Entering China: No One Said It Was Easy

Look before you leap: Here are some tips, especially with regard to the supply chain, to follow before you set up shop in China.


Look before you leap: Here are some tips, especially with regard to the supply chain, to follow before you set up shop in China.

The wave of companies expanding into China today is discovering that transferring business operations to the region is fraught with complexities. But the potential rewards are as huge as the massive country itself. China is the fastest-growing market on the globe. It will soon be the world's manufacturing powerhouse, and that fact alone dictates that producers, their suppliers and service-oriented corporations create a presence in the country.

For suppliers whose customers are speeding to China, this strategy makes sense not only to enable them to take advantage of the economics of producing there, but also to serve the eager domestic Chinese market that is exploding in demand.

Before taking the giant leap to move operations into China, there are a few things that should be understood and considered.

Suppliers should interview current customers about their needs for their China operations. Automotive manufacturers setting up shop in China want to have their major suppliers close to their assembly operations. Just-in-time (JIT) manufacturing techniques are one reason. Another reason is to avoid unnecessary taxation: China requires all products to have at least 40 percent local content if they are to be sold in that country. Rapidly increasing numbers of suppliers are opening shop there to meet these local-content requirements and avert the additional fees imposed on imported or other high-foreign-content goods. Moreover, those that don't supply local content quickly lose business to competitors that do.

While market opportunities and client demands can make a move to China essential, it's not necessarily an easy step to take. Businesses must become highly informed regarding the Chinese culture and Chinese ways of doing business. Companies must work through legal and cultural challenges and comprehend the true size of the market there. Chinese law governs all business transacted in China, and these laws are less defined than those of the United States.

Compounding the complexity, China itself envelops many different cultures. North China is considerably different from the south. The need to understand local customs, work ethics and business practices may require partnering with companies already there, firms that are familiar with the special requirements for working in this very complex cultural tapestry.

Different Countries, Different Supply Chain Practices

The partners you choose must understand both the American and Chinese ways of doing business and be of sufficient size to serve all your client companies in China. They should have experience in supply chain management in developing countries and also have the technical capabilities to translate and localize products for China. By hiring well-established partners, you may find you immediately can provide in-China client references and gain additional revenue streams.

China does not have the extensive supply chain infrastructure prevalent in traditional manufacturing countries. Local supplier operations primarily are carried out on paper and with their most abundant resource: people power. Computerized systems are very new to them and may be very expensive.

In fact, capitalism itself is still a relatively new concept for Chinese manufacturers. Processes and products must consistently be adapted to the Chinese language for implementation and training. Businesses must translate and localize products for easy use by Chinese nationals in their local market and plan for ways to mesh the company's products and services with the Chinese business system. Western transplants must always be aware of the need to abide by the local way of operating a business and the government-imposed taxes that must be included on invoices, as well.

Additionally, Chinese companies want to see a return on major investments, not in 10 years, but in two or three.

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