WHY IT IS SAFE TO SET UP BUSINESS IN CHINA AND KEY SUCCESSFUL STRATEGIES

In 1970s China's foreign trade policy has liberalized. Since then many Western firms are very enthusiastic about capturing this market of over one billion consumers. The world economy becomes more and more globalized and businessmen around the world are looking for new ways and places to grow. Often called the "World's Factory," China is the world's largest manufacturing economy, exporter of goods and a very popular destination for foreigners, therefore, a lot of entrepreneurs wishes for setting up a business in China. As well as growing economy country’s developed infrastructure like transportation, resource availability (physical and labor), productivity and workforce skills are very attractive for FDI. Due to Chinese economy becoming the first in the world more and more young entrepreneurs are interested in how to set up business in China and therefore how successfully manage it.

Why is it safe to set up a business in China?

A fast growing economy is making entrepreneurs feel safe about their business in China. There is a positive projection for future success, because of long-term high sustainable growth of GDP in addition to flexible and adaptable market. For the last 20 years, Chinese GDP has risen by a factor of 12. The average annual GDP growth for the past 10 years is 9,3 % and in 2017 GDP growth was 6,9 %. It’s leading numbers in the world economy, to compare with other countries GDP growth: Thailand – 3,9 %; Germany – 2,2 %; USA – 1,5 % [7].

China is also the world's fastest-growing consumer market. Because of successful international relations between China and western countries, western products and services are in favor now for a big part of the population. Fast growing economy establishes GDP growth, therefore GDP per capita is growing, and people become wealthier. Western products, especially cigarettes, liquor, cameras, watches and designer clothes have traditionally been seen as a status symbol. Recently not only foreign products are popular among the Chinese population, but foreign services like Education, Entertainment, Beauty Services etc. Anything foreign is a distinguishing mark that rightly or wrongly considered to be of best quality. The population is large and demand is rising, therefore the success occurs quickly.

As well as foreign investments, China attracts all kinds of foreigners of countries from all over the world. Whether it is qualified personnel or students there are many foreigners in China and because of Chinese friendly economy, the number of expats will grow [5, c. 27]. Therefore, it is another target for foreign-owned companies. For the past 10 years, expatriates are second (for some companies is only one) target audience of the Education sector. For most foreign-owned Education companies this exact audience is the only one possible according to China’s Permitted Industries List.

Next reason why China is the right choice for establishing a business is a competitive market. Indicators of the competitive environment are – surplus of product/service on the market, a large number of competitors and de-monopolization of enterprises. Small and medium enterprises (SMEs) are the driving forces for countries economic boom. Since the government allowed private firms to enter the Chinese market, the growth of the SMEs and their significance for the economy continues to grow. Today, SMEs are essential for the Chinese economy and capture about 97 % of all enterprises in China [9]. This proves that generally, China’s market is de-monopolized, no monopoly supremacy. Therefore, it is a healthy competition and good opportunity for business.

Political stability and market access are also important reasons why many businessmen are willing to capture this growing market. During the last 20 years, China is not only growing economically also politically. Chinese nation generally happy and satisfied with their country policy. Market accessibility attracts FDI owing to China Law Regulations. Annually there is an improvement in Catalogue of Encouraged and Restricted Industries [8].

Opportunities for doing business in the “Middle Kingdom” increases considerably. It’s likely that the trend to explore and join the Chinese market will continue in the future, as China’s policy and legal framework for doing business move closer to general international norms [3].

The last reason is labor and raw materials availability. There are many companies that have invested in this Asian country and many who continue to do so, first because it was the factory of the world and, at present, it has become the market of the world [3].

Business leaders across a wide range of sectors are increasingly looking to the emerging markets for the most promising opportunities to create new wealth, with China being among the most obvious targets. Nowadays China is a global exporter and importer. As well as growing market, cheap labor, and variety of raw materials key moments for foreign business’ to be in China [5].

What are the information and skills foreign investors have to consider before starting up a company?

Understanding more fully what is happening in China, and how to succeed there, is rapidly becoming a strategic imperative for any corporate leader with global ambitions. Great numbers of academic studies admit the importance of knowing Chinese culture and, what is even more relevant is an ability to adapt.

“I have been to countries where they drive on the right hand of the road and I have been to countries where they drive on the left - but this is the first time I’ve ever experienced a place where people drive on both sides” [6, c.15]. China is a large, complex and dynamic marketplace that you need to be even more vigilant then on other markets. The opportunities are endless on this new frontier, but businessman without knowledge about this market may end up losing everything [6, c. 12].

Many problems that come up are cultural, thereby foreign owner must be well prepared to know how to deal with a totally different culture [3, c. 38].

Next factor to consider is a degree of Chinese market knowledge [3, c. 42]. Those foreign companies that keep acquiring practical experience in China, they are increasingly likely to pursue success in the China market. Understanding where the opportunities lie and how to access them can be extremely challenging. Foreign companies of all shapes and sizes often find their China success stymied through in-sufficient lack of local understanding [10].

Most companies fail in China through their own incompetence. The Western businessmen often commit errors because they are either too arrogant, or too eager to adapt themselves to what somebody has told them is customary (or taboo) in China, or claim is “just how things are done here” [2, c. 21]. Being adaptive and understanding are very important factors.

Some companies admitted to conducting very little research into cultural differences, preferring to adopt a ‘learn as we go along’ approach [3, c. 5]. A smaller cultural distance between partners may be positively related to foreign-owned company performance or may have no direct effect on it. Understanding and accepting Chinese culture is necessary for business-makers.

The way to success, then, is to base decisions on your own experience and gut feeling, while at the same time trying your best to understand Chinese business culture. We aware of how the negotiations are held in Europe and the Americas, but it would be great misfortune to imply these practices with Chinese partners. Chinese Business culture is different and in many ways totally the opposite from international standards. For example, if in Europe partners negotiate in private rooms or conference halls informal atmosphere. And in China, it’s common to hold negotiations in pricey restaurants while drinking alcohol or in a fancy tea house while drinking expensive teas [4, c. 11].

To enter China successfully foreign businessmen should be ready for hiring local employees. Hiring expatriates are more expensive, they may not know the local market, as well as locals and there, are some visa providing issues.

Chinese language knowledge is crucially important, while language is a big part of the culture. Knowing the Chinese language means understanding the market and partners you work with, therefore it’s a success. The gaps in language sometimes make it difficult to see these differences and similarities in Chinese business and market. Few people in China speak really good English. Even those who sound reasonably proficient will often misunderstand more subtle points. For a manager who does not speak Chinese, this presents obvious challenges. One of the most severe is that you will not be able to “address the troops” orally in their own language. You will only be able to communicate with a select group who in turn must communicate it onward. This will influence many aspects of day-to-day business [2, c. 54].

And lastly, in China, you have pay attention to the importance of connections or relations “guanxi”. Most of the businessmen and researchers recommend getting connections “guanxi” [1, c. 40]. It is a special relationship based on family or shared context for the purpose of exchange favor. “Guanxi” can enhance a firm’s competitive advantage by providing access to the resources of other network members (suppliers, buyers or distributors), and is particularly important regarding entry into the market. Its roots are deeply embedded in the Chinese culture for more than 2,000 years.

There are many challenges on a road to success of doing business in China, however, most of the businessmen I interviewed to talk about their successful experience. Many of them suggest to not noticing how different Chinese market and see how similar is it with global international markets. Despite the differences between industries and management styles of companies, the basic strategies to success are remarkably similar.

China’s market is a land of opportunity for foreign companies. If they have enough experience at least on the global market, knowing the Chinese market as a benefit, the success of being in China is more than likely. China is a host to an increasing number of foreign companies and most of them actually seem doing reasonably well.

List of references:

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