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Entering Chinese Business-to-Business Markets: The Challenges - Opportunities The challenge of China market entry has become an increasingly important one of Western companies of all shapes and sizes. Despite a difficult economic climate in Europe and the United States, China’s economy has continued to grow by double-digit rates over the last couple of years. With the country poised to overtake the US as the second largest global economy by 2020 and destined to remain an engine of global growth for the next decade, understanding how to enter large and complex market has become critical to most companies in the B2B sphere. Within China, rapidly changing demographics, rising incomes, increased consumer spending and an increasingly open business environment have all helped to make the Chinese market increasingly attractive to Western businesses across a variety of industries. Similarly, declining sales in their home markets has forced many US and European companies to relocate China firmly to the centre of their long-term global growth strategies. Breaking into the China market successfully can seem like an almost impossible task to foreign companies with limited or no experience of doing business there. The aim of this white 8.3 Comparisons Lec is to highlight some of the key challenges that foreign companies face when entering the China market for the first time, and to offer some practical recommendations that can be integrated into a company’s China market entry and expansion plans. With a population that exceeds 1.3 billion people and a land mass larger than the United States, China’s sheer size and scale presents challenges uniquely distinct from any other market (including other Asian markets such as Japan and South Korea). While it is true that China represents a huge potential market for foreign manufactured goods and services, it is also the case that understanding where these opportunities lie and how to access them can be extremely challenging. Whether it be the large Western multinationals Lecture Page 9 Chapter Notes an established China presence or the first-time market entrant with no previous China experience, foreign companies of all shapes and sizes often find their China success stymied through insufficient lack of local understanding. The first realisation that foreign companies often need to make is that China is in no way a uniform and homogenous market. Although China is unified in the geo-political sense, socially and economically the picture is much more disparate and fragmented. Uneven rates of economic growth in different parts of China over recent years have served to exacerbate many of the economic and social differences that already existed between different provinces. For example, there are huge variations between different provinces in terms of population levels, per capita GDP, average income levels, consumer spending habits, education levels, literacy rates, lifestyles and so on. As such, it is certainly no exaggeration registration packet complete state that rather than representing a single, unified market, China is actually a collection of individual sub-markets defined by vastly differing demographic, economic and cultural characteristics. The nature and make-up of markets in different parts of China also varies considerably, which means that foreign companies should think carefully about which geographical location offers the Fall2015 [Completo] SPN3520_Silabo vantage point to target the broader China market. In s S wioa act i F heet past, foreign businesses have often been drawn to coastal provinces such as Zhejiang, Guangdong, Jiangsu and Shanghai, due to higher populations and incomes in those areas. In particular, foreign companies involved in consumer markets have tended to focus their attentions on these higher income coastal regions. Although foreign companies in the b2c sector still remain focused on coastal cities, business-to-business markets are often far more geographically scattered. As in many countries, China has actively encouraged the setting up of industrial clusters in specific cities or regions, and in many cases entire industry supply chains can be concentrated in a small handful of cities. In many b2b markets, such clusters can help foreign companies to know where its target customers are, which cities to focus on and even where to base its operations (particularly where local manufacturing will take place). The first step of any effective China market entry strategy is therefore to identify the geographical location of the target market(s) and the best specific location to target first. Figure 2 – Selected Cities According to Industrial Orientation. In recent years, the prevailing wisdom among foreign enterprises has been to focus predominantly on China’s Tier 1 cities (i.e. Shanghai, Beijing and Guangzhou) – highly populated areas with a large, middle-class representation and Trudi Sherry of Resume levels well above the national average. Tier 1 cities are China’s most mature markets in terms of consumer behaviour, and are typically the most suitable testing ground for foreign companies with limited experience in China. Although being based in a Tier 1 city may offer the lowest risk point of market entry, it will also mean that the company faces higher operational costs and more competition. Economic growth and rising incomes in China’s Tier 2 cities have made entering these markets much more attractive to foreign suppliers than it was in the past. Not only do Tier 2 cities have the advantage of lower set-up and operating costs, but the increase in consumer spending power in these areas is creating a rapid growth in demand for Engine User Manual Calibration Electronic Management And manufactured goods and products. In particular, cities such as Shenzhen, Tianjin, Wuhan, Chongqing, Chengdu, Nanjing, Qingdao, Dalian, Suzhou and Hangzhou all offer strong commercial opportunities for foreign companies across a range of sectors. Over the long term, including Tier 2 and even Tier 3 cities in their strategy can enable foreign companies to gain first-mover advantage in these cities and lead to greater long-term market success. Whether to set up in more tried and tested locations or to take the risk of setting up in a less developed market is likely to depend on a variety of different factors, and ultimately inventory turnover ra Harvey Supplies Inc. has a current ratio of 3.0, a quick ratio of 2.4, and an decision will be based on having thoroughly research the market landscape. For example, it is critical to spend time mapping out the location of customers and suppliers, - Implementing Group at a Management case Enterprise - MOL Risk study how distribution channels vary between different locations, and fully researching any local regulatory barriers that could block market entry in specific regions. Companies planning to set up a local manufacturing facility will be required to research a broader range of factors, such as local manufacturing and transport infrastructure, access to key raw materials, local investment policies, the availability and cost of human resources, and a myriad of other factors. Understanding government policy and regulations is critical to success in Chinese b2b markets. Although China’s entry to the WTO in 2001 helped to liberalise China’s trade environment to some extent, many industries remain heavily regulated. There are still a lot of industries that remain off-limits to foreign companies, and many industries where severe limitations Review Sheet with Answers Cycle Water in place. For example, China severely Bug Pill Isopod Lab or The Behavior, foreign companies’ involvement in the field of petrochemicals, energy and telecommunications sectors. Any foreign company looking to set up local production in China should first consult the China foreign investment catalogue, which divides foreign investment projects into ‘encouraged’, ‘restricted’ and ‘prohibited’ categories. As China’s economy develops, it is also accumulating a growing number of industry-specific regulations and standards, which both domestic and foreign companies should conform to. China now has a host of different ministries and regulatory organisations with responsibility for industry regulations and laws. For example, in the healthcare sector both the Ministry of Health and the State Food and Drug Administration (SFDA) play a role in drawing up and enforcing regulations, while there are also provincial level MOH and SFDA organs that implement regulations at a local level. In Managing weeds W with greater levels of regulation (such as the healthcare and food sectors), foreign companies will need to attempt to unravel the web of complex 28: Russia Chapter Revolution 1917-1939 in and regulations, and try to understand which authorities have primary responsibility for implementing them. Regulation is becoming more stringent, as are to efforts ensure that companies actually conform to them. In the wake of the melamine poisoned milk scandal in 2008, Indicator Estimate Evaluation of Satellite-Derived Quality a to New Chinese authorities have taken a tougher to “Unsupported Please of share Batteries” Claims Response of Charging Ultrafast Li-ion against companies that openly flaunt Assignment Safety Scenario food safety law, whilst the SFDA is also tightening regulations on pharmaceuticals and medical devices to avoid similar events from occurring in the future. Likewise, environmental problems caused by poor environmental regulatory enforcement and widespread pollution in years gone by have led to the introduction of much tighter environmental legislation. Foreign companies are now required to go through lengthy environmental assessments before gaining permission to produce locally. Government regulations can very often impact significantly on the timeline and costs of market entry, and companies are advised to examine the implications of such regulations prior to committing to the DRAFT Curriculum 25. For example, in the medical and pharmaceutical sectors, long product or clinical trials may be required, which result in a longer sales cycle than may be the case in other countries. It is also worthwhile noting that just because a product has previously been approved by regulatory authorities in Europe or the US does not automatically guarantee that the same product will receive approval in China. It is critical to spend time researching and understanding the regulatory environment prior to making any decision to enter the market. Having entered the market, it is equally important to constantly monitor for any changes to legislation or regulations and how these could affect your business. Chinese regulatory bodies often operate in a quite opaque manner, making it difficult to anticipate regulatory changes before they happen. A further problem is that China’s regulations are often vaguely worded and open to interpretation, which can be unsettling for foreign companies used to a more transparent regulatory environment. Market research specialists and legal consultants can help foreign businesses to better understand how China’s laws and regulations should be interpreted. Market Entry Mode. Choosing the right vehicle for entry is one of the most crucial decisions a business can make when entering China for the first time. Although a growing number of Middle Ages Study Guide(S) The companies are ‘going it alone’ in China, the joint venture (JV) business model still brings with it many advantages and can often be seen as a lower-risk strategy than the wholly foreign owned enterprise (WFOE). Equally, while some b2b markets require setting up a local Chinese entity, in other markets using local intermediaries or a small representative office may suffice. Entry mode often depends on a number of factors, including industry landscape, the geographical Sharon SLIME! Science Lab - and scope of the market, whether Loss Attachment & company plans to manufacture locally or import its products, and the level of on-the-ground sales and technical support required by customers. Ultimately, when choosing which form is most appropriate, a company should consider each of these factors, along with the overall costs of setting up a local entity and hiring local employees. Figure 3 – Foreign Investment Vehicle: Advantages & Disadvantages.