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What are the Market Entry Challenges in China?

market entry challenges in China

The slow growth in Western countries forced them to relocate their businesses to China. However, now the procedure to expand business in China has become very expensive and time-consuming. China’s political relations with several countries, varying consumer preferences and complicated regulations have been seen as market entry challenges by foreign businesses. Therefore, we must collaborate with local businesses and HR experts to make a smooth entry into the Chinese market. This piece of writing deals with the market entry challenges in China and the possible solutions to circumvent them to run your business smoothly in China.

Significant market entry challenges in China   

1. Red Tapism and lack of transparency

Despite numerous claims made by the Chinese government to streamline the process of obtaining permissions from the government and setting up of business entities in China, repeated complaints have been made by the foreign entities with regard to opaqueness in the process of obtaining permits and licenses from the government, in tax registrations etc. This has resulted in the delayed incorporation and functioning of businesses in China.

Further, complicated labour law compliances and the tight bureaucratic controls over the expansion of business by foreign entities in China have made it troublesome for foreign entities to expand their businesses in China. These kinds of bureaucratic barriers are sufficient to deter a small company from expanding its operations in China.

2. Intellectual Property Rights

China has had a poor history of Intellectual Property protection in China[1] and enforcement. Many foreign companies have complained about poor regulation of Intellectual Property in China. Some reports suggest that China is the leading supplier of counterfeit goods across the EU and most foreign goods in the world originate in China. The irony of the situation is that Chinese entities are suing many foreign companies for IP violations.

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In most of the common law jurisdictions across the world, the IP jurisprudence follows the rule of ‘First-to-invent’, where the person who is the creator of the patent may get the patent rights over the latter inventor who happened to file the patent application first. However, in China, the ‘First-to-file’ rule applies where the first person to file the application gains the ownership rights over the patent where no requirement of prior use or ownership is required.

3. Varying government policies

Another challenge foreign investors face while expanding business in china is related to the constantly varying government policies and procedures for investment in China, deterring the foreign investor from committing investment in China. A significant example is that of the periodic ‘Negative lists’ for foreign investment access in the Chinese markets. These lists keep on expanding annually, making it difficult for foreign businesses to expand their business in foreign markets. 

4. High Competition from the existing players

There is massive competition from the existing players in the Chinese markets. Big companies are making inroads in China, and domestic companies are simultaneously booming at the same pace, making it difficult for new companies to enter and brand in the existing market. The Chinese market is also inclined towards preferring local Chinese companies over foreign service providers, again making it difficult for the foreign company to make it establish themselves against the existing giants.

5. Accessing local markets

Some challenges foreign companies face in accessing the local markets in China while expanding their businesses are: finding proper and efficient distribution channels and complying with a complex set of regulations to comply with the foreign companies. The major challenge here is to figure out a product/service to access the local Chinese market. It is, therefore, suggested to perform thorough market research and identify the proper distribution channels to access the local market.

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6. Hiring and Management of Employees

A number of obstacles appear when a foreign company hires and manages employees in China. As the businesses are expanding, a massive demand for trained, professional labour is already outstripping the supply. This makes it hard for foreign companies to locate and recruit such employees independently. Additionally, the increased demand for trained labour has increased the salaries of these employees, making it difficult to retain such employees.

Subsequently, another associated problem resides in the management of such employees. The foreign employer must track the employee’s administration, payroll and local compliance with the applicable laws. The difficulties in managing the company’s human resources may prevent them from expanding in China.

7. Changing consumer buying patterns          

Changing buying patterns of Chinese consumers is a huge roadblock to making an entry into the Chinese market. With the availability of variety of products in the Chinese market, the customer looks for products that match not only their budget and quality preferences.

These changing patterns can be detrimental to the expansion plans of a foreign company in China and may act as a challenge for entering the Chinese market.

Conclusion 

Given the number of market entry challenges in China, a foreign business must strive to find the proper distribution channels and recruit the best available human resource to ensure smooth operations. These foreign companies must adhere to all the prescribed regulatory compliances and contractual obligations. At the time of hiring Chinese employees, they must adhere to all the wage requirements, insurance and employee benefits. Managing this takes a toll on your precious time. This is why Professional Employer Organisations (PEO) come into the picture, which manages all the regulatory requirements to set up businesses in China. To know more about the sector-specific challenges and solutions to circumvent such challenges, get the consultation offered by global incorporation experts at Enterslice.

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Read our Article: Company Registration Process in China: A Step by Step Guide

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