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Business Challenges for SMEs Working in China

Deciding to work in China is a big milestone for many business owners hungry for a piece of the vast - and growing - Chinese market.

By 2020, per capita disposable income of urban Chinese will have doubled from 2010, and the country will have an estimated 400 million urban consumers with an annual disposable income between $16,000 and $34,000.[1]

But before leaping into the Chinese market, companies should be ready to face an array of planning and operational business challenges.

“While there’s more information today because of the Internet, the quality of that information is still very suspect.”

— Steven Ganster, managing director of Technomic Asia, and author of The China Ready Company

"You need to go into China with eyes wide open," says Steven Ganster, managing director of Technomic Asia, a consulting firm based in Shanghai, and author of The China Ready Company.

If an international business is ready to expand into the Chinese market, enlisting the help of an online foreign exchange service  with 24/7 customer service can help to make the process easier. Plus, tools such as email market-rate alerts notify business owners when their desired rates appear, so they can go to their online FX accounts and secure the latest rates. This makes it easier to convert money from dollars to yuan when the exchange rate is favorable.

Here are challenges that international businesses could possibly encounter in the Chinese market.

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1. Lack of Reliable Market Intelligence

Gathering market intelligence is critical for a business owner launching anywhere in the world. But in China, it can be tricky to find reliable information on which to base a business plan. "While there's more information today because of the Internet, the quality of that information is still very suspect," Ganster says. He adds that the rapid pace of change in the Chinese market increases the challenge of obtaining current intelligence.

Global businesses should consider hiring a reliable market development consultant to locate critical data on a company's target customer base, competitors and potential partners. Doing so can save time and money in the long run.

2. Corruption

At some point, executives may receive a hong bao, or small red envelope, during a business transaction, Ganster says. Inside these little envelopes is usually a stack of cash, and it's essentially a bribe. As a foreigner, encountering bribery makes doing global business tricky. Having a local staff member or partner is essential to help international businesses navigate this often-murky water.

3. Red Tape

In China, a thicket of licensing, registrations and certifications from various government agencies can gum up an otherwise lean business plan. The process of starting a business can be "very lengthy and time consuming," says Anthony Goh, president at US-Pacific Rim International Inc., a business consulting firm in Beijing. He says it's critical for a company to have a presence in China, perhaps even a person whose job it is to navigate the bureaucracy.

4. Opaque Relationships

In the U.S., relationships are "low context," Ganster says. "Black is black, and if we say 'yes' we mean 'yes.'" That's in contrast to the "high context" society in Chinese culture where things tend to be gray. "It's a more opaque environment," he says. "Relationships have to be more face to face than email, and that costs you time and money. If you're going to do it from 8,000 miles away … that's a prescription for failure."

[1] "Meet the 2020 Chinese Consumer," March 2012, McKinsey Consumer & Shopper Insights

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