10 Strategies for Doing Business in China

April, 2009

10 Strategies for Doing Business in China

Ten strategies for business success in China from government agencies:

1. Do careful market research. Think of China as multiple countries within one country; you might only be interested in sales in one region. Look for market research, including on government Web sites such as www.export.gov/china or at the China Business Information Center on the Web. Look for opportunities in smaller, second-tier cities that may not yet have your type of product.

2. Speak the same language or have someone with you who has Chinese language capabilities. Partner with an interpreter or marketing firm. Create information about your company in Chinese – this indicates you’re serious.

3. Find the right partner. U.S. Commerce Department representatives in consulates in China can do international company profiles and background checks. Look into a potential partner’s financial and legal standing to make sure it’s legitimate. The Hawaii Export Assistance Center can contact sister offices in China to set up meetings or offer Gold Key services such as videoconferencing from Hawaii with potential partners in China.

4. Have clear contract terms. Make sure to get your own sound legal advice. Lists are available through the consulates. Do not rely on the legal advice of your Chinese partner. Specify exact terms of payment and performance standards. You may also wish to add incentives to ensure the partner has your best interests in mind, such as a commission structure or provisions that say a distributor doesn’t get paid or receive commissions until the product has been shipped or a certain amount has been sold. Be aware that even with a clear contract, Chinese companies may use it only as a guideline. Be flexible but stand your ground. Changes from their end – especially speed-ups – could mean the price they have to pay rises.

5. Ensure your product is viable and can be sold in this market profitably. Research subsidies, but don’t count on them for profitability.

6. Avoid prohibited agreements. For instance, some provinces restrict certain businesses. That goes back to making sure you have good legal advice. Question any agreement where the Hawaii company is told it can ignore or avoid certain rules. That’s a red flag.

7. Do a thorough risk analysis. Be realistic about how much risk you’re willing to accept. If the project is too risky, you shouldn’t do it.

8. Expect fierce competition and pricing pressure because there’s so much interest in the China market. Hawaii firms should not expect a level playing field. You want to make your price attractive, but if you make it too low you may have a hard time boosting it later.

9. Ensure adequate payment. Pay attention to how, when and in what currency you’re being paid. Some companies are not allowed to provide payment in foreign currencies. However, it can be arranged through letters of credit through banks – a very secure means of payment.

10. Take actions to protect your intellectual property rights. For example, check Web sites, such as www.usembassy-china.org.cn/ipr, or divide product production among several different factory sites.

Reach John Holman at the Hawaii Export Assistance Center of the U.S. Department of Commerce at 808-522-8041.

Reach Milton Kwock at the Hawaii state Department of Business, Economic Development and Tourism’s business development program at 808-587-2759.

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