What Startups Need to Know about China Market Entry I HI-COM

Guest post by PTL Group

2020’s global turmoil has led China to better define its strategies, advance its R&D foundation and cultivate a burgeoning tech sector. With that in mind, China maintains an open-door policy that aims to create easier access to its lucrative market, for anyone who can support the country in fulfilling its goals. This is exactly where startup companies that bring sophisticated and innovative technology can gain momentum.

Here are some points to consider, before your startup takes off in the Chinese market.

Your Entry Strategy

When a startup company decides to enter the Chinese market, it must formulate a detailed entry strategy. Given China’s special characteristics, careful preparation cannot be overlooked.

In order to minimize risks and maximize chances for success, your startup should aspire to:

 

Shorten time-to-market

Time and budget constraints mean that there is no place for mistakes. Mistakes are too expensive in China and could lead to irreversible damage. Therefore, a quick and effective setup is the key to a great start in China.

Because the startups’ financial management is based on investments, and benchmarks have yet to be met, demonstration of feasibility and a fast penetration rate are crucial for future investment rounds. But in China time doesn’t only equal money, but also everything else.

A short time-to-market:

• Shortens the time for the next investment round
• Decreases costs
• Creates a competitive advantage
• Reduces copycat risk

Rely on local knowledge

Surprisingly or not, even with some understanding of the Chinese language, initiating a sales operation in China alone isn’t simple. In China you have to be aware of the “small prints”, nuances and cultural issues, that are most often difficult for foreigners to comprehend.

Business functions in China operate better when relying on local infrastructures, knowledge, and support. Also, partnering with a local expert is beneficial in China throughout all phases of operation, and across all business needs. This includes, for instance, conducting background checks on local candidates for hiring a local sales team, financial planning and issuing local invoices, marketing localization, establishing digital infrastructure, obtaining licenses and regulatory compliance.

Operating alone in China is like operating in the dark. Every interaction with a third party in China requires local knowledge to protect your interests.

Maintain operational flexibility

Growing the business goes hand in hand with growing operational needs. If not handled wisely, adapting to change may become more and more complicated.

No matter how structured your plan is, it should be re-examined after the first year of operation. You will often need to redefine strategies and make tactical adjustments based on the company’s growth rate, geopolitical market trends, feedback from the field and other dynamic circumstances. Operational flexibility will allow the company to make tactic adjustments fast and effectively, with minimum harm to business stability.

 

Your Operational Model

The two most common ways to set up operations in China as an independent brand are either registering a Wholly Foreign Owned Entity (WFOE), or utilizing outsourcing services for comprehensive operational support.

After years of working with dozens of startups in different operational models in China, our experience in 2021 leaves no room for doubt: in most cases, outsourcing as the key to enjoying comprehensive operational support has proven to be the best market entry model, simply because it embodies all the three principles above. 

The Bottom Line

Applying the aforementioned essential strategies to your China work plan will ensure your startup is on the right track to fulfil its potential. In the multitude of players in the Chinese market, values of distinction and agility will pay off in the long run, so be sure to keep them in mind from day one.

This post was written by our good partner, PTL Group. PTL Group provides management and operational support for international companies throughout their market entry and growth stages in China. Among the 300+ projects PTL Group has carried out, the market entry for startups package has served dozens of satisfied clients in China.