Since it opened up to foreign investment in the late 1970s, China has become increasingly important to the global economy. As a result, brands are constantly looking to expand into the country in order to increase revenues and profits.

However, China is not an easy market to crack and many global brands have tried and failed. Below are some tips to increase the likelihood of success in your Chinese expansion efforts in 2014 and beyond.

Do your research

This applies to any strategy that your business decides to implement but it’s even more important when attempting to enter a market as diverse and complicated as China. Research of your target market and audience, competitor analysis and a thorough review of your organisation’s internal capabilities would need to be conducted to determine if entering the Chinese market is viable. This might seem obvious but you’d be surprised how many companies don’t get this right.

For instance, Home Depot attempted to enter the Chinese market in 2006 and was embarrassingly forced to retreat in 2011. The American retailer of home improvement and construction products blamed the fact that they misread the country’s appetite for DIY. “The market trend says this is more of a do-it-for-me culture,” a Home Depot spokeswoman said of China. Market research could have saved the company a lot of time and money.

Alter your business strategy to suit local conditions

The business environment in which you operate should directly influence your approach. Trying to shoehorn the strategic approaches in your local markets to suit different regions and audiences can end in disaster as these regions have very different business environments and consumers have different spending habits than their western counterparts.

A good example of this is Best Buy’s attempt to break into China. They tried to replicate their superstore strategy that worked so well for them in the United States to their retail stores in Shanghai. What they failed to realise was that it is extremely difficult to obtain reasonably priced retail spaces in Shanghai because it has one of the largest population densities in the world.

Spotting this mistake, local competitors such as Gome and Suning opened small stores right next to Best Buy offering high demand, high margin products. As a result, Best Buy made huge losses and was forced to close its branded stores in 2011.

Find a reputable Chinese business partner

The Chinese don’t typically conduct business with people that they don’t know personally. So when your business is attempting to break into China, having a local partner that can conduct business on your behalf is a good way of increasing the likelihood of success.

However, finding a reliable, trustworthy partner can be difficult in China – particularly if your business is new on the scene. It is recommended that businesses work with consultants who understand the Chinese business ecosystem and have experience with other companies that have achieved success in China. Even large multi-national organisations know this and look to partner with local firms to achieve success.

Tesco, the supermarket group, initially struggled to gain a foothold in the Chinese market and recently decided to enter into a joint venture with China Resources Enterprise in an attempt to break into the world’s second-largest economy.

Don’t ignore the importance of local culture

The Chinese are a deeply traditional society and local culture plays a big part in business negotiations.

In China, there is a concept known as ‘Guanxi’, which is a central idea in Chinese culture and has a huge influence on business. Guanxi encourages building social connections and long term relationships through trust and mutual respect. This might seem trivial but many large tech businesses have failed in China as a result of ignoring this significant cultural phenomenon.

For instance, when eBay decided to enter the Chinese market in 2004 by buying a local company called Eachnet, they assumed that their platform was going to be an instant success as it had been in many western markets.

eBay’s store didn’t have any systems to facilitate guanxi, unlike their main competitor Taobao, who implemented live chat functionality in order for buyers and sellers to communicate and build trust and rapport. TaoBao, being Chinese, didn’t underestimate the power of guanxi, and as a result currently holds 96 percent market share in China. eBay, on the other hand, shut down its Chinese website and issued a formal announcement of its withdrawal from the online auction market in China.

Avoid corruption

Showering business prospects with expensive gifts or providing facilitation payments used to be the norm in China – but things are starting to change. The Chinese government has recently stated that it starting to take a zero-tolerance approach to corruption and as a result, our advice would be to steer clear of corruption. Your business reputation could be damaged if you are seen as corrupt but also, the penalties for being caught can be severe. In addition, under the 2001 Anti-Terrorism, Crime and Security Act, UK businesses and nationals can now be prosecuted in the UK for acts of bribery or other illegal activity committed overseas.

Recently, Chinese police accused the former British boss of GlaxoSmithKline’s Chinese business of corruption, after it was alleged that the firm made billions of yuan from elaborate schemes to bribe doctors and hospitals. If found guilty, he could receive a long prison sentence.

Plan for the long term

China’s economic growth is slowing and local companies are complaining of a double whammy of rising costs. The supply of cheap labour from rural areas is beginning to dry up and wages are starting to increase substantially. The country is also beginning to experience a credit crunch which has been engineered by the government to reduce lending. This has led to an increase in the cost of borrowing.

So if you intend on doing business in China in the next few years, you should factor in the increasing wages and ensure your profit margins are high enough to allow for higher wage bills in the future. Similarly, if your business has access to capital, there may also be opportunities to take advantage of any gaps in supply that may arise as a result of the increasingly difficulty in Chinese companies obtaining cheap credit.

Starbucks has spent a long time (more than 15 years) in China in an attempt to persuade the Chinese to adopt the American coffee culture. The company planned for the long term and priced their coffee relatively high for the Chinese market in an attempt to build a luxury brand. Many Chinese consumers go to Starbucks with friends, family, or business partners for the lifestyle experience, rather than simply to drink the coffee and the company has over 800 stores in around 60 Chinese cities.

Register your .cn domain name and host your site locally

The dominant search engine in China is Baidu with a market share of over 70%. Baidu prefers to list Chinese domains within their search engine results and obtaining a good ranking with a gTLD (generic top-level domain – such as a .com or .net) is extremely difficult. So to ensure eCommerce success in China, you need to use a Chinese (.cn) ccTLD (country code top-level domain).

Similarly, you should attempt to host your website in China or Hong Kong. Not only will your site take less time to load for your target users, but sites hosted locally are also more likely to appear in local search results.

Don’t ignore mobile

M-commerce is predicted to surpass $50 billion in sales in 2014, nearly double the total for 2013. According to Gartner, Smartphone penetration in China is expected to reach 90% this year. Businesses who want to succeed in China ignore mobile at their own risk.

Don’t just translate, transcreate

Transcreation, sometimes referred to as creative translation, is the process of adapting a body of creative work for use in another language or culture. It is more than a direct translation as transcreators focus on capturing the desired persuasive or emotive effect of the original message and transferring it into the adapted translation.

In China, transcreation is crucial – mainly because Chinese culture is so different from many other cultures, particularly western ones.

Brands that fail to transcreate their marketing messages often run into trouble and waste time and resources. Most large brands are aware of this.

For instance, McDonald’s recognisable strap line “I’m lovin’ it” works perfectly well in many western cultures when translated literally. However, in China, the word “love” is taken very seriously and never used lightly.

As a result, McDonald’s decided to adapt their strap line into a Mandarin phrase and came up with:


…which literally translates to “I just like (it)”.

The adaptation of the message allowed McDonald’s to convey its brand values while not making its Chinese customers feel uncomfortable.

Protect your intellectual property

Intellectual property rights are territorial. So IP rights which are protected in the UK or US are not typically offered the same protection in China. Intellectual property theft costs global companies huge amounts of revenue annually. An IP Commission report estimated that IP theft is costing the US and unprecedented $300bn a year. Furthermore, the report stated that 50%-80% of the theft is attributed to China.

In order to protect your intellectual property you need to ensure that your business applies for Chinese trade mark protection and maintain a degree of vigilance when doing business in the country. Registered trademarks for Mainland China are issued by the China Trademark Office (CTMO). However, be aware that trademark applications in China are relatively expensive.

There are many examples of US and European companies in legal battles with Chinese businesses over the improper manufacture or sale of trademarked and IP protected products.

For example, Apple is currently involved in a patent lawsuit relating to Siri, the voice-driven personal assistant, with a Shanghai-based company. I expect that there will be many more infringements of intellectual property rights and court cases involving Chinese firms in the future.

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