Running a business is hard enough on its own, but running one in another country makes the list of challenges even longer.
China in particular comes with more challenges than many entrepreneurs prefer to face.
What challenges does entrepreneurship in the world’s second-largest economy present? The following article examines several of the most prominent challenges for first-time or veteran entrepreneurs in the Middle Kingdom.
Recent Changes in Foreign Entrepreneurship
Earlier this year, Chinese President Xi Jinping spoke at the World Economic Forum meeting in Davos and attempted to assure investors that China will remain open for foreign investment. Jinping spoke about globalization and promised improved market access for foreign companies.
However, we have still seen big companies, such as U.S.-based Seagate, closing factories in China. Despite Jinping’s reassurance, the actions of the U.S.-based companies rekindle the fears of entrepreneurs that China is becoming increasingly hostile toward foreign firms operating in China.
However, it is important to understand the specific reasons that a company decides to pull out of China; they might not be due to a hostile environment at all. In fact, China continues to demonstrate at least a token commitment to further opening up, and companies like Seagate that decide to pack up and move often attribute their decisions to fierce competition from domestic companies and rising labor costs, not government meddling.
Is It Easier or Harder Now for Foreign Entrepreneurs?
Despite being the second-largest economy in the world, the golden age for foreign companies doing business in China is over. Compared to five years ago, the country is not as favorable or easy for foreign entrepreneurs.
There are a few reasons for this. First, China’s population of 1.3 billion, of which 730 million are currently connected online, continues to entice and incubate start-ups, but it is not the immature market it once was. While C2C (Copy to China) remains a viable path to profit for many companies, those employing this approach in competitive, innovative industries like technology will likely fail. In the early aughts, copying Facebook and giving it a domestic look (Xaonei) was potentially enough to mint billions. This is no longer the case in 2017.
Of course, copying remains an accepted business model in many industries in China, and the Chinese people keep getting better at it. Once a foreign entrepreneur enters the market and proves viability of a business, they can expect their idea to be copied and sold for less.
According to Brandon King, founder of Content Blossom, “In China, market arbitrage opportunities and loopholes will soon be recognized and replicated by domestic competitors. You can’t build a viable long-term business on market arbitrage, but you can with strong IP. Of course, the problem then becomes how to protect that IP in an environment where both competitors and the government are doing everything they can to get their hands on it.”
China’s New Open-Door Policy
Recently, in an effort to regain the trust of foreign entrepreneurs China developed a Notice issued by the State Council.
The Notice is a guide to how the country’s economy is changing course and where it is headed in the future. The goal is to upgrade China’s capital base, foster innovation and develop the talents of their labor force. However, China will need foreign investment and know-how in order to do this – which requires relaxed restraints on foreign entrepreneurship.
Previously, China has only partially opened its doors to protect domestic players who are in fragile or politically sensitive sectors. But, the Notice requires the constraints on foreign entry be relaxed for certain businesses in key industries. Some of the key industries include telecommunications, education, transportation, and mining.
The Notice seems to hit most of the major bullet points that concern most of the West and their reasoning for being skeptical about foreign entrepreneurship. But, it might not be too good to be true. The Notice, an official statement in Chinese, was not written for foreign readers.
Ultimately, the outcome of the new Notice will still depend on the other options for growth that the country will have, in addition to other investment options foreign capital will have.
While China does present new challenges, and their market can be risky, their new efforts to relax regulations might mean a better time for foreign entrepreneurship is coming.
The bottom line is that there are other markets. China has been very strict on foreign entrepreneurs in the past and is just now in the works of proving that hopefully, it will soon be changing. The golden age that China once experienced has ended, and it is now a very well-versed market just like other markets in the world.
Start-ups run the risk of failing, among other start-ups who have much more capital and work much faster. They also run the risk of losing too much in profits due to the Chinese people copying their ideas and simply turning around and selling it to their own people.
It appears that China is making the positive changes needed to allow for more and easier foreign entrepreneurship, but there are no guarantees that business will be booming as it was just five or so years prior.
While they are making efforts to allow more foreign entrepreneurs and they need their business, they do still run a strict and risky market.
Michael Michelini is host of the GlobalFromAsia.com podcast, an online radio show to help business owners grow their companies in Asia and around the world.
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