China may now be the world’s third largest economy but it still has huge potential for further growth. One of the main lures for Foreign Invested Enterprises (FIE) remains China’s potential market of 1.3 billion eager consumers. Research indicates that the main goal for companies entering the market is to target the Chinese domestic market.

China’s entry into the WTO in 2001 and the ongoing liberalisation of its regulatory environment means that the opportunities are increasing for FIEs; no longer obliged to do business via trading agents, FIEs are now more able to focus on the market itself.

However, although the main aspiration is selling to the market, many companies are also benefiting from China’s low costs by manufacturing and assembling goods for export. Labour costs, although rising, are still significantly lower than most other countries and present businesses from these countries with an opportunity to outsource in order to lower costs. Quality levels are also rising in China and FIEs are outsourcing increasingly higher value and sophisticated processes to China based manufacturers.

In order to understand why companies establish operations in China, primary data were collected on market entry motivations from UK companies by the UK Trade & Investment council.  The results show that market-related factors are the principle drivers, together with cost, government and institutional support, and the quality of human capital.

Market-Entry Drivers