3 Tips for Tech companies looking to expand their businesses in China
Over the last 30 years, the Chinese economy has transitioned from being reliant on agriculture to being reliant on technology. The most important thing for companies looking to expand in China is to evaluate the growth opportunities and investment advantages that this country offers. As you begin to expand your business in China, you will notice that the market can be intimidating for a new entrant. Many Western companies find this country's business culture unique and perplexing.
Under what circumstances should you consider expanding your business to China? If most of your high-value customers are currently from China or you see huge potential from China market, opening a branch of your business in China may help you run your business more efficiently. For tech companies, China can provide technology industry companies faster access to a wide range of hardware components than other countries (Casper & Azumo, 2021). First, some critical components can be found and manufactured in China. Second, the supply chain in the Chinese technology industry moves at a much faster pace than in other countries. It is attributable to Chinese factories having closer access to the raw materials and factory-level equipment required to manufacture electronics and producing them much faster than factories in other countries (Gulley et al., 2018). At the same time, China is rapidly modernizing and becoming an important part in the global business landscape, but doing business in China is not without challenges. What should you note as you expand your business in China? With that in mind, Here are some helpful hints for tech startups entering the China’s market.
Should you hire a third-party contractor or a full-time employee?
Cultural differences and language barriers have always been a stumbling block for foreign businesses expanding into China. The business environment in China is also very distinct, making it difficult for many foreign companies to adapt after establishing a presence there. Foreign companies' operating models and business strategies do not work well in China (Black & Morrison, 2021). As a result, it is wise to seek out local contract partners in China because they have the cultural competence and in-depth understanding of Chinese business and negotiation norms that most overseas teams do not.
The decision to hire full-time employees or contractors is largely determined by the business's development needs. From a business development standpoint, it is common to hire full-time employees for key positions within a company and outsource support roles to third parties. This type of outsourcing partner is primarily responsible for the company's day-to-day business operation, such as payroll management, HR services, manufacturing, and financial services. Partnering with a contractor for non-critical jobs is a cost-effective solution for a small start-up from a company profitability standpoint. Third-party contractors will provide a more comprehensive or one-stop service to remain competitive as more and more overseas companies rely on supply chains and manufacturers from China. Assume you cannot find upstream suppliers in your Chinese supply chain due to language barriers. In this case, the contractor will provide sourcing services to help you confirm product information (pricing, materials, inventory, lead times, after-sales policies, and so on) to match your budget. This type of contractor has an extensive network of resources to assist overseas companies in finding manufacturers and suppliers and reaching startups with investors.
How to find the Right partner during the COVID in China
Finding the right Chinese partner to help you grow your business can be difficult. All communication is done online during the pandemic, making the entire process uncertain. Nonetheless, we can rely on the two factors listed below to quickly and effectively determine whether this contractor meets the needs of a company expanding its business:
Experience. A good and efficient contractor team must have several years of industry experience. Contractors for China's massive and complex supply chain must have excellent expertise, sophisticated negotiation skills, and research capabilities to find the best fit in the mixed Chinese industry chain (McKinsey, 2020).
Professionalism and resourceful networking. If you look at the competitive landscape, you might notice that the best teams have been in the industry for a long time and have built their reputations. The Chinese business scene is heavily focused on networking and reputation.
Don’t try to solve Cultural Differences on your own.
umerous articles on the internet summarize the differences between American and Chinese business cultures and the best ways to address these differences. However, negotiation and communication styles differ in China, and business culture varies from region-to-region China. As a result, companies entering the Chinese market for the first time should avoid attempting to become experts in this field. Finding a partner or key team member who understands these differences and has prior experience is the best approach.
Because the technology industry is highly competitive, in every interaction, we must be cautious with the information we share with our customers, suppliers, and partners, keeping our intellectual property and trade secrets in mind (Casper & Azumo, 2021). Therefore, navigating this international business and manufacturing aspect is less daunting with a professional partner like CUBIC.
Cubic has several successful examples that can help startups and small businesses find their best way into China’s market by providing strategies, location selection, potential partners and clients. Please stay tuned for we will post further analysis and interviews about these cases in the following weeks.
CUBIC is the ultimate platform for emerging and growing companies seeking to expand their market to China or establish a business presence in China. Our experienced professional teams expertly facilitate cross-border business collaboration in the market acquisition, in-China entity establishment, and funding acquisition. We connect our clients to suppliers, vendors, strategic partners, and potential buyers through our partner network in China.
Our services aim to meet the needs of companies at every stage of growth to accelerate their path to global success.
1.Casper, M., Contributor, E., & Azumo, C.-founder and C. E. O. of. (n.d.). What startups need to know when expanding to China. Built In. Retrieved March 31, 2022, from https://builtin.com/operations/startups-expanding-to-china
2.Gulley, A. L., Nassar, N. T., & Xun, S. (2018). China, the United States, and competition for resources that enable emerging technologies. Proceedings of the National Academy of Sciences, 115(16), 4111–4115. https://doi.org/10.1073/pnas.1717152115
3.Black, J. S., & Morrison, A. J. (2021, May 26). The strategic challenges of decoupling from China. Harvard Business Review. Retrieved April 1, 2022, from https://hbr.org/2021/05/the-strategic-challenges-of-decoupling
4.McKinsey. (2020, November). China consumer report 2021 ... - McKinsey & Company. www.mckinsey.com. Retrieved April 1, 2022, from https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20still%20the%20worlds%20growth%20engine%20after%20covid%2019/mckinsey%20china%20consumer%20report%202021.pdf