Since Deng Xiaoping's economic reforms began, the economic potential of the Asian giant has increased. foreign direct investment in China. So much so that, in recent years, the government and various public institutions have promoted institutional improvement and a good political environment favorable to foreign companies. They have been established special economic and high-tech development zones, and the infrastructure has been improved. Furthermore, the large size of the market is one of its main attractions. This is why, at the end of 2017, 136.997 foreign-invested companies were registered in China, and 60.533 foreign companies were established in 2018, investing more than 134,9 billion US dollars. For the Asian giant, companies are and will continue to be important players in the market.
However, despite these opportunities, Foreign companies face great challenges, especially in the landing phase. Doing business in a foreign country is not always an easy task, and in the Chinese market it is especially complex. Despite its impressive economic development, China remains an economy in transition, and companies face government, legal and regulatory challenges. China is an emerging market characterized by a weak and rapidly evolving institutional, judicial and regulatory environment. Sectors undergoing constant change include finance/capital, real estate, labor markets and digital media.
On the other hand, the administrative environment is also complicated. Excessive bureaucracy allows preferential treatment in certain situations. The clearest example is the strategy GoGlobal, with which China has created national leaders such as Huawei, which continues to be favored today; or the strategy Made in China 2025, which seeks to promote ten industries in particular. These include advanced information technology, robotics, aerospace and aeronautical equipment, high-tech maritime equipment and modern rail transport equipment. (Jintae, Sutherland, Yul, Liu, & Pan, 2019).
What would the foreign direct investment process in China be like?
The internationalization process of a company is complex, and even more so in countries that escape common practice (such as the European Union for the Spanish company). Therefore, on this occasion, we will reproduce what the internationalization process of a Spanish company to China would be like, specifically of a pastry shop. As I always say, theory is fine, but it must be materialized in practical examples that really help us understand the process and why it is done.
If you click on the "button" at the end of the article, you will find a complete process of internationalization of a Cordoba bakery to China from a legal perspective.
Executive report
Internationalization process of a Córdoba pastry shop to China from a legal perspective
In the case of the confectionery sector, China is the ninth largest importer in the world, with an average growth rate over the last five years of 15%. Furthermore, the trend in the sector is very positive, with annual growth rates estimated at 10%. This is due to the increase in the middle class in the country. It should also be considered that the policies introduced by the government in the national retail industry have achieved great improvements in Western sales and distribution channels, so that the Chinese population was able to access these establishments more efficiently and at more accessible prices. Currently, the percentage of foreign products in the confectionery sector is 25%, since these products are usually more expensive than local products. The target group is usually mostly executives or office workers between 25 and 40 years old. Its main commercial partners in the sector are its neighboring countries in Southeast Asia. For this reason, Spain is the 15th largest exporter to the Asian giant. (Dams, 2018).
This sector is divided into three categories: 1) cookies, 2) cereals and 3) bakery and confectionery. The latter category dominates the sector, showing particular interest in pastries (44%), tarts (38%), bread (17%) and other desserts (1%). However, it is necessary to always keep in mind that China is a heterogeneous space of different markets, with significant differences in per capita income and tastes. Therefore, the main markets for Spanish companies, or for anyone interested in accessing the Chinese market, should be those of Beijing, Shanghai, Canton and Shenzhen. These regions have a very good standard of living and are closer to the West than others. However, for authors like Abello (2013), the easiest way to enter this sector is through joint ventures. Local companies that know the tastes of the country's consumers participate in this union, which allows the adaptation of products more easily and, above all, successfully.
This work will analyze whether this is true, as well as the rest of the legal processes involved in the internationalization of a Spanish confectionery in China.
Are you considering entering the Chinese market? Meet with an RRYP consultant and we will help you.
This guide has been previously published by Mar Gamez Ramirez as your Master's Final Project to obtain the degree in LL.M International Business Law, International Contracting and International Relations in ISDE Law & Business School.
Original work: Process_of_internationalization_of_a_Cordovan_pastry_shop_towards_to_China_from_a_legal_perspective
LL.M in International Business Law and Law from ISDE and graduated in Law and International Relations from Loyola University. CEO and business internationalization consultant at Reáculoateypunto.
