The opportunities and rewards from a successful China strategy make this a market worth pursuing. But whether you’re looking to sell products or services or want to set up manufacturing of products to sell in China or other markets, getting a foothold in the Chinese market can be a challenge.
China buys $19.4 billion worth of Canadian merchandise a year, making it one of Canada’s top five export destinations.
This $10.4-trillion economy offers vast opportunities for Canadian companies.
As of 2011, there were 235 million middle-class Chinese – an increase of 203 million over 2011.
These five connections can help:
“You need to find the right partners who will help you through China’s bureaucracy and to avoid fraud and corruption – experts who can help you with things like how to structure your company legally.”
What challenges and barriers do Canadian companies face in China?
Challenges with graft and corruption are still an issue. There are lot of of legitimate parties here, but there are also people who want to take advantage of foreigners and there’s still a lot of fraud. You have rule of law in North America, but here the court system is still run by individuals, so it’s hard for foreigners to get proper legal rights. Bureaucracy is also a challenge; you need paper work and permits for just about everything.
What’s the best way to overcome these challenges?
You need to find the right partners who will help you through China’s bureaucracy and to avoid fraud and corruption – experts who can help you with things like how to structure your company legally. You also need somebody on the ground, so send somebody you fully trust – ideally someone fairly senior in your organization who can come and stay here for a couple of years.
What are the implications of the new Chinese currency clearing centre in Canada?
It opens many new opportunities for Canadian businesses to deal with Chinese companies that are not prepared to transact in foreign currencies. After other countries – such as Hong Kong, Singapore and the United Kingdom – opened their renminbi clearing centres, they saw a fairly rapid increase in trade with China. The expectation is the same for Canada.
“In China, something can go viral in three hours and stay viral for three days. Social media timelines are extremely compressed, so brands need to have the ability to act quickly.”
Any common mistakes foreigners make when marketing to Chinese consumers?
There are two mistakes foreign companies often make. The first one is over-localizing. They look at research reports and decide, for example, that what Chinese people want is banana-flavoured milk. But they don’t realize that they may actually have a heavily westernized audience. Companies also tend to position their products to the wrong segment in China. A big problem among North American companies is they have a much more broad-stroke approach. China isn't one market; it’s many markets.
What can foreign companies do to market effectively in China?
China has 700 million smartphone users and 270 million middle-class consumers – they're all connected. At the same time, 93 per cent of the core consuming class were born between 1973 and 1985, which has the highest consumer spending at the moment. They’re connected to E-Chat and to Q Messenger. These two social tools are the key places to establish a battleground. You can run a microchat and complete a transaction inside E-Chat – something you don’t see in the west. It’s an entire eco-system.
Is social media marketing easier in China, given consumer engagement?
In China, something can go viral in three hours and stay viral for three days. Social media timelines are extremely compressed, so brands need to have the ability to act quickly. Many brands simply offload social media marketing to an agency because if you don't have the upfront training, there’s a high rate of failure. Because it’s not just social media, it’s an entire ecosystem that includes ecommerce.
“Make sure you register both your English trademark and Chinese trademark. Whether you’re a BMW or Nike, in China you’ll have a Chinese name and if you don't take steps to register that name someone else will.”
How can Canadian companies protect their interests in China?
At a minimum, they should ensure their contracts are enforceable. If the Chinese company you’re doing a deal with has assets in Canada, it would be good to have a contract under Canadian jurisdiction. It’s also important to have bilingual contracts; even if the other party speaks English, if the decision maker isn’t comfortable in English the contract may not be binding.
From a legal or regulatory perspective, are there certain actions foreign companies need to take before entering the market?
Make sure you register both your English trademark and Chinese trademark. Whether you’re a BMW or Nike, in China you’ll have a Chinese name and if you don't take steps to register that name someone else will. Also find out if there are restrictions around your product. For example, if you wanted to stream videos here, that might be restricted. If you want to offer language training, that has to be a joint venture. Find out first if there are sensitivities around your product before you start making plans to come here.
How can Canadian companies find out if restrictions apply to their product or service?
Direct investments are easier because there’s an investment guidance catalogue on the Chinese government website. For exports, I would go talk to authorities in customs or to an advisor, such as a lawyer, who can inquire on your behalf. This is really important because there are all kinds of rules and restrictions that even market experts may not know.
“High attrition levels are common in the Chinese talent landscape, top performers and employees with management experience are relatively scarce and there’s fierce competition out there to get them.”
What common HR challenges are faced by Canadian companies with operations in China?
High attrition levels are common in the Chinese talent landscape, top performers and employees with management experience are relatively scarce and there’s fierce competition out there to get them. Companies also have difficulty attracting suitable talent in mid -to-senior level positions.
What's at the root of these HR challenges?
I don’t think these challenges are exclusive to Canadian companies. But foreign-invested companies used to pay substantial salaries and offer full welfare packages, and when private companies started to increase salaries as well this advantage was cancelled out. Research by ChinaHR.com shows 10 years ago nearly 70 per cent of the 50 best employers in China were foreign companies; in 2014 this was just 30 per cent. Also – and this especially applies to small and mid-sized enterprises – companies, which at home may benefit from a good reputation as an employer, are simply not known here among the Chinese.
What do Canadian companies need to know or do before relocating a key employee here?
Before relocating, build in several calls on a regular basis to key individuals on the ground. If the key employee is moving together with her or his family, then companies should also make sure to understand expenses related to education or the trips to the assigned location. In the specific case of Shanghai, it has become the most expensive destination in Asia for expatriates according research by ECA International from June 2015.
“…get to know the officials in the city where you do business. If you have a dispute with a local supplier, it’s good to know local officials who might be able to help.”
Is it necessary for new exporters to set up a presence in China?
It’s true that so much business can be done via email, but there’s nothing like having eyes and ears in the place where you're doing business. We’ve had many companies tell us that being present gives them the ability to better understand what's going on in the Chinese city where they're active. A local presence also means something as pragmatic and necessary as having a representative in the right time zone.
Wouldn’t this be a significant barrier for small- to mid-sized businesses?
That’s something we do recognize and that’s why we provide our members with resources such as our incubation spaces in Beijing and Shanghai where they can house their first employees. We also help them with things like training their employees and registering their companies in China.
What advice would you give to Canadian companies setting up shop in China?
Make sure the Canadian consulate in Shanghai knows who you are and what you’re doing. This is important in helping you avoid problems later. Also, get to know the officials in the city where you do business. If you have a dispute with a local supplier, it’s good to know local officials who might be able to help. And finally, make sure you have good legal counsel, on both the Canadian and Chinese side.