Doing Business in China: Eight Important Considerations When Entering the Chinese Market
by Sebastian Mueller, Chief Operating Officer at MING Labs
China is the market of fantasy for many. It is one of the largest unified economic spaces, its business is booming, and consumer affluence is on the rise. These are just some of the factors that lure entrepreneurs in with promises of growth, fame and fortune. For many MNCs, China is already their single largest market, and it continues to grow, as Chinese innovation continues to go global.
At the same time, China is often talked about with fear. There are countless stories of foreign entrants who failed spectacularly; unable to compete and survive in its unforgiving business environment. Language barriers, a lack of transparency and local competition, amongst other factors, have existed at the peril of many.
MING Labs was founded in Shanghai in 2011, building digital products and businesses, and helping companies around the world to enter China. Over the last six years, we have built over 100 products, gaining invaluable insight from making countless mistakes. Here are some of our most valuable lessons that could save you from making fatal errors, and increase your likelihood of finding success in China.
#1 Localise Your Product
Many companies reach out to us, wanting to create a local version of their product. Often, they seek to do so by merely translating for the Chinese market. This approach is already flawed. It is based on the assumption that product-market-fit persists when entering China, and that the only concern is people being able to access it in their language. Most of the time, this is not true.
When entering China, you must assume that you have lost product-market-fit and need to rediscover it. It is crucial to start with a beginner’s mindset and test your current solution in the new market. Start with a Riskiest Assumption Test (RAT) or Minimum Viable Product (MVP) mindset in order to validate what is and is not working.
You might find that geographic differences make your product useless. For example, a company producing high-tech fishing equipment can be successful internationally where most lakes are natural, but will find itself at a roadblock in China, where many lakes are artificial and do not have the same ecological or physical features.
Similarly, you might find that while you have been successful in your home market, you are too early or too late for China. The myriad of customer loyalty tech companies who entered and failed in the early 2000s were too early. At the time, all retailers had to do to attract new customers was to open a new outlet. No one was investing in loyalty when the money was to be made by expanding as quickly as the consumer market that was being created. Customer loyalty concepts only gained traction later when the market grew crowded, making competition more lucrative than expansion.
When entering a new market that is as different as China, starting with a beginner’s mindset is a must. Being overconfident has cost many companies their entire expansion budget without any success. The secret to success is to test early, test cheap, be open and adapt.
#2 Know Your Chinese User: Cultural Context
As a design-centric company, the user of a product or service is always the most important reference point for us. Users come with all kinds of complexity, including their demographics, pain points, intentions, and cultural background. The only way to find real product-market-fit is to be user-obsessed and understand them as well as possible.
Users in China are very different in many ways from those in the West or in other parts of the world. One key difference lies in cultural background, where Easterners are more concerned with collectivism than individualism. This makes all kinds of experiences more inherently social, one big example being online shopping. For Chinese consumers, it is a very social experience, versus the more mission-driven approach used in the West. Another aspect is the complexity of Chinese written characters, which leads to a different set of UX patterns being preferred for their simplicity when dealing with Hanzi (汉字).
It is important to discover these differences in the target audience and design products and services that deliver value to this specific context. Starting with user research is often a good first step, followed by prototyping new potential solutions and testing them. Having a strong customer support is critical, as Chinese users are often quite vocal about their experiences and expectations. It is both a great way to show that you care and to gain market insight and intelligence. Let the user tell you about their experience, learn from it, and adapt your solution accordingly.
#3 Prepare for Technical Difficulties
Depending on how your product is built, it might already not work in China. It is common knowledge that many international services are blocked by the Great Firewall of China. Yet there are intricacies native to the technological landscape that one needs to be aware of.
We found out the hard way that any use of APIs, SDKs or similar plug-in services from abroad can be a key problem. We built a project that required us to port a service to China with part of our development team in Berlin. We regularly deployed builds and closely communicated with the customer for testing and acceptance. At some point, the website went into a never-ending loading loop. After some troubleshooting, we discovered that a team member had inserted a call of a Python repository that ran through a Google library, the end result being that it created a dead-end for the loading process. We ran into similar problems with push messaging services, map services and other standard tools.
Server setup is another important consideration. Even if you are hosting your site on a whitelisted IP, your service might slow down unpredictably, stop being accessible or prove largely unreliable. Being serious about operating in China means hosting there.
If you have services catering to customers who move between countries including China, it means setting up both a global and local solution, and figuring out the relevant amount of mirroring required to satisfy the customer expectation.
Lastly, depending on the kind of tech you have, you might not be able to get the right license in China on your own. In some areas of SaaS, ICP licenses are very restricted, and your best bet to enter the market is to find a local partner who will allow you to operate under their license on the condition that you share the profits.
#4 Find a Local Partner
The barriers to entry are manifold in China, including language differences, the lack of access to a business network, connections, and the local regulations on foreign investment and setup. Having a Chinese partner will help you to tackle many of these factors more easily, and increase the chances of your success.
In Shanghai, we were unable to find a local partner for the longest time, which meant we worked to lay all the groundwork and faced the unique challenges of the market alone. When we finally met an experienced American-Chinese returnee who had been working in the local business world in a similar field, we quickly reached an agreement to collaborate, and soon saw a flow of high-profile deals that we did not have access to before.
Another example lies in our work as a digital partner to one of our portfolio companies. BottlesXO is one of the start-ups we helped to build in Shanghai. They achieved the strong user adoption and presence they have today by operating with a Chinese partner from the very beginning. This helped to ease many things, including dealing with authorities and being able to invest in a restaurant space which houses the fantastic XO bar on the ground floor.
While entering China alone as a foreign start-up is possible, and given that the legal and financial landscape has become friendlier in recent years, the barriers to entry are still considerable. A local partner can help you to navigate these waters and be an invaluable asset in the long run.
#5 Switch to Local Platforms and Ecosystems
Whether your product is a mobile application in your home market or your own online store selling a physical product, bringing your platform to China means that you will most likely need to change it. Adapting your product to the local context means examining where people are used to consuming similar products or services, and adopting that format.
If you are selling products online, it means offering your product through popular channels such as taobao, and cooperating with a local taobao partner in order to make that possible. There are many companies specialised in setting up and operating taobao, TMall, JD or Alibaba stores, which come with all the services you need in order to get started straight away. Trying to get people to use your own website to buy your product will result in enormous marketing costs and low sales numbers if you deviate from the channels the locals are familiar with.
Similarly, many services that enter China, possibly being a native mobile application in their home market, will need to create a WeChat application as their main engagement channel. Download rates for international mobile applications are negligible, abandonment rates are high, and people are already used to consuming a wide range of services (booking taxis, paying, ordering alcohol, etc.) through WeChat. By approaching users in a familiar environment and integrating the services they prefer (such as WeChat Pay), you remove barriers to adoption of your product and increase your likelihood of success.
In addition, many of China’s large technology companies have whole teams and infrastructure dedicated to your company’s success. By being open to the Alibaba or Tencent ecosystem and by taking advantage of the opportunities available, you are dramatically increasing your chances of succeeding by tapping into some of the largest platforms in the world.
#6 Adapt your Marketing Strategy
We have seen many companies entering China and sticking to a marketing playbook they created and perfected through roll-outs in various global markets. However, these efforts often fall short of expectations and fail to deliver the usual results, racking up large bills without any return on investment.
When marketing your business in China, the key is to adapt your social media strategy to the local channels and to the different ways in which they are used. Unless you want to target only the young, tech-savvy and international Chinese, Facebook is not the place to promote your product. Applying your Twitter strategy to Weibo wholesale will also fail, as people use the platform differently. Incorporating WeChat into your playbook is a must, given that the consumer-facing service is also widely used as a platform for corporate marketing.
Another reality is the different roles of social media in China, where it is crucial for every business to be active on social. Even German B2B industrial companies, some of which are our clients, have a WeChat presence that they use to interact with their Chinese business partners and clients. From publishing product catalogues to promoting events and sharing interesting content, even B2B companies can profit from a strong social presence and actual engagement, as it is expected and appreciated by the Chinese market.
Before deciding on a marketing strategy, it is also worth observing how other companies use the local social media platforms for marketing, and set aside smaller budgets for testing several different channels and measuring the returns.
#7 Hire Local
Over the years, we have seen so many foreigners enter the market, believing they know better. More often than not, that has turned out to be the opposite. China is different and the only ones close to being experts and knowing it well are the people who live and work there. Whether it is about the language barrier, the cultural barrier or simply knowing how to work around certain hurdles and thinking differently, a local team is simply a must-have.
This does not only include the operational employees, but first and foremost the management and upper levels of the local entity. We have found many extremely bright people who have made all the difference. They are confident, smart and creative, and run things in a way that no foreigner in China could.
Hiring for cultural fit is as important as it is abroad. Whatever your company’s values are and however you define the culture, make sure to maintain that standard and reflect it in the office you choose, the processes you run and through the people you hire. It is easy to feel disconnected from your headquarters when everything runs differently locally, so keeping to global standards ensures that people stay committed and buy into your culture. It also helps to fight the extensive employee turnover rates which are higher than average in China.
#8 Pivot and Re-Evaluate in Shorter Cycles
By now it is almost common knowledge that Chinese companies work harder, move faster and operate more cheaply than their Western counterparts. They are obsessed with success, learn fast and innovate with enormous speed. Once you have entered the local market and find a business opportunity for yourself, you can also be sure that local competition will emerge to take advantage of it.
This will again test your ability to pivot in order to keep your product-market-fit. Instead of evaluating your business model and value proposition every few years, you must be ready to make changes to your business regularly. The market shifts constantly and competition moves quickly. While you may be a valued partner or supplier today, you might not be able to sell the same proposition tomorrow.
“Are you ready to play at ‘China scale’ and ‘China speed’?”
The question you have to ask yourself is this: “Are you ready to play at ‘China scale’ and ‘China speed’?”, as people in the scene put it very well. China possesses huge opportunities, and a reality check does not hurt before trying to seize it. The outlined points are by far not exhaustive, but should help your initial planning and first steps.
Sebastian Mueller is Chief Operating Officer at MING Labs.
MING Labs is a leading digital business builder located in Berlin, Munich, New York City, Shanghai and Singapore. We guide clients in designing their businesses for the future, ensuring they are leaders in the field of innovation.
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