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Charged with finding new markets for growth, many Western marketers are eyeing China’s rising middle class and terrific GDP numbers. And while getting Western products and services into the Chinese market is hard enough, the ability to compete and thrive in China takes mastery of specific skills and processes. Success also involves a drastic change in mindset.
As one of the few countries in the world showing positive economic growth, the future of China sure looks promising. And to take advantage of a very large marketplace, Western companies like Pfizer, Astra Zeneca, Goodyear and others have established beachheads in Chinese markets. However, an Economist article titled, “Impenetrable” reminds readers how truly difficult it is to sell foreign goods in China.
To be sure, some companies are thriving in China. The Economist article cites luxury good makers, airplane manufacturers, and commodity producers as successfully penetrating China. Yet, for every success story, there are a dozen works in progress especially in fields such as pharmaceuticals, banking and insurance and telecommunications. In fact, Ronald Schramm, a professor at the Chinese European International Business School says that the impact of Western firms’ total sales in China are little more than a rounding error.
Why all the difficulty? Western firms must deal with the fact that for all the excitement of capitalistic economic zones in China, most of the enterprises in China are state owned. That means Western companies must deal with plenty of costly and unending red tape from protective Chinese authorities. And while China joined the World Trade Organization in 2001, there is much work to be done to level the playing field for Western companies to effectively compete.
Yet, all hope is not lost. Digging a bit deeper for strategies to penetrate and prosper in Chinese markets, I interviewed Globe Trade founder, Laurel Delaney. Ms. Delaney argues that companies doing business in China need to change their mindset and think of China as an investment that will pay off over the long run. She says, “It takes tremendous time, incredible patience and phenomenal preparation to do business in China. Many companies just don't have the stamina, perseverance or dollars to last -- yet, if they hang on and keep working on it, they will eventually find success.”
The path to successfully navigating Chinese markets also involves avoiding the biggest blunders. To that point, Ms. Delaney mentions the number one mistake a Western marketer can make when looking to China for growth is attempting to go it alone. “You need a strong and effective team and good "Guangxi" (relationship) when doing business in China,” she says. “The stronger the team you assemble breaking out of the gate -- the greater your likelihood of success in developing business in China.”
Ms. Delaney also mentions the types of local talent, needed “on the ground” to propel success. First, she says, Western companies should set up a peer-to-peer advisory board consisting of legal talent, an individual with M&A knowledge, a transportation and logistics “superstar”, a banker and a governmental contact. It’s these people that can help a Western marketer iron out issues and challenges they’ll likely face.
In addition, outside of setting up a joint venture with a company, consider hiring local talent to help market to Chinese consumers. According to Ms. Delaney, someone on your marketing team, “(needs to know) native tongue languages of China, is smart and masterful at communicating which includes marketing/advertising, has experience with your product or service offering, and has a history of proven success.”
China is an economic giant and is poised—eventually—to be the number one economy in the world. For Western marketers, finding ways to get your products and services into China is definitely worth strong consideration. Success in Chinese markets won’t come easy, and it won’t be cheap. China’s markets hold great promise, but also peril for companies that lack determination and endurance for the long-run.
Questions:
- A Business Week article notes that in many instances the Chinese government has of late, “strengthened its grip on the economy.” Is there any hope for Western companies to sell their wares against state owned companies?
- Green industries are often cited by futurists as an area where the United States and other Western nations can create competitive advantage. And yet, currently, 35% of the world’s solar cells are made in China. Will the next Green revolution take place in China?
- Beijing University professor Michael Pettis says, “There is little real innovation or branding ability in China.” Does this provocative sentence scream “opportunity” for Western marketers and their associated products/services?
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Comments
China is definitely a market that requires long term thinking AND preparation. In the first place, the fundamental assumptions of how society works are different. In the west, our assumptions are based on the philosophy of Artistotle and Plato. In the East, assumptions are based on the philosophies underpinning Confucianism, Hinduism, Buddhism, and Jainism. These are generalizations, of course, but do highlight that the basic assumptions, values, and attitudes toward people, business, and the world are different.
One implication is the emphasis on relationships and reputation when doing business. Companies need to tread carefully. In the West there is a philosophy of try something first and apologize later. In China there is a philosophy of try something and if you mess up you must earn your place back before trying again.
Take time to learn the fundamental differences, to prepare the speed and risk taking in business, and to be ready for the obligations of being a partner. If you are not set in all three areas, take a step back, do your homework, and then make your move. If you have not begun preparation for entering this market, do so now.
Posted by: Camille Schuster | 11.12.09
Camille, sage and solid advice you've shared with marketers regarding implications of going for growth in China.
First, you shared that when it comes to doing business in Asia, one size does not fit all. What works in Western markets may not work in Asian markets. There are complexities, nuance and sometimes unseen implications of the positions and tactics of Western executives. Hence, the benefit of bringing local expertise to assist.
While I've advocated working with local resources to effectively penetrate Chinese markets, I would throw out a word of caution here in over-reliance on local "on the ground" teams. I've seen too many reports/articles of Western companies taking a hands-off approach to Asian markets and letting local teams run the show. While local teams arguably have the understanding and expertise in their home markets, accountability and checks/balances must be architected to help ensure that activities are going as planned and that side businesses/bets are not in the works. This is a long winded way of saying that responsibility for the successful penetration of Asian markets should not be abdicated to local teams.
Posted by: Paul Barsch | 11.12.09
How right you are, Paul. Marketing Western products into the Chinese market, no matter how lucrative it is, represents a major challenge. It's not for the faint of heart. Especially for brands that have absolutely no recognition in China. Even those that do and might see the beginnings of demand, can encounter problems. Apple's iPhone comes to mind. You might like to take a look at this:
http://www.macnewsworld.com/story/68534.html
Rushing to market in China is ill-advised. Not getting it right the first time can be very costly. Having said that, problems can be rectified but it makes me wonder whether Chinese consumers might not be reluctant if the first entry signals potential problems. It just goes to show how important it is to really understand national customs, laws and concerns; even on a region by region basis before jumping in the first time.
Posted by: Claire Ratushny | 11.12.09
Claire, reading your comments brought some key words to mind for considerations in bringing Western products to Chinese markets: Careful, measured, thoughtful, pragmatic, flexible. And probably the most important: "patient".
Thank you for taking the time to add to the discussion!
Posted by: Paul Barsch | 11.12.09
Well-said. It is a big challenge to sell in Chinese market. However, there are yet so many successful brands. The marketers must understand what they are selling and why Chinese people should buy them instead their domestic alternatives.
Every time I go back to China, I am struggling for gift ideas. Here, it seems almost everything are made in China. Why do my friends want that? Eventually, I narrow my list down the following things:
1) Cosmetics and skin care. The prices here is so much cheaper than those sold in China. -- but I heard that it is changing.
2) Nutrition pills, such as vitamins, centrum, fish oil, etc. Chinese people, especially the middle class, middle-aged and above people are demanding those products. There are domestic alternatives but people believe that products sold in the States has a better quality. Apparently, chinese consumers do not have the faith in the domestic quality control process.
3) fancy, advanced electronic gadgets, which has yet to be released in other market. -- Those are also changing since there are now more and more cheaper domestic fake products coming out even before the official launch in the state.
Anything else? nope! I couldn't think of any.
So I like the word "careful". By that, I mean the marketers must understand what is that "so unique" about their product that Chinese people will appreciate. In general, chinese people do believe that the quality of certain foreign product is better. But should you pay more? It depends. I wouldn't imagine Chinese people will buy Kleenex tissues just because it is better. But I can imagine people buy Cannon Cameras. So I think the marketers must be careful in evaluating whether their product fits their needs. -- I don't see many foreign brands will have good luck passing this first round of screening, especially those foreign brands still labeled as "Made in China"
The word "patient" is also very very important. Chinese market itself is evolving. As my mom has told me that there are more and more retailers in China now offer generous return policies, which is a huge advancement in my opinion. Imagine when the U.S. has established those return policies. Chinese consumers are gradually adopting western marketing philosophy. The Chinese are not quite there yet. But I believe sooner or later. Just give it patience.
Posted by: Fang Fang | 11.12.09
Are you familiar with the book, Chocolate Fortunes? It makes for a great read on the big chocolate companies trying to market their products in China and since it JUST came out, it is actually still current.
Posted by: China Lawyer | 11.14.09
China Lawyer,
I passed a display of 'Chocolate Fortunes' in Barnes & Noble last night. I shall have to go back today and give it a read.
Paul,
A wonderful post that is informative, and hopeful, in the sense that it is not impossible to enter the Chines market. Due diligence and patience are required to ensure success.
Anthony
Posted by: Anthony | 11.15.09
Anthony and China Lawyer, thank your for adding your comments to this column. I did a quick lookup on Amazon, and Chocolate Fortunes looks like it has some good insights into breaking into Chinese markets. Anthony, appreciate the kind words!
Posted by: Paul Barsch | 11.15.09
Patience yes. i have been negotiating with a Chinese company for the last 22 months to develop & deliver a 2-year Entrepreneurial Training Program. We are now moving ahead after partnering with someone who has been working there for about 20 years - quanxi is key.
dr jim sellner, PhD.,DipC.
Posted by: Dr. jim Sellner PhD., DipC. | 11.16.09
Jim, thanks for adding your real world experience to this post. Reminds me of a great HBR article on Chinese Negotiation Strategies. A circular route isn't uncommon!
Posted by: Paul Barsch | 11.16.09
Great article indeed. The point of not adopting a hands-off approach should be stressed. Examples of foreign companies here in China entrusting the core of their operations to local partners or employees, to see them later conduct a parallel business or create a competing firm, abund. Bringing local talent, yes, but maintaining operational control, absolutely.
Patrick
Posted by: China Company Formation | 11.21.09
CCF, thanks for commenting. You said, "Examples of foreign companies here in China entrusting the core of their operations to local partners or employees, to see them later conduct a parallel business or create a competing firm, abound."
Let's dig deeper, why do you think this is the case?
Posted by: Paul Barsch | 11.21.09