By Derek Byrd, VIEWDIA, LLC
China’s growing economy in recent years has made the country of more than 1.3 billion people an attractive destination for U.S. exports. Expanded trade has provided significant opportunities for approximately 300,000 small to medium-size U.S businesses that export goods or services to China. Those opportunities are coupled with numerous challenges, many of which require more time than money.
China now ranks as the third largest market for U.S. exports. Agricultural products, aircraft, machinery and vehicles top the export list. Promising areas for future growth include education and training, medical devices, energy efficiency, machinery and environmental technology.
However, China’s economic development slowed in the past three years as its government sought to shift to an economy based more on services than products. The slower pace of economic reform, new laws and inconsistent interpretation of regulations are often cited as additional barriers. For businesses hoping to export goods or services to China the challenges are practical, logistical, cultural and political.
Practical & Logistical Challenges
Creating a long-term business strategy before entering the Chinese market is essential. The first question to be answered is whether China offers a market for a particular product and at a price that will be profitable for the exporter. Simply because a product sells well in the U.S. does not mean it will be a success overseas. A personal fact-finding trip to China is often the best way to determine if there is a need for the specific product you plan to export. Attending an international trade show or exhibition in China, asking questions and being observant can provide a lot of helpful information about the market and competition you may face.
Completing the paperwork required to export also presents a significant challenge. Documentation varies depending on the product, but paperwork often includes a bill of lading, invoice, packing list, sales contract, certificate of origin, customs form, insurance policy, import license and more. The forms can be found online, but knowing which are required is the challenge.
Various government agencies can help determine which forms are necessary and what information must be provided. The Small Business Administration and the U.S. Department of Commerce offer export assistance centers. In addition to providing guidance on paperwork, they can suggest trade opportunities and provide background on potential buyers. Consultation with these agencies will lead to networking opportunities with trade associations, export councils, chambers of commerce and other organizations that can offer practical support.
The U.S. Commercial Service office can assist you to establish a presence in China by connecting you with business associates. This includes representation by a Chinese agent and respected distributors who have the local expertise and contacts which you, as a new exporter, may lack. The office also assists U.S. companies to develop market entry plans and obtain export financing.
Compliance with export regulations can be one of the most daunting hurdles to overcome. An experienced freight forwarder can prove invaluable guidance. The forwarder should know which documents and licenses are required. The bankers and lawyers you choose to help guide your business should also have a history of working with China.
Businesses wanting to succeed in China should demonstrate they are in this for the long term. As an alternative to working with agents and distributors, some businesses choose to open local offices employing Chinese staff. This demonstrates commitment, a valuable commodity for potential customers. Whether working through an importer/distributor or establishing a local presence with a physical office, choosing the right partners is critical to success.
Understanding and appreciating Chinese culture is as important as understanding the potential market. Reading and viewing videos about China is a start, but there is no substitute for personally experiencing the lifestyle and gaining an understanding of how the Chinese approach business. Building trusted and long-term relationships is key to success in business at any level. China prefers to do business with trusted friends. Travel to China and face-to-face meetings with potential clients and partners will go a long way toward achieving positive results.
In these initial meetings, how you adapt to new challenges will be closely examined. The often hurried pace of American business practices is not the Chinese way. In China, the group is favored over the individual. Such collectivism often results in seeking the views of many people on an issue before a final decision is made. Meetings may often appear to drag on without a specific goal in sight. Gatherings are more often designed to establish a relationship rather than to accomplish a business task. Several lengthy meetings may be required before you feel any tangible progress is being made.
Show respect for and interest in the culture. If the meeting involves a meal, graciously accept and eat the cuisine offered by your hosts rather than passing on it in favor of the local McDonalds. Be flexible. Roll with the flow if schedule changes arise. Positive reactions in these early social encounters will be noted and can build trust.
Speaking the language would obviously be helpful, but it is not essential as long as you have an experienced interpreter with you. Ideally, your interpreter will also provide a valued resource to provide cultural guidance and help ensure compliance with proper business etiquette.
The challenges created by shifting political alliances and philosophies, primarily in the U.S., continue to impact trade with China. The U.S. buys far more abroad than it sells, resulting in trade deficits exceeding $378 billion. The Trump administration sees this imbalance in trade as economic weakness fostered by poor trade deals and abusive trading practices.
President Trump withdrew the U.S. from an Asia-Pacific trade deal negotiated during the Obama administration and has imposed tariffs of 10-25% on $250 billion of Chinese imports, believing this will help to reduce the trade deficit. China retaliated by imposing tariffs on $110 billion of American goods.
Further complicating matters are accusations that China has been stealing U.S. intellectual property and trade secrets. American sales of military equipment to Taiwan and a reduction in U.S. visas for Chinese students wanting to study high-tech fields in the U.S. have also soured relations. In a recent speech, Vice President Mike Pence vowed that the Trump administration would confront Beijing’s worldwide economic aggression and compel the Chinese government to change its behavior.
The rivalry between the two nations now extends far beyond trade issues, and, with tough negotiations underway, some analysts predict this conflict could continue through at least 2020. Businesses hoping to develop an export business with China can do little but be aware of the political situation and factor in the cost of potential tariffs when analyzing the Chinese market.
While the complexity of exporting goods to China presents various challenges, many U.S. businesses have found lucrative opportunities and success by doing their homework. There are plenty of resources to educate and assist you. With patience, determination and the right partners, the Chinese market can provide a valuable return on your investment.