Study reveals success factors for Australian small business in China

Advancing Society and Culture

Agile Australian small businesses have some advantages in China, Deakin researchers have found.

Simply being Australian can be the first step to success for agile and adaptable entrepreneurs setting up small businesses in China, a Deakin University study has found.

Deakin Business School researchers, Professor Stuart Orr, Dr Jane Menzies and Dr Connie Zheng, have studied the new breed of Australian small business owners who are setting up solely in China.

“Around 3000 Australian small to medium enterprises have established businesses exclusively in China to take advantage of the rapidly expanding Chinese market,” Professor Orr said.

“We interviewed the owners of 35 of these businesses to get an insight into why they chose China and what drives their success, or failure.

“The interviews revealed that China offers opportunities to small and medium Australian businesses that they would never experience elsewhere. Taking up these opportunities, however, is not without its risks. Competitors, cultural differences, the need for constant change and difficulty in accessing capital are all significant challenges.

“In response to these challenges, the Australian businesses we studied were innovative about the way they did their business and sometimes even used their Australian identity as a competitive advantage to grow their businesses. However, they needed to be mindful that a new market in China today would be a market filled with competitors tomorrow, so these businesses constantly need to change and adapt to stay ahead.”

Being Australian was found to provide a certain type of legitimacy that was attractive to Chinese customers.

“Businesses that provide financial advice and arbitration services found Chinese customers had more faith in their services because they have existed in Australia for longer than they had been available in China,” Professor Orr explained.

“Businesses in the food industry had a similar experience, with the Chinese having more faith in foreigners from countries like Australia with a strong food safety record than local food producers, who may have been caught up in contamination scares.”

Another key to success was being highly specialised and attuned to the beat of local market conditions, Professor Orr said.

“Specialisation meant businesses could only be successful in China. With no choice, but to keep the business in China, the entrepreneurs who set them up were very skilled at identifying new opportunities as they appeared.”

“Networks, clever business systems and good staff also helped them to grow their businesses by transforming, dividing and moving into new markets.”
Professor Stuart Orr
Professor Stuart Orr Deakin Business School

“One entrepreneur we spoke to, who builds social media outlets, operated a number businesses at the same time, with the strategy of selling each to competitors after a few years. Maintaining a portfolio of new, maturing and ready-for-sale businesses enabled the owner to constantly introduce new businesses as opportunities arose.”

The business owners revealed that being successful in China also meant negotiating the challenges of funding and of larger Chinese companies moving onto their patch.

“The business owners we spoke with said it was hard to attract business funding because of their foreign status in China and because the banks didn’t really understand their innovative approach to business,” Professor Orr said.

“The highly competitive nature of Chinese markets meant the businesses we studied had to constantly restructure and refocus their operations. Even specialised services such as construction and resources faced the risk of large Chinese companies copying their business model and luring away customers.”

In order to be successful, small foreign businesses setting up in China need to build their networks and credibility, choose a city or location that suits their management style and be adaptable.

Professor Orr said that “networks could be set up using traditional Chinese networking (guanxi), but Western-style networking approaches also work well in the major cities.”

Credibility is very important and sometimes new enterprises needed to lease offices that impressed visitors. Professor Orr noted that customers often visited the company’s offices to see the business for themselves before placing an order.

“Also, cultural differences across China are another important factor,” he said. “The culture in Shanghai, for example, is very different to the culture in Beijing, even though the cities are about the same distance apart as Melbourne and Sydney. Regional cities have different cultures again. It is very important to choose a city that has a culture that suits the business.

“NGOs located in China, such as AustCham, can provide excellent advice about the cultural conditions in different locations.”

This Deakin research will be published in December this year in the book “Innovation and Internationalisation: Successful SMEs’ ventures into China,” published by Taylor and Francis.

Published by Deakin Research on 2 August 2017.