• A foreign firm must choose an appropriate market entry strategy for China depending on a number of factors including: 1) how the Chinese “view” the foreign firm’s product entering the market; 2) the demand for its product; 3) the future growth of demand for its product; 4) the firm’s resources; and commitment to entering this market and 5) the timeframe to enter.
• There are three fundamental strategies that can be used to enter the China market: 1) export via a Hong Kong distributor; 2) export via direct channels in China; and 3) set up a joint venture. Each strategy has advantages and disadvantages.
• Market entry via a Hong Kong Distributor is probably the easiest and quickest way to enter China but may be the least desirable in terms of overall market penetration.
• Market entry via direct channels in China is probably more difficult and time-consuming than entry via a Hong Kong distributor, but in time may be better off for a firm’s overall penetration. This option may be a good mid-term strategy.
• Market entry via a joint venture of some kind may be more difficult and time-consuming than the other two export strategies just mentioned, but probably yields the best overall penetration of China’s market. Utilizing this strategy, both sides (the foreign firms and the Chinese party) could gain the most benefit.
• China is a huge, fragmented market. Thus, firms may need to utilize more than one of the above strategies to adequately penetrate the market.
MARKET ENTRY VIA A HONG KONG DISTRIBUTOR
Perhaps the easiest and quickest way to export your products to China is via a Hong Kong (or possibly Taiwan) distributor. By utilizing a Hong Kong distributor that is active in China, a firm can ship its products to Hong Kong; subsequently, the Hong Kong distributor can identify appropriate end-users, import/export corporations and distributors in China. Some Hong Kong distributors also have liaison offices in china that provide some maintenance, service and repair assistance. A well-established Hong Kong distributor will have familiarity with doing business in China, (including language skills, currency issues and shipping considerations).
While there are some advantages to using a Hong Kong distributor, especially in the short run, there are also disadvantages. First, while in some limited instances, the Hong Kong distributor can sell directly to Chinese end-users, (normally only if the end user is very large), in most cases the Hong Kong distributor cannot sell to end users, but must work with a Chinese group authorized to conduct foreign trade. Thus, the Hong Kong distributor may become an additional middleman in the selling process to China. The use of a middleman means that the products will be sold at higher prices (hence less margin to the manufacturer), and the total sales will probably be lower. Second, unless the manufacturer sends company representatives to accompany the Hong Kong distributor on sales calls, the manufacturer will not know directly what the consumers’ needs are. Third, penetration of the overall Chinese market may not be high (Hong Kong distributors tend to skim the “cream” for quick profits) and it may be unclear what markets (or provinces) in China are actually being targeted for sales. Fourth, the manufacturer is still subject to tariffs/quotas if importation is done legally, there may be payment delays in the collection of revenues due to the fact that the Hong Kong distributor may have limited clout in China. Finally, servicing your products will vary depending on the strength of the Hong Kong distributor’s operation in China.
The key to success if one chooses this market entry strategy will be a function of how good and how dedicated your Hong Kong distributor is in selling products in China. Many Hong Kong distributors for medically oriented goods say they are involved in China, but only a few (about 7-10) are involved in a significant way. While some large multi-product Hong Kong distributors are currently successful in China it is important to question which areas they actually focus on – consumer products, medical devices, or other types of equipment? Do they have offices in China or do they just travel there? If they have offices in China, how are their operations set up? Perhaps your products will get more immediate attention if you look for a mid-size Hong Kong distributor that is involved in China instead of a large group which handles multiple products. The mid size Hong Kong distributors, however, will normally depend on only one or two clients in China; and if they lose those contracts, your efforts will probably suffer too.
MARKET ENTRY VIA DIRECT CHANNELS IN CHINA
An alternative to selling to China via a Hong Kong distributor is to sell directly to an authorized foreign trade group or an end-user group located in China. Decentralization and reforms have led to the growth of a variety of direct entry points for a foreign exporter. Direct sellers today must decide whether to try and work with — 1) Chinese foreign trading corporations (FTCs) 2) industrial trading corporations (ITCs), 3) independent entrepreneurial third party trading companies, 4) domestic end-users or 5) domestic Chinese distribution companies. In deciding which one, or combination of the above groups to work with, foreign manufacturers must understand the current formal trade structure in China, the history of each trading entity, the background of the key individuals who manage these groups, and the advantages and disadvantages of each alternative.
1. Foreign Trading Corporations (FTCs)
FTCs were the first groups established (in the early 1980s) by the Chinese government to assist the domestic Chinese companies with foreign trading. FTCs can be quite large (yearly turnover of approximately $25-$750 million), are often involved with multiple product lines and have both central as well as provincial offices. Today, these groups primarily focus on exports (which usually accounts for about 90% of their turnover, but these groups are also increasing their efforts for needed imports. Historically, FTCs have played a major role in importing commodities into China.
The advantage of using an FTC is that you have the convenience of working with one, authorized, experienced, organization that has an established infrastructure to deal with foreign trade. These groups normally have foreign exchange allocations and are very familiar with foreign trade issues including letters of credit, freight logistics, etc. While national FTCs are rarely the ultimate buyer of your products, they can contact other provincial or local FTCs, domestic distributors and end-users who may want to buy your products. The disadvantage of working with national FTCs is that most of these groups are not knowledgeable about your specific product area, and oftentimes function as “order takers” for end users, and they may not be very interested in actively marketing your products.
2. Industrial Trading Companies (ITCs)
ITCs are usually newer and smaller than FTCs. ITCs are administered by various industrial ministries and bureaus (i.e. mining, chemical and pharmaceutical). In most cases, because of their industry focus, ITCs have a good understanding and knowledge of the products they are trading. On the other hand, unlike FTCs, ITCs are normally limited to their geographic focus (1 or 2 provinces is common), and although they are experienced, they are often relatively new to the foreign trade game.
3. Independent Trading Companies
Over the last few years, a number of smaller independent trading companies have been established to handle foreign trade. These groups, normally subsidiaries of government trading companies or private companies, may have a keener financial interest than FTCs or ITCs in aggressively marketing your product. They tend to have more motivated entrepreneurial staff members and oftentimes can move more quickly than FTCs or ITCs. The disadvantage of working with this type of company is that in some instances, Independent Trading Companies may not be authorized to engage in foreign trade and therefore will need to link up with an authorized foreign trade company. In addition, given the small size and newness of these groups, the strength and success of these groups may depend on one key individual. Thus each group must be analyzed carefully and separately.
4. Direct End-User Sales
Directly approaching potential end user customers for your products is the most direct way to sell your products and to get good market feedback. While a few of the large end-users are authorized and are already dealing with foreign companies, the vast majority of end-users are not authorized to trade directly with foreign companies, do not have adequate foreign exchange and/or do not have purchasing decision responsibilities. Today, most end users can only legally consummate foreign purchases with assistance from FTCs, ITCs or authorized independent trading companies. In the future, however, it is expected that more end-users will be authorized to deal with foreign companies without the assistance of FTCs, ITCs or authorized independent independent trading companies. If a foreign firm wants to regularly make direct sales calls on a number of end-user customers, it should consider building its own sales force with representative offices in China.
5. Direct Sales to Domestic Chinese Distributors
Officially, it is not legal for foreigners to sell directly to domestic Chinese distributors without the domestic distributors utilizing the assistance of FTCs, ITCs or Authorized Independent Trading Companies. In practice, however, foreign companies may contact domestic Chinese distributors, or Chinese distributors may contact foreign manufacturers directly to sell/buy products. By going to the distributor first before contacting an ITC or FTC, the foreign manufacturer will probably get more market feedback and better pricing since the middle man is eliminated. While most domestic Chinese distributors still look for new products to be introduced by an FTC or ITC, over the last few years some domestic Chinese distributors have begun to aggresively search for products directly on their own.
6. Market Entry via Direct Channels Versus use of a Hong Kong Distributor
While entering China via one or more of the direct Channels just described will have some of the same problems as market entry via a Hong Kong distributor (i.e., you will probably still encounter problems with tariffs/quotas, servicing your products, collection and payment delays), there are a number of real advantages to developing your own direct channels. First, by establishing direct channels, you eliminate the middleman and the associated mark-up of your product. For products that are price sensitive, a reduced price should allow you to increase your sales and further penetrate the market. Second, by eliminating the middleman, you will be closer to your customers needs and concerns. Third, if you carefully analyze where your products are going through direct channels, you will have better knowledge, and hopefully control over which parts of China are covered and which parts are not covered. Many foreign manufacturers who sell to China via Hong Kong distributors have little knowledge of who or where the ultimate end-users in China are, or how price sensitive their products really are in the marketplace.
Developing direct channels into China, however, will be more difficult (i.e. logistically) and time-consuming than hiring a Hong Kong distributor to enter the China market on your behalf. Determining the appropriate FTC, ITC, independent trading company, or end-user with which to develop a relationship will require research. Once the appropriate groups are identified, meaningful and trustworthy relationships will take time to develop. In addition, a firm that develops direct channels may also have to determine a separate strategy to build its own service, maintenance and repair network. In short, while it may require more time and effort, developing direct channels to enter China will often be a better strategy than simply hiring a Hong Kong distributor to cover China.
FOREIGN INVESTMENT ENTERPRISES (FIEs)
Prior to 1979, the concept of using foreign capital or setting up joint ventures with foreigners was heresy. In 1979, the Joint Venture Law was enacted and for the next 10 years the number of joint ventures experienced explosive growth. During the 1980s countless western CEOs rushed to China. By June 1991, 34,000 foreign enterprises had been registered in China with a total committed capital of U.S. $44 Billion, of which $20.5 Billion was actually invested. Joint venture mania grew in the 1980s as the Chinese government relaxed the regulatory environment, increased responsiveness to investor concerns, and a number of market reforms were strengthened in China. By the late 1980s, over 400 laws concerning foreign investment were passed and China began promoting itself as an excellent place for foreigners to invest.
The April 4th, 1990 Amendment to the law of the People’s Republic of China on joint ventures using Chinese and Foreign Investment further defined the joint venture process, and its enactment stresses the issue’s importance in the eyes of the authorities. This amendment more clearly defined issues such as:
• Nationalization of joint ventures
• Extending the term of joint ventures
• Choosing the Chairman of the Board of Directors
• Joint Venture Bank Accounts
Chinese joint ventures have been set up in a wide variety of sectors, including manufacturing, mining, and services (hotels and business centers) and a wide variety of industries including electronics, energy, medical products, telecommunications, and consumer products. China’s success with joint ventures, however, has not been unqualified. For example, the average investment per venture is less than one million dollars which suggests that China has not been able to attract as many high technology projects as it would like. In addition, actual foreign investment tends to be only about half the amount approved.
Foreign Investors set up joint ventures in China for a variety of reasons. Most importantly, joint ventures help foreign companies gain access to China’s domestic market while maintaining control over their activities. Second, joint ventures help many foreign investors take advantage of China’s relatively well educated, low cost labor force to produce their product. Other advantages include: improving access to local resources, favorable treatment from the Chinese government, (i.e. with respect to tax exemption, obtaining financing, securing direct and indirect support) and greater ease in overcoming difficulties with foreign exchange controls.
On the other hand, China has encouraged foreign joint ventures for a number of reasons too. In general, the motives for the Chinese venture partner have to be separated into two categories. The government’s goals in a foreign joint venture include: Obtaining foreign exchange, increasing industrial efficiency, realizing import substitution, and the creation of new jobs. The goals of the Chinese company include: Obtaining advanced technology, increasing access to foreign markets, using the venture as an instrument to get ahead in the local market, and to assist in developing R & D capacity.
Where to Invest
Choosing an investment location for your joint venture is not an easy decision. While most investment has taken place in Beijing, the 14 coastal cities (especially Shanghai, Guangzhou, and Tianjin) the special economic zones, Hainan Island or Pudong, tremendous variability exists within each area’s infrastructure. In general, there is a lack of co-ordination between regions and for most projects, it is still necessary to approach officials in each area to determine if demand exists for the foreign technology. In some specific instances, the central Chinese authorities may have useful information on a product’s mix and and where it will be best to set up your joint venture.
Investment or joint ventures in China are planned and regulated by the government. The state defines long-term economic goals and spells out what type of products and technology are to be imported and which projects are to be initiated. If a contemplated project coincides with a central or local authority’s plan, project approval and foreign exchange funding from state budgets will be given more easily. For an investor who takes the time to identify a project in line with China’s development plans, the odds for success are significantly enhanced – there will be fewer bureaucratic delays, getting the project started will be easier, etc.
The foreign partner first needs to identify and qualify the potential commercial players in the appropriate industry to determine which Chinese group would make the best partner. Potential Chinese partners, like any potential partner in the world, have strengths and weaknesses. Some may have more modern factory facilities, higher technology capabilities, better access to transportation networks, etc. The Chinese partner’s physical location is also important since China has created distinct regions offering special investment incentives. Special economic zones offer different investment incentives including tax benefits, land-use clauses, customs duties, availability of raw materials, and other considerations.
On the Chinese side of the table it is common during negotiations to see several different Chinese groups, including a manufacturer, the local government official, a financial association and a business trading company. These groups are often independent of one another and have varying priorities, but are drawn together by the bureaucratic system. It is important for the foreign investors to be careful and determine the roles of all players at the negotiation and their exact relationship to the transaction. Some foreign companies have signed contracts with the wrong party. In addition, foreign investors should keep in mind that the front line Chinese negotiators from each group often play a role as information collectors. The unseen executives behind these negotiations are usually the final decision makers. In general the frontline Chinese negotiators are able to make decisions on technical aspects, with the unseen executives being the decision makers on the price, project content, and formalities.
Letter of Intent, Feasibility Study
After determining the location, project, and partner, the next step in establishing a joint venture is to execute a “letter of intent” or “memorandum of understanding.” Although this document is not legally binding, it outlines the mutual understanding of the partners with respect to the project. Next, the Chinese party needs to submit a preliminary feasibility study to the relevant government authority. After the preliminary feasibility study is approved by the relevant government authority, the Chinese and foreign parties prepare and submit a joint feasibility study. The purpose of a feasibility study is to determine the probability of the joint venture’s success and to determine the best method for achieving optimum economic efficiency prior to establishing the venture. There are a number of specific requirements that should be included in the formal feasibility study, including:
• General description of the project
• Total anticipated investment
• Raw materials and power supplies
• Arrangements for foreign exchange
Foreign Investment Enterprise Structures
Once a project, partner and location have been chosen, and a memorandum of understanding and feasibility study have been completed, the next step is choosing the legal structure of the foreign investment. There are three major types of foreign investment enterprise structures.
Equity Joint Ventures
An equity joint venture (EJV) is a limited liability corporation in which the Chinese and foreign partners jointly invest in and operate the corporation. Profits and risks are shared according to the percentage of equity held by each partner. Investment contributions may be in cash or in kind. Minimum foreign investment is 25% with no maximum specified (usual contributions are 50%). The effective tax rate on these equity joint ventures is usually 33%. Joint ventures of ten years or more receive an exemption for the first two profit making years and a 50% reduction for the following three profit-making years. Other reductions or preferential tax treatment may be offered depending on the location and type of project. EJVs must follow a specific set of procedures for approval.
In addition, EJVs have the following advantages and disadvantages from the foreign investor’s standpoint:
• The EJV law and implementing regulations provide a relatively complete structure of rules and procedures for establishing and operating a joint venture in China.
• EJVs are the preferred investment vehicle of the Chinese government and many incentives are offered.
• EJVs may provide a separate vehicle for selling to the domestic market.
• EJVs may be included in the annual plans for raw material allocations and may procure goods at subsidized prices.
• Negotiations for an EJV may stretch out for years, generating excessive expenses. However, some negotiations have been concluded in as little as three or four months.
• Investors are restricted from withdrawing registered capital during the life of the contract.
• Termination and liquidation of EJVs have not been fully addressed by laws and regulations.
Contractual Joint Ventures
A second type of foreign investment enterprise structure is the contractual joint venture (CJV). A CJV can take two forms: 1) a limited liability entity with legal person status that closely resembles an EJV; or 2) a business partnership in which the parties cooperate as separate legal entities and carry out their respective contractual obligations without establishing a joint management entity. In either case, CJVs differ from EJVs in two important respects: the forms of investment contributed by each party need not be in cash or in-kind (e.g., labor and utilities have, in some cases, been allowed as contributions, and there is no minimum/maximum investment required). Second, profits are shared based on a ratio specified in the contract, not necessarily according to investment contributions. CJVs must follow the same set of procedures for approval as an EJV. CJVs that are considered limited liability entities are taxed as EJVs (see above). For CJVs where partners cooperate as separate legal entities, each party is taxed separately on the portion of profits received. Effective tax rates are usually higher – about 30-50%.
In addition, CJVs have the following advantages and disadvantages from a foreign investor’s standpoint:
• Maximum flexibility in structuring the assets, organization, and management of the venture.
• The foreign investor can recover registered capital throughout the life of the contract.
• A CJV can be established quickly to take advantage of short term business opportunities and then dissolved with minimal legal restrictions.
• Detailed implementing regulations have not been promulgated.
• A CJV may not have legal person status or have limited liability if the enterprise is judged to be undercapitalized by the State Administration of Industry and commerce.
Wholly Foreign Owned Enterprises
A third type of enterprise structure is the Wholly Foreign-Owned Enterprise (WFOE). Such an enterprise is a limited liability entity solely owned and operated by a foreign investor. In this scenario, the foreign investor receives all profits and bears all risks. Approvals may be obtained for a WFOE by the foreign company submitting an application detailing all aspects of the project to the Ministry of Foreign Economic Relations and Trade or its local counterpart. Once approved, the local company has thirty days to submit the approval certificate to the State Administration of Industry and Commerce in order to receive a business license. Separate contracts are drawn up for land, utilities and labor between the WFOE and the appropriate departments. WFOEs are taxed according to the Foreign Enterprise Income Tax Law, which has graduated rates between 20-40%. A 10% local surcharge is also charged on the assessed tax.
In addition, WFOEs also have the following advantages and disadvantages from an investor’s standpoint:
• Foreign investor has tighter control of proprietary interests.
• WFOEs have exclusive management control for investors; there is no need to compromise with partners.
• WFOEs are exempt from the 10% tax on dividends.
• Implementing regulations have not been promulgated.
• There are few precedents to rely on during negotiations and operations.
• There is no Chinese partner to tap for a trained workforce and for established sourcing and distribution networks.
• There is no Chinese partner with a stake in the success of the investment to assist with problems.
• There are stricter foreign exchange requirements for WFOEs.
• The corporate tax rates for WFOEs are higher than for equity joint ventures.
Unwritten Legal Issues
Despite the relatively specific laws and procedures just outlined to set up a joint venture, one of the problems foreigners encounter in doing business in China are the relatively “underdeveloped” business laws and different business practices than those to which they are accustomed. For example, in one situation, the foreign party to a joint technology transfer meeting was shocked to see personnel from a Chinese competitor present. Foreigners should remember that getting a confidentiality clause into a contract does not mean that their Chinese partners regard confidentiality in a Western sense. In this particular situation, the Chinese party could not understand their partner’s strong negative reaction.
In general, Americans should keep the following in mind when negotiating a joint venture in China: First, in the U.S. there are guidelines for when a law or contract can be interpreted narrowly or broadly. In contrast, the Chinese may change or disregard the intent of a statute if their interests are at stake. The Chinese often cite unpublished laws whose actual existence may be difficult to confirm. Certain laws are only known in China by the power elite and bureaucracy. Attention to detail in an agreement is oftentimes not a high priority in China, perhaps because there is a sense that vagueness may leave room for future interpretation on issues that have already been negotiated. Nothing is considered final until the contract is executed, and even then there may be future “discrepancies.”
Finally, while joint venture documents can help maximize defenses or minimize losses and unwritten Chinese business practices can be understood over time, China has many forms of dispute resolution, including consultation, arbitration, and litigation.
OTHER BUSINESS ISSUES
While it’s impossible to cover all of the business issues that come up in a specific joint venture, foreign investors should remember the following: Management concepts (such as quality control systems, production planning and control, internal financial/accounting systems, performance measurement systems, etc.) that are taken for granted in the U.S. are relatively new in China.
In addition, buying and valuing specific technology in China is a difficult process. Whereas the foreign firm wants maximum valuation, the Chinese firm usually complains that the valuation of the foreign technology is too high. How can the Chinese evaluate the costs (paid for by large foreign firms) of R & D to get new sophisticated technology? New technologies may require renovating old Chinese factories and restructuring traditional Chinese management systems. China has its own technical requirements. Thus, oftentimes technical data must be blessed by Chinese engineers and specifications converted into the Chinese language.
Every industry and its related products has an established distribution system in China. For example, in the pharmaceutical area, there is a three tier system, composed of levels 1, 2, and 3. On level one, there are five national level stations in Beijing, Shanghai, Shenyang, Guangzhou, and Tianjin. These Level One stations then allocate products to 218 provincial level two stations; similarly, Level Three is comprised of 2,300 stations that are located in counties or municipalities.
While most domestic Chinese factories use the appropriate distribution network, as a result of the decentralization of distribution in the mid 1980’s, factories are now allowed to sell directly to end users and have added on their own distribution mark-ups. Foreign investment enterprises are also able to set up their own distribution channels for goods their factories produce. FIEs typically take a diversified approach by establishing their own independent networks in urban areas, and using the standard distribution system for customers in the countryside. FIEs are also normally allowed to set up sales branches for maintenance and repair service in China, subject to the approval of the relevant Chinese government department. Obviously this tailored marketing approach gives FIEs more focus and control in marketing their products in China than exporting either via a Hong Kong distributor or via direct channels.
Foreign Exchange Issues
Foreign enterprises in China are required to “balance” foreign exchange. Every project must meet its own foreign exchange requirement. This requirement is reflective of the problems surrounding foreign exchange shortages in China and the desire of the Chinese government to encourage foreign investment enterprises in China to export their products in an effort to increase foreign exchange inflows. As a general rule, Chinese RMB must be used in settlements of accounts between foreign investment enterprises and Chinese parties. Foreign exchange can be raised via the swap markets and other creative strategies including some form of counter-trade or barter. Increasing or decreasing changes in the RMB may help or hurt joint venture partners.
Market Entry: Joint Ventures Versus Market Entry Via Exports
If a company can determine that there is a large growing market for its products and is willing to work to set up a joint venture, then a joint venture is probably the best long-term strategy to penetrate the Chinese marketplace. Joint ventures in China that can benefit both the foreign entity and the Chinese party help motivate both parties to have a long term strategy. As previously discussed, joint ventures will allow the foreign firm to avoid tariff and quota issues, to gain more focus and control of product distribution and service in China and hence probably ensure penetration of a larger share of the Chinese marketplace. By physically being in China, foreign firms can easily see the real needs of end-users, and prices should be more competitive as a result of local manufacturing. Such advantages may override the complexities of setting up joint ventures, the time it takes to establish a joint venture and the associated risks involved.
Other Evolving Market Entry Vehicles
As China develops at a rapid pace, so too will potential market entry strategies. Today, there are two new offshoot strategies for market entry that may be beneficial to some firms in the future. First, multinational companies with diverse activities in China have recently sought to centralize such activities via a holding company in China. To date, China has not allowed such holding companies and has restricted foreign direct investment to separate wholly foreign enterprises engaged in separate “productive” activities. Hence, foreign investors with multiple manufacturing FIEs, as well as those with import businesses had no way to consolidate sales and services for integrated product lines produced by different manufacturing operations. Over the last few years, the Chinese government has relaxed these policies and said that it is now possible to establish a non productive FIE holding company to 1) hold equity interests in other investment enterprises, and 2) provide services to affiliated enterprises in China, including technical training, distribution and marketing services, accounting recruitment and marketing services, accounting recruitment and other administrative activities. Thus, while the formal legal status of holding companies has not yet been clearly defined by law, a holding company as currently permitted by the Chinese government has several advantages over traditional FIEs.
Secondly, although the formal laws are still evolving, thousands of Chinese state companies and a few joint venture companies have been set up initially as, or transformed into, “stock companies.” Current legislation defines a stock company as any enterprise with the status of a legal person that divides its capital into equal shares. All joint ventures have the option to convert into stock companies; wholly foreign owned enterprises currently do not have this option.
There are two main advantages a stock company has over a joint venture. In a stock company, where management and workers have ownership, employees will have strong motivation to see the company succeed. Such equity ownership is not possible in a joint venture. In addition, transferring interest in a stock company to third parties is significantly easier in a stock company. In a stock company, there are few restrictions on the transferring of stock while in a joint venture, all parties must give their approval to transfer interests. As a partial off-set to these advantages, stock companies are a new development in China, and the relevant regulations are in flux, buyouts may be more difficult due to the fact that foreign investors are not allowed to own A shares (only B shares, and all documents to a stock company are only prepared and legally void if in Chinese, as opposed to joint ventures, which allow both English and Chinese language documents to serve as valid and legally effective.
As described in this report, there a number of market entry strategies to pursue in China; each strategy has its own advantages and disadvantages. The specific strategy a firm chooses will depend on how the Chinese “view” the foreign firm’s entering their market, the demand for the firm’s product in China, the rate of growth of demand for that product, a firm’s resources to enter the marketplace, and the time horizon to enter. While the Chinese may never open their markets completely, because many feel that they would lose more than they would gain, it is still possible to penetrate the China market in a significant way.
There are many different regions in China at various levels of sophistication. Similarly, just as there is not only one market entry strategy in China, there is more than one type of buyer in China. Experienced and successful companies know that China is not one market, and they have learned to analyze and segment the various areas. To be successful, companies will need multiple point of entry and may need to combine various market entry strategies to fully penetrate the market.