5 Common Challenges for Foreign Startups to Start Business in China

It's a dream for nearly any foreign startups to enter China market. The country's massive population of more than 1.3 billion, of which 730 million are currently connected online, is attractive to almost any enterprise looking to expand and scale. But, China is a unique market that the way it worked in another country may not work here. So it makes it hard foreign startups to start business in China as they must redesign a solution that’s localized for its own demographic. And below are some common challenges foreign startups may face when starting business in China.

Not Understanding the Market as Locals

Product and market strategy often depends on intuition about the way users or clients will react or behave, but foreigners don't have such intuition, even if they can speak the language. Staying in touch with the market is becoming increasingly important, and they are getting out of touch by being abroad. So foreign startups have a competitive disadvantage when they start business in China.

Customer Preference for Local Products 

In many cases, local customers prefer to support their country’s products, and China is the same. Just like, an estimated 96% of online traffic in China goes to Chinese servers, according to China Internet Network Information Center. If the products or services from foreign startups do not outperform at all level, most customers will prefer the local one. So some foreign startups may choose to partner with local companies and rebrand or localize their brand to make it more like a local brand.

Government Preference for Local Companies 

It’s natural that the government clearly wants local companies to outperform foreign competitors, and I think every government does this in their home market. Some government policies or fundings are only in favor of local companies. If running a foreign startup on your own without a local partner, you may probably miss a lot of chances of government support or preferential policies, and put yourself at disadvantage.

Lack of IP Protection

China has made continuous effort to strengthen the protection of intellectual property rights. However, starting business in China is still challenging. Counterfeiters and infringes in China still exist. They often exploit procedural loopholes, proactively seek to invalidate legitimate patents and trademarks. So if you don’t adopt preventive measures to protect your IP, you expose your business to unnecessary risks. So foreign startups should protect their IP as soon as possible when starting business in China.

More information, please refer to How to Protect Your Intellectual Property Right When You Start Business in China

Complex Process

Comparing with many other countries and regions, company registration is a complex procedure in China that requires proper planning and execution, and thus I would not recommend doing this on your own. Issues such as what type of entity to register, how to file the registration to the designated authority, what documents should be arranged, what certificates should be applied for your specific type of business, need to be carefully considered beforehand. Moreover, even after the entity is duly set up, how to fulfill your mandatory tax liabilities, how to pay your employees, and if you are in the high-tech industry, how to apply for the state recognition of high-tech enterprise and apply for the government funding will be the issues you need to deal with.

More information, please refer to 5 Reasons Why Foreign Startups Should Find A Partner To Start Business in China

WTOIP, as a sharing service platform with a focus on IP, provides comprehensive entrepreneurial and legal services to our clients, helping foreign tech startups start business in China with no legal hurdles. Services include preliminary project feasibility study, potential business partner pitching, one-stop intellectual property solution plan, local incorporation registration and application for government funding. If you are interested in starting business in China, just contact us.