Problems that foreign companies may encounter when entering China
Every market has its own risks and gains but with a clear understanding of what they are, companies can actually enter and establish a presence in the market. Presently, the fastest growing market in the world is China’s with an average real annual GDP growth of 8%. Furthermore, China’s gross domestic product reached RMB 51.93 trillion in 2012.
With this rapid economic growth, many foreign companies are hoping to enter into China to expand their enterprise. Comparing to other developing nations, China has the highest foreign investment today. China received a total amount of 1.48 trillion U.S. dollars in foreign direct investment from 1979 to 2012.
If China continues to progress at this rate, many believe that China will soon be the largest world economy. China’s huge natural resources are attracting lots of developments and investments.
However, as China is still considered a new market compared to the West, many overseas companies are unsure about the market. Basically, the local market may seem complicating and frustrating to foreign companies, but once a good understanding is established, doing business in China may not seem to be that difficult.
First and foremost, China has a different culture from the US and Europe. The way the Chinese carry out their business tends to differ from the foreigners. Hence, cultural differences are always the root of conflicts and disagreements between the overseas companies and the locals.
Language barrier is a huge issue for many foreign companies when they want to enter into the market. Most of the locals in China are unable to communicate in English and many foreigners are unable to speak the Chinese language. One must be able to understand what the other party wants before conducting a business. Thus, more foreign companies would need the help of interpreters and translators to communicate with the locals.
However, being able to speak the language does not mean that the party will be able to converse effectively. The Chinese may work using the Chinese language but they also inculcate their values in their business. An effective translator would not only be able to speak the language but must also be familiar with both the Chinese culture and that of the foreign companies as well.
The Chinese culture may seem to be full of complexities but as long as one is familiar with it, one can understand the essence of those values. For example, the Chinese value respect and trust and thus, those values are very important when the locals carry out their business.
As the Chinese are very respectful of others, they would tend to seek others’ opinions and advices before making a decision. Thus, a normal business meeting in China may take longer than a meeting in another country. If the foreign investors do not understand this, they would think that the Chinese’s decision making process takes up a long time. However, the Chinese are not indecisive but rather respecting the view of others.
Next, the Chinese are very particular about having a good relationship with others. The way to move around in China is through “Guanxi”, network. The Chinese would put in a lot of effort in socializing and building up relationships with others as they believe that “Guanxi” is the foundation of a successful business. The advantages of “Guanxi” in China allow them to develop trust with their business partners and prevent any hiccups with the higher authorities.
At times, foreign investors may think that socializing too much is a waste of time but to the Chinese, it is actually all part of doing business. Thus, foreign investors would need to develop their network if they would want to expand in China.
The Chinese business culture is very different from the norm that foreign companies are familiar with. However, once they start to appreciate and understand the Chinese culture, the foreign investors can have a good collaboration with the locals and develop their enterprise at least in Asia.