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 toget in on the action.

China is an economic superpowerand 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 wondersof the 21st century.

We'll get insights fromlocal business people and learn from foreigners who have cracked the market and tappedthe Chinese consumer.

But first let's take a look at what you need to know about China.

China is located smack-bangin the middle of Asia.

It's the world's third-largest country, bordering the Pacific Oceanand 14 other countries from Russia to India and Vietnam.

The political capital is Beijingbut Shanghai is where the main stock market is locatedand where business gets done.

China has more people than anyother country on the planet, teeming with 1.

3.

billion citizens.

It became the world'ssecond-largest economy in 2010 after growing at threetimes the global pace since Deng Xiaoping opened up theeconomic system in 1978.

China is the 76th largesteconomy on a per capita basis but given it's got overone billion people, that's a pretty impressive effort.

Chinese economic expansionhas slowed from rapid double-digit growth afew years ago to a more sustainable six and a half percent a year.

China's undertaking a huge transition from a nation of shippers toa nation of shoppers.

From export-led development to domestic consumption and investment.

There's a growing middle classwho demand designer goods, healthcare and even aninternational education.

Demographics are also changing.

Rapid urbanization hascreated a string of massive second and third tier citiesof 10 million plus people like Qingdao, Jinan,Chengdu, Chongqing and Wuhan and they're all creatingbusiness opportunities as well.

These cities needinfrastructure like airports, roads and railway stationsfor the fast trains that propel people and goodsacross the countryside.

So we've establishedthat China is a big deal.

ANZ bank served our Australian businesses and found Greater Chinais the most popular region to do business in Asia.

I spoke to the bank's GreaterChina 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 fromexport investment-led economy to more domestic consumption economy.

It could take maybe 15, 20 years to complete the transformationbut I would say the global industries or globalcompanies are looking at this trend and if theycan position them well, you have a huge opportunityin this country.

– Historically Shanghai has played a very important role in driving growth.

Do you think for foreign companies now, Shanghai is the first stepto enter the Chinese markets? – I think a lot of foreign companies go to Hong Kong first, then go to China.

But China is opening upfor quite a long time.

A lot of multinationalcompanies are using Shanghai as a springboard, then gointo the hinterland of China.

– And what role do you seethe Shanghai Free-Trade Zone play, how relevant is thisto the new economy in China? – My personal view isthe Chinese government used the Free-TradeZone as an experiment to introduce a lot of newrules and regulations which is more and more in linewith international practice.

If it is successful,they will move it out of the Zone and become ageneral practice in China.

So that actually is partof the economic reform.

It's not just for sortof a Free-Trade Zone.

– [Tim] The ANZ Opportunity Asia Report shows that Australian businesses in Asia are far more profitableand have better growth prospects than theirdomestically-focused peers.

Can your business really afford not to consider the opportunitiesthat Asia presents? Read the ANZ at OpportunityAsia 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 successin the mainland market.

– The local company can helpyou to understand the consumer, understand their buyingbehavior and also they're bringing you to the much biggercustomer base and also to tap into the local ecosystemincluding the innovation and supply relationship that youmight need for your business.

– What are your top tips for managing a relationship with alocal partner in China? – I think building therelation, trust is most important so that youneed to start with small and trying to, don't seta too ambitious trend and so that you can buildthat trust through time.

So it take a long time tobuild trust in a business relationship but it'sworthwhile because you want the commitment and havethem 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 partnershipto differentiate your solution service, expandyour business in China.

– You've done a lot ofresearch about companies forming partnershipsacross different regions and industries and countries.

Can you tell us a bit aboutthe 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 ageis very unique and we find companies feel that in orderto serve those you know, the always-on, the mobile first customers, especially the middle class,middle income consumers, it's very important to buildthat digital partnership with all those partners toallow you to be able to expand your capability to be able toserve those emerging needs.

Particular in the internet space and in economic andother social media areas.

So it's very important,so companies feel that it's essential for theirsuccess to have digital partnerships and alsothey feel that it will change their businessmodel 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 andalso first in innovation.

– China's economic leaps andbounds dominate the world's financial headlines as aNew World Order emerges.

But China's not exactlythe new kid on the block.

The Middle Kingdom isone of the world's oldest civilizations and dominatedglobal trade for centuries along the Silk Road andancient shipping lanes.

Up until the 17th century,China dominated the global economy and the Chinese weregreat traders and innovators with paper, gunpowder andtea all developed in China.

Shanghai itself has alwaysbeen an international city.

As you walk around modern Shanghai today, you see the foreignneighborhoods like the French Concession area and in the Roaring '20s most foreign countries had embassies here.

The thriving cosmopolitanbusiness scene in Shanghai also included a successfulJewish community with one famous memberbeing Vidal Sassoon, the original owner ofthe famous Peace Hotel right behind me right here on the Bund.

World War Two and the Cultural Revolution threw the country into disarrayand depressed the economy.

In the late '70s DengXiaoping took over as China's unofficial leader andbegan an open-door policy.

His reforms transformedChina into a market economy, reignited foreign trade andsparked the growth that's got China on track to becomethe world's largest economy.

Deng also negotiated thehandover terms of Hong Kong and Macau and came upwith the one country, two systems approach wesee in those two cities.

Under Deng's reforms,Shanghai took center stage as one of China's keyeconomic zones and grew the mega-metropolis it is today.

Opportunities in China are endless but how can your business actuallycapitalize on that? It takes time to navigate the mammoth Chinese market and if not done right, it can cost you way morethan 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 Chinaresident Kenneth Jarrett, President of the AmericanChamber of Commerce Shanghai.

– I would encourage acompany that's thinking of coming to China to make us or any national Chamber one of their first stops because you have withinour membership people who have been here formany years and they have a wealth of experience andthey're quite open about sharing that experience withpeople who are new to market.

Then we can also helpconnect companies if they need legal advice orother 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 Chinesemarket for business? – So I would say onecommon mistake is one day a company wakes up and they decide well we must be in China andthen they rush and they don't do adequate due diligence.

So I would urge companiesas they think about China to make sure that theyunderstand who they're doing business with, to conductproper due diligence and not to somehow feelso impatient, so eager that they are going tosort of drop their guard.

– [Tim] Corporate advisorycompany Grant Thornton can help you establish andmanage operations in China.

I sat down with Kevin Chan toask whether it's better for a foreign company to go italone or find a local partner.

– If a company's reallyconfident about their product offering and theyreally think their product or their service could appealto the Chinese mass market, best thing to do I wouldsay still to go alone.

However in certain sectorsit's more appropriate if you have a partnerhelping you to explore different channels,different resources of other markets such as customerschannels, suppliers and talents, back officesupport, that kind of thing.

So with a partner's help and contribution, one may be able to achieveits objective much faster, much quicker, much moreeffective but finding the right partner is thebiggest challenge in that case.

– And if you do go down thatroad, what's the ideal setup? Is it a joint venture or a WFOE? – When a non-Chinesecompany entering into China, they could set up anentity which 100% owned by their parent in theirold business jurisdiction and that subsidiary iscalled a WFOE because it's 100% owned and the company injection is from overseas in foreign currency.

In China we call that aWFOE because it stands for W-F-O-E, Wholly Foreign Owned Enterprise and you mentioned earlierabout 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 partnerwith another Chinese car manufacturer and forma joint venture together.

In fact GM has manyjoint ventures in China.

– What taxes and tariffsdo foreign companies have to pay when they set up in China? – In China all companies haveto pay Corporation Income Tax when we are dealing with trading and sales and sales of servicesand goods and products.

We just had a nationalreform of our tax system so we are progressing ontousing VAT, Value Added Tax instead of the old businesstax of past decades.

– After the break we willlook at how you set up, get your product around andconquer the Chinese market.

We will learn about thepower of online selling from local businessgurus and get tips on how to do it and set up your own Tmall store.

China is constantly evolving.

As the middle class growsand a sophisticated consumer culture develops, new sectorsand opportunities emerge.

If you're selling to consumers in Asia, you have to be in e-commerce.

Here in China online shopTmall has 300 million registered users, thusmaking it easier than ever before for foreign companies to sell their products directly to the mainland.

I spoke to Alibaba'sKen Ma and Blackmores' Peter Osborne to find out how it's done.

Peter, what's theadvantage of selling online into China as opposed totraditional ways of selling? – Well Tim I think forus 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 haveour own companies in China, a wholly owned subsidiaryin Beijing and then Branch Offices in Shanghaiin the Shanghai Free-Trade Zone and we have quiteextensive physical distribution.

But online is stillthe biggest part of our business here andobviously we do have a very strong partnership withTmall here in China.

– And Ken, how successful areforeign sellers here in China? – Yeah I there's onenumber I want to share is tier 2014, the Chinesepeople 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 areover 5,000 international brands working with us very successfully.

So the good example Iwould take is Blackmores.

Blackmores became one of the top health supplements brands inTmall and Tmall Global.

– Peter, do foreign businesses still need a bricks-and-mortarapproach to selling in China or is it online, is thatthe way of the future? – Well Tim I think it reallydepends on your product and the consumer demographicthat you're aiming for.

I mean for us as I sayfor Blackmores we do have both a physical presence andwe have an online presence but I think particularlyfor Australian companies and smaller companies thatare entering the market, I think an online presence isa very easy route to market and one which obviously Tmallhas a great platform and a great skill in helpingcompanies to sell online in China.

– And who are the bigdomestic online shoppers, Ken? What regions, what demographic? – What we can say is it'sshowing more potentials in the rural areas as wellbecause for the first- tier cities like Shanghai,Beijing and Guangzhou of course it's easy to buyboth online and offline.

But I would say in the rural areas that's more important recently.

– What sort of industrieshave had the greatest success selling online inyour business' experience? – [Ken] I think the topindustry on Tmall Global is including baby and mother products, healthy supplements of course, beauty products andalso food and beverage.

– Peter, how important is social media in selling products inChina, what's worked for you? – We have a very strongsocial media presence and a very strong social media penetration and it's really integralto the way we market here and a good example ofthat I think is WeChat.

I mean obviously WeChatis extensive in China, there's over 700 millionusers and it's very active.

I think that digitalcommunication piece is very major for any companydoing business in China.

– Go to our website forthe extended interview and hear how your businesscan set up its own Tmall shop.

Businesses from Singaporeto Seoul and as far-flung as Sao Paulo and Santiagoare hugging the panda and trying to score apiece of the Chinese action and it's not as hard as you may think.

Yes China is massive interms of size and population but it's surprisingly easyto get your product around.

Let's find out how to do it.

Exporting to a massivemarket like China might seem daunting at first but thereare ways to make it easier.

Talk to government agencieslike Austrade about the market and join foreign Chambersof Commerce to learn from businesses alreadyoperating in China.

Research relevant taxes,customs duties and regulations to make sure tariffs won'tprice you out of the market.

Advisory firms like GrantThornton 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 consumerwithout 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 recommendationis you start on Tmall, really test the market on themarketplace and then start to think about how you growyour strategy beyond there.

– How can Australian businesses actually get their products intoChina, is it difficult? – No, it's really simple nowadays especially if you'restarting on a marketplace.

You can start to usepostal solutions and don't have to move out of yourwarehouse in New South Wales, ship directly into Chinastraight into the consumer using our network and in conjunctionChina Post Network and then you can start to move intocommercial freight solutions.

So as you grow, you start to move beyond postal solutions into commercialsolutions for freight.

– [Tim] Karinda Organicsis an organic skincare company using specialAustralian 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 andpersonal care products because the Chinese people see Australia as a very clean and green country and that our productsare a very high quality.

We utilize the AustraliaPost Tmall platform which has been fantastic'cause it's been able to remove a lot of thechallenges for us that would normally be there if we weredoing 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 thefull Karinda Organics story and find out how your businesscan start exporting to China.

You don't have to be in bigbusiness to make money here.

In fact more SMEs have lostmoney in the USA than China.

You dramatically increaseyour chance of success if you take the time tounderstand the local culture and how to work withlocal business partners.

I visited the spectacularGrant Hyatt Shanghai for a lesson in corporate diningand entertaining in China.

How important is dining and food in the business culture in Shanghai? – It's extremelyimportant because it's all about the relationship, aboutgetting 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 insurroundings such as this.

– So what are some ofthe dining guidelines for business entertaining in China? – When you come into a restaurant, it's important to establishwhere the host is sitting, where you sit relative to the host.

Look for visual signs ofwhere you're supposed to sit, so keep eye contact.

Better to let them, theperson you're entertaining or the most senior person sit before you.

When food is being ordered, it's extremely important toorder a lot of food because it's considered respectful.

– Such valuable advice.

I asked Richard for his practical tips on operating and getting aroundduring 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 toyour 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 haveplenty of cash and don't forget to have the directionsclearly written in Chinese.

– And entertain, where doyou eat out in Shanghai? – Shanghai is blessed with amultitude 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 eveningwhen the lights are on.

There's fantasticrestaurants and bars there, a great nightlife.

So that definitely wouldbe my recommendation.

– Go to our website for Richard'sfull rundown on Shanghai.

So is China just aboutthe big end of town? Not at all, rapid urbanizationin second and third- tier cities and an explosionin e-commerce is opening up opportunities for businessesof all shapes and sizes.

South Australian skincare company Janesce has been exporting to Asia for 20 years and recently moved intothe Chinese market.

I visited the Adelaide-based company to find out how they did it.

– There are a few methodsof selling into China at the moment but themodel we chose to work with was working through adistributor and that person is the, validates therelationship because if they're actually recognized bythe Chinese government, they actually have more validityin their business model.

– Do you have an onlinepresence as well in China? – In a small way.

I understand there is more of a focus to go through bricks-and-mortarstores because we're working with aproduct which is high touch.

The customer reallyneeds to engage with it, smell, touch, feel and sothat is actually where we've focused our effort in gainingour market share in China.

– A lot of exportersfind China challenging.

You must have had challenges,how have you overcome them? – Unbelievable, I thinkone thing to remember with the China experienceis that the Chinese government can changetheir mind overnight.

You can't assume thatthe business principles by which you work withinyour own country apply to any other country that you worked with.

It's an assumption you justcan't hang your hat on.

So you have to work withan understanding that you need to give yourselfinsurance against sudden changes within the laws in China.

– So there you have it,you don't have to be a big player like Walmart orApple 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 billionconsumers will do it for you.

China is a competitive placeand niche is the new black.

Get good legal and accounting advice about joint ventures and WFOEs.

Use the government badge andthe Chambers of Commerce.

Embassy connections are respected in China and the Chambers alsoplay an important role.

Try the second-tier citieslike Qingdao, Jinan, Chengdu.

It's not all about Shanghai and Beijing.

Do learn a bit of Chinesehistory and culture.

It will impress your hosts evenif you can't speak Mandarin.

China is a massive marketbut when you break it down by city, region andindustry, it is manageable especially with the rightadvice and help on the ground.

It doesn't matter what size your business, there are riches to bemade right here in China.

So play your cards right and like me, you'll be saying "ThanksChina" in years to come.

Head over to our website,theairporteconomist.

Com where you can watchextended guest interviews, discover exclusiveoffers 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'mthe Airport Economist.

Source: Youtube

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