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    By Broderick Martinez, Full-Time Faculty   
    Published April 2014

     

    Economies around the world have taken steps to make it easier to start a business. As the fastest-growing major economy in the world, China continues to offer global companies attractive investment and business opportunities. However, doing business in China also means navigating the complexities that arise from China's unique historical, political, and cultural contexts. China offers plenty of opportunities for new ventures, but it is also important to know that with each opportunity there are commensurate risks. After all, the Chinese market continues to grow about 9 percent annually and it is the second largest economy in the world behind the United States. Below is a list of some of the important risks companies must deal with in doing business in China.  

    • Understanding the culture: Business people must have some sensitivity to the Chinese culture and how it impacts business. The Chinese tend to be very direct and to the point and they are very proud of their history. But, they want to get to know people before they do business.
    • Doing due diligence: In this case it is finding out everything a business can about the customer, supplier, joint venture, investment, representative agreement, etc., before any decision to start doing business in China. American companies normally fail because they are eager to move ahead rapidly while Chinese business people take their time.
    • Cost of doing business: It is very expensive to do business in China. Office rent is extremely high with advance payments, government permits, and other bureaucratic procedures are time consuming and expensive.
    • Inadequate infrastructure: Infrastructure is still lacking for efficient business practices. There are issues such as road networks, port access, delivery schedules, dealing with suppliers, etc. It is important for companies trying to do business in China to have people fluent in Mandarin and familiar with Chinese business practices.
    • The role of government in business: There is a substantial difference between the Chinese and American governments role in business. China has a planned economy closely tied to government and that is one reason why it is difficult for American business people to understand how government and business relate to each other in China.
    • Limited protection: Chinese law is not developed to the high standards of Western law. Legal matters lack consistency and can be changed at the will of the Chinese government. For example, joint ventures are difficult to establish because they have substantial government involvement.
    • Negotiations are lengthy and difficult: The Chinese are expert negotiators and are not pressed to quick solutions and agreements. Contracts only result after a letter of intent, followed by an agreement, neither of which are binding and a contract which is not always enforceable.
    • Illegal activities: Multinational companies have to deal with bribery risks and corruption.

    Despite the above challenges, leading U.S. companies are succeeding in China by developing collaborative relationships with Chinese stakeholders and demonstrating the agility to continuously adapt their strategies to the country's dynamic environment.

     

    Broderick Martinez is a full-time faculty member at Kaplan University. The views expressed in this article are solely those of the author and do not represent the view of Kaplan University.

     

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