Practical Strategies to Enter or Expand in the China Market
Well first of all, we do not recommend that foreign business set up factories in the country as way of entering the market. This is due to the fact that at present, a number of barriers have been set up by the government to discourage new factory setups. These barriers will act to diminish the business’s profits. So instead, we encourage our clients to setup factories in a different country such as Vietnam where cost of production is much lower. At present, even Chinese factories are being setup abroad to save costs.
So, what are the business opportunities in China?
It is not the case that any foreign business planning to invest in China should be discouraged, as a market of 0.4 billion people can be targeted with the right use of high-tech means in different parts of the world.
Three forms of opportunities that exist are:
First, ask yourself the question of how to advertise your product or business. The most common answer would be to use a social media handle such as Facebook, Twitter or YouTube to advertise. Others answers would include putting an ad out in a magazine, newspaper, television or on the radio. Using this means, a person might read the newspaper and contact you because of your ad to discuss what you put up. If he/she is satisfied with what you are offering, he/she would place an order and you would earn a certain profit on the sale. This is the traditional way of advertisement and it costs a lot of money.
But, what if we told you that you could target the China market and the global market at the same time? This would be how a person who wishes to invest his money wisely would go about tackling the situation of advertising. The answer is given in following advertisement strategies:
Google is a prime example of a smart way of advertising your product or company. Advertising through Google is based on the strategy of ‘Search Engine Optimization’. To explain this concept, first suppose your product is baby power. When you type baby powder on Google, you’ll see a certain number of links on the website. The link that appears on top let’s say is of Johnson’s Baby Powder. This implies that Johnson’s Baby Powder is the most searched baby powder on Google, along with certain other implications. A lot of work and investment has gone into the link for Johnson’s Baby Powder to appear as the first result of a Google search. At this point, you need to ask yourself the question: How can I make my product appear at the top of the search page when someone types ‘Baby Powder’ on Google? The answer, is to strategize around Google Ad-word.
Google Ad-word, when you type ‘Baby Powder’ in Google search engine, the first links that come up will have the word ‘[AD]’ titled on the side. This is used to denote paid content and the amount of money put up determines the likeliness of your advertisement showing up on the search engines of more users, and its ranking. Businesses are also given the choice of choosing which countries the product or business will be advertised to. Depending on several factors such the market competition of the specific product or service and the product/service, the average price comes out to be USD 13 of each click.
Facebook Advertisement also provides a lucrative opportunity for business owners to advertise. Acting as a social networking site, Facebook provides businesses the opportunity to share information to the desired target audience. Additionally, if any person has used your service or product in the past, they will be inclined to share their review publicly; enabling other people to buy your product or use your service. After all, word of mouth is good advertisement.
The way Facebook advertisement works is to filter a certain pool of audience based on factors such as location, city, preferences, search history etc. The larger the audience that the business wishes to target, the higher the amount Facebook demands. Facebook advertisements provide a very efficient alternative to search engines such as Google.
YouTube acts as a video sharing website where advertisements pop up before a user plays a video, along with on the user’s homepage. A business that acts to advertise in the form of videos can use YouTube as a primary means for this purpose. People prefer seeing a face, office or any setting related to the product or service being sold to be convinced to use it. Like Facebook and Google, YouTube also charges a fee to play your advertisement before a user plays a video. This fee depends on several factors such as location, product, and popularity of the videos where advertisement will be played etc.
eBay acts as a consumer-to-consumer and a business-to-consumer commerce service providing its users the option to buy or sell products online. Any business or person who wishes to sell a product or service can auction it online, with it going to the highest bidder. Advertisements on this site work on the same principle with businesses that pay more seeing their ads on more pages of the website.
Instant Communication Method services such as WhatsApp and Skype are also being utilized by businesses to sell products by allowing people the option to instantly communicate with each other over a smart phone.
How can a business expand in China?
Forming a company in China can serve as a worthwhile opportunity considering the country is currently the second largest economy in the world with a population of 1.379 billion people. However, the fact that around a billion among these are people who are poor, so businesses are only left to cater to 0.379 billion who will consume their product or service. In comparison, the United States of America has a population of 325.7 people while the European Union (EU) has a population of around 508 million.
Do the people of China prefer buying overseas products?
The question also arises of whether the Chinese people prefer buying foreign products or are satisfied by those made in China? The answer can be well explained with several incidents in the past which have changed the buying preference of the mass public.
In 2008, a scandal involving a Chinese milk company and the infant formula that it sold. Around 300,000 were victims of a bad product that resulted in the death of six babies from kidney stones and one from kidney damage. Additionally, around 54,000 babies also suffered leading to them being hospitalized. Although the people responsible were put in jail, this resulted in the locals losing preference in local products. Another incidence of milk that was mixed with water caused the death of 12 babies.
In addition, the China market is filled with products that are copied and sold in high value places. The problem of anything being a copy has also resulted in the locals distrusting products manufactured in China.
One can either purchase a product overseas and sell it in the China market or purchase a product in China to sell overseas.
Issue of Banned Internet Websites in China
If anyone wants to post advertisements on famous internationally websites such as Facebook, YouTube, Google, Twitter etc in China, they’ll find these banned in China. So the question arises of what a person who wishes to advertise on such sites should do? Well, fortunately China has its own websites that act as alternatives to sites such as Facebook, YouTube, and Twitter etc. Below are the alternatives listed for each site:
You can communicate with Chinese clients through Wechat and QQ which act as instant messaging services in China.
What can we do for you if you wish to purchase from China and sell overseas?
Foreign businesses seeking professional help can come to us for services which include strategies to enter the Chinese market, to help businesses register their offshore companies and to help them open offshore bank accounts. We also provide professional advice to businesses seeking to expand their businesses or seeking to setup a WFOE.
For any further information, feel free to contact us.
Why Stephen MS Lai & Co CPA Ltd?
Stephen Lai has been providing consultancy services even before the time China became a member of the World Trade Organization (WTO). In this long period of time, we have setup a strong and reliable network to assist our clients seeking to form companies in China, seeking to start businesses, setting up their bank accounts and many other such services. Our company has learned from the changing practices of the country along with adapting to new and exciting practices.
Stephen Lai has also been working as a professional accountant, helping foreign businesses expand and seek new opportunities since 2007. We also help clients seeking legal advice and consultancy related to their taxes along with helping foreign businesses resolve business disputes.
Stephen Lai has also setup its operations in the United Kingdom for clients who wish register their companies in Hong Kong and China with a license to practice from the Association of Chartered Accountants.
Choosing Stephen Lai for our Marketing Services
Any person who wishes to expand their business in China and wishes to come upon an online marketing strategy must first know some key facts such as only citizens of China, possessing a Chinese I.D. or a license is allowed to register on Baidu Adwords, DianPing, YouKu Tudo Adv, RenRen and Douban, Taobao, Tmall, Weibo etc. This means a license must be acquired through a Chinese national or any citizen of the country willing to register on his I.D. on your behalf. This way, your services or product can be advertised to a Chinese audience with them thinking of it as Chinese company rather than an overseas company.
Now coming to our services, the benefit of letting us handle your online marketing over other services is the fact that if you make a deal with any Chinese person registering on these sites on your behalf, they will not be liable to pay you. This is due to the fact that the registration was made on their name and thus no law protects the business owner from making a claim to the amount.
This can be overcome by choosing our services. We provide our clients with a trust agreement and the power of attorney, to prevent any claims not being liable according to the law. The trust agreement holds us responsible as trustees while making you the beneficiary. In the power of attorney, you will be given back the powers to act as the director to sign any contracts for your business.
Businesses should be aware that trust laws are void in the country, resulting in a huge fee being needed to be paid to marketing agencies. This gives way to the risk of these agencies taking over the business on that domain once the marketing starts to take a positive turn, without your authorization. Now, the business owner is helpless to make any claims as it had entrusted someone else without any legal binding contract. Our company has seen more of this in recent years, which is why we have decided to set up an office in the United Kingdom to help such overseas businessmen to help them enter the China market.
This certainly does not imply that we see all marketing agencies to act in such an unprofessional manner, but it is better to not leave such matters to luck. A business should make proper legal arrangements as to protect the company against any such efforts to be undertaken. We suggest such foreign business to always act according to the law to avoid such marketing agencies who will not return your money.
In the scenario where a business has already entered into such an agreement without a legal agreement, you will see the company registered under the local websites. First, a small fee to register the company will need to be paid, along with a China-based bank account needed to be opened. Second, a fee to manage the marketing will be asked over certain periods (normally weeks, months or years). Other fees that will be charged include VAT filings, yearly tax filings, monthly accountings, quarterly tax filings and other such bills which will be mandatory to be paid. Now, in the case a profit is made and the money keeps appearing in the bank, you will not be in a position to take all of it out at once as the bank does not allow it.
So, we suggest doing your research before going into business with any China-based marketing company.
Ten Key Points to know before Starting a Business in China
Our company also provides client with services such as Translation, Legal Contracts, Hong Kong and Chinese Human Resource Services, Consultancy, Tax Consultancy services and helping foreign businesses setup offshore bank accounts and registering their business.
Our services help foreign businesses in easing the process of entering the China market without running into useless difficulties such as tiresome paperwork, help in opening a bank account, the WFOE registration process etc. We guarantee our clients to keep the company under their name along with assurance that all the investments that they make are under their control. Along with this, our services also include taking care of your taxes in Hong Kong and China which includes exempting the profits tax in Hong Kong. In the case of China, we take responsibility of filing quarterly taxes, audits, and VAT filings. Next, we take care of the process of moving all of the money stored in the local China-based bank account to the overseas country of the client’s choice.
We hope you choose doing business with us along with coming to China to start your business as great opportunities await you!