SHANGHAI - GATEWAY TO BUSINESS IN CHINA
SHANGHAI - GATEWAY TO BUSINESS IN CHINA
Until recently, companies
entered China via Hong Kong to overcome the difficulties associated with doing
business there. With China’s continued
development and full implementation of WTO commitments scheduled for 2007, it
makes sense for more and more companies to enter China directly through
business-favorable Shanghai. An entry
through Shanghai gets you in China and
is better than a full launch given the fragmented Chinese market and fact that 60%
of Chinese people still live under rural conditions. Using Shanghai as your China springboard offers many
advantages as shown in Table I.
Other Considerations
SHANGHAI GATEWAY TO BUSINESS IN CHINA - To learn more about this author, visit Chris Wingo's Website.
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The Shanghai Advantage
- One of most transparent business environments in China and favorable business policies
- Developed infrastructure including highways, subways, rail, waterways, two international airports, seaports and communications systems
- Presence and influence of many multinational companies and executives
- Availability of educated workforce
- Large bases for manufacturing, financial and service sectors
- Residents with progressive more internationalized mentalities
- Ready-made market with China’s highest per capita disposable incomes
- GDP of Shanghai plus that of contiguous provinces equals 25% of China total
Shanghai Opportunities
On the opportunity side, greater
Shanghai offers a sizable market in and of itself. Shanghai area people are more affluent, educated and forward
thinking than many people in other parts of China. Trends are set in Shanghai that the rest of China follows. Even the central government uses
Shanghai as an incubator of sorts to test reforms and other policies. If there is to be an opportunity in
China, there’s a good chance it will manifest itself in Shanghai first.
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Table II: Shanghai and China Comparative Data (’03-’04 est.) |
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|
Measure |
Shanghai |
China |
|
Population |
17 million (< 2% China total) |
1.3 billion |
|
Overall GDP |
$73 billion (> 5% China total) $375 billion for Shanghai region(25% China total) |
$1.5 trillion in 2004; 6th largest in world, 4.5% of global GDP |
|
GDP Growth |
11%+ |
8.5%+ |
|
Income per Capita |
Roughly twice national average |
Roughly ½ Shanghai average |
|
Foreign Direct Investment |
$6 billion (2003) |
$58 billion |
|
Trade with US |
$19 billion |
$172 billion |
|
Imports from US |
$7 billion (18% China total) |
$40 billion |
As China continues to
modernize, the demand for a variety of products and services is growing. This is especially true in Shanghai
where the expectations of an expanding middleclass are becoming increasingly
high. Opportunities for everything
from capital equipment to up-scale consumer products and specialized services
abound. Per the US Commercial Service,
commercial sectors to watch include “telecommunications services,
transportation infrastructure (ports, metro, light rail and highways),
distribution services, environmental technologies, construction materials,
architectural and engineering services, industrial equipment, machine tools and
manufacturing process controls”. On
the consumer side, consider:
- Shanghai has more than 30 Starbucks as well countless KFC’s and Pizza Huts that are consistently busy. Shanghai people are quick to try new concepts, especially ones that are food related.
- As Shanghai’s middleclass grows, so does its demand for services related to convenience, health, financial and insurance. WTO obligations especially support positive trends in the service sector.
- People in Shanghai are discriminating buyers that prefer famous brand products (e.g. watches, cell phones, cosmetics) and services (e.g. MBA programs, language training, life insurance). Such products and services tend to do well even with higher pricing.
Other Considerations
Choosing to enter China through a more developed
market such as Shanghai generally increases the likelihood of a successful
venture. However, even markets
like Shanghai offer no guarantees of success. In addition to geographic selection, it’s critical to employ
sound business practices as you move into this new arena. A couple of many other important
considerations follow.
Ensure Your Opportunity is Real: Don’t
make assumptions for China based on your western business experience. Instead, carefully
assess how your offering fits in the China
market. To be successful in China,
you need to ensure the following are true.
- Your product or service really is something Chinese buyers need or want and are willing to pay for
- No closely comparable low-priced Chinese alternative exists or can be created on short order that will become the preference of local buyers
- Given projected pricing and costs (account for contingencies) your business can be profitable within a reasonable period of time
Seek Expert Advice: Going-it-alone in China is generally cost-ineffective and failure prone. Seek the assistance of experts that know China and have experience at doing what you are trying to do. Experts come in many forms including consultants, attorneys, the US Commercial Service, Chambers of Commerce, businesspeople, etc. Be sure that whoever you choose to work with is qualified to advise you. There are too many “China experts” who interestingly enough have never been to China.
Conclusion
China’s continued economic growth, increasingly favorable business climate and massive population are making her an attractive option for companies seeking to expand their business. China offers tremendous opportunities but must be pursued correctly or else significant time and money will be lost. Entering China with Shanghai as your gateway combined with adherence to sound business practices is a good way to ensure successful participation in this “great new market”.
SHANGHAI GATEWAY TO BUSINESS IN CHINA - To learn more about this author, visit Chris Wingo's Website.
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