June 10, 2023

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Mistakes You Must Avoid When Running Your Business in China

20% of businesses fail within the first 12 months, while 50% more fall off by the fifth year. China, a high-potential market, especially after the economic reforms adopted in 1979, is no different, and a large number of companies have suffered the same fate. Even large companies, such as Mattel and Home Depot, that have thrived in other markets across the globe have recorded dismal performance in China. This brings us to two big questions, “what mistakes do companies operating in China make?” and “how can you avoid them?”

Business failure in China is not just caused by incompetence but by lack of flexibility and inability to localize. These issues can easily push your enterprise down the cliff, resulting in huge losses. Keep reading as we reveal common mistakes that businesses make and highlight the best strategies that you should adopt to grow your enterprise to the next level.

China in Numbers

  • In 2021, the Chinese economy grew by 8.1%, which matched the recovery expectations after the slowdown of 2020 that was caused by COVID-19.

  • China’s GDP in 2021 was USD17.7 trillion (RMB 114.4 trillion). This reflected an increase of USD 3 trillion compared to the previous year.

  • The service sector contributes the largest portion, 51.6%, of the GDP while industry and agriculture follow in the second and third positions with 40.5% and 7.9%, respectively.

  • In 2020, China was the largest recipient of foreign direct investment (FDI). The inflows for the year were USD163 billion.

  • The main industries in the country include information technology, electronics, aerospace, mining, and textiles.

Looking at these facts, one can only make one conclusion: China is a country overflowing with potential for business. It is because of this that the World Bank has predicted the economy to grow and outdo the United States by 2030.

The best approach is to carefully review your business’s products and their development process to ensure they address the targeted population’s issues. According to Adrian Cheng, the General Manager of New World Development, your wheel of innovation must continue running all the time for the business to grow.

Mistakes You Must Avoid for Business Success in China

Check out these common mistakes and tune your business well to outdo the competition and take the venture to the next level.

  • Unrealistic Expectations

When entrepreneurs read the economic numbers, such as the large population of the Chinese market, some get into a frenzy expecting their ventures to become multinationals in a very short time. This could result in failure and pulling out of the market too soon. The best thing is to carefully research the market and give the business ample time to grow, break-even, and become profitable. You might also want to check models adopted by other companies and craft a better strategy for your company.

  • Not Factoring in Guanxi in Your Business Strategy

In China, your business can only grow if you build on long and sustainable relationships, commonly referred to as Guanxi. If your strategy fails to factor in Guanxi, there is a risk of repelling clients. So, think of ways to build relationships, both offline and online. By creating networks that buttress from the staff, neighbors and your clients, the relationships will ultimately transform into a bigger market share.

  • Failing to Innovate

The Chinese market is hungry for products and services, but only those that articulately address its challenges. If you fail to be innovative, there is a risk of getting it wrong and losing your business’s market share to competitors. Even if you have a product that probably worked in a different market, do not just introduce it expecting similar success because the targeted clients might have varying needs. So, how do you address this challenge?

These are the most notable mistakes you must avoid when expanding your enterprise to China. Others include not having ample capital and poor strategies.

To be sure of getting right when working in China like Adrian Cheng, consider working with experts, reviewing your strategy regularly, and crafting a positive organizational culture.