starting a business in China

5 Things everyone gets wrong when starting a business in China

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Starting a business in China is a brave and bold move. It requires sacrificing an average of 70 hours a week for several years. This, in essence, is what most startups fail to recognize. Success doesn’t come overnight. So, if you are looking to open a new chapter in life and start a business, here are some problems faced by startups that are considered wrong when starting a business.

1. Creating a Chinese business name

Finding an appropriate Chinese name for your company is a requirement. Once you have registered a Business Name, you may go a step ahead to getting a logo for your new business. All these three should be unique and not like any other registered business. This will be the trademark of your business and if in doubt over the name, logo or domain selected, there are sites that can help you know if the one you select or create has already been taken. By failing to do so, you may end up registering using either a business that closed or one that never took off, eventually bringing confusion to prospective customers who search for your business.

When starting a business in China, there are certain research strategies to find a solid business or brand name. Unless you are a native Chinese speaker, it is not advised to choose a name yourself. There are many underlying factors to maneuver. For one, dialects; something that sounds nice in Mandarin may translate to something unappealing in Cantonese or Shanghainese. Secondly is tones. Although a translation of a brand name might accurately describe the brand, Chinese speakers are sensitive to how tones of syllables fit together. Hence certain phrases may sound poetic and charming, while other phrases may sound unappealing. Third is meaning. Some brands choose to transcribe the sound of their brand in English to Chinese without considering the meaning. This can be disastrous if the characters used have a conflicting meaning with the brand purpose.   

2. Have a business plan backed with market research

Failing to have an established business plan is like planning to fail. One thing that a new start-up again may confuse is a Business Plan and a Business Structure. These are two different things. First, doing some research and deciding whether to be a Sole Proprietor, venture into a Partnership or register a company, should be the first step into knowing what business plan to have. Once you have decided on the type of business, you can then lay down the plan. Contained in a Business Plan are aspects of funding as well as what type of business venture to undertake. It will also entail how you plan on spending, so as not to over or underspend.

When starting a business in China, market research is an important part of a business plan. Consumer research like social listening or focus groups can help brands understand their target consumer preferences. Feasibility research and market sizing help companies understand the practical steps to take the capture their share of the market.

3. Create a business structure that supports flexibility

A business structure is different from the business plan. While new startups confuse this, they eventually lack a management scheme and gradually finish to poor management. So, a Business Structure is what entails what every employee in the business is to do. From the executives, accountants, superintendents, junior staff to all other working employees. When deciding on what structure to have, it is advised to seek the knowledge of professionals and experts in the field as such, professionals such as lawyers, accountants, and even some business people may help you understand and decide on the best business structure for your business.

Adapting to a more Chinese business structure can be quite demanding. Higher ups in Chinese companies demand a lot from inferiors, but in turn, treat them like family. Although often being very hierarchical, Chinese companies tend to be more nimble than their western counterparts. Companies that aim to compete in the rapidly changing Chinese market must also have a business structure that supports flexibility.

4. Finding the right business location

This is a vital element. For those looking to register a business in China, failing to understand the laws of the land could lead to problems. Again, this is among the biggest problems faced by startups. You will need to understand laws relating to taxes, registering the business as well as the many different laws within the country. So, to avoid legal when starting a business in China, it is similarly advised to seek the counsel of those experienced in the field or do thorough research.

Many foreigners who are starting a business in China flock to cities like Shanghai and Beijing. However, although China’s megacities are well-connected and have a lot to offer, it is worth considering smaller cities where prices may be lower. For example, setting up a business in Hangzhou is great for online companies.

5. Finding your competitive edge

The nature of the business is an essential aspect in determining how things will be run. In other words, this is a sure way to set yourself apart from other ventures depending on the type of business you carry on. Note that, this is also an aspect in the Business Plan, and because of that it should be a well-researched type of business to avoid huge competition. Though competition is good, you will need to offer something new to the competitive edge so as to keep the light on.

Without a competitive edge, in the competitive Chinese market, brands are forced to compete by price, which means taking slim profit margins. In the food and beverage industry, a competitive edge could be health and safety. Chinese consumers are growing more health conscious, and especially since the COVID-19 outbreak, consumer have health on their mid.

Never stop learning

So, considering these factors carefully, you will be on the way to having a fruitful business. It is also recommended to do more research over the matter of opening a business to have enough knowledge when you do so.

For those seriously considering starting a business in China, learn from those who have succeeded before you. The China Paradigms podcast series has over 100 stories from entrepreneurs in China, from a wide range of backgrounds and industries. You can find the podcast on Apple Podcasts, Spotify, Soundcloud and Youtube.

Listen to China Paradigm on iTunes

China Paradigm is the #1 China business podcast
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