International Law

Five Business Challenges For SMEs In China.

By Dan

Recently came across a very basic but very concise and accurate article setting forth the "five biggest practical challenges for foreign SMEs" doing business in China. The article was written by Anthony Goh and Matthew Sullivan, of US-Pacific Rim International and it is entitled, "The 5 Biggest Challenges Businesses Face When They Expand To China."

Here are their five:

1. Red Tape. The article notes how "everything from opening a bank account, to registering your company, to gaining product approval, can drag on for months" and how much of what is handled electronically in the West requires "paperwork which needs to be filled in and stamped by hand." You should expect your employees to have to spend way more time on this sort of thing than you expected.  

2. Communications. Expect cultural misunderstandings and realize that though many in China speak English, "it is uncommon to find someone who understands the subtleties of the language and possesses a strong enough understanding of both Chinese and western culture to navigate delicate business negotiations."

3. Human Resources. Western companies typically have flexible lines of authority, which often runs up against Chinese workers accustomed to a "hierarchical structure" where each person has a "clearly defined role." These differences can lead to tensions between Western managers "used to employees who take their own initiative and Chinese staff who have been trained from a young age to always follow instructions from the top." Goh and Sullivan propose the following as a solution: 

It will be important for your company to have a clear set of procedures regarding incentives for outstanding work and punitive measures for substandard performance. In addition, regardless of the size of the company, you should divide employees into small teams which each have a clear leader who oversees the group and reports directly to his or her superior. To best motivate your Chinese employees, it will be necessary to closely monitor their work while also encouraging them to be creative and take risks.

4. Business Culture. You cannot simply import your business model into China. "You will need to be flexible and adjust to a country that practices business according to 'Chinese characteristics'."

5. Relationships. "The importance of building strong relationships in business is not a novel concept for western businesses," but the need "to spend time getting to know your Chinese counterparts outside the boardroom" is of much greater importance in China than in the West. It "is important to spend time cultivating relationships with counterpart businesses, government agencies, and trade organizations."

What do you think? Any additions?

Full post as published by China Law Blog on January 25, 2011 (boomark / email).