I moved to China a couple of months ago. This article was requested by a local platform in Shanghai and was written for entrepreneurs/seekers of business – contemplating coming here. Hope you will enjoy it.
Modern day China is a land of immense opportunity- a country that will surprise, enthuse, annoy and charm; a place many new things must be learned and, equally importantly, many unlearnt.
Looking at China today we see the world’s second economy and -arguably, the most influential market today. China’s growth and wealth has assured rescue plans all over the world and is becoming increasingly important in calming our global economy. Yet, at the same time; China is not the international player Japan (previously the biggest economy in Asia) once was. China’s presence on the world stage is rather more subtle; there are (almost) no big Chinese brands of importance and Chinese investments in (Western) companies (or governments) are received with a certain level of suspicion -and thus not very widely reported.
When looking at the development of the Chinese domestic market we see interesting patterns developing and (slowly) emerging. But let’s take it from the beginning.
In recent years, talk of China (in the socioeconomic sense) has almost always covered cheap labour and bad products – essential elements that defined ‘the factory of the world’. What is often forgotten is the fact that China has a civil history older than that of all of the Western countries- it is a country with a long, rich history of culture, art, music, and poetry. For a large part of the last two millennia China was the world’s largest economy. Only in the later stages of the Qing Dynasty (1644 – 1912) did this country’s economic development slow down, which, combined with Europe’s rapid development during and after the Industrial Revolution, let the latter surpass China.
Today the Chinese government has implemented a program that is aimed at elevating the country from a low-cost production economy to a high-tech innovation driven economy. If the last 3 decades of Chinese development are indicative of what the future might bring, the ‘traditional’ high-tech countries would do well to gear up and prepare themselves for competition.
Add to this the fact of China’s recent increase in urbanization. Currently (according the 2010 census) China boasts 160 cities with a population over 1 million people. To put that into perspective, the Benelux has (if one measures by actual city borders): zero. The size of China’s urban middle class was about 230 million people in August 2011, or 37% of the total urban population -coming from 80 million in 2007, forecast to be 700 million in 2015 and expected to hit 1.4 billion in 2030. This is about 100% of the entire population of current day Europe.
Obviously, this will attract many people looking to make a quick buck. Yet, looking at examples in the last 10 years, we see that ‘a quick buck’ in China is often short lived and detrimental with regards to your ROI and brand value in the long run.
So what does starting a company in China entail? There are many different elements in the equation that need to be given some (and some a little more) thought. For instance, what does the government have in store for that particular industry, or indeed, all of the industries? Have a look at the latest 5 year plan the Party published (KPMG has published a fairly decent summary). Here you will be able to find leads with regards to subsidies that might be available, and let it be known, that there are many. These subsidies may be related to the industry of interest, but might as well be related to where the government wants to develop a region and how they wish to (financially) stimulate companies to locate there.
These are only some of the elements that come into play when starting a business in China. What is often overlooked is the sheer amount of options available and how important it is to understand the steps that need to be taken in order to file all correct documents, in the correct manner, with the right people. There are several organizations that can help you do so- your local chambers of commerce being the starting point most likely. It is also advisable to get in contact with a good local accountancy and have a localized lawyer look into the company structure and administration plans- they have a thorough understanding of the local market and requirements and will thus be able to give correct advise and help avoid tax or regulatory problems.
This has very little to do with your own business, marketing or brand so far. Yet, these steps are incredibly important with regards to the circumstances and ‘Umwelt’ you are creating for your company; these steps will help you to be sure you ‘understand’ what you are walking into and how you can make this potentially highly rewarding endeavor as smooth as possible. Once you’re ready and set is when the fun begins.
How will you tap into this wealth of new eager consumers? In deciding where to establish a business it might not be a bad idea to look into the local consumer- what are their patterns and desires? What is the cultural orientation with regards to certain products and services and how well integrated is the use of social media? These are important indicators of what will work and what will not, in terms of communication and brand strategy.
A key fact that must be kept at the forefront of your thoughts, is that despite the current run on the ‘Chinese consumer’, this consumer is still very much undefined and diffused, at best. China, in all its splendor and sheer size, is still a country with one dominant ethnic group; the Han Chinese. Yet, the Han-Chinese are an ethnic group that has become an amalgam over time, and is comprised of hundreds of different ethnic groups. Many of these have different cultural interpretations and dialects – thus, different consumers all across the board.
The 1st and 2nd tier cities in China are highly competitive marketplaces, where everybody is fighting for the same pie and many of pieces have been given away already. Is being in Beijing or Shanghai really necessary? Or is this choice driven by ‘this sounds right’? Because it might not be.
Some argue that focus groups and quantitative research are the best way to create a solid business strategy. Certainly, this is a good place to start. Yet, in a marketplace that changes as rapidly as China’s, do not rely on research only. When you focus purely on what people might be thinking today, you’ll have already lost the battle for tomorrow.
A brand that leads and is relevant to people will always be more successful then a brand that follows.
The Chinese consumer is quickly catching up. They know what is going on and they know what they want. They are highly status-oriented and very willing to share their brand preferences. While in Europe ‘showing off’ the brands that you care about is increasingly becoming an act that is frowned upon (in terms of FMCG’s) in China it is called ‘shi’ (which means ‘shining’) and is one of the favorite pastimes of the generation Y consumer.
With the rise in quality of life in China, we also see an increase in the demand for more security- not only in terms of the protection insurance of oneself or ones possessions, but more importantly, in the demand for clean drinking water, safe food, energy and clean air. For those of us from Western backgrounds, these are all things that we take for granted as being ‘normal’. Yet with the rapid developments over the past few decades and subsequent increase in energy use, food consumption and urbanization, these are now genuine concerns for the Chinese consumer and they are increasingly vocal about it. Consequently, the government has been sure to stimulate the reduction of energy use, the reorganization of the agricultural industry and to install incentives for clean(er) technologies.
This also presents an enormous opportunity. The clean tech industry is heavily subsidized, and building using technologies that will increase sustainability will be heavily subsidized according to the 12th 5-year plan. Currently China is the world’s greatest investor in these kinds of technologies, and is spending 1 in the 3 dollars they spend on defense on clean energy development, as opposed to the USA’s 1 in 54 dollars.
This is also a good indication of what will be top of mind in the Chinese consumer in the decade to come.