China’s consumer products market is huge. It is predicted to surpass the United States as the world’s greatest consumer of products this year, despite a slump in the economy and retail sales, according to a study report. According to eMarketer analysts, China’s total retail sales in 2020 were $5,074 trillion, more than $100 billion higher than the United States’.
However, China remains a difficult market for firms and marketers due to a number of variables. In this post, we will explore the major problems that international firms and marketers face while doing business in this country.
The following are explanations and answers to the top eight difficulties facing foreign enterprises operating in China nowadays:
- Intellectual Property Right (IPR) Challenge
China has been recognized as the leading source of counterfeit goods distributed worldwide. It is estimated that 80% of the world’s counterfeit goods originate from China, which also hosts a significant portion of the consumer market for these goods.
Foreign companies have consistently voiced concerns about the difficulty of enforcing their intellectual property rights in China, citing local judicial protectionism, obstacles in gathering evidence, minimal damage compensation, and an apparent bias against foreign entities.
Since its accession to the WTO in 2001, China has enhanced its legal framework and revised its intellectual property rights (IPR) laws and regulations. However, the enforcement remains lax, hindering the effectiveness of China’s IPR system.
With Chinese companies increasingly seeking global expansion and domestic high-tech innovation, their growing demand for robust IP protection may drive legal reforms and the development of new enforcement strategies, offering hope for improvement in this area.
- Building Trust with Overseas Partners
Securing trustworthy and reliable partners in China is invaluable. Conversely, subpar partnerships can detrimentally impact a business in numerous ways. The time and effort invested in cultivating relationships with factory managers, distributors, and other pivotal figures in a company’s supply chain are immensely beneficial.
Cultivating this trust is a time-intensive process fraught with challenges unique to international business dealings. Language and cultural barriers hinder the full expression and comprehension of exchanged sentiments, risking the loss of valuable information in translation. Establishing a profound relationship typically requires more time than domestic business interactions. Moreover, navigating the intricate social and business etiquette of China, which significantly diverges from Western practices, presents its own set of challenges.
The COVID-19 pandemic has exacerbated these difficulties by rendering business travel to Asia nearly impossible, hindering traditional methods of relationship building. In response, companies have increasingly relied on sourcing agencies and similar services to mitigate the distance between them and their overseas counterparts. A sourcing agent, often bilingual, acts as an intermediary, facilitating communication and performing tasks like factory inspections and quality control for their client.
- Cultural Challenges: Adapting and Localization
You may believe that these issues do not affect your business, yet 95% of our clients are experiencing them.
- China is a major rising economy with strong leadership, hardworking and clever citizens, and a culture of self-reliance.
- China represents political, cultural, and commercial cultures, each with its own particular traits and features.
One of the most significant obstacles that international enterprises encounter in China is cultural misconceptions, which lead to misinterpretation. While the number of Chinese individuals proficient in English is on the rise, it remains rare to encounter someone who grasps the nuances of the language and has a deep understanding of both Chinese and Western cultures to effectively manage sensitive business negotiations.
What begins as a promising venture for both parties frequently collapses due to misunderstandings. To prevent such issues, it’s crucial to establish an international team capable of bridging the cultural differences between Chinese and Western practices.
- Gauging an increasingly competitive market
China’s market is fiercely competitive, with challenges arising not only from global corporations but also from domestic “national champions” that are being cultivated to rival foreign businesses. The increasing incomes of Chinese citizens in recent years have expanded the middle class and boosted their purchasing power. Additionally, the Chinese government is focusing on sustaining economic growth through domestic consumption in response to the US-China trade war. As a result, an influx of multinational companies enters China, and domestic competitors strive to capitalize on the surge in consumer spending. This escalates the competition, complicating and elevating the cost for brands to attract and keep their customers.
- Managing Sales & Distribution
With a population of 1.4 billion, China has potential customers for any product worldwide. The challenge lies in identifying the right distribution channels to reach them and in understanding how to manage these channels effectively.
There remains a gap between Chinese distributors and Western brands. Many brands have suffered at the hands of their distributors. Chinese distributors are known for selling counterfeit products or abandoning clients when other brands offer more profitable margins.
Conversations between brands and Chinese distributors are often hampered by language and cultural barriers. Additionally, their expectations tend to differ: Chinese distributors typically seek quick and substantial profits, while brands aim to establish their business for the medium to long term.
Hence, it is recommended that companies verify their partners’ reliability, motivation, ability to fulfill contractual obligations, and legal permission to uphold contract promises through independent third-party sources. Trusted local partners can facilitate access to reputable distribution networks.
Furthermore, brands should invest in cultivating strong relationships with distributors, as “ｇｕａｎｘｉ （カゾげ）,” or relationships, are essential to the business culture in China.
- Logistics in China – Establishing Resilient Global Supply Chains
Despite the government’s efforts to enhance the logistics environment, shipping goods within China remains expensive and complex.
The logistics sector is extremely fragmented, with over 730,000 registered operators, making supply chain coordination and material handling a challenge that often disrupts material flows. Furthermore, large trucks face restrictions in urban areas at certain times, necessitating the transfer of shipments to smaller vehicles to reach consumers, which complicates distribution and batch shipment optimization.
Moreover, the majority of China’s logistics infrastructure, including warehouses, distribution centers, and cargo hubs, is outdated and lacks automation. Additionally, the plethora of intricate and sometimes contradictory logistics regulations poses further obstacles for international consumer product companies attempting to penetrate China’s mass market.
- Fake marketing challenge
Fake followers significantly impact Chinese social media platforms, undermining e-commerce credibility and diminishing consumer trust.
Chinese consumers place greater trust in peer reviews than in brand advertisements. Prior to purchases, they often assess the frequency and quality of product mentions on social media, as well as the popularity and activity of the brands. Additionally, they examine product reviews on e-commerce platforms. Since such social indicators heavily influence buying decisions, KOLs and merchants purchase fake accounts or reviews to bolster their credibility.
These services are inexpensive, with prices around US$0.003 per account. Agencies that procure and manage these fraudulent accounts also offer services involving low-wage individuals who engage in liking and sharing content throughout the day.
Western brands venturing into Chinese social media may be unaware of the fake follower practice and the extent to which their perceived engagement is fabricated.
This issue not only inflates marketing costs in China but also complicates accurate ROI measurement for brands and prompts Chinese consumers to approach branding and marketing with skepticism, potentially harming brands over time.
- China Regulatory Hurdles
In China, the extensive administrative processes, particularly regarding permits, registration, and licensing, persist as a significant hurdle. Businesses are generally mandated to obtain a standard business license, which includes a “scope of business” specifying the activities authorized for the company, issued by the municipal Administrations of Industry and Commerce.
For instance, health firms in China, such as distributors of medical devices, require not only a business license with the correct scope from the Agency of Industry and Commerce but also a permit from the local Food and Drug Administration.
Even with the Chinese government’s considerable efforts to simplify bureaucracy and cut through red tape, foreign enterprises still report bureaucratic obstacles that impede their expansion efforts in China. Moreover, the regulatory process’s opacity and the inconsistent and prejudiced interpretation of regulations further challenge foreign companies’ competitive abilities.
International marketers encounter additional barriers due to stringent testing and standards for certain imports, foreign manufacturers, and service providers. This is contrasted by the significant support, resources, and regulatory assistance provided to Chinese industries by the government.
Conclusion
Despite facing numerous challenges, many international brands have achieved commendable success in this market.
The secret to their success lies in maintaining their brand identity while being adaptable enough to conform to China’s distinctive business, media, and consumer culture. Having a dependable local partner who is not only well-versed in the Chinese market and culture but also capable of understanding and collaborating effectively with foreign clients is crucial. Such a partner can provide invaluable guidance and help in avoiding costly errors.
@tifcreative @chinesemarket
