This article originally appeared in ExportWise.

Please also see the previous story in this series, Policy paves the way for cleantech export opportunities in China.

China is a potentially lucrative market for Cleantech companies, both in terms of size and opportunity. And yet, it is notoriously difficult for foreign companies to gain a foothold in China and successfully do business there. Many companies have tried and failed in their pursuit of the Chinese export market. In our previous article, we examined how policy can be both a driver and inhibitor for exporting clean technologies there. In this article, we discuss some pertinent questions that companies should ask themselves before considering entering the Chinese market. 

Do you have a niche advantage? 

China is a crowded market in almost all sectors. Through your market research, try to identify where your products or services could fit best, based on their unique advantages over the current competition. Often companies who are most successful in China are those that have found niches they can sell into. Opportunities can sometimes exist in surprising places, however success is most likely in those areas of the market where domestic capacity is not adequate, and there is a need for foreign technologies and services which offer better quality or efficiency.

The demand for clean technologies is continually increasing in China, and the government is encouraging the adoption of foreign technologies through a variety of financial incentives, making it ever easier for exporters to find willing Chinese partners.

Tip: It is important to conduct thorough market research, identifying local competition as well as collaborators. Trips to the market with outbound missions and conferences can be beneficial, in not only gaining more insights about the market itself but also creating valuable local connections. Do not discount the advantage of on-the-ground research when it comes to identifying your company’s niche opportunities there.

Have you found the right entry point? (Location, location, location)

China is not just one large, homogenous market – rather it’s is very regional in nature. Though the overarching framework for energy use and infrastructure development is directed by Federal policy, provinces and municipalities usually have the responsibility of implementing the policy on the ground. Also, each province is different, with its own unique challenges and requirements. Being fully conscious of this dichotomy is imperative for creating successful ventures in China. Your location can make or break you.

Tip: China is better viewed as a collection of smaller, individual markets to which you must adapt your market entry and growth strategy. Given its vast geography, there are many provincial and municipal nuances in policy, funding, social complexities, dominant industries, etc., which means the market opportunities and barriers vary widely from place to place. To be successful, you need to understand these difference and also identify local influencers who can support your venture. Attending tradeshows in the region you are considering allows for face-to-face interactions with potential suppliers, manufacturers, buyers and partners. Trying to attend at least two a year is a great way to familiarize yourself with the opportunities a particular region holds. 

Have you got the right partnerships in place?

Having the right Chinese partnerships is probably one of the most important success factors when doing business there. Although some basic due diligence regarding a potential partner can be carried out in-house, nowadays it is easy to find legal and risk assessment consultants in China that deliver robust business intelligence, individual background checks, and risk analysis services. A recent MaRS Market Insights report on the market opportunities in China noted that technology transfer, joint R&D, and partnerships are the most common forms of collaboration between foreign startups and Chinese companies or research institutes. These are also the types of collaboration activities that are favored and supported by the different levels of government in China.

Tip:  The choice to go with technology transfer, joint R&D, or partnership should be based on the unique conditions and development needs of your company. These needs may reflect the stage of your company’s products, the level of intellectual property (IP) intensity, its funding needs and its requirements for partners. Understand who you can partner with and start investigating those relationships early on. Invest in local managers early on also, to help build these relationships.

Early stage start-ups should seek out partnerships that value long-term growth over short-term profits, as these partners tend to be more patient and willing to invest in early stage start-ups.

Is your Guanxi in check?

In Chinese culture, the concept of Guanxi (which literally means ‘relationships’) is used to indicate personal relationships or friendship. Guanxi has a strong influence in the business world. It refers to the network of relationships among various parties that cooperate and support one another – it is the basis upon which trust is built, and business is conducted. As such, serendipity is not a strategy when it comes to exporting to China. In such a competitive market, developing and nurturing strong, trusting and long-term partnerships based on Guanxi is essential.

Tip: Relationships need to be continuously refreshed and developed. Foreigners can develop these relationships but need to be particularly diligent about keeping them current. Think about what you can offer your partners to illustrate your inherent advantage, such as connections and market information.

Is your IP protected?

The IP protection environment in China is often a concern for companies thinking of doing business here, especially when it comes to enforcing copyright laws. Though there are many laws protecting IP, the understanding of these laws is often not very robust for foreign companies. In China, only registered patents are protected, thus registering your idea is of paramount importance. Another interesting aspect is that there is little concept of reverse engineering in China and it is not protected by patent protection laws there.

According to Ling Ting at World Discoveries, “As China climbs to the No. 1 position in patent filing and patent issuance, the legal system is taking IP infringement more and more seriously and it is less of a concern that the infringement of your patent will go unpunished. However, the protection of IP outside of patents, such as know how, trade secrets and software source code, should still receive a lot of attention and be addressed with due care.”

Tip: Companies interested in pursuing the Chinese market need to take the necessary measures to register and protect their IP, and develop market entry strategies that minimize their exposure to potential IP violations. Peter Zhang, Counsel at Gowling WLG, global law firm, suggests that “Canadian companies need to put proper patent protection clauses in any contracts they sign with domestic actors. This will prevent issues of IP infringement.” 

Check if your trademark stands in China and be sure to sign a solid non-disclosure agreement early on. 

Stamina, skills and investment – Do you have what it takes?

China is a huge and exciting export market for companies in the cleantech and clean energy space. However, when foreign companies first move into this market, business can appear to move slowly, especially with regards to regulation and dealing with government agencies.

In Ling Ting’s experience, whether business actually moves more slowly there is debatable – with the right partners, buyers and demand in place, deals can actually move quite quickly. “The rule of thumb is that if the discussion about a deal hasn’t entered into the stage of serious negotiations (i.e. term sheet stage) within 3 months, the deal is likely dead no matter how hard you try to push it. When or if a discussion is moving more slowly than it does in North America, it is usually because either you are dealing with the wrong people (not the real decision maker) or your communication strategy is inadequate.”

Companies must be ready for their window of opportunity once it opens, as local competition rises quickly and they have the edge on local market understanding. Exporters should be prepared to stake their claim on a market or risk being left behind – having the resources in your company to be flexible and nimble in response to opportunities is key.

Overall, companies must be prepared to play the long game when it comes to exporting or setting up operations in China. Chinese businesses most often want to work with exporting companies on equal footing and build long-term business relationships.

Tip:  Before entering the market, it is imperative to gather robust market insight and identify your own company’s assets, capabilities and resource gaps. Some questions to ponder are: Is your balance sheet ready for this investment? What are the core strengths within your business? Do you have the skills and expertise in your team to succeed here or are there gaps? Would these skills gaps be better filled with local knowledge and expertise? Is your communication strategy adequate? 

Bringing on local talent early when starting out in this market can be a huge asset. Without language and cultural barriers, it is much easier to learn about the local market and forge partnerships. They can help build connections with local communities and government, and bring an understanding of market nuances, laws and permits. 

So overall, our advice? Proceed with caution and seek support.

Export support is available

The process of entering a new market can appear cumbersome and frightening. However, there are many organizations who can help navigate this process. In particular, Export Development Canada is very active in China, with staff in Beijing and Shanghai. They offer credit checks on Chinese buyers and provide a resourceful array of financing solutions in support of business. They also offer insurance solutions and bonding services to help free up working capital.

It is worth looking into the support offered by Canadian institutions such as Global Affair CanadaBusiness Development Bank of Canada and Canadian Commercial Corporation. In addition, there are academic and industry partnerships between Canadian and Chinese counterparts that prove useful, such as:

  • WORLDiscoveries® (offices in Nanjing and Tianjin): Run under a partnership between the University of Western Ontario, Robarts Research Institute and Lawson Health Research Institute, WORLDiscoveries draws upon a mix of industry connections, sector-specific market knowledge and business development expertise, to help researchers and local inventors commercialize their discoveries through licensing and new company start-ups.
  • China Angels Mentorship Program (CAMP): This is a program created in partnership with Ontario Centers of Excellence and China Canada Angels Alliance. CAMP is committed to building a cross-border ecosystem for innovative, early-stage Canadian companies that are interested in doing business in China.

It is imperative for companies to study and understand this complex market well, before spending their time, resources and money venturing there. We at the Advanced Energy Centre can help with identifying whether your product or service fits the market and can help establish relationships/collaboration agreements with local facilitators.

In the next and final article in this series, we will be interviewing Canadian cleantech companies already operating in the Chinese market, on their experiences, insights and tips for doing business there.

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