What are the biggest obstacles for Western companies pursuing business opportunities in China?

Ting Zhang, our CEO discovered four important challenges for SMEs when she visited the country earlier this month.

(Ting in a business discussion during the British Day event in Chengdu.)

• Rising costs

Anyone who has been visiting China over a longer period of time will have noticed that the cost of living has increased enormously across the country. This is especially true in large cities, with property prices close to or even exceeding the UK in some locations.

As a result, operating costs have been pushed to a new high.  Foreign companies must find ways to cut their costs, such as re-patriating their (potentially expensive) expats and restricting their regional offices to remove unnecessary layers of management. This gives more opportunity for such companies to attract local Chinese talent for senior positions, which in turn can help with the performance of your Chinese operation.

• Competition

Chinese companies are known to be quick to learn and imitate, but now many Chinese companies are bucking the trend by developing their own innovative products and services which are more suited to the local market.  This is especially true in the e-commerce and mobile app space, with BAT (the three big players in the Chinese internet and big data industry: Baidu, Alibaba, and Tencent) now dominating the market and making it hard for foreign companies to compete.

This is also the case in the services market, where many Chinese entrepreneurs have set up their own businesses to compete with the incumbent (foreign) players, in fields such as marketing and accounting services. This means that Western companies must keep innovating as well as providing consistent quality – which can help differentiate them from Chinese competitors.

• Regulation

On one hand, the Chinese government is relaxing import tariffs for some categories of goods and removing entry barriers for restricted sectors, but on the other hand, regulation such as compliance with party policy for joint ventures has made it harder for foreign businesses to operate in the same way they have in the past.  Western executives must stay on top of these regulatory changes to be compliant, and many rely on the Foreign Chambers in China to lobby the Chinese government.

• Talent shortage

Recruiting people with suitable skills in China has always been difficult. Now this has been exacerbated by rising costs and tougher competition from local players. Furthermore, the supply of talent is decreasing with the rapidly aging population. The second child policy will take years to have any impact on the labour market.

Some Generation Ys in China have now started to lead a different career path from their elders, as the gig economy spreads into the country.  The word “Slash Youth” refers to someone who takes freelancing portfolio work in multiple fields, such as translation, marketing and business development.

Crayfish has seen many of those based in China adopting this approach to their careers.  Known for their hardworking ethics and better command of English, using these new Chinese freelancing workers can be an excellent alternative to hiring a full-time person in China.