China: 3 red flags!

When Via Pacifica Selections decided to sell its Napa Valley wine in China, the company’s executives knew it would be difficult. It was worse than they thought.

Kellie Duckhorn, the director of sales called China’s system of regulations, taxes and tariffs an “overwhelming labyrinth.”

“It’s an incredibly vast market with several government loopholes,” Duckhorn said. “The key thing about China is who you know and how well and consistently you stay in touch with them.”

If you’re interested in doing business in China, here are three red flags to watch for when selling there.

Subsidies and fluctuations in tariffs

Chinese markets are among the most protected in the world, and changes in tariffs could happen overnight, said Usha Haley, who has written several books on Chinese trade policy.
For example, on July 24, the country imposed tariffs of up to 57 percent on U.S. exporters of polysilicon, a raw material for solar cells.
“Oftentimes small or medium-sized companies don’t have the flexibility to make these changes,” Haley said.
Working closely with municipal governments and local officials will help alert companies to potential changes, Haley said.
Then there are subsidies. Many Chinese industries are heavily subsidized, Haley said, and products often sell for 30% below competitor prices.

Labeling and packaging

Proper labels are crucial to avoiding delays and fees at ports, Duckhorn said. “Packaging means a lot to Chinese customers. The company has often had to change names of wine brands in order to avoid inappropriate translations into Chinese words.”
Consulting Chinese staff on the titles, colors and designs on packaging is crucial to selling culturally-appropriate goods.

Knock-off products

China’s massive market of knock-off products leads to intense price competition for some industries, Haley said. It’s difficult for Chinese companies to copy a BMW, but fake designer purses and apparel are sold throughout the country.
Another pressing issue for exporting companies is intellectual property theft, Haley said. Chinese government agencies will often illegally download software for programs they don’t buy. Technologically-advanced exports are at a huge risk.
Can you take up these legal issues in Chinese courts? No way, Haley said.
“The companies that do that experience retaliation in China,” Haley said. “Once you’re exporting to China, you do not stir up the waters with litigation. Litigation will lead you nowhere. ”