Moreover, these regulations are becoming increasingly stringent. For instance, the Chinese authorities have taken a firm stance regarding the food safety law ever since the melamine poisoned milk incident in 2008. As such, it is critical to spend time researching and understanding the regulatory environment before making the jump. Once you have set up a business in China, you will want to keep monitoring any changes made to these legislations and regulations, and foresee how such developments can affect your business.
Breaking into the Chinese market is no easy feat. However, with a few precautionary measures, setting up a business in China will be less daunting.
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