Ten years ago it was all about importing from China, but today
businesses talk about China's market potential. However, few exporting
start-ups know anything about how to get started, the various potential
pitfalls or how to pitch a product for the demanding Chinese market.
Don’t try to compete with local businesses on price
You can forget about this even if you manufacture your products in
China. Lower taxes, lower rent and Chinese businesses’ ability to “game
the system” makes price competition a no-go for exporters. The good news
is that Chinese consumers are ready to pay for quality – foreign
quality in particular. Made in the UK is a quality mark and something
that local suppliers cannot replicate. The only thing that really makes
sense for exporting start-ups is to compete on quality instead of low
prices.
Find a local distributor
You don’t need to set up a business in China to reach its market.
Exporting directly from the UK is good enough for most start-ups.
However, to get market exposure you will benefit greatly from having a
local partner with an established logistics network and relationships
with purchasing managers in the country. Relationships matter in China,
they are generally considered to be more important than the product
itself.
Chinese distributors can be found online or by visiting one of the
various trade shows in Shanghai, Guangzhou and Hong Kong. When you have
found a suitable distributor, it’s critical to sign a distribution
agreement. Getting paid is not as simple as it might sound. There are
commission-based distribution agreements, where the exporter gets paid
based on monthly or quarterly sales. However, sales volumes are hard to
verify and taking your distributor to a Chinese court is often too
expensive and time-consuming for a start-up. The best option is simply
to get paid upfront by the distributor and not settle for any complex
commission-based agreement.
A local office and manufacturing in China, for China, makes sense
when you’ve reached a high export volume. However, many exporters assume
that the Chinese government requires foreign businesses to team up with
a local partner to gain market access. This was true in the past, but
many things have happened since then. Since 2004, foreigners can operate
in China as Wholly Foreign Invested Enterprises (WFOE). Apart from a
few industries, the market is free for all and no local partner is
required.
Protect your intellectual property
Filing your trademark in China makes sense more than anywhere else in
the world. It’s not uncommon that third parties file trademarks to
block foreign companies from entering the market and then offering to
“sell it back” for a hefty price. Your product should also have a
Chinese name, thus a Chinese name trademark is also necessary.
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