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What Structuring Advice Would You Give To An Indian Entrepreneur Who Wants To Expand To China

April 21, 2016

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In this blogpost, Kriti Kakkar, Student of Lucknow University and Diploma in Entrepreneurship Administration and Business Laws by NUJS writes about who is an entrepreneur and gives advice for an entrepreneur who wants to expand his business to China.

Who is an entrepreneur

Let’s start by putting light on what an entrepreneur means and if there is a difference between an entrepreneur and a business owner. Practically no, a business owner expanding or venturing in the new field of work is an entrepreneur.

An entrepreneur is defined[1] as a person who initiates a venture to make benefit of an opportunity, he may decide the produce of the product as a decision maker and risk taker.

In India, the existence of entrepreneurs has a tremendous impact on the global economy. Though they are governed by the principles of law and have a contractual relationship with others but they also carry the certificate of incorporation of their company to get easy recognition in the world. An entrepreneur always wants to accelerate the business globally, but this decision cannot be taken lightly. A business owner would have to go over several factors before venturing out of the country.

Did they build a solid foundation at home?
Do they have bench strength for International expansion?
Is the talent pool at par in another country to what is available at home?
Will he be able to grasp cultural implication in a sale process?
Can he do better and offer a better product than the local competition?
Would an overseas expansion require investors?
Would the entrepreneur require an International partner in the country he is looking in expanding to?

Chinese market investment

China’s entrepreneur market (e-commerce) currently is doing much better. It is valued at 300 billion in 2014 whereas India is valued at 10 billion. It is the fastest growing economy. Hence a lot of Indian entrepreneurs are looking to invest in their business to expand in China, for example Make my trip was invested with 1,204 crores by a Chinese online travel major Ctrip.com[2]. Since there are quite a few similarities between the Indian and the Chinese market investment and venturing in a new market is quite favourable to entrepreneurs.

As an advisor I would advise my client who is looking to expand his entrepreneurship to the trade free zones with potential investors in China, the trade free zones have been established by the government in 2013 and offers relaxed rules regarding foreign investment, setting up of overseas companies and tax exemptions compared to the rest of the country which is overridden with red tape.

A trade free zone is a block requiring the cooperation of countries having signed a free trade agreement (FTA). The aim of such FTA’s is that so there would be easy and free trade between the countries. The trade free zones of china are Tianjin Free Trade Zone, Guangdong Free Trade Zone, Fujian Free Trade Zone and Shanghai Pilot Free Trade Zone.

The trade free zones offer huge opportunities

Overseas suppliers use the opportunity of the online trading platforms such as Kua Jing Tong to sell products to Chinese the consumers directly without setting up any sort of commercial presence in the Chinese
Direct Imported Goods Market is another option for overseas suppliers wanting to find a way around agency fees.
Overseas alcoholic beverage producers and retailers can take advantage of new exhibition and trading centres to explore the Chinese market.(http://www.china.doingbusinessguide.co.uk/the-guide/free-trade-zones/)

It is better for an entrepreneur to have the business set up as a Private Limited Company as per Section 2(68) Companies Act,2013 as it removes personal liability from the board of directors, the investors are more willing to invest in the company.

The Indian Entrepreneur can also target the expat community for business growth in cities like Shanghai and Hong Kong it ensures certain acceptance at the beginning of the expansion while the entrepreneur is easing into the market culture of the another country.

I would further advise the client to

Be fluent in the Local Language of the Country–

It always helps to understand and speak the language of the country you are looking to expand to especially where English is not spoken widely eg, China. It is not always feasible to be fluent in a foreign tongue; it helps to know the basic words of the language and showcases a sense of sensitivity for the cultural towards any potential partner.

Do market research before launching the product-

It is one of the crucial parts of advertising the product and getting genuine feedback on the reaction of the consumers. If one is say reinventing a cosmetics line and wants to research the impact of the product. The company can launch their product in few parts of the region. If the feedback is positive, then one can go ahead and launch the product, If the reaction is overwhelmingly negative, the board can take a decision on it. This strategy saves the company a lot of time and money.

To test if the product offered can seize the local competition –

A very good example of this point is IKEA, a major furniture brand offering affordable pieces. IKEA wanted to expand to China, they studied the structure of the people’s live in China and realized, and homes are much smaller than that in America and modified their designs to a more multifunctional and modular pieces. Now, this was at the time not been offered by any of the local competitive markets.

Respect the culture driving the society-

Product offered by a company only works if the people accept it and are willing to buy it. Hence, it is of utmost important to understand the culture of a society and to brand the product around it. One must also make policies of the company as per the culture of the society. Policy which worked back home may not necessarily work for employees in another country. Hence, the policies of the company must always be culture appropriate.

Import and Export-

It may not be necessary to ‘set shop’ in China to sell a product or expand one’s business. An e-commerce retailer may also sell their products on websites or target expat community specifically through websites such as www.shanghaiexpat.com.

As the e-commerce market is growing by leaps and bounds ,If an e-commerce retailer can utilize free trading sites , he can also import commodities from FTZ like shanghai and Hong Kong and sell the products at home.

Hire a distributor –

If one does not want to go through the hassles of ‘setting up shop’ or has no time to look into the sales of a foreign country, then one can hire a distributor whose sole job would be to look after everything on your behalf and shall simply report back to you.

Conclusion

I would advise the above-mentioned points to an Indian Entrepreneur, who is looking to expand in china depending on the nature and structure of the business he is looking into for expansion.

[1] http://www.businessdictionary.com/definition/entrepreneur.html

[2] http://articles.economictimes.indiatimes.com/2016-01-08/news/69615415_1_online-travel-market-travel-company-market-share