With a population of 1.35 billion and an economy growing at about 10 percent per annum, opportunities don’t come any bigger than China. I was a visitor to China every six weeks from 1998 to 2005, and the changes that have occurred since even then are immense. Two of the most important shifts have been in the ability for foreigners to do business there (never easier) and in the levels of safety and liveability available to those who do (never higher). Why do (small) business in China? Businesses tend to think of China in one of two ways - as a manufacturing base, and as a market. However, the fact is that manufacturing in China isn’t what it once was and there are now better places to outsource to, specifically Asian economies such as those of the Philippines, Thailand and Vietnam. Most businesses should now be thinking about China solely as a market opportunity. For Australian SMEs, this means understanding China’s population base, and the fact that the size of the addressable market for your product in China is likely to be mind boggling. Indeed, even if you only have a niche product locally, what you can achieve if you’re successful in China can be astonishing. The only way is up While there are naysayers, the reality for China and its middle class is that economic expansion still has a long way to run. Most booms in the Western economies have been enabled by credit. But to date, China has lacked a sophisticated credit industry - meaning that credit-fuelled growth is still to come. For those businesses with a foothold in the country when that occurs, the rewards will be great. How to succeed Horror stories abound of businesses that have over invested in China. Hype and an expectation of fast results are partly to blame for such failures, but another factor is the Chinese bureaucracy. In China, you must pay back your total investment before you can begin to take profits out of the country. This means that it’s in the bureaucracy’s interest to have you spend more than you probably want to, so that you need to make more before you can repatriate your money. To counter this, keep your footprint small. Understand that China is not a get-rich-quick economy, but one that requires time to find your place. You might want to adopt the Chinese idea of a five year plan - one that stresses local knowledge, market understanding and trusted relationships: all of which takes time. As part of a light-on-ground approach: Exploit tools such as cloud computing. The cloud and communications solutions will provide a powerful infrastructure while keeping costs low. Use virtual and serviced office solutions. These are common in China, and local businesses view them as a standard practice for foreign operators. Partner with a good business registration company. China has created a good framework for foreign investors and businesses, but local assistance will still save you time and effort. Where to go? Shanghai is a popular landing point for businesses headed to China, and is the liveliest city for expats. However, its popularity currently is such that there are easier markets to target. Beijing has seen what’s happened in Shanghai, and is increasingly looking to attract foreign investment. It’s the place to be for any business that’s government or renewable energy related. Guangzhou, China’s third largest city, is another option, and has the advantage of being close to Hong Kong, with many business operators moving between both. Other possibilities are Hangzhou (180 km from Shanghai but its own economic power), Nanjing (a growing commercial centre) and Chengdu (if you’re looking for a foothold in China’s west). Summing up China’s economic expansion continues at pace. Australians are advantage by the fact that we are well respected there, especially in areas such as professional services, IT, telecommunications and renewables, where we are considered experts. To succeed, patience and proper risk analysis are key. It might be a long, hard slog, but as an enormous and fast growing market that’s relatively close, it’s a destination your business should be considering.
PUBLISHED | FEBRUARY 16, 2012
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