How to create your own China roadmap
The best way to reach your destination is to know where you are going and how to get there. The same philosophy can be applied in the business world. Navigating the complex roads of the Chinese market takes more than just good intuition, it takes an effective roadmap.
At Woodburn, we believe that you can design your own China roadmap, your own action plan, which will allow you to enter a highly competitive market and operate in it successfully.
No matter if you are new to China and looking for opportunities, or a start up with a few years under your belt or an experienced professional with a decade in the country, everyone can benefit from fresh ideas and advice on how to improve their structures and business in China.
Your future success will depend on your motivation to learn and educate yourself, getting as much knowledge as possible to be able to help your company grow, and make fast and smart decisions, in an environment that is constantly changing and moving.
With this in mind we developed the China roadmap methodology.
What is the roadmap methodology?
It is a systematic approach, consisting of three milestones: opportunity, implementation, and growth.
But to reach these milestones you need to stay current and empower yourself with the right tools and information. This will enable you to make decisions fast and to focus on the growth of your organization.
A perfect example of that is 2020. Without a knowledge base, without an understanding of the trends occurring in China, it was impossible to pivot one's organization.
In a time of crisis, these tools become critical for you and your company.
The first milestone is opportunity. How do you evaluate that opportunity? You must educate yourself about China through research, and later design a strategy and establish a budget.
The second milestone is implementing your strategy. This does not necessarily mean implementing a structure on the ground.
It is simply creating a structure to do business in China, whether it is direct from your head office, or actually establishing something on the ground.
To achieve that implementation stage, you will need an ecosystem. You have to evaluate your assets and protect them by developing system processes and operational guidelines.
Once you have that background and knowledge level, and that network of individuals, you can move on to the third milestone, which is growth.
This last step is about the numbers within your organization and knowing how to analyze those numbers.
Looking at the financial management reports, specific to your China business, understanding details such as customs duty and tax implications, and ultimately being able to evaluate them together with additional items, will allow you to make decision such as, will you retract from the market or move forward, will you move sideways, up or down?
You will not be able to make decisions quickly if your focus is only the administrative side. When you find an obstacle on the way, you will have to backtrack and fix the problems in the implementation stage.
Ultimately, your goal should be to ensure that everything is done correctly. This will enable you to focus on what is critical for your business, and to make decisions swiftly, to maintain traction in the Chinese market. You do not want to be left behind.
The following is an example of the damage that a lack of proper knowledge could cause in a company looking for opportunity.
An Austrian company in the food and beverage industry approached us in 2005, interested in participating in the biggest Chinese tradeshows. They informed us that they had a 40-foot container on the way, because they wanted to be able to distribute their products immediately.
We asked them if they had a distributor or if someone was consigning their products, and who was going to print the correct labels and handle the quarantine inspections for the items once they landed in Shanghai.
They had no idea about the regulations associated with labeling, or the additional licenses required to sell food and beverage products in the Chinese market, not to mention the quarantine, inspections and testing that have to occur as well.
They did not have a booth at the tradeshows either. They were simply attending with a suitcase full of samples, and that was about it. That was the extent of their plan.
In China, every industry and sector has its own specific rules and regulations. Whether you are sourcing, producing, or selling in China or even providing a service locally; research and knowledge is king.
You cannot go into the Chinese market making assumptions, such as this company did. Talk to people with experience in your industry and find out how it works and what you need to do.
Do not underestimate the value of research and information before entering the Chinese market.
The next important step is evaluating your assets. What are your assets, and what value would you place on them? This includes everything, from intellectual property to patents and copyrights.
Do you have specific operational guidelines? Do you have specific system processes? How do you vet companies? What are your assets? What is critical to the success of your business?
The next case study is related to a German company that entered China early, 30 to 40 years ago, via an exclusivity agreement with a distributor with whom they had an excellent relationship.
In those days, to do anything in China, you had to work through a distributor. Their assumption was that this would never change.
To be able to sell their products in the Chinese market, they wanted to register their brand in China. Instead of consulting with lawyers or specialists, they spoke to their distributor directly. Their conclusion was that the distributor should register the brand name, without realizing that they could register their trademark in Germany and license it to the distributor.
The distributor ended up registering the brand in China. About 20 years later, after China opened its markets, the company realized they could sell directly, but at this point the distributor owned the rights to the brand and used this as a leverage when they wanted to terminate his contract.
This company understood the market, they had gained knowledge, they knew how everything worked but failed to protect their brand.
It is crucial to protect your assets in China, especially now that it is relatively open in most industries and sectors.
Preemption is the best form of protection. Having the right knowledge upfront will protect the future of your business.
This next case study is of a European company that had about 100 different suppliers in China, producing a variety of different consumer products under their brands. Because they were only producing and not selling in China, they didn’t feel the need to register their brands in the country.
No matter what type of business you have, whether it's sourcing, production, services or sales, you need to register your trademark.
In this situation, they didn't do it. But one of their suppliers, unhappy with their relationship, did it as a revenge tactic, and registered their brand with the China Trademark Office, and the Customs Bureau.
As a result, if the brand name was highlighted on either the packaging or the product itself, it was halted at the Customs Bureau because that was a directive of the supplier.
During a period of 3 to 4 months, they could not export any item that had their name on it.
They ended up going to court and it took them several months before they were given their brand back. They were able to prove that it was done in bad faith, but it affected their business.
It is crucial to understand the regulations that directly impact your business. You must protect your brand and register it, not just with the CTO Office, the China Trademark Office, but also with the Customs Bureau.
The last case study is a joint venture. There are alternative structures that can be created where both parties have a win-win situation without actually setting up a joint venture structure, but some companies prefer this type of model.
This is the case of an Australian company that established a joint venture with a Chinese partner. Their biggest mistake was not to pay attention to the company.
Three years after the joint venture was established, we were hired to do a complete health check of the company from a legal and financial side, as well as the attack side.
The most important thing we discovered was that money was being funneled out of the organization to the joint venture partners’ brother, through transactions with no supporting documentation, in an amount of approximately 50,000 RMB per month for a period of 3 years.
Before we could start the health check, we requested documents such as audit reports and financial management accounts. There were no English versions of the papers, they had assumed they couldn’t be translated.
This company could have had the documents translated in Australia but preferred to leave the responsibility of keeping records to their partner in China.
If you are part-owner of the company, it is your responsibility as well to have the correct information and documentation and translate it if necessary.
This situation applies not only to China, but to any other country in the world where you may have business interests. Cultural or language barriers, as well as different time zones cannot become an excuse for not staying on top of your organization.
You must learn to identify warning signs and red flags, to have the ability to fix any problem in a timely fashion. Ultimately, you will avoid most common obstacles.
One of the five biggest problems that companies face in China is the lack of communication with Chinese partners and even their own teams.
The second is to turn a blind eye. Just because is China, you cannot do things under the table. If you are asked to do a transaction in an unethical manner, that should immediately raise a red flag. You do not want to get into a situation where you could get yourself or your company in trouble.
Another problem is the employment of staff. Salary guidelines in China are important and can be found on the internet. Some companies are in a rush to employ people but fail to evaluate background and pricing. There are multiple tools, information and data, that will give you the ability to hire the right people.
The last big problem is having no data readily available. You must do your research on a regular basis and stay current to guide your organization in the right direction.
To learn more about creating your China roadmap, complete our online inquiry form here below.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.