Doing business in China (Full Episode)

Doing business in China (Full Episode)


– Welcome to Shanghai,
the commercial capital of China and perhaps even Asia. I’m Tim Harcourt, the Airport Economist and I’m standing here on the terrace of the iconic inn on the Bund. I’m gonna show you how to do business in the world’s most populous country and what you can do to
get in on the action. China is an economic superpower
and a truly massive place. But don’t worry, I’ll take you inside the Great Wall and give you a tour of one of the economic wonders
of the 21st century. We’ll get insights from
local business people and learn from foreigners who have cracked the market and tapped
the Chinese consumer. But first let’s take a look at what you need to know about China. China is located smack-bang
in the middle of Asia. It’s the world’s third-largest country, bordering the Pacific Ocean
and 14 other countries from Russia to India and Vietnam. The political capital is Beijing
but Shanghai is where the main stock market is located
and where business gets done. China has more people than any
other country on the planet, teeming with 1.3. billion citizens. It became the world’s
second-largest economy in 2010 after growing at three
times the global pace since Deng Xiaoping opened up the
economic system in 1978. China is the 76th largest
economy on a per capita basis but given it’s got over
one billion people, that’s a pretty impressive effort. Chinese economic expansion
has slowed from rapid double-digit growth a
few years ago to a more sustainable six and a half percent a year. China’s undertaking a huge transition from a nation of shippers to
a nation of shoppers. From export-led development to domestic consumption and investment. There’s a growing middle class
who demand designer goods, healthcare and even an
international education. Demographics are also changing. Rapid urbanization has
created a string of massive second and third tier cities
of 10 million plus people like Qingdao, Jinan,
Chengdu, Chongqing and Wuhan and they’re all creating
business opportunities as well. These cities need
infrastructure like airports, roads and railway stations
for the fast trains that propel people and goods
across the countryside. So we’ve established
that China is a big deal. ANZ bank served our Australian businesses and found Greater China
is the most popular region to do business in Asia. I spoke to the bank’s Greater
China CEO to find out why. – Today when you look at global business, China’s impact is almost everywhere. – Is it easy now to break into China? Are there significant barriers of entry when you do business in China? – Well I think in general but Chinese economy is in a transition. We are going to move from
export investment-led economy to more domestic consumption economy. It could take maybe 15, 20 years to complete the transformation
but I would say the global industries or global
companies are looking at this trend and if they
can position them well, you have a huge opportunity
in this country. – Historically Shanghai has played a very important role in driving growth. Do you think for foreign companies now, Shanghai is the first step
to enter the Chinese markets? – I think a lot of foreign companies go to Hong Kong first, then go to China. But China is opening up
for quite a long time. A lot of multinational
companies are using Shanghai as a springboard, then go
into the hinterland of China. – And what role do you see
the Shanghai Free-Trade Zone play, how relevant is this
to the new economy in China? – My personal view is
the Chinese government used the Free-Trade
Zone as an experiment to introduce a lot of new
rules and regulations which is more and more in line
with international practice. If it is successful,
they will move it out of the Zone and become a
general practice in China. So that actually is part
of the economic reform. It’s not just for sort
of a Free-Trade Zone. – [Tim] The ANZ Opportunity Asia Report shows that Australian businesses in Asia are far more profitable
and have better growth prospects than their
domestically-focused peers. Can your business really afford not to consider the opportunities
that Asia presents? Read the ANZ at Opportunity
Asia on thesbhub.com.au. Telstra is one of Asia Pacific’s biggest telecommunications companies and it’s been operating in China for over 25 years. Its Greater China CEO says local partners are essential to success
in the mainland market. – The local company can help
you to understand the consumer, understand their buying
behavior and also they’re bringing you to the much bigger
customer base and also to tap into the local ecosystem
including the innovation and supply relationship that you
might need for your business. – What are your top tips for managing a relationship with a
local partner in China? – I think building the
relation, trust is most important so that you
need to start with small and trying to, don’t set
a too ambitious trend and so that you can build
that trust through time. So it take a long time to
build trust in a business relationship but it’s
worthwhile because you want the commitment and have
them stay here for long term and also that you know, trying to be able to contribute value in your partnership. Set the right expectation so that you can have a win-win partnership
to differentiate your solution service, expand
your business in China. – You’ve done a lot of
research about companies forming partnerships
across different regions and industries and countries. Can you tell us a bit about
the research findings? – We conduct the research last year for to survey more than 1,000 companies. So we found out that you know, that each partnership with digital age
is very unique and we find companies feel that in order
to serve those you know, the always-on, the mobile first customers, especially the middle class,
middle income consumers, it’s very important to build
that digital partnership with all those partners to
allow you to be able to expand your capability to be able to
serve those emerging needs. Particular in the internet space and in economic and
other social media areas. So it’s very important,
so companies feel that it’s essential for their
success to have digital partnerships and also
they feel that it will change their business
model and also eventually, in 12 months it will contribute to more than 10% of their business. So it’s a very significant to help them to expand their capability,
access to the new idea, first time to market and
also first in innovation. – China’s economic leaps and
bounds dominate the world’s financial headlines as a
New World Order emerges. But China’s not exactly
the new kid on the block. The Middle Kingdom is
one of the world’s oldest civilizations and dominated
global trade for centuries along the Silk Road and
ancient shipping lanes. Up until the 17th century,
China dominated the global economy and the Chinese were
great traders and innovators with paper, gunpowder and
tea all developed in China. Shanghai itself has always
been an international city. As you walk around modern Shanghai today, you see the foreign
neighborhoods like the French Concession area and in the Roaring ’20s most foreign countries had embassies here. The thriving cosmopolitan
business scene in Shanghai also included a successful
Jewish community with one famous member
being Vidal Sassoon, the original owner of
the famous Peace Hotel right behind me right here on the Bund. World War Two and the Cultural Revolution threw the country into disarray
and depressed the economy. In the late ’70s Deng
Xiaoping took over as China’s unofficial leader and
began an open-door policy. His reforms transformed
China into a market economy, reignited foreign trade and
sparked the growth that’s got China on track to become
the world’s largest economy. Deng also negotiated the
handover terms of Hong Kong and Macau and came up
with the one country, two systems approach we
see in those two cities. Under Deng’s reforms,
Shanghai took center stage as one of China’s key
economic zones and grew the mega-metropolis it is today. Opportunities in China are endless but how can your business actually
capitalize on that? It takes time to navigate the mammoth Chinese market and if not done right, it can cost you way more
than you bargained for. Let’s find out where to start. Your country’s local Chamber of Commerce should be top of your list. I visited longtime China
resident Kenneth Jarrett, President of the American
Chamber of Commerce Shanghai. – I would encourage a
company that’s thinking of coming to China to make us or any national Chamber one of their first stops because you have within
our membership people who have been here for
many years and they have a wealth of experience and
they’re quite open about sharing that experience with
people who are new to market. Then we can also help
connect companies if they need legal advice or
other advisory services. We have within our membership companies who are willing to provide that support. But it would be I think a very wise and prudent and even essential first step. – What are a couple of the sort of biggest mistakes that foreigners would make when they enter the Chinese
market for business? – So I would say one
common mistake is one day a company wakes up and they decide well we must be in China and
then they rush and they don’t do adequate due diligence. So I would urge companies
as they think about China to make sure that they
understand who they’re doing business with, to conduct
proper due diligence and not to somehow feel
so impatient, so eager that they are going to
sort of drop their guard. – [Tim] Corporate advisory
company Grant Thornton can help you establish and
manage operations in China. I sat down with Kevin Chan to
ask whether it’s better for a foreign company to go it
alone or find a local partner. – If a company’s really
confident about their product offering and they
really think their product or their service could appeal
to the Chinese mass market, best thing to do I would
say still to go alone. However in certain sectors
it’s more appropriate if you have a partner
helping you to explore different channels,
different resources of other markets such as customers
channels, suppliers and talents, back office
support, that kind of thing. So with a partner’s help and contribution, one may be able to achieve
its objective much faster, much quicker, much more
effective but finding the right partner is the
biggest challenge in that case. – And if you do go down that
road, what’s the ideal setup? Is it a joint venture or a WFOE? – When a non-Chinese
company entering into China, they could set up an
entity which 100% owned by their parent in their
old business jurisdiction and that subsidiary is
called a WFOE because it’s 100% owned and the company injection is from overseas in foreign currency. In China we call that a
WFOE because it stands for W-F-O-E, Wholly Foreign Owned Enterprise and you mentioned earlier
about what’s the difference between a WFOE and a joint venture? A WFOE can be part of a joint venture with a Chinese partner. GM, GM come into China,
they have their WFOE but that WFOE could partner
with another Chinese car manufacturer and form
a joint venture together. In fact GM has many
joint ventures in China. – What taxes and tariffs
do foreign companies have to pay when they set up in China? – In China all companies have
to pay Corporation Income Tax when we are dealing with trading and sales and sales of services
and goods and products. We just had a national
reform of our tax system so we are progressing onto
using VAT, Value Added Tax instead of the old business
tax of past decades. – After the break we will
look at how you set up, get your product around and
conquer the Chinese market. We will learn about the
power of online selling from local business
gurus and get tips on how to do it and set up your own Tmall store. China is constantly evolving. As the middle class grows
and a sophisticated consumer culture develops, new sectors
and opportunities emerge. If you’re selling to consumers in Asia, you have to be in e-commerce. Here in China online shop
Tmall has 300 million registered users, thus
making it easier than ever before for foreign companies to sell their products directly to the mainland. I spoke to Alibaba’s
Ken Ma and Blackmores’ Peter Osborne to find out how it’s done. Peter, what’s the
advantage of selling online into China as opposed to
traditional ways of selling? – Well Tim I think for
us online’s obviously a really major part of our business here. About 80% of our sales in China are online and I think for foreign companies it’s a relatively easy route to market. Obviously Blackmores, we have
our own companies in China, a wholly owned subsidiary
in Beijing and then Branch Offices in Shanghai
in the Shanghai Free-Trade Zone and we have quite
extensive physical distribution. But online is still
the biggest part of our business here and
obviously we do have a very strong partnership with
Tmall here in China. – And Ken, how successful are
foreign sellers here in China? – Yeah I there’s one
number I want to share is tier 2014, the Chinese
people buying online market is over 21 billion U.S. dollar and we expect to gross to over 245 billion by 2020 and Tmall Global, there are
over 5,000 international brands working with us very successfully. So the good example I
would take is Blackmores. Blackmores became one of the top health supplements brands in
Tmall and Tmall Global. – Peter, do foreign businesses still need a bricks-and-mortar
approach to selling in China or is it online, is that
the way of the future? – Well Tim I think it really
depends on your product and the consumer demographic
that you’re aiming for. I mean for us as I say
for Blackmores we do have both a physical presence and
we have an online presence but I think particularly
for Australian companies and smaller companies that
are entering the market, I think an online presence is
a very easy route to market and one which obviously Tmall
has a great platform and a great skill in helping
companies to sell online in China. – And who are the big
domestic online shoppers, Ken? What regions, what demographic? – What we can say is it’s
showing more potentials in the rural areas as well
because for the first- tier cities like Shanghai,
Beijing and Guangzhou of course it’s easy to buy
both online and offline. But I would say in the rural areas that’s more important recently. – What sort of industries
have had the greatest success selling online in
your business’ experience? – [Ken] I think the top
industry on Tmall Global is including baby and mother products, healthy supplements of course, beauty products and
also food and beverage. – Peter, how important is social media in selling products in
China, what’s worked for you? – We have a very strong
social media presence and a very strong social media penetration and it’s really integral
to the way we market here and a good example of
that I think is WeChat. I mean obviously WeChat
is extensive in China, there’s over 700 million
users and it’s very active. I think that digital
communication piece is very major for any company
doing business in China. – Go to our website for
the extended interview and hear how your business
can set up its own Tmall shop. Businesses from Singapore
to Seoul and as far-flung as Sao Paulo and Santiago
are hugging the panda and trying to score a
piece of the Chinese action and it’s not as hard as you may think. Yes China is massive in
terms of size and population but it’s surprisingly easy
to get your product around. Let’s find out how to do it. Exporting to a massive
market like China might seem daunting at first but there
are ways to make it easier. Talk to government agencies
like Austrade about the market and join foreign Chambers
of Commerce to learn from businesses already
operating in China. Research relevant taxes,
customs duties and regulations to make sure tariffs won’t
price you out of the market. Advisory firms like Grant
Thornton can help you with this. They also have a great background check service performed by their China office. Use technology to get your product to the Chinese consumer
without a big investment. China’s on track to become the world’s top import market for online goods by 2018. I asked Australia Post how businesses can get their product there. – Our recommendation
is you start on Tmall, really test the market on the
marketplace and then start to think about how you grow
your strategy beyond there. – How can Australian businesses actually get their products into
China, is it difficult? – No, it’s really simple nowadays especially if you’re
starting on a marketplace. You can start to use
postal solutions and don’t have to move out of your
warehouse in New South Wales, ship directly into China
straight into the consumer using our network and in conjunction
China Post Network and then you can start to move into
commercial freight solutions. So as you grow, you start to move beyond postal solutions into commercial
solutions for freight. – [Tim] Karinda Organics
is an organic skincare company using special
Australian bush ingredients. Australia Post has helped it grow and start selling to the Chinese market. – In China there’s a very big demand for the cosmetic and
personal care products because the Chinese people see Australia as a very clean and green country and that our products
are a very high quality. We utilize the Australia
Post Tmall platform which has been fantastic
’cause it’s been able to remove a lot of the
challenges for us that would normally be there if we were
doing that totally on our own, including the shipping aspect of it. So actually getting the goods physically from Australia over to China. – Go to our website for the
full Karinda Organics story and find out how your business
can start exporting to China. You don’t have to be in big
business to make money here. In fact more SMEs have lost
money in the USA than China. You dramatically increase
your chance of success if you take the time to
understand the local culture and how to work with
local business partners. I visited the spectacular
Grant Hyatt Shanghai for a lesson in corporate dining
and entertaining in China. How important is dining and food in the business culture in Shanghai? – It’s extremely
important because it’s all about the relationship, about
getting people together, about showing respect,
about giving face to the people that you’re doing business with and one of the most important ways of showing that is to provide a beautiful meal in
surroundings such as this. – So what are some of
the dining guidelines for business entertaining in China? – When you come into a restaurant, it’s important to establish
where the host is sitting, where you sit relative to the host. Look for visual signs of
where you’re supposed to sit, so keep eye contact. Better to let them, the
person you’re entertaining or the most senior person sit before you. When food is being ordered, it’s extremely important to
order a lot of food because it’s considered respectful. – Such valuable advice. I asked Richard for his practical tips on operating and getting around
during your Chinese visit. – When you come to China,
we have a firewall here. So first and foremost,
make sure you get VPN so you can get access to
your Facebook and Google, Instagram and so forth. This is a very big and busy city. To get around Shanghai I would highly recommend an Uber account. If you take taxis, make sure you have
plenty of cash and don’t forget to have the directions
clearly written in Chinese. – And entertain, where do
you eat out in Shanghai? – Shanghai is blessed with a
multitude of dining options. We have Michelin Star chefs, we have great local street food. It’s all here in Shanghai. The Bund area is amazing, especially in the evening
when the lights are on. There’s fantastic
restaurants and bars there, a great nightlife. So that definitely would
be my recommendation. – Go to our website for Richard’s
full rundown on Shanghai. So is China just about
the big end of town? Not at all, rapid urbanization
in second and third- tier cities and an explosion
in e-commerce is opening up opportunities for businesses
of all shapes and sizes. South Australian skincare company Janesce has been exporting to Asia for 20 years and recently moved into
the Chinese market. I visited the Adelaide-based company to find out how they did it. – There are a few methods
of selling into China at the moment but the
model we chose to work with was working through a
distributor and that person is the, validates the
relationship because if they’re actually recognized by
the Chinese government, they actually have more validity
in their business model. – Do you have an online
presence as well in China? – In a small way. I understand there is more of a focus to go through bricks-and-mortar
stores because we’re working with a
product which is high touch. The customer really
needs to engage with it, smell, touch, feel and so
that is actually where we’ve focused our effort in gaining
our market share in China. – A lot of exporters
find China challenging. You must have had challenges,
how have you overcome them? – Unbelievable, I think
one thing to remember with the China experience
is that the Chinese government can change
their mind overnight. You can’t assume that
the business principles by which you work within
your own country apply to any other country that you worked with. It’s an assumption you just
can’t hang your hat on. So you have to work with
an understanding that you need to give yourself
insurance against sudden changes within the laws in China. – So there you have it,
you don’t have to be a big player like Walmart or
Apple to make it in China. Almost 6,000 small businesses export here just from Australia alone. So what are the tips we learned about doing business in China? Don’t assume 1.3 billion
consumers will do it for you. China is a competitive place
and niche is the new black. Get good legal and accounting advice about joint ventures and WFOEs. Use the government badge and
the Chambers of Commerce. Embassy connections are respected in China and the Chambers also
play an important role. Try the second-tier cities
like Qingdao, Jinan, Chengdu. It’s not all about Shanghai and Beijing. Do learn a bit of Chinese
history and culture. It will impress your hosts even
if you can’t speak Mandarin. China is a massive market
but when you break it down by city, region and
industry, it is manageable especially with the right
advice and help on the ground. It doesn’t matter what size your business, there are riches to be
made right here in China. So play your cards right and like me, you’ll be saying “Thanks
China” in years to come. Head over to our website,
theairporteconomist.com where you can watch
extended guest interviews, discover exclusive
offers from our partners and find out where we’re flying to next. Well that’s it from Shanghai, good luck on your China adventure. I’m Tim Harcourt and I’m
the Airport Economist.

You May Also Like

About the Author: Oren Garnes

18 Comments

  1. doing business in China, visit www.glomaxgroup.com, your partner;your assistant;your office in China

  2. The right wing conservatives in America hates China so much that they want to see China's economy collapse. Haters gonna hate.

  3. The biggest hindrance to China achieving most of these goals is the totalitarian communist government in Beijing and it's insistent persecution of the Christian house churches in China! God bless.

  4. Very interesting video. i like it. as explained so many website, Business opportunities are everywhere in China https://www.munplanet.com/articles/business/where-are-the-opportunities-for-business-in-china

  5. I've often wondered about this area so it's great to see someone covering this. Really well done, brilliant. As a follow on you might think about covering additional entrepreneurs

  6. Hi All, I'm Mansoor from India. I can speak Chinese and i come from a business background. Anyone who is willing to do business with China can contact me. My number is +919663556222

  7. qye se haria en el transe de muerte y negacion hasta de las pastillas en caso de negligencia y conveniencia si usan 4 horas de diferencia sin saber.

Leave a Reply

Your email address will not be published. Required fields are marked *