Next stop China: how small businesses can tame the dragon

Earlier this month, the Chinese premier, Li Keqiang, announced China’s 2017 GDP growth target was 6.5%. This was down from last year’s 7%, but is still impressive compared to the UK’s 2% figure. China’s expanding economy presents plenty of opportunities for UK small businesses, particularly in the wake of the Brexit vote. Research released by the Federation of Small Businesses recently found China was in the top four priority markets for exporting businesses. Nevertheless, it can be daunting to know how to start exploring the world’s second largest market. Here are some starting points:

1 Focus on your USP but be flexible

Seduced by the siren song of China’s huge population (1.38 billion and counting), it can be easy to lose sight of what makes your business successful in the first place. But British goods and services are seen in a positive light in China and companies have succeeded across numerous sectors.

Avoid the low cost/high volume market. Domestic competition here is intense and foreign companies cannot compete on price alone. Instead, differentiate yourself on your unique selling proposition, quality and know-how.

It’s also important to be flexible and localise your products or services quickly. Businesses who assume their offering has the same appeal as in their home market are more likely to fail.

2 Build local relationships

Thorough market research is crucial before investing significant time and resources in China. Investigate major market trends, seek customer feedback and watch the competition. Groups like the EU SME Centre publish sector specific guides, the China-Britain Business Council (CBBC) has a business in China handbook, and private research firms can help identify the most appropriate route to market.

Local contacts can help you adapt your brand, deal with language and cultural issues, manage local customers and understand how to market your products or services. Look for an agent that has up-to-date industry knowledge, government contacts and (most importantly) has worked with international firms before.

3 Think about the practicalities

If you plan to hire full-time workers based in China, the law states they must be employed by a Chinese entity. The corporate requirements for setting up companies in China, paying taxes and repatriating profits are complex and often change. Setting up a Chinese subsidiary of your UK company can take up to 12 months and requires a registered Chinese office address and Chinese business plan. To repatriate profits to the UK, foreign companies will typically have to allocate 10% post-tax income to a local reserve fund.

This step is not necessary if you plan to sell goods from overseas, through distributors and e-commerce platforms. And while the requirements may appear complicated, there are a number of law and accounting firms, with experience of working with British companies in China, who can offer advice.

4 Protect your intellectual property (IP) rights

IP rights in the UK do not transfer to China, so trademarks and patents need to be registered in the country. Trademarks are granted on a first to file basis and typically take six months to a year to be processed. It’s a good idea to create an IP plan, specifying what you will be registering and for which of the 45 product categories. The plan would also address such questions as how aggressively you will deal with an infringement.

The cost of registering trademarks varies widely depending on the complexity of the case and the number of product category applications. For the most straightforward cases expect prices to begin around £1,000.

If you’re selling in China and do not register your IP, be prepared for the consequences (copycat products are common). To minimise the chances of that happening, choose your partners carefully. If you’re manufacturing products locally, consider sourcing the components from different plants and assembling the final product in a separate facility.

5 Embrace cultural differences

Business in China is done very differently to the west and misunderstandings often have as much to do with culture as language. There is a greater importance placed on relationships, showing proper respect, and avoiding conflict. Socialising is a big part of the process and Chinese business people will seek to build trust and rapport before moving forward with contracts.

In China, you won’t often hear a definitive “no” – even if that’s what they mean. Instead, your contacts won’t respond or follow up, won’t seek additional information or push the deal forward. Think of it a bit like dating. If someone likes what you’re offering, you’ll usually know.

Ultimately, there is no better way to build your knowledge than visiting the country. Come to China armed with small gifts, your own interpreter and be prepared for copious banquet dinners. The Chinese are wonderful hosts and welcome the opportunity to show off their country to international visitors.

Avi Nagel is the China business adviser for the China-Britain Business Council. The CBBC is holding a China Business Conference with a number of sessions dedicated to SMEs on 28 March at the QEII Centre in London.

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