Doing Business in China For Dummies®

Being Aware of Common Planning Mistakes

Several mistakes are common to first-time investors in China. Try to keep this section in mind during your planning. When you’ve almost finished your plan, you may want to reread this section to see whether you’ve possibly committed one or more of these errors.

Overestimating revenue

Over-optimism is the biggest mistake that foreign investors make when planning for China. Assumptions tend to be a bit optimistic because consultants and soon-to-be China managers have an interest in selling the project. Some companies looking to sell to China are naïve enough to think that China is a market of 1.3 billion consumers. Hopefully, your company understands that only a small percentage of Chinese people have disposable income. Companies also commonly overestimate sales because they don’t fully account for distribution difficulties, competitive onslaught, and consumers’ purchasing power.

Underestimating costs

Companies tend to experience higher operating costs than they expect. For one, China is a more expensive place to do business than you’re used to. Another issue is that China has a number of hidden costs, such as employee turnover, utility shortages, and supply bottlenecks.

Another reason companies underestimate costs is that they assume timelines for getting off the ground that aren’t realistic. If you’re manufacturing in China, for instance, expect that your per-unit costs will be the same as in the West for your first two or three years of ...