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Study shows what it takes to run a successful small business in China for China

Research by Professor Stuart Orr, Dr Jane Menzies and Dr Connie Zheng.

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 was not without its risks – competitors, the need for constant change and difficulty in accessing capital were all significant challenges.

“In response to these challenges the Australian businesses we studied were innovative and used their foreignness 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.

“Those working 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 have been caught up in regular contamination scares.”

Another key to success was being highly specialised and attuned to 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.

“One entrepreneur we spoke to, who builds social media outlets, operated a number businesses at the same time and then sold them to competitors after a few years. Maintaining a portfolio of new, maturing and ready for sale outlets enabled the owner to constantly introduce new outlets 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 into their patch.

“The business owners we spoke with said it was hard to attract business funding because of their foreign status in China and that the banks didn’t appreciate their 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.”

The results of the Deakin research will be released later this year in the book Innovation and Internationalisation: Successful SME’s ventures into China.


Originally published on Deakin Media.

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