As one of the biggest and the most rapidly growing economies in the world, China is attracting to its markets and abundance of foreign companies of all types, sizes, and strategies. However, the most controversial questions for foreign companies are whether or not it is worth to enter the Chinese market, and if it is worth it, how to best enter (EUSme 2).
Negative Aspects of the Chinese Market
According to the Global Edge Market Potential Index of 2014, China is a country that occupies the top position in the ranking of the market size and the market growth rate. However, the indicators of market intensity and market receptivity are very low, alongside with a relatively low rate of economic freedom and a high rate of the country risk (Global Edge par. 6). Thus, after examining the Market Potential Index, it is evident that China is a fast-growing economy with a massive potential for Chinese companies. If an American company wishes to enter the market, it should take into account the low receptiveness of the Chinese market environment, where foreign countries are rarely valued.
According to the Wall Street Journal, American businesses in China are deeply concerned with constantly changing laws, industrial overcapacity, as well as the perceived anti-foreign attitudes (Burkitt par. 2). The survey of American businesses that operate in China has shown that up to sixty percent of companies are constantly facing governmental issues due to murky laws and unclear regulations. Furthermore, every tenth company from the 496 respondents is planning to move or has already moved its business from China because of the constant barriers in the governmental regulations.
The anti-foreign sentiments that exist in the country are also constantly growing according to the survey. It is stated that 77% of the surveyed companies responded to feeling unwelcomed by the Chinese market in 2016 compared to the 47% rate in 2015, and to 43% in 2014. Technological and industrial businesses exhibit the highest rates of the anti-foreign sentiment, 83% of such companies state that they feel alienated in the Chinese market. Sadly, forty-four percent of these companies see very little potential in remaining in the market in the future (Burkitt par. 4).
Positive Aspects of the Chinese Market
The main positive aspect of the Chinese market economy is the tight competition between businesses that often result in increased business efficiency. Secondly, there is a competition on the working resource market, so employees work harder in order to sustain their job. Furthermore, the condition of bureaucracy has significantly reduced due to many public sector activities going into possession of a private sector (Ollman par. 4). Lastly, since China is a cradle for technological innovations, the public quickly acquires new social and technical skills in order to exist in the fast-growing economy.
According to a business and brand strategist Martin Roll, “There is no such thing as the Chinese market. You have to look at China more like a mosaic of cultures” (qtd. in Kermeliotis par. 7). Thus, there is no distinct customer profile a business can target its products and services to. On the other hand, knowledge of the Chinese culture can impress clients as well as future business partners.
To adapt to the Chinese economy, a Western business is advised to learn about local preferences and make some changes in the products and services it offers. For instance, large American corporations like Starbucks and McDonald’s also had to make changes. Starbucks began offering green tea lattes in order to make coffee drinks attractive for the population that constantly drinks tea. McDonald’s has made modifications in its menu to cater to the food habits of the population (Kermeliotis par. 15). Thus, the rapid growth of the Chinese economy can only be receptive and welcoming of a foreign business if it caters to the culture-specific needs and requirements.
On the basis of the outlined above advantages and disadvantages of the Chinese market, a recommendation of considering not to enter the market is made. However, if a company still wishes to enter the Chinese market, it must “empower the local team to be responsive, autonomous, localized, and ready for combat” (Carlson par. 41).
The entry to the Chinese market has its own weaknesses and strengths for any company, most of them develop a gradual plan that is grounded in the available resources as well as the response of the Chinese market they get upon entering. To find out how to best enter the Chinese market, an American company should ground its decisions on:
- The size of the company;
- The type of the offered products and services;
- Previous experience in foreign markets;
- The conditions and regulations of the Chinese market;
- Available resources and time in the American company;
- Required resources for marketing, management, after-sale services, etc. (EUSme 3).
Lastly, to achieve success in the Chinese market, an American business should adapt in the very quick pace of the economy, if not, it will be received by the customers and partners with impatience or frustration (Kolier par. 4).
Burkitt, Laurie. American Companies Say Doing Business in China Is Getting Tougher. 2016. Web.
Carlson, Benjamin. Why big American Businesses Fail in China. 2013. Web.
EUSme. Ways to Enter the Chinese Market. n.d. Web.
Global Edge. Market Potential Index (MPI) – 2014. 2014. Web.
Kermeliotis, Teo. Doing Business in China: Five Tips for Success. 2011. Web.
Kolier, Mark. 5 Tips For U.S. Companies Doing Business In China. 2011. Web.
Ollman, Bertell. Market Economy: Advantages and Disadvantages. n.d. Web.