Welcome back to the Ultimate Guide series, where we have you covered on all the common questions on exporting to China, from how to have dinner with your business partner to the organisations that can help get you started, so that you will be braced and ready to get it right the first time around. You can give us a “xiè xie” later.
Last week we introduced you to the world of doing business in China. We demonstrated the massive market for it, and gave you a little introduction to some of the organisations you should know about before getting set up overseas.
In our second part of the series, we will be taking your Chinese business knowledge to the next level, sharing with you our expert advice from on high on the best practices of entering the Chinese market. It is important to remember that Chinese business culture is extremely different to Australia’s, and a number of high-profile companies have failed there because they did not fully consider the different cultural practices. Being aware of what are the right methods for you and the best channels to sell your products will help you avoid such pitfalls.
4. How Can I Enter The Chinese Market?
As detailed in our post Getting Over The Great Wall, you have four options available to you when exporting your goods to China. The first is through direct export, secondly through using an agent, thirdly through a distributor, and lastly through using a Chinese business partner.
If you’re a larger company with experience in expanding to new countries
Exporting goods and services directly to the final customer cuts out the middle-man and can save costs. However, it can be difficult to get going in a country where you don’t know the legalities or have an established network. You also have to be aware that you will need to register your company in China and hold an exporting license in accordance with Chinese laws.
If you are an SME or a startup
Another option is through using an agent, or a direct representative hired by your company to help sell your product in a new region. They will help you overcome language and cultural barriers, as well as having a more in-depth knowledge of the policy and regulatory changes as well as where to promote your products.
If you’re a company with a varied product line
Distributors work closer with the end customer than agents, and are useful if you don’t intend on establishing a place of business in China. However, while they can be cost-effective, it is beneficial to use a number of distributors, since relying entirely on another person to sell your products is fairly high-risk.
If you’re a company with a known brand
An alternative choice would be to have a Chinese business partner. There are many options, but the main two would be a foreign-invested partnership or an equity joint venture.
Foreign-invested partnerships have become increasingly popular in China and have become the most convenient way for foreign investors to begin doing business there. Having a business partner gives you an intimate knowledge of the market while it is fairly low-risk and minimal capital is required. The downside is that both partners will have to take up unlimited liability.
An equity joint venture is when both partners agree on joint partnership and divide the risk among themselves. One downside is that Chinese regulations state that you must contribute a minimum of 25% of the registered capital to enter into such type of partnership.
With both options a known brand name is preferable since it will attract more experienced Chinese partners.
Once you’ve decided whether to fly solo, use a third party or go halves on your business venture in China, you’ll need to find the best method to grow a customer base. Promoting and selling your products online will be your first stop If you’ve taken our Chinese Social Media quiz, you’ll know that selling your products on an e-marketplace and via social media is one of the most effective ways to start promoting your products in China.
But before you begin uploading your perfectly-angled product shots to your existing social media pages, you’ll need to make sure you are putting your eggs in the right basket. Businesses such as Google have been unsuccessful in China because their services were unavailable throughout the country. In fact, Facebook, Gmail, Twitter and even YouTube are unavailable to the Chinese audience. So what channels are available?
For Selling Your Products
One of the most popular methods of exporting to China is through using an online marketplace. In fact, reports show that almost two-thirds of Chinese consumers who purchase goods from abroad online do so using the main import channels of major e-commerce sites such as Alibaba’s Taobao and Taobao mall (Tmall) and JD.Com’ s JD Worldwide.
Over the past couple of years there have been a number of scandals surrounding bad-quality sales on China’s smaller e-marketplaces, so it is advisable to opt for one of the bigger players when starting out.
Taobao and Taobao mall (Tmall)
Alibaba’s two branches Tmall and Taobao have seen a rise to stardom since the Chinese government relaxed regulations four years ago, to the extent that Tmall saw its customer-base double in 2016. While the two may seem similar at first, they have some crucial differences.
Taobao acts as the intermediary platform between customer and customer (much like ebay). It offers the opportunity for you to open an online shop on your website, provided you meet the right requirements. This would be your option if you are looking to sell to China without having a registered brand or business.
Tmall is much more focussed on the business-to-customer exchange. Here you would have to show that you are an existing organisation, manufacturer or brand. While the signup process takes longer, this eliminates risk in product-quality, and each seller’s page will include a certificate of quality and compliance.
If your business sells cosmetics, health or clothes, you should opt for one of Alibaba’s online marketplaces.
Launched in 2015, JD Worldwide is the youngest of the top e-marketplaces and it is a direct competitor to the Tmall service. Like with Tmall, sellers have to go through more rigorous onboarding process to ensure they are trustworthy and that the products are legitimate. JD is a preferable option for you if your business specialises in the sales of electronics.
While using an e-marketplace can give you access to a market of millions, it can be a lengthy process, and your company may not be considered if it doesn’t earn enough revenue. Many businesses are turning to WeChat as their first stop to selling their products. If you’ve read our previous articles on WeChat, you’ll understand the scale in which it has monopolised China’s social media platforms. What began as a communication service has far outgrown its social media rivals in the West in its functionality, and users can now use it to book taxis, receive news updates and even sort out their utility bills with it.
Using WeChat for your business can give you access to its 800 million monthly users in a number of different ways. For starters, you can chat directly with your clientele: ‘Guanxi’ is a huge part of doing business in China, so demonstrating a good level of customer service through talking one-on-one with the customer is key. One Airwallex user, Lumin, found that using WeChat to maintain regular communication with his customer base was the best way to build up trust with them and guaranteed that they would return to use his products again. Having a WeChat account to maintain contact with your customers is especially important if you are not looking to enlist your business in China.
If your company isn’t registered in China
Perhaps the most useful part of this ecosystem is WeChat Pay, a digital wallet integrated into the app which allows users to use QR codes to buy commodities online and in-store. You can go through a third-party provider such as Airwallex to register with a Merchant Account. This will allow WeChat Pay to show up as a payment option when the user is on your website, and it will also allow them to pay through the app when they are in your store. This is especially valuable if you have a lot of Chinese tourists coming into your store.
If your company is registered in China
You can also use the platform to advertise your brand and products through setting up a WeChat Official Account. You can either opt for a subscription account, which allows customers to view your news updates, or a service account, which directs customers to your website so they can buy or book your products from your page. However, you must be aware that in order to have an official account, you need your business to be registered in China.
For Promoting Your Products
Once your products have hit the market, you’ll want to garner as much interest surrounding them as possible. While WeChat can offer a great one-to-one contact with customers, Weibo and Baidu can serve as great marketing tools. Given that it is all in Mandarin, finding a fluent speaker to assist you with your posts will be essential.
Weibo can be compared to Twitter, and it is a great way for publicising company news, assisting promotional campaigns and spreading general brand love to its 297 million users. It also contains uniquely Chinese elements, such as sending “red envelopes” (giving money as a sign of good luck) and “fan services” (regular giveaways for subscribers). The most common way of promoting on Weibo is to become a “V person” (“V” for “verified”, in other words a popular and verified account), and post opinions, ads, or a mix of both.
Weibo also has paid advertising solutions similar to those offered by other social media platforms, where you can promote posts and target chosen audiences.
If your business is based outside China, you can now sign up using Facebook. However, as the platform is in Chinese, having a Mandarin speaker alongside you will be essential.
If you have a website set up in China, Baidu will be key to marketing your products. Baidu is China’s number one search engine, and you can use it to draw in customers to your website in the same way as you can with Google. And as with Google, it has its own news, image and video sources, as well as exciting additions such as the Baidu forum (like Yahoo answers).
If you have a website set up in China for your business, you can optimise searches for it using a Pay Per Click advertising. However, be warned: China’s censorship regime has some extremely sticky guidelines, which can lead you to be banned from the site if you aren’t careful.
You're all set
You’ve now got some great grounding knowledge for getting your business fired up in China. Making sure you take time to think about the right avenues for exporting, selling and promoting your business will ensure you don’t face problems later on down the track, so it is best to give your chosen means a little more research before you get started.
But you're not quite the Chinese business guru yet. Coming up next week, we’ll be hearing from some businesses who have already made the move, to learn from the challenges they faced and to get insider tips of how to overcome them.