Recently I have been consulting to businesses moving into China and Hong Kong which has given me some insights into this interesting region. This environment is a legal, political, social, cultural and technical minefield. However, if navigated successfully it can result in major gains which is what drives so many western businesses to the region.
The initial company setup can be a long draw out process with terms such as representative office (RO) and wholly foreign owned enterprise (WFOE) being just the tip of the ice berg. The only advise that I can give here is to get a good accountant and lawyer that specialise in this work to help you.
From a technology view point, I am still amazed at the high level of sophistication and technology adoption that is present in China, especially the large/mega cities (China has 14 cities of over 5 million people). I put this down to two major factors; population density and political environment.
Due to the high population density things generally happen quickly, however it also creates an environment where technology can and does play a much bigger role in life. Simple things such as online ordering is a lot more common in China than anywhere else in world. It is simply a lot more efficient to order everything online then to physically shop for those items. This drives the online technology in China and they are far more advanced in this area then the rest of the world.
The political situation is also a very interesting topic. A lot of westerners believe that Chinese residents are deprived of technology because the government blocks anything which it deems inappropriate (eg. Facebook, Twitter, Google, YouTube etc). This could not be further from reality. In fact this policy has isolated China from these large western companies and allowed Chinese companies to copy those solutions. In China Google is replaced by Baidu, YouTube by YouKu and Twitter by weibo. This allows these Chinese companies to grow quickly and become extremely large while staying within China. How? Well the population of China is larger than USA, Germany, UK, Russia, France, Brazil, Japan, Italy, Canada and Australia combined. Therefore, staying within China is not a bad strategy for most Chinese businesses. The uniqueness of these Chinese businesses is that once there have succeeded in the China there is no restrictions on them to enter the western markets. The Chinese government encourages them to do so.
One App does stand out above the rest – WeChat! I like to call it the Mega App! It is really ‘everything’, think of it as WhatsApp, eBay, Facebook, Twitter, PayPal, Menulog, deliveroo and a lot more in a single app. Here is a great video by New York Times explaining this in detail – video. I do believe that due to privacy concerns these Mega Apps will always find it hard to exist in the western countries. Imagine that a single business held that much information about you. That is something that westerners are not comfortable with, however in China due to the communist government the luxury of privacy has historically been lacking. This make Chinese consumers less sensitive to the privacy issues and creates the perfect environment for Mega-Apps to thrive.
If you find yourself consulting in this region I strongly encourage you to familiarize yourself with the local policies and standards. The laws and policies change frequently in China. The most recent change is the new China’s Cybersecurity Law that came into effect on June 1. It requires network operators to store select data within China and allows Chinese authorities to conduct spot-checks on a company’s network operations. Beijing asserts that the law is intended to bring China in line with global best practices for cybersecurity.
A lot of people know about The Great Firewall of China (abbreviated to GFW), I will write another article on how this can affect business within China and what options are available to mitigate against these risks.
If you do have any questions, feel free to reach out.