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How to start a business in China and Hong Kong

Wednesday, 13 November 2019 19:41 PM | International expansion

Image of How to start a business in China and Hong Kong

Thinking about expanding to China or Hong Kong? Read this guide for everything you need to know.

China is home to the second largest consumer market in the world, and overtook the US as the biggest manufacturing nation in 2010. Bear in mind that many Western companies are aggressively trying to enter, and succeed in, China, and moving to the country does not come without its risks. For those who are successful, massive results can be yielded.

Setting up in China

  • If looking to start in China, consider buying someone smaller than you with the same or similar business. Local contacts are essential, and they can help ease the supply chain, all the way through to export/route to market
  • There is a lot of bureaucracy and paperwork involved in establishing a business in China
  • Developing a brand in China is challenging but once you'vedone it, it will yield results
  • Trademarks can take around 6 months to become registered in China
  • China tends to be easier for technology and product businesses and difficult for services
  • Above all, live there to really understand the country
  • Wholly Foreign-Owned Enterprise (WFOE) - a mainland Chinese investor is not required, unlike most other investment vehicles (most notably, a Sino-foreign joint venture
  • Compliance makes it difficult to set up a business

Locations

  • Think geographically - 87% of firms setting up in China, do so in the 10 largest cities. Try the 18-30's cities, or growth cities, with less competition
  • Shin Jin has a high level of English speakers and a lot of tech businesses
  • The country is also divided into 12 different provinces, with very little mobility of labour
  • It's getting increasingly harder to find good cheap people in south China, so look north
  • Shanghai - wages are increasing yet still relatively low compared to US (you will pay USD 13,00 against USD 45,000)

Hong Kong

  • If you're bringing cash back from Hong Kong you must bring a letter from your business
  • Moving into Hong Kong is a relatively easy move
  • Corporate tax in HK is 16% vs. 21 % in UK. The UK and HK have a double tax agreement: http://www.hmrc.gov.uk/international/treaties1 .htm
  • HK is a good way in, but fundamentally a different market. There is also a rivalry between the two to be aware of, but it can act as a good springboard into China
  • Clients prefer HK. China is somewhat too real, and HK is t he "Buyer version
  • Don't buy into vision and values of a business (as opposed to the Chinese who lap it up)
  • Salaries are like London but productivity is lower
  • If you are a luxury brand you will want to be in Hong Kong or Singapore

Taiwan

  • Taiwan is a good launch pad for China
  • Taiwanese are good sales people, entrepreneurial and speak English

expanding to china and hong kong

Doing business

  • Working in China you need to approach it in a completely different manner as they have a very different way of doing business. The biggest concern is that your management team out there will take all they have learnt and set up in competition
  • Ensure you get good ad visors especially people that can act as cultural ad visors. Very good lawyers and accountants are also necessary
  • Bottom line - To build a scalable business you need government contacts
  • It is not as cheap as it used to be but there is still a very large market to tap into - total GDP of China will soon overtake America
  • A benefit of China is that it is a cheap way of testing a product or service
  • Buying behaviour is different to the rest of the world, for example H&M have an independent Chinese buying team

Manufacturing and buying 

  • "Always someone willing to take the order". So, prices in China are still very affordable if you are buying in serious volume
  • They can replicate perfectly but tend to not use initiative
  • Expect rip offs and quality control issues
  • Manufacturers need an individual licence per product

Challenge and risks 

  • Competition is intense and they can be quite short term in their thinking. They are very good at copying people'sproducts!
  • There is concern the country is heading for a bit of a crash as the growth they want may not be sustainable
  • China is high risk - high investment of both time and money
  • Online considered hard to break into, with a "mafia" environment
  • Utilities are very expensive
  • Contracts are not always valued

Government

  • In the future, there could be a potential risk over data and the Chinese govern ment demanding that they own it
  • A major issue in China is getting stuck in legislation. "Seeing what you are doing and copy it" combined with the power of corporate acceleration, to get things produced exceptionally quickly
  • Regularity risk - changes to regulation occur every week and it is imperative that you are compliant as penalties are very strict. Outsource to an account ancy & law firm who will monitor your compliance

Recruitment 

  • How to find staff - Two main channels were referrals and head-hunters
  • Try the local universities, who are less familiar with the American university recruitment model
  • There are lots of hidden costs when hiring someone in China - when you are completing your business plan ensure you run it past a local accountant so they can assess your expected overheads

Managing staff 

  • Culturally workers are generally very honourable. But the culture is changing, as workers become more aspirational. For example, workers used to work 7 days a week, now it is a given that they will have Sunday off work
  • Giving gift to staff is important
  • In many parts of China, it is customary to pay workers on a 13-month basis, giving a bonus payment equivalent to one extra month's salary prior to the Chinese New Year
  • Work force are not treated as well as they are in the UK and as a result at Chinese New Year factories can lose 80% of work force

Culture

  • There are huge class problems. There is also a huge gulf between the poor and super wealth
  • China has low credit card usage - some companies still have cyclists delivering goods and collecting money!

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