As China remains an economic hotspot in a stagnating world economy, companies everywhere remain interested in the possibility of trading into the country.
Aside from figuring out where to find accurate economic data about a country that keeps a close lid on how it obtains official information, foreign suppliers need to understand some of the practicalities of conducting business in China, note analysts with credit insurer Atradius in a new report about trading in China.
Atradius analysts provided the following list of factors to help inform commercial credit professionals attempting to mitigate and optimize rewards when selling into China. (See NACM’s eNews piece that lists more tips for trading into China.)
Understand Chinese business culture. Formality and respect for hierarchy are crucial in Chinese business matters, including the concept of “face,” which Atradius defines as a “…combination of actions and perceptions that can either help or hinder business relationships.” Bad or rude behavior during a meeting can serve to lose face, while having a CEO attend a fruitful business meeting can enhance it. Also, note that obtaining an appointment for a meeting, sometimes as much as a month or two in advance, is essential in China.
Protect intellectual property (IP). A reputation of producing pirated or fake goods is widespread in China, and despite efforts to protect IP in the country, companies will want to register copyright in the country. Copyright protections for written or published works last for 50 years from the author’s death. For commercial inventions, patents in China give protection for up to 20 years and are issued on a “first-to-file” basis. Trademarks are also protected on a first-to-file basis in China. “Apart from recording your registered IP rights, there are several ways that you can protect your IP,” Atradius analysts said. “Regular risk assessment checks, advice from local agents or others already trading in China, and IP-related clauses in your employment contracts can all help.”
Select the correct payment method. Atradius is seeing the possibility for a delay in payment in the durable goods, retail and E-commerce sectors, among others, so pick the payment method wisely. Chinese customers must have significant trust in order to accept a cash-in-advance situation. A letter of credit (LC), especially a Confirmed Irrevocable LC, provides security, though beware of some of the drawbacks. These include shifting the liability for payment to a customer’s bank and the fact that LCs can be expensive to arrange, particularly for low-dollar transactions. Open account terms will be attractive for your customers, but be wary of risks of delayed or renegotiated prices to overseas traders, particularly for perishable goods.
– Nicholas Stern, editorial associate