Unique Challenges Small Foreign Businesses Face in China

For small foreign businesses, the allure of China as a market and a still relatively attractive low-cost manufacturer can be worth the adventure.  Small businesses face many of the common issues large businesses deal with.  But there are a few issues that particularly challenge small businesses doing business in China. 

1. Finding Local Employees

Finding and retaining talents is the top challenge for any business in China.  It is particularly more difficult for small foreign businesses.   Qualified talents have a preference to work for larger companies with a known brand.  Being able to do so conveys to their friends and families a sense of prestige, accomplishment as well as job security.  These are important considerations in a culture where face is valued and unknown risks are generally shunned.

Small businesses can manage this challenge by preparing to offer competitive compensation packages to local employees.  It is also a good practice to carefully screen candidates to identify people who possess more entrepreneurial spirits and are content with working for a smaller company. And finally, they need to device creative means to retain top performers such as providing promotional opportunities.

2.     Working with the Government

Doing business in China requires a fair amount of dealings with the government.  From registering a company to getting approval for a number of things, it is not uncommon for the local manager to spend half of his time working with governments at every level.  With so many foreign businesses operating in China, the government's priorities are clearly on supporting larger businesses that bring in larger investments.   In addition, government officials are sometimes uncertain about the long-term commitment and viability of smaller businesses.   


Daunting as the situation might apppear, small businesses can actually navigate the system relatively efficiently by hiring well-connected local representatives. Working together with the local representatives, a small business can utilize the local's network of connections and get through the red tapes more easily. 

3.     On-the-Ground Resources

Doing business in China can add big benefits to small businesses, but it also requires investing in on-the-ground resources that many companies fail to plan for.  However small an operation it might be, the best option is to have your own local staff and office in China.  Besides handling the time consuming tasks of dealing with the government, local staffs also play a critical role in quality assurance if you are also manufacturing in China.  And more importantly, they act on your behalf and invest time in building relationships with key people and organizations that are essential to your success in China. Alternatively, at the beginning stage of entering China, a small business can carefully select a trusted local partner.


In either case, foreign-based company executives need to allocate additional resources toward frequent travelling to China.  Managing China from across the ocean simply does not work.  It is invaluable to meet face-to-face with customers, suppliers, partners and government officials, spend time building personal trust and gather first-hand the latest competitive information.


4.     Understanding China Business Fundamentals

Compared to more resource-rich large companies, small businesses are more likely to rely on their entrepreneurial experiences and try to tackle China without a lot of proper due diligence.  But failing to be prepared for the vast differences in China can be costly to small foreign businesses.  Understanding of China's regulatory environment, business environment, cultural norms, common business pitfalls and best practices are critical to success.


According to American Chamber of Commerce in Shanghai's 2012 SME Challenge report, training is identified as one of the critical needs for small business doing business with China.  Therefore, before embarking on a major initiative in China, small businesses should seek out trainings that help them to get a good grasp on the fundamental elements of doing business in China.


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