Learn all about the opportunities, market barriers and entry strategies in our latest Your Journey to China: Identifying the Opportunities, Market Barriers and Entry Strategies whitepaper.
China is a country with bountiful and growing opportunities. By 2020, it had already produced 251 ‘unicorns’ with a total valuation surpassing $1 trillion.
The Chinese economy is also predicted to overtake the US by 2028, five years earlier than previous forecasts. Things are changing fast – and the time for savvy businesses to act is now.
In this post, we explore the potential entry points into China, breaking them down into four broad categories. Each one varies depending on the level of autonomy or partnership you prefer, how embedded your business will be in China’s marketplace and how much support you are looking for.
You can either set up your business to export its products or services directly to consumers in China or sells through an overseas third party.
These direct or indirect export models are perhaps the simplest structures to use. But you need a powerful brand or unique product for your business to compete successfully in China’s competitive market.
If you want to export indirectly, for example, a distribution contract is needed with your intermediaries. It’s important to note that the customer is also owned by the distributor or agent. So, once the contract has expired, the customer base is retained by the distributor.
Here, an Intellectual Property Rights (IPR) owner allows another party to use its IPR under agreed terms and conditions, while the creator retains ownership. This can cover a range of eventualities, including copyright, technology transfer and trademark issues.
Under this model, you either work under a franchise or a partnership. Using a franchise, the franchisee pays royalties and there may be some initial fees for the rights to the franchisor’s name and system. Partnerships can take a variety of forms, but most use a foreign-invested partnership (FIP). The FIP is an unlimited liability business entity with no minimum requirements on registered capital.
FIPs are often the easiest and most convenient way for foreign investors to set up a business in China. However, there are some restrictions, including “prohibited” industries, which require a Chinese party to hold a controlling interest or in industries that are “restricted to joint ventures”.
This involves physically setting up one or more business locations in China. This could be a subsidiary or sales office, that might lead on to production facilities (depending on your product).
This is a complex undertaking – but it does help you retain control of your business. Our China Gateway 2.0 solution has helped hundreds of businesses set up and thrive in China.
This option involves acquiring or investing in an existing business that operates in the target market or setting up a new business in overseas partnership with a local business (JV).
There are two types of joint ventures (JVs) in China: the equity JV (EJV) and the cooperative JV (CJV), also known as the contractual JV. A CJV is a partnership between a Chinese enterprise or organization and a foreign enterprise, organization or individual. However, CJVs are rare, due to unlimited liability of partners in this structure.
Whichever option you use, your choice of business partner in China is a key decision. When weighing up your options, you must first assess what your business wants from the partnership – such as local market knowledge – before identifying the potential commercial players in the appropriate industry. Each will have strengths and weaknesses.
Their location will also have an impact, due to differing investment incentives across various regions. For example, Special Economic Zones offer incentives such as tax benefits, land-use clauses and customs duties.
Alibaba Cloud was born and raised in China. Today, we are solidly positioned as the No. 1 cloud computing service provider in China. We know what it takes to succeed in China and are local experts in providing reliable, secure, and compliant cloud computing products and services.
International companies are already taking advantage of China Gateway 2.0 – our channel to accelerate your success in China.
Alibaba Cloud is a world-class cloud provider and the No.1 public cloud service provider in China and Asia. To find out more about the burgeoning market and how your business can succeed in China, download Your Journey to China: Identifying the Opportunities, Market Barriers and Entry Strategies whitepaper today.
Or learn more about our Asia Accelerator program at: https://www.alibabacloud.com/asia-accelerator
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