5 things every SME should know before expanding into China

4 min read

28 September 2015

These five tips will help UK businesses to secure Chinese investment and expand into the lucrative Chinese market.

China is shifting its economic focus from low-cost manufacturing to higher-value services and consumerism to meet the needs of its emerging middle-class. 

As a result, its government is increasingly supporting SME growth and making it easier for international SMEs to enter the lucrative Chinese market. 

As a result of this economic shift, there is huge market demand (and investor interest) in SMEs, specifically those in the services sector. 

Companies offering something innovative to the market are particularly well placed to benefit. This includes technology businesses, especially e-commerce and consumer technology enterprises, and SMEs with a proven brand in their market. 

Over the years, I have helped many UK and international businesses secure Chinese investment and/or expand into the unique Chinese market. I have learnt that a number of factors play a huge part in success:

1. Researching and respecting local culture

Chinese business culture differs vastly to the culture in Britain. It is therefore hugely important to understand and respect Chinese customs and the differing tastes of Chinese customers. This is the ultimate key to success.

Seek advice from individuals or organisations already in the market or those with local knowledge and make sure to carry out proper research. If possible, spend time in China or partner with someone with knowledge and/or previous experience in the market. It is also fundamentally important to be open to tailoring your strategies or product slightly where necessary. 

2. Offering something innovative

Smaller and/or developing cities in China don’t have access to a wide range of established and trusted brands, Western-style management and, in some cases, innovation. There is therefore a huge opportunity for UK SMEs offering the country’s emerging middle-class a new brand choice or innovative service unlike those currently available in their cities. 

So, when considering expanding into the market, it is important to be aware that Chinese investors want to bring something new to market and consumers want to spend their disposable income on novel products and services. If you can find your gap in the market, and sufficient demand for your business, you will significantly increase your chances of succeeding. 

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3. Targeting the most appropriate markets

If you’d like to expand into mainland China, aim for provincial cities. These are of a similar size to the major cities in the UK, so have a potentially huge customer base, but are not as competitive as well-known cities like Shanghai or Beijing. 

Targeting smaller cities will provide a strong foundation for your business in mainland China so you can expand further and ultimately succeed in the bigger cities. 

4. Finding the right partner or staff

It is fundamental that you spend the time to find the right partners and/or staff when looking to expand in China. Chinese working culture generally dictates that staff should obey their superiors without question. 

This may work in many respects, but with regards to managerial or partnership positions, you need to ensure that your partners and staff understand your unique business culture and can creatively solve day-to-day business issues. 

5. Establishing a strong base 

In order to allow you to expand across wider Chinese cities, I would recommend establishing a base in Hong Kong. 

Hong Kong offers high-quality (and relatively cheap) financial and legal advice applicable across mainland China which will help you to become accustomed to the unique Chinese business culture. It is also an international city with strong links to the UK which will make it easier to adapt and settle.

Dr Johnny Hon is an Anglo-Chinese entrepreneur, investor and philanthropist and the founder of Global Group.