Over the last decades, China has evolved into an appealing destination for companies looking for new locations for expansion. It contains more than 1.4 billion people with an accelerated rate of growth and this offers huge opportunities to companies aiming at penetrating its consumers’ market.
In this regard, one of the countries which have successfully ventured into China’s markets is Malaysia. Malaysia is situated at the southern part of China with close cultural and economic relationships, and now it becomes very attractive for firms seeking market access into China.
We shall consider the appropriate measures which Malaysian companies can adopt as they venture into the Chinese market in a separate document. This article intends to offer useful knowledge to a business looking to penetrate China as a profitable market.
Understanding the Chinese Market
It is imperative to analyze the Chinese market and its peculiarities before dwelling upon the particular market entry issues. The Chinese politics are very complicated. Further, there is an issue with numerous regional differences concerning culture and economic strength, which makes it difficult to establish common rules within this region.
It should be borne in mind that the Chinese culture is collective-oriented and the relationships as well as the trust are crucial for doing business. Success also hinges on building strong partnerships with local stakeholders and having a good standing brand identity.
The Chinese regulatory environment can also be complicated, and sometimes volatile, thus this should be another issue that must be considered. It is important to know the existing laws and regulations that will impact your business in China prior to venturing into the market.
Strategies for Incorporating into the Chinese Market
We have identified three main strategies that Malaysian companies can use when entering the Chinese market: joint ventures or WFOEs or representative office models.
Joint ventures are usually taken to denote cooperation between a foreign company and a national Chinese company. A collective venture where ownership, profit-sharing, and use of locally available material and skills are made possible.
Malaysia’s companies often use joint ventures to access the Chinese market because of common cultures and languages that facilitate relationships with local partners. However, choosing a trustworthy and reliable partner for cooperation and agreeing on the most favorable terms is also important.
Wholly Foreign-Owned Enterprises (WFOEs)
It is an international company created in China and fully-owned and controlled by a foreign investor. Through this tactic the foreign firm controls everything without losing its earnings or knowledge.
Many Malaysian companies are using WFOEs for this purpose because they remain fully owned by them. Nevertheless, establishing a WFOE is quite demanding and involves considerable administrative expenses and observance of China’s laws. Here the Complete Guide to Set up a WFOE in China 2023.
A representative office is a cheap and convenient method for firms to be represented in the Chinese marketplace without starting a new company. This is a strategy that facilitates market research, establishment of relationships within an organization thus promoting the brand of a company in China.
Malaysian companies often use representative offices as an initial step in entering the Chinese market and then expand their operations. However, they are limited in their scope of business activities and cannot generate profits or sign contracts on behalf of the company.
It is not easy but beneficial for Malaysian companies’ inclusion into the Chinese market. Just as in the case of any other international expansion approach, it is imperative to carry out a comprehensive study and analysis of the market to make well-informed decisions. With these strategies under consideration and appropriate approach to their business, Malaysian firms can easily penetrate the Chinese market. If you need advice on company incorporation in China, talk to our expert.