China is one of today’s biggest and most profitable markets and a true Eldorado for anyone wishing to expand their product to a consumer group consisting of more than 1,3 billion people. But as the old tale of the City of Gold told, it’s not easily found.
China is a market differing significantly from any market Scandinavians or citizens of the EU for that matter are familiar with. It takes knowledge, ingenuity and an ever so important network to just gain entrance to the Chinese market, and once you’re there, there’s no telling whether you will achieve success in the end or if it will be another failed venture.
We contacted the Danish Innovation Centre Shanghai to ask them about how to enter the market in the best way. Martin Bech, Consul (Science and Technology)/Special Attaché agreed to give out his experiences.
Thank you for agreeing to speak with us. First of all, let’s say I don’t have a product to sell, I just want to enter the Chinese market. In your opinion, what should my company do?
I get this question from time to time. Usually I tell people that it isn’t necessarily about the area your company specializes in, but more the way you address your idea, what your business model is and your approach to the market that determines if you will be successful in the end. There are some areas that the government has stated to be “sensitive” in the way that they wish to focus on solely Chinese technology. Energy is one of those areas, ICT is another one. Foreign companies will have a much harder time entering these markets compared to markets that aren’t a strategic priority for the government.
But if I have to recommend an area more suitable than others, I would look at some of the major issues China is facing today. One of these is pollution and China is desperately seeking new technology to help solve the problem. Take water as an example. In the North and especially in Denmark, we have lots of technologies to clean wastewater, improve water supply and clean polluted water. These are all areas with considerable potential in China.
Okay, so now I’ve decided upon an area for my company. But it is no secret that China is very different from the Northern countries when it comes to doing business. Is there any way to prepare for that?
Other than making it clear to yourself that it’s a very hard market to access, I don’t think you can prepare much from back home. It requires a long and hard pull, commitment and a good network here in China. One particularly challenging area is legislation. It changes much more frequently compared EU and other markets. Also, there are more grey areas that you need to know how to navigate and make sure to stay on the right side of the red tape at all times. Another major challenge is the competition. Chinese industry has developed tremendously in recent years and in some sectors such as consumer electronics are playing eye to eye with their western competitors. But China is also still full of copy cats and the legislation, especially the implementation, is not always supportive towards securing foreign brands agains these copy cats. Though, in this area we are also seeing positive, slow, but positive developments.
So how does the Chinese market differ from the EU or similar markets?
To understand the situation in China, it is helpful to compare with the pharmaceutical industry in Denmark. Pharmaceuticals are a highly regulated area in Denmark and so companies in this sector must have close contact to the government to understand and adapt to changing regulations. In China, the situation is similar – almost no matter which sector you are in. For smalle companies, government contact and relations may not be that important but as soon as you reach a certain size government relations quickly turns into one of the most important management responsibilities. Basically, it is crucial to your success that you understand how to properly interact with authorities and how to build and use your network towards this end.
And how does one go about doing that?
That’s one of the things Danish Innovation Centre Shanghai can help with. One of our tasks is to assist Danish companies meet the right people – in government, potential partners, investors or even universities that can supply specialist or provide future employees. We do this on a case by case basis but of course also have a range of more or less standardised products on offer such as our innovation camps which is a deep dive into a specific sector or specific eco-system. Late last year, we did a camp focusing on automation and this year we expect to organise camps focusing on China’s FinTech industry and its Creative Economy industry. Still, however, we always underline that one camp is not enough and that the chinese market requires a long term commitment. It’s hard work. Really hard work. But if you succeed, the reward is also potentially much higher.