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Obstacles Faced by Indian Firms Entering the Chinese Market

Thursday, March 31st, 2011

In recent years, China has emerged as the second largest economy in the world as a result of its strong 10% annual growth enjoyed during the last 30 years.

And like most foreign economies in the world, India is keen on tapping this huge market to boost its own trade revenues. China is already India’s largest trading partner, and yet the trade deficit between these neighbors tips in favor of China.

India is urging China to open its markets to Indian products and services, particularly those belonging in the agro, engineering, IT and pharmaceutical industries. Although there are no physical barriers for entry of foreign products to Chinese markets, there are many points of tension between these two countries that are resulting in trade-related disputes. Moreover, Indian companies are faced with complex challenges that they need to overcome in order to penetrate the unique Chinese business culture and succeed in this blossoming market.

India – China Trade Issues

Tension between India and China has been brewing for decades, sparked by a brief border war regarding boundary disputes involving the eastern Indian state Arunachal Pradesh and the very controversial Kashmir region. More recently, Indian leaders have accused China of provocative behavior regarding the Kashmir issue, due in part to China’s failure to endorse India’s move for membership into the United Nations Security Council, as well as China’s closer ties to India’s long-time nemesis of Pakistan.

Additionally, China has placed certain restrictions on Indian products such as the non-tariff barriers for India’s agricultural produce with China, raising several health and quality-related issues against these products. China has also made moves that affect India’s economic and diplomatic interest in the southern Asia regions by expanding its influence in the Maldives, Sri Lankan, and Nepalese affairs.

The 2005 state visit by Chinese Premier Wen Jiabao had eased tension between these two countries, enabling the two nations to focus on improving trade relations instead. Trade eventually took off from $18.7 billion in 2005 to $51.8 billion in 2008 but was hampered by the global financial crisis in 2009 which dropped figures down to $13.07 billion.

Although trade seems to be back on track and on its way towards touching the goal of $60 billion per year, India complains of trade imbalances, with the favor tilting in China’s direction particularly in terms of exports. India aims to bridge this gap by fielding in more products and services to penetrate China’s tough market.

Difficulties in Entering the Chinese Market

The following describes some of the challenges Indian companies and business will face while trying to venture into the Chinese business market.

The process of registering a company and getting approval for products and services can take several months in China due to the lack of simplified rules of law and inconsistent applications of these regulations. Administrative and bureaucratic tasks in the Chinese market are not as convenient or simplified as they may be in India or in the west.

Communications has always been a big challenge for foreign companies wanting to do business in China. Although many Chinese there already speak proficient English, it is difficult to find people that have a strong understanding of how to communicate effectively during business negotiations.

Western-trained Indian managers who are used to delegating responsibility to flexible employees may find it difficult to work with Chinese employees who are accustomed to clearly defined roles in a hierarchical business structure.

Business models which have worked well in the Indian market may not have the same effectiveness when applied to the very different Chinese market. Business practices in China are embedded with several intricacies related to their traditions, which may not always conform to widely accepted international or Indian standards.

The importance of building strong relationships among business counterparts has a very important role in China, a concept that is not a standard practice among businesses in the west. While standard businesses are conducted in formal business meetings held in boardrooms, Chinese businessmen require a great deal more of patience and developing of relationships. This build-up is acquired outside of the boardroom arena and into more social sessions such as dinners, banquets and tea meetings.

Current Efforts in Penetrating the Chinese Market

Despite these hurdles, Indian companies have been determined to tap into the huge and resource-rich Chinese market, and many have achieved certain successes in these ventures. Numerous companies have participated actively in several international economic and trade fairs in various venues across China, giving them the chance to showcase their technological and scientific innovations in various industries. These include attempts to penetrate the market in the fields of agriculture, automotive parts, dairy products, food technologies, healthcare, IT and industrial machineries.

One of the more prominent successes in the field of agri-business, according to the Federation of Indian Export Organizations, or FIEO IEO IEO , was the entry of Indian mango exports into the Chinese market. This was the first such success in more than 10 years of Indian efforts to finally break into the Chinese fruit and vegetable market. The FIEO is confident that China will continue to open its doors for more Indian produce, including vegetables and fruits such as apples, pears and licchi.

India is the leading outsource provider in the world, and leading outsource companies such as Infosys Technologies are trying to penetrate the Chinese domestic market, particularly in the banking and finance field. These Indian outsourcing companies are trying to sell their banking products and other IT infrastructure management to Chinese banks and other companies.

The Indian automobile industry is also making headway in penetrating the Chinese market, with companies such as Aurangabad-based Grind Master Machines offering micro-finishing machineries to Chinese automobile companies such as the Shanghai-based General Motor’s plant. Grind Master has already exported several deburring and super-finishing machines to automobile markets in the US, UK , Holland, UAE, Switzerland and other destinations. The company is also planning to set up a robotics and high-tech automation production plant in the Waluj industrial area in China.

Clean technologies is another area Indian companies are trying to penetrate, as China is one of the top countries now emphasizing production of clean energy, particularly with wind energy generation. Indian companies, such as the wind energy giant Suzlon, the largest wind turbine manufacturer in Asia, are expanding their market presence and are trying to take part in China’s plans of generating up to 90 gigawatts of wind energy capacity by 2015, up from its current level of 20 gigawatts.

Other Indian companies are also trying to make headway and are preparing themselves to take a ride on China’s increasing weight in the global economy. Part of these efforts involve promoting the learning of Mandarin as part of India’s CBSE, or Central Board of Secondary Education, schooling systems, according to reports from The Financial Express. Starting April 2011, Mandarin will be one of the 13 foreign languages introduced into the Indian school curriculum in order to acquaint future Indian professionals with the Chinese language and culture.

Chinese Market Outlook for Indian Corporations

Projections from market experts predict that by the year 2050, both China and India will be leading top economies in the world. To turn this forecast into reality, Indian businesses need to expand their market base by penetrating the Chinese domestic market as well as using China as a base for their production and operations. There is a need to break down the trade barriers between these two Asian giants, and the first step would be the success of the latest visit of Chinese Premier Wen Jiabao to India, along with the largest economic and trade delegation ever from China.

During this visit, one of the most important points of focus is to establish a comprehensive and equitable Free Trade agreement between these two leading global economies. On top of that, $20 billion of bilateral deals are expected to be finalized, which will further help India penetrate the $615 billion Chinese market. Points of focus would include products such as iron ore, marine products, inorganic materials, optical and medical equipments, plastic, salt, oil seeds and rubber.

The visit from the Chinese premier will eventually contribute towards better opportunities for Indian products and services to enter the Chinese market, and several agreements have been inked in this regard. This includes agreements in various industries, such as banking, maritime security, and green technologies. Aside from that, China is giving full support for Indian business delegations in promoting their products and services through exhibitions and trade shows in China.

There are several opportunities for Indian businesses, as well as other foreign companies, to enter and penetrate the booming Chinese markets. However, these businesses should take several elements into consideration and should probably leave most of their business trainings and knowhow behind, instead embracing the intricacies of doing business in China. There are several challenges that these businesses will have to tackle, but through patience, a clear understanding of Chinese business culture and unwavering perseverance, they will eventually experience great successes in this new and exciting growth arena.

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