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Exporters, Ready for China Market?

August 10, 2012 1 comment

20 years ago, few people in China had private cars. 10 years ago, Chinese new money spent big on BMW or Mercedes-Benz while Chinese middle class started buying their first cars. Today, super-riches in China drive Lamborghini, Aston Martin, Pagani or Ferrari while more and more Chinese families are buying their 2nd or 3rd  cars.

Well, we all know Chinese are getting rich and picky, and they are not just spending big on cars. Louis Vuitton bags, the symbol of prestigious status in China 5 years ago, have now become popular accessories of young professionals while people with some more money are carrying Birkins around.

This looks like a perfect rosy picture of a booming market with fast expanding consumer base which have increasing personal wealth and strong aspiration for quality goods and services. Fully aware of the market potential in China, global suppliers swarmed into China in the past 2 decades for  distribution channels to sell into China but many failed by making 2 mistakes.

First they failed to identify and keep themselves abreast with the changes of consumer needs and behaviour. They believed China market would absorb whatever they were able to supply as China was huge with diversified needs and lots of cash and Chinese consumers were less sophisticated. China is a fast growing market, so are Chinese consumers. As a matter of fact, with more overseas travels, more products on the shopping mall shelves and access to product and brand knowledge on internet, Chinese consumers are becoming more picky. In the 1st tier cities and some affluent 2nd tier cities in China, the good lucky days are gone when customers were happy to pay just for foreign brands. Hence, Louis Vuitton is setting up retail outlets in the 3rd tier cities in China, trying to fully capitalise on the remaining consumers’ aspiration for foreign branded products before it totally fades away.

Second, some businesses over-emphasized the importance of distribution channels and market promotion, but forgot the first of the 4 fundamental elements (Product, Price, Place/Distribution and Promotion) of marketing was product. If suppliers do not recognize customers’ needs or do not tailor products/services based on their findings of such needs, they will not be able market and sell to China as nobody will want the products.

Chinese customers may not be as sophisticated in foreign consumer goods and services but they are catching up quickly and they do have their own needs which are different from foreign suppliers’ previous and most existing markets. For example, in the pleasure boat sector, a sun deck with an open spa and kitchen on a boat may not be an as attractive feature to a typical Chinese customer as a Karaoke room with indoor smoking facilities, a jewellery locker and a huge message spa in the master bedroom. To sell to China, manufacturers have to do the long-due homework and come back to the fundamentals of providing products/services based on target customers’ needs, this does not mean to exclude the possibilities of guiding customers’ needs through market education though.

More haste, less speed. China’s economy is slowing down, and the expected national leadership change at the 18th National People’s Congress of P.R China later this year is delaying business decisions. This allows some time for exporters to reflect on their China strategy and develop a feasible plan so that they can build a stronger foothold in China and better seize the opportunities there.

Categories: Export to China

China Reduced 33 Products/Goods’ Import Tariff


China reduced import tariff of 33 products/goods on the 24th June, in alignment with part of its national strategy to adjust industry structure, improve efficiency and enhance international market competency.

Please refer to the file below for details:

Import tariff

 

Emerging Business Opportunities in China offered by China’s 12th Five Year Plan


by Sara Cheng

China recently issued its 12th Five Year Plan. It is China’s absolute national strategy from 2011 to 2016 and will have profound impact on its economy and people and also China’s major trading partner.

This recent presentation of mine highlighted some key opportunities for foreign companies looking at entering the Chinese market.

Emerging Business Opportunities in China

Chinese culture

March 28, 2011 1 comment

Chinese Culture and Business Practice

by Sara Cheng

Business dress
Professional business attire, such as a shirt, tie, trousers and jacket for men and a suit and blouse (not low cut) or business dress for women, should be worn when doing business.

Writing dates
Avoid confusion by writing out the month in letters, for example: 12 March 2015. If you do write a date in numbers, list the year first, then the month, then the day, for example: 2010.08.11

Business card etiquette
A business card is also called a name card or “ming pian”.
A good supply will be required asyou will need to give out cards to everyone you meet.

Layout of the business card is important:

-if your company is prestigious in any way, (for example the oldest or largest in the country, the market leader, the winner of an exclusive award etc) then this should be clearly stated
-emphasise your title or seniority

Women in business
Western businesswomen are treated no differently to businessmen, and similarly respect is given to seniority and rank.

Meetings

-Show respect by being punctual whether you are a guest or a host. It may be appropriate to arrive a quarter of an hour early, because your Chinese counterpart may do so.

-Be patient. The first meeting may appear to be unproductive because of its formality. It will be set up on strict lines and will be hierarchical.

-Small talk is considered important at the start of the meeting. There will be a lot of exchange of pleasantries and courtesies but you should avoid trying to move things faster. These formalities and pleasantries are important to building a relationship.

-Chinese are very patient and prepared to spend a lot of time in getting to their goal. Impatience on the foreigner’s behalf could delay the process even longer.

-A good way to establish rapport is to inquire about a Chinese person’s family – this is an important topic of conversation.Other appropriate topics to chat about include the weather, what you have enjoyed about your visit to China, your other travel experiences etc.

-The Chinese regard seniority as being very important. Always determine who is the most senior person and shake hands with that person first. There will be a very strict hierarchy of who greets you first, second etc. and where you will sit.Similarly it is advised that your most senior representative acts as spokesperson and you refrain from having subordinates play a vocal role in the meeting.
-Recognise that certain phrases mean NO. They include “it is inconvenient”, “I am not sure” and “maybe”.

-A common part of a first meeting greeting is for the Chinese to applaud you. This should be reciprocated.
If you are using an interpreter:
– give him/her time to get your message across but maintain eye contact with the person to whom you are speaking
– don’t use long or difficult sentences or speak too quickly
– don’t direct questions to him/her but rather to the official head or your most senior counterpart. If they feel a question should be redirected to someone else in the group they will do so

The language
-Mandarin, also known as “Putonghua” or the common language, is the preferred language for business meetings, formal occasions or banquets. It is the official language and is spoken by all but a minority. -It is the language taught in schools and supported by the government. It is one of the official working languages at the United Nations. Other dialects of minority nationalities can be heard in regional areas.
-On more relaxed occasions people may lapse into their own dialect with other native speakers.
-There is only one written Chinese but with two different forms:
– full form, which has complicated characters and is used in Hong Kong, Taiwan and overseas
– simplified form which has simple characters and is used on the mainland and in Singapore
-English is not widely used in China though it is regarded as the most important international language. Though highly educated people speak English there is limited understanding at the less educated levels.

Forms of address
– Mr, Mrs and Ms are now used.
– On formal occasions people are addressed by their family name. Only when you become familiar with someone do you use other terms of address.
– The Chinese surname goes before the given name. The first character or the first sound is always the family name.
– Don’t assume familiarity quickly. Your relationship may remain on the basis of Mr Zhang forever in some cases.
– When Chinese are friendly with each other they often use Lao Li and Xiao Li, Lao for a senior person; or Xiao for a young person.

Gestures and public manners
– When you want to beckon a person to come closer or to get their attention you hold one hand facing down and move your fingers toward you as though you are scratching the palm of your hand.
– Do not point using your index finger – point using your hand.
– While the Chinese bow to greet each other, the handshake is more often extended to Westerners.

Gift-giving and receiving
-This practice is not official protocol but rather a customary ritual and very common. To help build a solid and friendly business relationship it is advised to take a few gifts along so you are prepared to reciprocate.
When you present a gift there is a ritual for it to be refused a few times out of politeness.
-You should also respond similarly when offered a gift.
-Don’t open a gift after accepting it unless asked to do so, open it privately.
-Don’t take gifts in multiples of four. The Cantonese term for four is thought to have an unlucky meaning.
-Chinese love giving and receiving small inexpensive objects or trinkets. Good gifts to give would include things that are representative of Australia like small furry koalas or small kangaroos or key rings, pens, paperweights, diaries and calendars and the like, branded with your company’s logo or Australian insignia.
-Don’t give expensive gifts, as this will embarrass the recipient(s).Avoid giving gifts of:
– clocks, watches, handkerchiefs or white flowers, as these are equated with death
– scissors, knives and other cutlery, as these are thought of as severing ties.
-The recommended colour for wrapping paper is red.

Dining out and entertaining
-Dining is considered an important aspect of establishing and building business relations.
-In Hong Kong most entertaining is done in restaurants because Chinese homes are often small, crowded units. Mainland Chinese however like to invite guests to their home, considering it an honour.
It is not customary for your partner, or your Chinese counterpart’s partner, to be invited to a business dinner.
-Seating etiquette requires you to wait for your host to gesture where you are to sit.
-If you are the guest of honour for any occasion, business or personal, in a restaurant you can expect to be seated in the middle of the table, facing the door. Your host will sit next to you. Others will be seated in descending order, based on hierarchy.
-When you host a meal, be sure to offer the centre seat to your most senior guest.
-Your host will invite you to begin each course – until then you should leave your food and drink untouched.
-The main beverage drunk during business meetings is beer. Also served are “maotai” or white wine and traditional Chinese spirits.Western wines and soft drinks could also be available.Three glasses usually sit on the table – the largest should be used for your first choice of beverage, the middle-sized glass is for wine and the smaller one is for shots of “mgotai”, or “sorghum” liquor.As a guest you could expect your host to propose a toast either after the first of several courses has arrived, or at the end of the first course. Then toasts will be proposed throughout the meal. You should toast your Chinese host or guest often. “Ganbei” means “Cheers!”
-Chinese are not generally enthusiastic about Western food and they prefer a sit-down meal to cocktail parties or buffets.You may be served one dish for every person at the table, placed on a revolving tray in the centre of the table.
-Good etiquette requires that you eat a little of everything, even if you don’t care for it.
-Don’t be afraid to decline alcohol politely and firmly. Once you begin to drink you are obliged to continue. This also applies if you accept a toast – you are expected to drink the whole tumbler.
-You will be expected to use chopsticks proficiently. When not using chopsticks place them on the rest provided.
-The ritual yum cha means “drinking tea” and is enjoyed socially.The meal is customarily coming to an end when fruit is offered and or hot towels are served. Your host will not initiate the end to a gathering until his guest(s) are preparing to depart.
-You would be expected to tip at the end of a meal. Giving a handful of change, rather than a percentage of the bill is quite acceptable.

When dining in a Chinese home
Chinese enjoy entertaining in their homes. When visiting:
– arrive on time, not early
– be prepared to remove your shoes at the door
– bring a gift for the host
– don’t touch mirrors, ornaments, statues etc. as they may have significant religious meaning
– wait until you are invited before sitting down – customarily you will sit to the left of your host.

Business Tips

March 23, 2011 1 comment

How Do You Choose Your China Business Consultant ?

by Sara Cheng

China is a hot button and probably also one of the most frequent headlines of Aussie media nowadays. Coming along with this are numerous China business consultants emerging like bamboo shoots in all colours and with various language and education backgrounds. Australian businesses eager to jump onto the wagon to do business with China are surrounded and bombarded by China business seminars, conferences, summits, cocktail functions and then tracked down by all these consultants both during and after functions and events.

Are these consultants adding value or rather a worthless upfront cost for businesses?

The answer is yes and no, depending on who you work with and how you work with them.

It seems cliché but sometimes some businesses do not use common sense when it comes to choosing consultants which are critical for achieving their business success in China. Bear in mind the 3 must-have characteristics of quality China business consultants when you chose whom to work with:

China commercial experiences and capabilities: The consultant is not carrying out an academic research for you. They should be able to breathe the depth and breadth of your business, grab the essence of your situation and needs in the shortest timeframe, put this in a broad but practical China business framework and get solutions for you. China is a country full of cultural nuances and operates under a different system. Without systematic business-related education background and extensive personal commercial experiences in China, a business consultant will not be able to possess such knowledge and expertise to navigate you through the system and achieve success in China.

Chinese language skills-this is common sense. Mandarin is the official language in China. Though there are dialects and accents in various regions, especially in East China and South China, Mandarin is well understood China wide. Without this language skill, your consultant will only obtain 2nd hand (might outdated as well) information when conducting research and will not be able to communicate with Chinese stakeholders on your behalf.

Most competent communication capabilities: Your China business consultants will communicate with your potential Chinese distributors, agents, manufacturing partners, suppliers, joint venture partners, Chinese government agencies and industry bodies on your behalf. Any small mistakes in such communications may damage your relationships with Chinese stakeholders or compromise the quality of the work they do for you. Assess your consultants’ communication capabilities before you enter into a service agreement with them.

Just having a quality China business consultant cannot guarantee you succeed in China. There are 2 must-know rules to make sure you achieve the most through your competent China business consultants:

Provide genuine information they require from you: In lots of cases, ethical and experienced consultants can straightaway let you know the ideal model for you to work with China or the potential of your products/services in China if you provide them genuine and comprehensive information on your business strategy, situation and needs. If you have little chance to succeed in China, they may be able to advise you the difficulties upfront and hence save your time, money and resources to work on mission impossible.

Provide inputs, monitor milestones and work closely with them: No matter how smart and experienced your consultants are, they do not have the knowledge on your business as you do. Hence do not just leave everything in their good hands. Require progress report, communicate with them regularly, provide feedbacks, ideas and information when required or necessary so that they will refine and tailor the approach during project delivery and achieve the best they can do.

With a competent consultant and work with them in the right way, you will get the most and best out of your China business consultant and achieve success doing business with China.

Import from China: What You Must Know to Ensure Success

February 2, 2011 Leave a comment

By Sara Cheng

China has been the obvious procurement destination in the past 2 decades. However, import from China is not always a happy story. Foreign businesses must bear in mind some must-knows and take necessary actions before and /or when sourcing from China:

 Check local import tariff and other trade barriers such as quality standard and international certification requirement for import from China. With rising trade protectionism globally, it is highly recommended companies do a careful cost and benefit analysis before looking at the import option. High import tariff and other trade barriers may eat up all potential profit gained from import. Also CE, UL or other accreditation and/or requirement on manufacturers may apply for certain products.

 Decide on going directly to manufacturers or dealing with trading agents. Though buying directly from Chinese manufactures may secure a better profit margin and ensure direct communications with suppliers, lots of established Chinese exporters operate on a large manufacturing scale and are mostly committed to mass production and “big” orders. Hence, it may be worth going to a trading agent who can combine small orders, secure a better deal and conduct pre-shipment inspection.

 Qualify suppliers before you place orders. China has an old term “suitcase company” which refers to one-man-band companies and in some cases scammers. Today there are still suitcase companies under the cover of glamorous corporate websites. Hence a background check on the company’s legitimate status is a must before you place your 1st order to the Chinese company. China does not have a central point where people can check scammers or legitimate status of all businesses, which makes it difficult for foreign companies to do background check. However, a general online search and research may serve as a starting point, or for high value orders you may hire a consulting firm to conduct a due diligence on the target Chinese companies.

 Understand Chinese manufacturers and negotiate a win-win deal. China is a competitive manufacturing base. In most cases, export-oriented manufacturers do not have a big profit margin but live on the mere margin gained from returned VAT for goods export. If foreign buyers do not understand the situation and bargain too much, they may end up buying products of crap quality if the Chinese manufacturers do not want to lose orders to their competitors and hence have to compromise quality to gain a reasonable profit margin for themselves.

 Communicate with Chinese manufacturers/suppliers on your product requirement again and again, and then check, check, check. Chinese companies may not fully understand the product functions, quality requirements and life styles in western countries and hence may manufacture “good” products to their satisfaction but not to your standard. To avoid this, you cannot just check samples, but need to conduct pre-shipment inspection, especially for the 1st order. You may consider engaging local agents or production inspection organizations for the pre-shipment inspection.

 Ensure a safe term of payment. Chinese manufactures usually accept 30% deposit and 70% upon shipment for a 1st order. However, this is a risky term of payment for buyers as it is based on commercial credibility rather than stringent 3rd party guarantee. Letter of Credit is a better guarantee for buyers as well as a fair term of payment for sellers.

 Protect your intellectual property and don’t make your suppliers your potential competitors. To guarantee quality, many western buyers generously pass on their technology know-how to their manufacturing partners in China, with little consideration of the potential risk of losing intellectual property and nurturing potential competitors in the global market. Hence companies need to put an IP protection mechanism in place both legally and commercially, which is far more complex than just having patent and trademark registered in China. Companies need commercial advice from China business experts to build a robust commercial mechanism to protect IP proactively.

 Acknowledge Chinese cultural nuances and build a long term partnership. China is a nation full of “guanxi” (relationship), self-pride (especially with China’s rising economic power in the global market) and social functions. Westerners doing business in China usually find themselves exhausted with after-work dinners, saunas, and patting on each other’s shoulders while calling them brothers and sisters. As the saying goes “when you are in Rome, do as Romans do”, to fit into the business environment in China and establish long term partnerships with Chinese suppliers, westerners have to understand and acknowledge these Chinese cultural nuances, though they do not need to give up their western cultural identity. Chinese appreciate foreigners who can say a few Chinese words, enjoy “ganbei” (bottom up when drinking) and quote a line of an ancient Chinese poem.

 Consider a phasing strategy and other models to source from China. Foreign companies have many an option to source from China: source through agents, import from manufacturers directly or set up an on-the-ground procurement centre in China. A popular model is for the overseas headquarters to import from Chinese manufacturers directly at the initial stage and then move on to set up their own sourcing offices in China at a later stage.

 Have a contingency plan and back-up suppliers. Never reply on a single supplier in China. Things may go wrong with the suppliers or the partnerships. With back-up suppliers, you have more stable supply and stronger bargaining power as well.

Import/sourcing from China is in most cases a complicated task. It is highly recommended that, before taking actions to source from China, businesses develop a clear sourcing strategy by mapping its business strategy, resources and market condition, and then do homework to identify competent and committed suppliers/manufacturing partners.

For more information or assistance with import from China, plesae contact Sara Cheng

How to Speed Up Your China Business ?

December 21, 2010 Leave a comment

 

Having assisted many Australian companies to do business with China, I identified a few must- have attributes of companies doing business successfully with China.

First, these companies objectively assess their unique sustainable competitive advantage in the Chinese market, smartly dodge head-on competition through differentiation, and target the right market where there is a gap they can fill or which appreciates their unique selling points such as advanced technology, unique product functions or green image, etc.

Second, these companies may have ambitious long-term plan for China but adopt a focus strategy at the initial stage. Focus, focus, focus. They focus on the opportunities in their target niche market and not be a by the huge scale and diversities of China; they focus on key contacts and are not immersed by the cultural nuances; and they focus and devote resources to result-oriented activities. With this strategy, companies are able to use limited resources efficiently and achieve cash flower quicker to subsidize the expansion plan at next stage.

Third, they find and leverage external complementary skills and resources to speed up the market expansion in China. They leverage established and committed distributors’ existing networks to tap into the China market; they hire Chinese managers or China business consultants to gain China market insight and capabilities to handle various tough situations in China; and they leverage joint venture partners’ financial resources to upscale their operation in China.

Fourth, these companies are flexible, nimble and quick to the changes in the Chinese market. Things which may take 5 years to happen in a mature western economy may get done in the Socialist Free Market in China within a year. Successful companies do not wait and see, but quickly navigate through the complicated Chinese market to grasp the opportunities.

Last but perhaps most importantly, these companies understand the drivers in the Chinese social, political and economic environment, understand the game rule and know the little things which make a big difference. Reading The Art of War, appreciating Chinese traditional paintings, being able to greet with a few Mandarin words and reciting a line of Chinese poem will be an absolute plus to glue relationships in China. While face and Guanxi (relationship) are must-knows, lots of successful companies even go the extra miles to further learn and grasp the fundamental philosophies mainstreams in China believe and appreciate. They are more like insiders and adapt their strategy to work more efficiently and effectively in China.

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