Monday, January 19, 2009

SMEs and Business in Mainland China

Above: A sunny afternoon in Shanghai, China's financial and business center. It's only 2 hours flight from Beijing, good target for a day trip. Photo gallery below: Shanghai WaiTan Bund at HuangPu River.

SMEs and Business in Mainland China

Some 200 SMEs from small Finland have already established business in China. Similarly, over 300 SMEs from Sweden.

From France about 800 SMEs has entered to China. Beijing restaurants and cafes are filled with French speaking business people, students and officers.

More than 500 companies from Germany has entered to China, and much more have invested in China.

To boost their changes, Spain set up Cervantes Institute and France their Culture Center to Beijing. Italy has Culture Year in China, Russians the Year of Russia, and Indians the Year of Friendship.

Then there are 50.000 SMEs from U.S., or so many export or invested in China according to China's Ministry of Commerce. Americans have marketing superiority and they are the key transformers of Chinese lifestyle.

All Asian SMEs are, of course strong in Chinese markets. Their products are valued in China.

Scale works both directions. Embassy of India in Beijing says that they give 500-600 visas to Chinese businessmen every day.

China's own 42 million registered SMEs, almost all of them private, are learning quickly. They guarantee that fierce price competition in mainland markets is in place. Chinese SMEs have advantage of massive local workforce, especially in manufacturing, services and after-sales services. For Chinese society, SMEs with their ideas and technologies are the greatest hope for desperately needed innovations.

Every week tens of foreign SMEs (Small to Medium-sized Enterprises <500 employees) enter into China's fast-growing market. Welcome SMEs! But what to sell to Chinese? How to do business in Chinese environment?
MNCs, Multinational Corporations came early to Chinese markets. They know that its hard to be a businessman in China, even with their knowledge, resources, processes and Guanxi, relations.

MNCs know how hard it can be to get things done. Chinese business culture is unique and different. Chinese people may be complicated, having different priorities. In China MNCs face risk of becoming internally localized, kind of "foreign MNC-SOE".

With all marketing resources, brands, Guanxi assets, and government relations, why to worry? MNCs are not perfect.
    - MNCs are inflexible in making product changes, product fit - MNCs are slow in localizing and related decision making - MNCs have high overhead cost of multilayer organizations
Chinese buyers don't value much SMEs or their products/services, of which they have never heard of. Market economy is still new, and Chinese ability and confidence to evaluate and conclude is still limited. Chinese buyers go big brands for safety. That is clear advantage for MNCs.

Small foreign companies look Chinese markets with little knowledge or resources, and with no Guanxi. But they are hungry, they have ideas. Is business possible without pre-build Guanxi? Is it possible to make a rational leap over Guanxi? How is the byrocracy? Standards? Innovations and even finance?

Small companies may not be afraid to compete with Chinese SMEs, with their famously narrow margins, unique business culture, or other Chinese dragons. They are afraid of missing their China boat.

They can have ideas and competitive products but lack marketing power, and therefore have little influence to Chinese customers. Chinese buyers compare non-branded foreign products to similar domestic products which, as a rule, are very cheap. But this doesn't mean that SMEs have no chance in China.

China business for a small company starts by finding a local partner, which need not to be a big company. First goal together with Chinese partner should be to build foothold into China by making first aggressive deals.

Chinese industrial buyers are knowledgeable about competition and companies concerned. If an SME can make aggressive start with a local partner, word of mouth spreads within the industry and reputation starts to grow.

For SME, new ideas and flexibility to produce "product fit" can become key strength. When sales opportunity appears, small company should be quick to decide and modify its service/product to match Chinese customer's requirements and environment: technology, industrial products, standards, interfaces, software and applications, mobile and online games user-interfaces, colors and story elements, content.

Chinese expect products by smaller companies to be cheaper than products with known brands. But SME can be profitable with lower overhead, by using local partner, via product flexibility. Less can become more.

If SME can position itself in China market with one particular strong product, its reputation gets established and Chinese customers will be impressed. Rapidly this will help to sell other products from the same company. There are success cases of rapid market adaptation.


Market entry has many aspects: laws, regulations, licenses, standards, procedures, finance, office, recruitment, tariffs, duty, tax, vat, homologation. Consultants and service companies help in practicalities.

Business in China becomes a park walk if you have got a knowledgeable local partner which is an industry expert with Guanxi and has sales ability and geographic reach. Such a partner can help to innovate, gets sales done and becomes a short-cut into China business. SME can establish an R&D unit to China for localization, innovations and market adaptation projects. Dream on, dream on!

Finding a partner is the most critical phase of market entry. China market is in transition, business culture is unique, language is different. First, learn the partner candidate company and map its business capabilities. Next, more difficult part will be the peoples qualities.

Chinese take getting rich is glorious seriously. To implement that famous slogan, there is a risk that some get too serious. That can turn win-win partnership into loose-win or loose-loose middlemanship.

SME should not think of changing Chinese customer's habits. Respect your Chinese customer. Customers don't like middlemen, but they like vendors, the source. It is important to listen customer's product requests, then judge. Producing product fit will later save time and resources, and motivate local partner, the seller.

BUREAUCRACY - Business Registration renewal in Beijing
Step 1.
Approval Certificate, extension valid for 3 years
from China State Science and Technology Ministry
Five appendixes required:
• Business Period Extension letter signed by CEO
• Business Report signed by Chief Representative
• Bank Reference information from the Bank
• Representation Office rent contract signed by office owner
• Letter to certify above documents signed by Chief Representative
Step 2.
Registration Certificate, valid for one year
from State Administration of Industry and Commerce
Two appendixes required:
• Orig. Company Registration Certificate: date, stamp, signature
• English translation version of original with translation stamp
Step 3.
Organizational Code, valid for one year
from Beijing Quality Technology Supervision Bureau
Step 4.
Record for Foreign Company, valid for one year
from Public Security Bureau
Step 5.
Tax Certificates for The Company and Chief Representative
from State Tax Bureau, valid until changes
from Beijing Tax Bureau, valid until changes

Above process may take over one month full time work.

For small companies being China-hungry is of course not enough. Decision and clear commitment to meet Chinese competition and bureaucracy is needed. SMEs should be able to provide product fit, which needs resources and have cost. Clear commitment by head office is a must.

More important than reading market tea-leaves, red or green, is to remember that China is not similar as rules/regulations/laws based "home market". Chinese mentality is different. Learning about China's business culture and f.ex. public bidding process, is needed. Learning about target industry behavior is essential, it's the key goal-reaching enabler. And finding a real Chinese industry expert will not be easy.

If not willing to get-prepared, it certainly is cheaper to miss the China boat. A visiting U.S. professor has even harder opinion: China is still too complex and unlawful for most SMEs to enter.

-- BeijingMan


Shanghai WaiTan Bund
PICTURE STORY - Entrepreneaurs at HuangPu River

Shanghai WaiTan Bund is a busy place. These pictures were taken by Canon 20D with EF-S 10-22mm and EF 70-200mm F/2,8 L IS lenses. Click to enlarge.

Above-1: Shanghai. From HongQiao Airport taxi just 30 minutes and you are at WaiTan.

Above-2: Shanghai. WaiTan is at HuangPu river.

Above-3: Shanghai. WaiTan view.

Above-4: Shanghai. WaiTan view.

Above-5: Shanghai. WaiTan is a waterfront boulevard, 1,5 km long.

Above-6: Shanghai. WaiTan view.

Above-7: Shanghai. WaiTan view.

Above-8: Shanghai. WaiTan view.

Above-9: Shanghai. WaiTan view.

Above-10: Shanghai. A show was to begin!

Above-11: Shanghai. WaiTan show.

Above-12: Shanghai. Little hero.

Above-13: Shanghai. People at WaiTan.

Above-14: Shanghai. People at WaiTan.

Above-15: Shanghai. People at WaiTan.

Above-16: Shanghai. People at WaiTan.

Above-17: Shanghai. People at WaiTan.

Above-18: Shanghai. People at WaiTan.

Above-19: Shanghai. People at WaiTan.

Above-20: Shanghai. People at WaiTan.

Above-21: Shanghai. Hunting for illegal entrepreneurs.

Above-22: Shanghai. Entrepreneurial spirit at WaiTan.

Above-23: Shanghai. Entrepreneurial spirit at WaiTan.

Above-24: Shanghai. Entrepreneurial spirit at WaiTan. Its hot.

Above-25: Shanghai. Entrepreneurial spirit at WaiTan.

Above-26: Shanghai. Entrepreneurial spirit at WaiTan.

Above-27: Shanghai. Entrepreneurial spirit at WaiTan.

Above-28: Shanghai. Entrepreneurial spirit at WaiTan.

Above-29: Shanghai. Entrepreneurial spirit at WaiTan.

Above-30: Shanghai. WaiTan view.

Above-31: Shanghai. WaiTan view.

Above-32: Shanghai. WaiTan builders.

Above:-33 A Fantasy land? No, that is Pudong, symbol of China's financial and business power, Paris of the East, Shanghai.

Above-34: Shanghai. WaiTan climbers.

Above-35: Shanghai. WaiTan climbers.

Above-36: Shanghai. WaiTan climber, he got highest.

Above-37: Shanghai.
...hmm... am I running out of photo targets at WaiTan?

Above-38: Shanghai.
...hmm... maybe I am running out of photo targets.

Above-39: Shanghai.
...hmm... actually I am running out of photo targets!

Above-40: Shanghai. I was running out of photo targets at WaiTan.

Above-41: Shanghai. Want a drawing? Good idea before leaving back home to Beijing.

Above-42: Shanghai. Drawing takes 10 minutes, and 1EUR or 1,25USD.

Above-43: Shanghai. He draws me, huge audience, great fun!
Result was a fantasy character.

Above-44: Shanghai. Too much details at WaiTan Bund!

Above-45: Shanghai. I was lucky with the weather. Visited Shanghai quite many times and often its been a good experience. Shanghai has aggressive individual entrepreneaurs, indeed!

Shanghai WaiTan Bund at HuangPu River
+ Urban city view if weather is good
+ Good place to observe Chinese people when they relax
+ Shanghai is more, but WaiTan is a good start

© BeijingMan 2016

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