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Managing the Inherent Business Risks in China:

The Choices before us

The major challenge faced by many small enterprises will be how to globalize their operations in order to be able to take advantage of emerging global markets in order to compete with much larger companies. Companies will be forced by rapid changes in the global economy to adjust themselves so as to survive the rapidly changing business enviornments.Globalization is a very recent phenomenon for most small and medium sized companies,(Globalization: A Very Short Introduction ) buying and selling in global markets, up until very recently, was an undertaking specifically achieved by the use of an intermediary., the intermediary was a global trading company. In many instances,specialized global trading companies

This has created a climate of confusion about professional credentials and has also encouraged the proliferation of volumes of useless trade leads.

Unfortunately, increased foreign travel and contacts with more foreigners gave many people the impression that the so-called middleman role was quite easy to perform, in fact, being an intermediary is a very complex task that requires significant understanding of differences in business culture and the ways in which an international transaction is concluded. This has created a climate of confusion about professional credentials and has also encouraged the proliferation of volumes of useless trade leads.

Managing Risk in China

China as not just a huge untapped potential market,and a source for an unlimited array of products, but also an incredible challenge, with cutthroat competition. Some foreign companies have lost money by over-investing too quickly however, companies with smaller investments have been successful within three to four years because they were careful where they positioned themselves and learned how to make the best use of their money.

Here are the major hurdles that foreign companies encounter:

Underestimating Local Competition

Lack of Intellectual Property Rights

Underestimating the Impact of Government Relationships

Concentrating on Low Labor Costs

Not understanding infrastructure and Distribution Networks

Local Competition: Competition within China is cutthroat, we suggest however, that you embrace it; it's only going to get worse. It's not merely that the Chinese are competitive by nature, but also, the pro-growth policies have created many new businesses opportunities.The successful investors and entrepreneurs in China understand the particular opportunities and challenges of the specific region.Theyneed to overcome high fixed costs and to operate profitably with a high-volume, low-margin business model.

Intellectual Property Rights: Local distributors can play an important role in managing counterfeits the people you employ to distribute your products and manage your sales will kn the local markets and be able to quickly identify counterfeits, these people are your first line of defense in keeping stolen IPR in check.

Underestimating the Impact of Government Relationships: Respect and trust are the key ingredients in China as it is in the rest of the world. Building relationships, not only in China, but Asia, as a whole is essential, The central and local governments still reign supreme in China, and the relationships you develop can have a major impact on how smoothly your business operations will go. Expect less, and be patient are two good rules of thumb.

Concentrating on Low Labor Costs: Let's dispel one myth, China is NOT cheap, China has low labor costs, and labor costs are just one component of the costs you may face. China also faces the same high raw-material prices as the rest of the world; many regions in China face high transportation costs as well, and China's opaque, unpredictable regulatory/bureaucratic environment further burdens its producers. Focus on your complete business model not just low labor costs.

Not understanding Infrastructure and Distribution Networks: Distribution in China has undergone substantial changes.Private distributors and joint venture distributors are emerging, as they are more responsive to the market needs and better managed. They are posing increasing competition to the state-owned distributors.In spite of the difficulties of conducting logistics and distribution activities in China, companies can still earn a profit. In fact, contrary to popular belief, a majority of the foreign companies operating in China are in the black, although perhaps not to the degree they would be if they were able to reduce costs by fully integrating their operations.

In Conclusion: Above we have identified the main hurdles companies must face when operating in China, they are manageable, and all may not apply to your business needs. "One size does not fit all" it's a good idea to analyze which risks your company may face and design some simple strategies to overcome them before venturing into the frey, a very well thought out S.W.O.T analysis can identify potential problems and enable you to smoothly overcome the hurdles when you encounter them.