UNC Kenan-Flagler Business School


Five tips for doing business in China


China and USA with Flags

Associate marketing professor Nicholas Didow Jr. teamed up with UNC Kenan-Flagler global marketing students to create an informative webinar on doing business in China. The webinar, which is free and available to the public, provides an overview of China's economy, politics, history and social customs as they relate to doing business there, as well marketing management issues in the country.

If you’re considering doing business in China, here are five tips that Didow and his students think you should consider before jumping on a plane:

Recognize the importance of relationships.

Guanxi, which translates to “relationships,” refers to the networks of personal connections that are necessary for foreign firms to establish themselves and succeed in China. For example, when the Californian media and communications firm DMG decided to enter the Chinese market, it realized it would need these personal connections to foster citizens’ trust and support. By aligning itself with two well-respected and well-known figures, elite gymnast Bing Wu and political leader Peter Xiao, the company to proved its trustworthiness to consumers and found great success in China.

For companies hoping to break into the Chinese market, one way to establish these crucial relationships is to begin by setting up outsourced manufacturing facilities in China. Focusing on goods for export is typically much easier less risky, this allows companies to get on-the-ground and focus on relationship-building. These networks can then serve as huge asset when the company is ready to enter the domestic Chinese market. Alternatively, companies can hire and work with local agents who already have these networks in place.

Think beyond Beijing.

China has 160 cities with more than 1 million people living in them, and this number is expected to grow to 221 by 2035. While they are less well-known, these cities have lower costs for real estate, labor and advertising. Businesses shouldn’t limit themselves to only first-tier cities, such as Beijing and Shanghai.

Be mindful of price sensitivity.

When considering the potential one billion consumers in China, it is important recognize the important role price plays in purchasing decisions. Similar to the other developing BRIC countries, 63 percent make purchasing decisions primarily on price. When Microsoft entered China, for example, it had to cut prices by 70 percent to effectively compete with cheaper, counterfeit versions of its product. Companies must recognize that China’s average income that is 0.1 percent of the U.S. average and adjust their prices accordingly. Lower overall prices and cheaper labor costs help make this feasible.

Embrace local social media platforms.

With more than 500 million users, China has the world’s largest Internet population, and this opens up a wide array of opportunities for targeting consumers online. While the traditional U.S. social media outlets, such Twitter, YouTube and Facebook, have all been banned by the government, the Chinese microblogging site Sina Weibo remains an open avenue for foreign companies to cheaply and effectively reach consumers. Starbucks, for example, has effectively used the platform to engage in a two-way conversation with consumers, learn more about their target audiences and distribute coupons.

 Look before you leap.

Entering China will be the most painful 18 to 24 months of your professional life. Both political leaders and the market tend to “test” new businesses during this time to ensure that they are really committed to doing business in the country. When it comes to the ease of starting new businesses, China is ranked 151th out of 183 countries. The U.S. is ranked fifth. Bureaucracy, poorly enforced intellectual property rights and lack of government transparency are all major issues. The need to navigate a complicated and often inconsistent regulatory system means entering into China will be a long, and often difficult, process. To refer back to the first point, guanxi will often determine whether or not businesses survive this vetting process.