As China Emerges as a Technology Powerhouse, Should Your Business Expand into This Dynamic Country?
China’s economic reforms have transformed the country into a global economic superpower. The last 30+ years have seen tremendous growth – China’s GDP grew by an average of 9.3% between 1979 and 1993 alone. This represents a huge area of potential investment for western businesses, but there are a great many potential hurdles to be aware of before you open your next office in Shanghai or Beijing.
Can China Maintain its Economic Growth?
China has a population of 1.4 billion people. To put this into context, there are more people living in China than anywhere else in the world. This gives China a huge advantage over countries like the UK, as it has an accessible – and cheap – domestic labor force. China also has a lot of natural resources, including gold, lead, zinc, iron ore, tungsten, phosphate, vanadium, and antimony.
While China’s economic growth has slowed in recent years, as it switches from exporting goods and fixed investments to services and private consumption, the Chinese government has made technological innovation a top priority.
Made in China 2025.
The Made in China 2025 was issued by Premier Li Keqiang in 2015. It is a strategic plan to shift China’s manufacturing sector away from the production of cheap, low-quality goods destined for discount stores in the west, to high-end goods more likely to appeal to wealthy home consumers. This has led China to invest heavily in robotics, information technology, and other key areas of research and development.
Thanks to China’s ambition to become a global leader in science and innovation, a significant percentage of its global GDP has been funneled into R&D. More Ph.D. students in engineering and science graduate from Chinese universities than in the US, which gives China a significant advantage in the global arena. In addition, China has a policy of sending its best graduates to work in key centers for learning, such as Silicon Valley and NASA, so when they return to China later in their careers, they have maximized their capabilities and formed useful connections with peers in Western nations.
This extraordinary focus on technological advancement is something western businesses can focus on to their advantage.
Any business operating in a tech sphere can benefit from tapping into China’s huge resources and talent pool. The Chinese domestic market has a huge hunger for the latest tech goods, in particular, mobile internet devices. Various US companies have tried expanding into China over the last ten years, not all of them successfully, but it can be done.
LinkedIn is a good example of a western tech brand that’s had success in the Chinese market. It has found its niche by offering unique benefits to Chinese companies hoping to attract talent from abroad, as well as western companies looking to recruit Chinese staff.
Airbnb is another brand that’s gained a foothold in China, thanks to the interest in global travel. Many Chinese tourists use Airbnb to find accommodation overseas, and with Chinese overseas tourism rising year on year, travel tech companies like Airbnb can really benefit by investing in China.
Expanding a business into China is not without its pain points. There are many different market segments in China and it encompasses a huge geographic area. For this reason, it’s important to identify the right vantage point from which you can spread further into the broader marketplace. Provinces like Shanghai and Guangdong are popular with western companies because they have high populations with a larger income, but it will depend on the industry you operate in.
Regulation and Government Policies.
There is a lot of red tape and many industries are heavily regulated in China. For example, hiring employees means abiding by local customs and labor laws. For a western business, this can be a huge minefield, even if you only need a few admin staff to run a small branch office. Luckily, all is not lost.
China PEO can hire candidates on your behalf, and even operate a local payroll, thus ensuring you adhere to all cultural customs and local labor laws. Using a China employer of record (China EOR), lets you take advantage of local labor without actually setting up a subsidiary. China PEO acts as your HR department and can handle the payroll, on-boarding, and benefits on your behalf. Find out more by visiting this link: https://globalpeo.com/goglobal/china/peo-employer-of-record/. For many businesses, this is a risk-free way to dip a toe into the Chinese market.
It’s important to look at the various foreign investment vehicles and their advantages and disadvantages. For some businesses, a representative office is sufficient for their needs, but larger organizations may prefer to look into a joint venture with a Chinese company or a wholly foreign-owned enterprise (WFOE).
Always conduct due diligence to make sure any trading partners are trustworthy. In addition, remember that trademark infringement is rife in China, and it is safe to assume that your technology will be compromised eventually.
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