China’s booming economy and rapidly growing middle-class present a wealth of opportunities for Australian businesses, particularly those companies able to tap into the rising demand for high quality goods and services. But many local SMEs with international expansion goals have discovered it’s not as simple as heading overseas and establishing operations.
In a culture such as China’s, where a business’ survival rests on the success of understanding the unfamiliar market, Australian SMEs can thrive by making the most of their status as a preferred trading partner. This can be achieved by thinking outside the box – establishing a ‘basecamp’ in Hong Kong as a gateway to the Chinese market and taking advantage of Hong Kong’s special administrative status.
The business benefits of a Hong Kong base
Hong Kong is a Special Administrative region of China, located in one of its richest and most developed provinces; serving as a two-way interface between the mainland and the global marketplace.
The principle of ‘one country, two systems’ was established in the Sino-British Joint Declaration of 1984 as a way to reconcile mainland China, operating under a communist economy, with its capitalist counterparts; Taiwan, Hong Kong and Macau. Under this law, Hong Kong is defined as a highly autonomous state with exceptional legislative and judicial power, and the Chinese central government is unable to interfere in its affairs.
As one of the world’s freest economies, Hong Kong has no barriers to trade, no restrictions on inbound or outbound investments, no foreign exchange controls and no nationality restrictions on ownership of property. For Australian businesses, this provides an attractive location in which to establish a basecamp for operations.
Recognising the main barriers in order to overcome them
Understanding the landscape
The Chinese regulatory environment is fraught with complexities that vastly differ depending on location. In addition, each province in China can differ by culture, dialect and economic situation with a different interpretation of laws and regulations.
Australian businesses that cultivate trusted relationships with local vendors and firms with an intimate knowledge of the various markets will have a greater understanding of what motivates their business partners in China and how to best navigate their relationships.
Protecting your intellectual property
China is well-known for intellectual property (IP) theft, and while the Chinese government is taking steps to improve this framework, SMEs need to ensure that they adopt a thorough approach to securing their intellectual property.
It is essential that SMEs patent any IP that they plan to use in China, regardless if it is already patented in overseas markets. This is important to note as patents are national rights and simply patenting IP in your native country will not protect it from international exploitation.
Business Disputes
For any business, dealing with disputes is a potentially costly and time-consuming process. For SMEs that operate in overseas markets who are often already dealing with issues relating to cash-flow and liquidity, the knock-on effects associated with a dispute can be fatal.
Knowing who to trust and where to turn at such a time is important, particularly in the Chinese business environment where importance is placed not so much on corporate rules, but rather on social reciprocity. It is important to note that the Australian government will be unable to provide companies or individuals with legal advice in foreign markets.
Seizing sector opportunities
Aged care
China’s ageing population is expected to reach 248 million by 2020, and will require developed and established facilities to support their needs as well as a skilled workforce qualified to care for them – both of which are currently in short supply.
With China’s increased interest in Australia’s educational resources, experiences and inventions, there is significant opportunity for Australian SMEs that operate in this space to engage with these opportunities in the healthcare sector, through education, aged care training and operating aged care facilities.
Energy
There is a strong demand in China for renewable and clean technology as the Chinese economy shifts their focus from traditional coal power to sustainability in a bid to reduce air pollution. This is seeing the country accelerate its commercial expansion in overseas markets with the National Energy Administration announcing that it aims to invest 2.5 trillion yuan into renewable power by 2020.
Conclusion
For Australian SMEs, understanding and mitigating the risks associated with doing business in China is the key to establishing a prosperous and healthy business.
There is an increased demand for on the ground services in foreign markets to assist Australian SMEs and a necessity to foster trusted working relationships with businesses that are well versed in the complex market.
For businesses that are looking to expand overseas, seeking out an Australian firm that has expanded their international footprint and established affiliate relationships with firms overseas will help businesses to identify and mitigate any potential risks of doing business in unfamiliar markets.
About the authors
Mark Chapman, Bentleys & Ken Deayton, Hong Kong Corporate Services have experienced firsthand the challenges that many businesses face when navigating the complex, but lucrative Chinese market and have developed an affiliate relationship between their two firms, which allows for constant on the ground support for Australian businesses looking to expand overseas.
