How to Pick the Right Chinese City to Enter?
If you’re looking to make a market entry in China, the choice of the city will have a huge impact on your business and its success. However, organizations often rush into this without closely studying and researching the market.
In this chapter, you will understand how you can strategically make the right decision for your business - after carefully considering your company’s capabilities and needs, the competitive environment, and market opportunity.
Here are seven tips that will help you make the right choice.
China is Extremely Diverse.
In fact, it is more Like a Continent Than a Country. China’s population exceeds 1.3 billion people and its landmass is larger than the United States. This sheer size and scale make it distinctly unique. Although China is unified geopolitically, it is socially and economically extremely fragmented and diverse. Even within the country, there have been uneven rates of economic growth. For instance, there are striking variations among different provinces when you consider population levels, per capita GDP, average income levels, consumer spending habits, education levels, literacy rates, lifestyles and so on. In fact, it wouldn’t be incorrect to say that China is actually a collection of individual sub-markets.
There’s more than just Beijing, Shanghai and Hong Kong
The rising incomes and economic growth have made China's emerging mega-cities a somewhat more attractive and viable option than the more well-known cosmopolitans of Beijing, Shanghai and Hong Kong. Not only do these cities offer lower set-up and operational costs, but there is also a marked increase in their consumer spending power. Cities such as Chongqing, Nanjing, Shenzhen, Qingdao, Tianjin, Chengdu, Dalian, Suzhou, and Hangzhou all provide commercial opportunities across a host of sectors. Including Tier 2 and even Tier 3 cities in the market strategy can enable companies to capitalize on the first-mover advantage for greater long-term success.
Thorough Research on the Industry Focus for Different Cities
While it may be tempting to prioritize lower costs over other factors, ultimately this decision has to be based on and backed by thorough research of the market landscape. Each company has its own requirements, target customers, competitors, and supporting ecosystem. Make sure you map out the location of suppliers and customers, the distribution channels and how they vary between different locations, and very importantly, understanding any local regulatory guidelines or barriers. If you’re looking to set up a manufacturing facility, you will need to assess a broader range of logistical factors such as access to raw materials, transport facilities, local manufacturing in addition to the availability of talent and real estate costs.
Consider the Tax Support for Different Industries in Different Cities
Another crucial factor to consider is the tax structures for different provinces and cities.
A JV may need to file various types of tax returns including business tax, enterprise income tax, consumption tax, value-added tax, land appreciation tax, stamp duty, and withholding tax on foreign payments. Additionally, you will also need to factor in income tax and social security contributions for employees.
Explore Potential Local Partnerships in the City
As mentioned previously, trust is a big factor in any business community. You will need to network with and build connections with local partners.Whether it is your home country’s commercial service agency or local chambers of service, make sure to invest time in understanding the local landscape. A good idea is to plan a visit to an industry trade show
to get a first-hand impression of the competitors, potential customers, and the overall nature of the market.
Make a Visit Instead of Just Relying on Online Research
There’s a difference between perceiving and experiencing something first hand. While there’s no undermining the value of comprehensive and strategic business research, you will never really get a complete sense of the city until you get your feet on the ground. It may be tempting to hasten this process, but invest time and effort talking with people and visiting prospective partners, clients, and organizations that are important to your business. This exercise is sure to pay off in the long term.
Connect with your Chinese city personally!
While the decision to zero in on a city is a very strategic and thought-out decision, there is something to be said about a personal connection to the city. When you’re in the business for the long haul, make sure the city you finally select appeals to you personally. That way you’re sure to remain not just invested in the business professionally, but you are also invested in the city, its culture, people, and its progress. In our opinion, it’s quite frankly the only sustainable way to build a thriving and flourishing business in another country.
Excerpt from Market Entry 10x Series (2020), co-published by Brainsfeed and TCP Growth