Starting a business in China is quite different from that in your own country. You need to take all its region-specific factors and conditions into consideration. Before launching your business in China, a systematic market research and a carefully planned implementation strategy is crucial. It will need more attention for its complication. We’ve mapped out 12 guidelines to help you Starting a Business in China.
1. Market Research
Market research plays a crucial role during your preparation and business planning, and protects you from reinventing the wheels. At the very beginning of your market research, two points need to be confirmed: First, make sure your product or service is legal in China. Do not start if it is illegal in China. A typical example is the gambling business. Second, make sure your industry is open to foreign companies. Although many industries in China are open to foreign companies, it is better to make a confirmation in advance. If it is open, it is important for you to understand the evolution of your industry in the China market. If not, just wait and you will be the first on the market when it is open.
- Learn from your friends: Because doing business in China operates in a totally different way from that in the rest of the world, it is beneficial and instructive for you to learn valuable experiences and lessons from your friends and acquaintances who have successfully distributed their products in China.
- Learn from your competitors: Wanna understand the Chinese market? Then learn from your competitors. It is the best and most effective way to know their location picking, market positioning, pricing structure, and marketing strategy. All the information you have learned from your competitors can teach you how to shape your business plan, and offer you some hints about the ways of adapting your products to the Chinese market, developing marketing strategy and pricing structure, and identifying your target customers.
- Visit China: Of course, the direct way to conduct market research is to come and visit China in person. Visit your potential partners, potential customers and government officials, and talk with them to learn their needs or ideas of your products, and start networking in China. And attend trade shows and conferences to know about the trend of your industry in China. In addition, you also have an opportunity to visit your competitors as a customer so that you can know more about your competitors.
2. Location Selection
Before you pick your location to start business, you need to realize that China is in no way a uniform and homogeneous market. So the cost of living and government policies toward foreign companies are different from one region to another. Due to the convenient transportation and availability of talents, it is considered that 1st tier cities, as Beijing and Shanghai, are the ideal locations to headquarter in. Nonetheless, with the development of the 2nd and 3rd tier cities, several foreign businesses are headquartered in these cities. After identifying the location to start your business in China, you have to look for the office space through a realtor, you’ll need proof of a lease to register your business in China.
3. Establish a Legal Entity
When registering your business in China, you have to choose a form of the entity. The most common models are:
- Representative Office (RO): A Representative Office (RO) can represent the interests of a foreign investor by acting as a liaison office for the parent company. Although ROs do not have a minimum investment requirement, ROs are not allowed to engage in any profit making activity. So given more options, most business owners will not choose this form of entity.
- Equity Joint Venture (EJV) & Cooperative Joint Venture (CJV): A joint venture is a partnership between the foreign company and the Chinese company. Mutual trust between them is the key factor for win-win. There are two forms for joint venture: Equity Joint Venture (EJV) and Cooperative Joint Venture(CJV).
- Wholly Foreign-Owned Enterprise (WFOE): A WFOE is fully invested by one or more foreign investors. A WFOE owns the full control over its business transactions in the China market, so it is the most popular form for foreign companies. A WFOE is becoming easier to register than before, however, it is still quite complicated and takes more time to get approval from the government.
4. Find a Local Partner
An experienced and trustworthy partner in China will bring a lot of benefits for a foreign company, especially small and medium companies. In Chinese culture, relationships mean a lot. Sometimes, relationships even bring you more than what contracts do. So a good relationship with your partner in China is helpful to develop your business in China.
The partner could be: Your local representative, your distributors, your major suppliers, a digital marketing partner, a PR partner, a freight forwarder, a China customs clearance agent, other subcontractors.
5. Find a Consulting Agent
Finding a local representative or a reputable consulting agency in China to register your business for you will avoid unexpected and unnecessary troubles and problems. By building a good relationship with the consulting agency, you can also get some constructive suggestions for your taxation, legal issues, accounting, bank account setup, recruitment, payroll arrangement, and custom clearance, and more.
6. Write a Business Plan
Develop a long-term and short-term plan respectively, including your location, projected revenues, product or service description, expected number of employees and budget requirements. When developing your business plan, pay attention to China’s policy trend toward your industry. Do not hesitate to seek help from your local representative if you need.
7. Register Your Company
We strongly advise you to get a good Chinese name for your business to match your brand image. Finding some Chinese naming professionals to help you can avoid foreign names, names with unlucky meaning, ridiculous names, strange names and awkward names. If you already have name candidates, you can evaluate and analyze them. Always keep in mind that starting your business in China should first pay attention to intellectual property.
Company registration name: You’d better prepare several company registration names in advance, in case your intended name has already been registered by other company. It is OK that the registration name is different from your formal brand name.
Trademark: In China, a trademark belongs to the person who first register it, but not to the one who first use it.
Domain name: Check to make sure your domain name has not been used by other company.
Social media accounts: You also need to make sure your social media accounts, such as Company Official Weibo, Official Account on WeChat, are available.
8. Obtain Business Licenses
The policy in one place may vary from that in another, so it is important to identify all the licenses needed for your business and the documents required for each license in your region of China. Then prepare the necessary documents before you go to the relevant government agencies for license application. Usually, a long list of documents are needed for each license, and even sometimes additional materials are required; therefore, seek help from your local representative, which will save you more time.
9. Open Your Bank Account
Opening a bank account can be quick and easy in China if you can communicate with the bank staff or have someone help you with this.
10. Recruit Staff in China
During the preparation phase, you can work with freelancers to work on your tasks occasionally. For the sake of your company’s better running, after you officially start your business in China, find one professional recruitment agency to select suitable full-time candidates with a good command of English which is important for your communication. Do a research on the salaries and social benefits you should pay in China, but do not trust online statistics of average salaries. Instead get more hints from your friends and recruitment agencies, and pay what your employees deserve. Once you have your first reliable manager on position, he will help you hire the rest of employees.
11. Design a Chinese Website
The integration of Chinese payment gateway makes it possible to sell products or services directly through your China website, therefore, it becomes necessary and important to build a Chinese website if you sell products or services in China. You can find professionals to design a Chinese website for your company, or localize your existing website. In addition, make full use of Chinese SEO, PPC and social media marketing, drive more clicks to your website and increase your online visibility. Meanwhile, apply for a web license and host the website in a China server in order to make the site faster.
12. Start to Sell in China
Then you can open your door, and sell your products or services through online platforms (Tmall, JD, YHD, as well as your official web store), telephone sales, and/or local distributors, which depends on your market strategy.
Related reading: Start Your Business in China: If Not NOW, Then When?