Scaling the Great Wall: 5 Misconceptions About Doing Business in China

Entering China requires patience, sometimes 10 years worth

Is the breaching the Chinese market worth the effort?

Is the breaching the Chinese market worth the effort? Wikipedia.

Are you planning on doing business in China? Don’t underestimate the task ahead. Entering China is a complex exercise, requiring finesse, insight, and—crucially—feet on the ground. You need solid local partners who can negotiate with and for you. These partners help you penetrate the market with your product, across the country. While not easy, it’s doable. And once figured out, it gives you a huge competitive advantage.

Here are five things to keep in mind when looking for the right partner in China:

Go-to-Market (GTM) Strategy

The nature of your product and your go-to-market model dictate how you identify appropriate partners. GTM includes product, marketing, support and sales-coverage strategies.

High-end or enterprise-grade products such as the automobiles or computer hardware for instance, require players who have strong technical skills and industry knowhow that will complement your product. On the other hand, if you’re selling services online, like eBay or PayPal, you need to understand who is already in that space and what your angle will be. You will need to be fast and agile, observing daily metrics, and potentially partnering with local online business to augment your brand.

Western companies should be sensitive about using “spiff” award programs—sales incentives, in other words. A local partner will help mitigate risk and can manage the promotion in compliance with legal and cultural norms. However, accepting bribes is a major concern that many U.S. and Chinese companies must deal with on a regular basis. The partner company’s legal and compliance department can help to design programs that are acceptable and effective.

Product Portfolio

As in the West, finding a Chinese partner with a set of complementary products or parts makes it much easier to succeed. You can travel to China countless times to find that perfect partner; in fact executives can spend years trying to find that perfect counterpart that fits your enterprise. Many visits to restaurants, bars and golf courses may be required to get close to a win-win situation and optimal partnerships.

Many Western companies grossly underestimate the investment and commitment required. A viable business plan should span at least a decade of investments and milestones.

First, carefully segment the market and understand the key players. Get a full understanding of how your products sit among China’s existing product portfolio. Then invest time getting to know the players. Your local connections will play a key role here. Succeeding in China means working with people who have been able to socialize with you. They appreciate doing business with folks who have spent time understanding their model and are willing to help them reach their goals, too.

Brand Awareness and Product Strategy

In the case of high-tech, you can choose to invest your company’s funds in brand awareness campaigns at airports or at your channel offices, but often you will need to enter into a joint venture to eventually get your brand into the Chinese market and start to build name recognition. Companies need to study the landscape before they invest in branding as it can get you little return. Are there other products that compete with yours? See WeChat competing with Facebook as an example. Would you believe that most Chinese do not have a Facebook account?

Today, the Chinese government has regulations that require companies that sell computer equipment to banks to turn over secret source code and build back doors into hardware and software, understanding what it will take to get your product into China must shape your strategy. Obviously, if your company is in high tech these regulations heighten concern among foreign companies, thinking that Chinese authorities are trying to ultimately force you out of their market, or take over your product.

However, many companies like VMware or EMC have formed strategic branding partnerships with local Chinese companies to help them get to market. This requires skillful partners on both ends to negotiate the product strategy to eventually get you the brand recognition and a piece of the market.

The 13th Five-Year Plan

Paying attention to major government bodies and their subsidiaries like SASAC, CETC and CEC will help companies identify the right partners to work with in the IT industry. Being familiar with the government ministries of the People’s Republic of China should also be part of your initial investigation for your global strategy. Chances are your company already has offices in China and your colleagues will help you distill and debunk all the myths about these acronyms.

The Chinese government is a master planner. China likes to plan in 5 year increments, and understanding the current blueprint—the 13th Five-Year Plan—is important. The plan spells out China’s series of social and economic development initiatives overseen by the Central Committee of the Communist Party. It spans 2016-2020, and it details 32 main points and proposals openly explained that range from military investment to global expansion rules. This plan and focus is what drives all Chinese policymaking from 2016 to 2020. Up to 50 percent of China’s expenditure is influenced by the government direction. By knowing the direction, you can find the right partners aligned with that focus. The plan includes agricultural production goals, a military reform, the encouraged cooperation between universities and high-tech. It is all properly spelled out and easily explained to drive their focus. It is a country with a plan.

Spend Time in Country

Consider spending extended periods of time on the ground, or hiring a team that will be tight to your strategy. Understanding the local mentality, the way of doing business, getting to know the local investors and analysts will pay off. If you can’t move there, consider traveling there at least a couple of times a year and spending a couple of weeks at a time talking to your team, partners and customers.

So, while it’s not easy, the long-term rewards can be high. However, many Western companies grossly underestimate the investment and commitment required. A viable business plan should span at least a decade of investments and milestones. You can find success in China but only if you let go of your short-term focus. Finding the right partners is certainly crucial to succeed locally. China is currently the U.S. largest goods trading partner with $598 billion in total (two way) goods trade during 2015. Hopefully you can help drive your company’s success in China and enjoy the benefits.

Anna Schlegel is the author of Truly Global: The Theory and Practice of Bringing Your Company to International Markets, and named the first globalization innovator by SDL/Fortune. She is currently the Senior Director of Globalization and Information Engineering at NetApp, and has led globalization teams for more than 20 years with firms including Cisco, VMware, Xerox and VeriSign.