Doing business in China can be a very risky venture for companies who do not have the knowledge, connections and experience working with the Chinese.
In the past decade, China’s economy has been transformed through manufacturing and exporting. China has been produced 80 percent of the world’s air conditioners, 70 percent of the world’s mobile phones and 50 percent of the world’s shoe production. (Source: BCG 2017, The Guardian 2017). The main appeal factors that China economy has been growing rapidly are:
1. Lower Cost Labour
Workforce is one of the vital resources in companies. The essential attractions of doing business in China is the availability of lower cost labour. According to Bay Source Global 2017, labour cost can be reduced by as much as 80 percent by shifting operations to China.
2. Raw Material Cost
China offers a cost-effective option for access to lower raw materials. These, in turn, translates to lower manufacturing cost and production cost.
Apart from those factors, there are several aspects that shape the growth and new opportunities in China including:
1. Rising middle-class population
Currently, more than 50% people in China has been moving from rural areas to big cities. It will affect their spending lifestyle. According to research by PwC, middle-class households in urban cities will increase by 50 percent within the next five years.
2. Government policies
The government is actively planning and creating ‘smart cities’, as well as investing in infrastructure to support the growth of business operations in China.
3. Explosive e-commerce activities
Consumer behaviour in China is rapidly evolving. According to the Economist 2016 and Business Insider 2017, online businesses in China have grown to over $100 billion within a short period of time. E-commerce in China has shaped new and unique shopping experiences for consumers and created new opportunities to many businesses.
Understanding the above factors are crucial if you are considering expanding your business to China. There are also other factors that need to be observed and explored like the language and culture in China. Learning how to speak with Chinese business partners in Mandarin is essential. The Chinese prefer to deal with people who can speak Mandarin. Trust must be built first with partners and clients before engaging in business deals.
As with any new endeavour, R3D Global encourages you to always do your research first before expanding to new territories. It will be useful also to reach out to people who are already connected in China or who understand their cultures and business policies.
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