DiligenceChina

China may not be fully developed yet, but it is clearly passed its ‘green-field’ pioneering days. If China is not part of your international growth strategy yet, you may find that the world is rapidly moving on without you.

That doesn’t mean you should rush in and commit all manner of market blunders in the name of “not being left behind”. But you should start forming some kind of plan and timetable for how you are going to handle you China move.

Cheap no more
Start your China planning by dispelling all notions of China as a cheap place to operate. It’s definitely possible to find lower prices than you will in the west, but there’s a good chance you’ll pay for it in one way or another. If you want to start business in Shanghai, Beijing or Shenzhen, your rent and HR costs will be high – so make sure you are getting full value for the premium. You can save up-front costs by heading out to the less-developed areas, but you have to budget for travel and figure out a way of handling the HR challenge. You can’t hire Donald Trumps in Hooterville in the US, and you shouldn’t expect to in China either.

Market or Factory?
Time to make a decision—are you coming to China for the low-cost production or to sell goods and services to the Chinese market? Even if you plan on somehow doing both, at least acknowledge that you understand that there’s a difference. Nothing makes you look quite as clueless as saying you plan on starting a factory in Shanghai or selling luxury goods nationally. If a Chinese entrepreneur told you that he wanted to start a heavy manufacturing plant in Manhattan because it was near good shopping and restaurants, you wouldn’t be too impressed.

China Business: One Market or Many Regions?
Politically, China is a single entity. Market-wise, it’s many different ones. The same goes for production and manufacturing. Make your first job figuring out the geography and economic regions of China, and don’t try to reinvent the wheel. Shanghai rents are expensive because this is where the money is. Yunan and Guangxi have cheap land prices for a reason. They haven’t been overlooked by other investors — you can’t do most types of business there because they are underdeveloped.

Incremental Business Entry tips:

Keep the cash flow under control because it will probably take longer than you thought to get things together.

Start off by going virtual, and schedule around 3 or 4 long trips for the first year. Do your research from home.

Follow your own money. As you start putting more money into your China venture, plan on spending more time here. You can do research from home, but you probably can’t manage from there. Make sure the people who have you money know who you are – and make DOUBLY sure that you know who they are.

Find people who know things and ask for advice. You may have to pay for it, you may not.

Everything is likely to be more expensive and crowded 6 months from now. Start planning now, because everything will take longer and cost more than you think it should.

UPDATE: Just read a lively exchange over at ChinaLawBlog about the advantages of a city called Weifang. I have never been there myself, so I can’t tell you too much about it. Dan (ChinaLawBlog) and Kevin Smith (Weifang Radish, Clerks II, Dogma) seem to have it pretty well covered. Seems like a high degree of difficulty for a new entrant to China, but if you are setting up a production facility, you should definitely take a look at the 2nd and 3rd tier cities.