Kent Kedl, the managing director for global risk consultancy “Control Risks” for greater China and North Asia, talked about the five biggest challenges to doing business in China. Here is a summary of what he shares due to years of experience in China:
“As business people, our goal is to reduce complexity. We want to reduce risk by understanding the complexity and then packaging it up so we can identify it. China resists that at every turn.”– Kent Kedl
- Finding out what your company’s motivation is
- Lack of information
- The complexity of Chinese society
- Understanding the role of the government
- Knowing China’s regions
With over 1.3 billion people, China’s population is bigger than the USA’s and Europe’s population together and therefore provides a huge opportunity for doing business. But companies have to understand that there is a difference between a population and a market. Companies have to find out what their motivation is, to have a clear vision and especially to make sure that everybody’s looking in the same direction. It’s important to be aware that doing business in China is not a mini project, but it’s something for the long run.
“The way forward in China is not going to be a smooth path, there’s not a bridge to the future of China. It’s going to be like crossing the river by feeling for stones” – Deng Xiaoping 1991
This is a statement by Deng Xiaoping out of his speech for opening the Chinese market. It’s a good metaphor for the difficulties caused by lack of information. A company doing business in China has to learn and be good at making decisions based on insufficient information.
There’s always a person behind a person, a story behind a story, in China it’s never what it seems like at the first sight. You have to look behind the curtain, and get to know the structure and hierarchy of the people you’re doing business with. You have to understand their history and their background. This may seem very complex, but Kedl’s advice is: just never stop asking questions.
Part of this society is “Guanxi“, which is the building of business relationships in China.
Even though the government has been privatizing most of the companies over the last few decades, they’re obviously interested in the success of Chinese businesses. This however means that they want to maintain influence and control businesses. So even though the companies are privatized, they are affected by the government. Especially companies in smaller cities are very much connected with the local government, since the government is interested in the company’s success. So it’s absolutely critical to find out their stance, to be able to successfully do business there.
If you want to do business in China it’s essential to understand that it’s wrong to talk about China as a whole. Business in Beijing is different than business in Yumen, and you will face serious difficulties when trying to lump those two cities together. Trying to solve problems in Tier 3 or even Tier 4 cities, with a intermediate coming from a Tier 1 city doesn’t work out. In China all businesses are local, so you have to be informed about the region and look for the right people to help you. To read more about China’s regions visit our Blog.
At China 2 West we have more than 10 years of experience at doing business in China. We provide ground presence, a network of trusted suppliers and wide ranging experience in a vast array of different products and manufacturing processes. We support and ensure your personal success when manufacturing in China.