May 29, 2020  
 
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Doing Business in China

 

Ways to Do Business in China

Written by Bobby Jan for Gaebler Ventures

Many entrepreneurs are interested in doing business in China but do not know where to start. This article discusses two popular options: selling to Chinese consumers and outsourcing to China.

Are you thinking about doing business in China but don't know where to start?
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Here are some commons ways to participate in China's large, emerging market.

Selling to Chinese Consumers

China is expected to become the world's third largest consumer market by 2025. Already with more than 200 million middle class consumers, China is rapidly adding millions to this base every year. More middle class means more discretionary spending. Given the Chinese's high savings rate and demand western goods, this could mean big opportunities for your business.

China experienced a retail boom in recent years and many foreign companies are aggressively entering the Chinese market. Competition in China is fierce. However, the Chinese market is highly segmented with a highly unequal income distribution and different regional and demographic tastes. Although competition is fierce, you might still find a profitable niche for your product.

China also enjoyed a boom in financial services. With savings rate at around 50%, this means plenty of demand and opportunities for banking and investment services. With increasing wealth and spending, this means opportunities for credit services. China's lack of social security spells big opportunities for insurance services. Since China's financial services industry is still very young, there is a huge demand for foreign industry expertise.

Business to business sales is also very promising in China. Most Chinese businesses are young and demand foreign goods and services. This means huge demands for foreign suppliers, technology, legal and consulting services.

With GDP growth of over 9% a year, almost all industries are booming in China. There are plenty of opportunities no matter what industry you are you.

Outsourcing to China

Western companies are outsourcing to China for a simple reason: to cut costs and increase profit margins. China offers an abundance of both skill and unskilled labor at a fraction of the price of equivalent labor in developed countries. China also offers very competitive product capabilities for the manufacture of high quality products. Large investments in China's infrastructure makes it easy to deal with suppliers and export to foreign countries.

Another reason for outsourcing to China is the concentration of cheap suppliers. Often, small and medium sized businesses buy Chinese manufactured goods through a middleman. Why not cut the middleman out by moving your operations to China?

There are other advantages to explore as well, such as possibly lower utility costs, tax savings, etc.

Of course, there are many risks and hidden costs associated with doing business in China. Make sure you do a thorough cost-benefit analyst of doing business in China before making the big jump.

Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.

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