Since China began reforming its economy in 1978, GDP growth has averaged over 9% a year, and more than 800 million people have been lifted out of poverty. This gives rise to a burgeoning middle class and a huge consumer market.
For over two decades, China remains an attractive destination for many companies. However, recent developments bring challenges for foreign companies doing business in China. Here are three major hurdles.
1. Zero-COVID Strategy
By now, most nations have adjusted to the “new normal” of living with COVID-19. China is the only major economy that insists on Zero-COVID strategy. With a goal of eliminating all positive cases, many cities are mired in the cycles of mass testing, long quarantines and even closures as new cases appear.
Many residents could not bear the never-ending ordeal and recently began protesting on the streets. A rare sight in China as it carries huge risks to openly oppose government policies.
For companies planning to do business in China, Zero-COVID strategy poses a huge barrier. Market entry itself could be a problem to begin with. Even if companies are fully operational in China, frequent lockdowns, mass testing and ever-changing procedures would undermine productivity.
2. Bureaucracy and Changing Regulation
Companies venturing into China often struggle with local laws and regulations. Most common complaints from foreign businesses revolve around obtaining the required licenses and permits, with many bemoaning the laborious processes.
Another area that impacts business complexity in China are changes to regulation. The government frequently amends and updates regulations without prior notice or consultation with business communities.
For example, the Chinese government reversed a decision to end certain tax-exemption policies for expats at the end of 2021. This was a U-turn policy change, causing inconveniences as human resources departments have already started putting systems in place to meet the requirements of new legislation.
3. Stiff Competition
Any company planning to venture into China should prepare itself for stiff competition there. Even for products or services that are not yet available in China, local competitors are quick to catch up, putting immense pressure on foreign companies.
With more support from the Chinese government and a better understanding of local market and culture, these Chinese enterprises has a huge competitive advantage. Even large companies, such as Amazon, were unable to compete in China’s competitive business environment.
The competition goes beyond local context. Many companies venture into China to tap into cheap and readily available labor. But in recent years, Southeast Asian countries like Vietnam are catching up. Hence, companies setting up their production plants in China may not be able enjoy the competitive advantage it used to have.
Still a great place to do business
Despite all these challenges, China remains a great place to do business. The country is still a huge market with untapped potential in many areas. The workforce is young and driven, and the innovation and entrepreneurial spirit is very much alive in the country.
Venturing into China alone could be a daunting task. Fortunately, Healy Consultants Group are experts at this domain, and we can provide tailored services to help your business expand into China.
Contact us and find out how we can help you: contact@healyconsultants.com