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Want to Expand into China? Read This First

Heading to China isn't right for every company--and even if it is for yours, it won't be easy. Here are three things to remember.
Yu Yuan Area, China

It's the most populous nation on Earth, potentially its biggest market, America's chief creditor, and the maker of most of our goods. It's like the Mount Everest of business, a new pinnacle to be conquered "because it is there."

Expanding into China presents a huge temptation for businesses large and small, and has led to heartache for some that gave in to that temptation. At one time or other you've probably wondered: Is my business ready for China?

That was the question facing Panjiva, the B2B online marketplace whose name is a play on the Earth's ancient single continent. The answer was yes. "We made the decision to open an office in China at the end of 2010," says Josh Green, the company's founder. "We had an office up and running by the end of 2011, and today we have 18 people there, a third of our company's head count."

It's an investment that's paid off. "From nothing at the end of 2011, we've grown sales so that in the fourth quarter of 2012, 30 percent of new sales came from our China office," Green says.

Nevertheless, he says, expanding into China isn't right for every company. And even if it is right for yours, it won't be as easy as you think. To make it work, you'll need what he calls "The 3 Ps":

Purpose

What's your purpose in expanding into China? "Because it's there" really isn't good enough. For Panjiva, purpose was a no-brainer: The company's mission is to connect buyers and sellers, and many of those sellers are in China.

But, Green warns, "Purpose flows both ways. There needs to be a rationale for why your company wants to go to China, but also a rationale for why customers in China will want to buy from you. There needs to be a reason why you'd have a shot at successfully competing in China because it is a very competitive marketplace."

Person

"A new company in a new geography needs one person to be the driving force behind it," Green says. This is especially true in China. "You need a person with very specific skills who can lead the charge, and finding that person either inside or outside your organization can be a challenge."

The ideal liaison has Chinese language skills, Green says. It should be someone who can navigate any legal and regulatory challenges that might arise, and someone who can be an ambassador for your company and its culture, and also help convey some of the Chinese culture back to your company. "There's no question that you're going to be looking for someone with a skill set that's really difficult to find. That process will take time," Green says.

In Panjiva's case, the right person is Bob Gates, who comes from Texas, and reputedly speaks Mandarin with a Texan accent, and who had experience setting up a company in China prior to Panjiva. Though Green was certain from their first encounter that Gates would be a great representative for his company in China, it took many months before Gates was persuaded to sign on.

Patience

"Everything in the world of start-ups takes longer than you would like," Green says. "That is never more true than when opening in a new geography, China in particular."

Have the patience to work through the legal issues, the patience to hire the right local staff to carry your company's message forward and especially the patience to listen to the local market. "No matter what you think you're going to be selling, chances are high that you're wrong in some respect. The market will teach you what it's interested in, and it will differ in subtle or maybe big ways from what you expected. Have the patience to experiment, and experiment again."

It's well worth the extra effort, he adds. "I can tell you that when I hop off the plane in Shanghai and walk into the Panjiva office and see a team of incredibly talented people working hard to build their piece of a global business--it's a very rewarding feeling."

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IMAGE: Getty
Last updated: Feb 28, 2013

MINDA ZETLIN | Columnist | Co-author, 'The Geek Gap'

Minda Zetlin is a business technology writer and speaker, co-author of The Geek Gap, and former president of the American Society of Journalists and Authors. Like this post? Sign up here for a once-a-week email and you'll never miss her columns.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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