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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.

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Categories: Export to China

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.

Strategies and Methods to Protect Intellectural Property in China

December 13, 2010 2 comments

I recently presented on IP protection in China at a business conference. Here are my notes on some strategies and methods I used as a reference at the presentation, which might be useful for those who are seeking commercial mechanism rather than legal actions to protect IP in China.

 Large companies: Being an industry leader and one-stop solution provider:
-Keep innovating to keep a leading position in the industry. It is a costly approach and work well with large companies;
-Bundle core products/services with non-core but related products/services so that you offer a one stop solution or a whole package for your customers. The demand for your core products/services will drive the growth for non-core business, as your customer will find switching cost or operation cost is to high if they use your core services while using someone else other services.
-Also you may charge for the products/services which are hard to be copied while providing for free other products/services which could be easily copied so that you will take all the market shares your IP infringer may get;
-Build the IP protection in the R& D or product development phase;
-Get involved in the process in industry standard or quality standard development and drafting. Chinese companies are most good at this to protect their IP and monopolize the market.

Vertical integration or horizontal integration: backward acquire your supplier to control the core knowhow or forward integrate with your clients to share risks and cost and better control your IP; or alternatively you enter related industry sectors by acquiring or being partially acquired so you provide a broader range of related products and services to lock in your customers and hence protect your IP;
Target the “right” market, .e.g Microsoft China focused on the market segments which are so concerned about their brand, legal position and market image and also those who could be easily tracked, such as Fortune 500’s subsidies, large Chinese private companies and Chinese government-owned enterprises.
Technical ways, such as dingo for software, online service delivery rather than providing it in the form of softcopy;
Internal IP protection through technical methods:
-Track your sales by offer free membership and free complementary services to your clients so they will not switch to others while you can track your sales and market;
-Firewall, monitoring of emails, back up of materials, etc;
-Leverage media especially online monitoring by brand promotion, online forums, blogs etc.
-Give incentives and retain your key staff who mater your core knowhow;
Protect IP from your stakeholders and Build a network of stakeholders who assist you to protect IP

-In lots of cases, your clients or suppliers are IP infringers so put certain terms and conditions in your contract with them to protect your IP or at least warn them the potential penalty of IP infringement;
-Sharing some knowledge while keeping the core knowhow so rather than taking the risk to infringe IP, potential IP infringers will focus on maximising the benefits as a “peripheral” partner. Microsoft adopted this approach;
-Leverage stakeholders such as clients, suppliers, media, end customers etc to monitor the market and potential IP infringement.
-Get more people to work with you on your IP protection by licensing the IPs or more creative way mutual licensing or multi-cross licensing so you work with a network of organizations to protect and benefit from each others’ IP.
Focusing and giving strategy:
-Look at the cycle of your products and services. If it is at the later stage of product cycle, you may consider the option to share the knowledge for free to beat the market share your IP infringers may get, and hence reduce their profit margins and dampen financial viabilities;
-Last but not least, if you have limited resources, focus on IP protection of your core technology knowhow or in the most important market, the one which you are most advanced, which is hard to be copied and which you can get the best profit margin.

Engage China

September 16, 2010 Leave a comment

With the pace and dynamism of its growth and development, China today presents a good test bed for studying business performance. Despite the global economic crisis and come formidable internal challenges to growth, China has so far proven remarkably resilient. It seems that the force of China’s demand during its epoch making transformation into a modern industrialised economy will be a key source of world economic growth for decades to come. China has and will continue to have a profound impact on Australia, given Australia’s resources base and its small market influenced by global trends and shifts in world production patterns. Australia’s growth is likely to be tightly coupled with China’s. It is important to understand the most effective models of business engagement with China that can enhance Australia’s competitiveness and prosperity.

With this backdrop, the Australian Business Foundation undertook a study examining the current realities for Australian firms doing business with China. I was fortunate to work together with other three authors on the book, be responsible for the analysis of findings from 25 in-depth case studies and also contribute to the insight and conclusion of this study.

The experiences of the case study participants highlight the following significant issues impacting on business performance for Australian enterprises in China. They cover factors impacting the business environment in China, the management and operations for the business themselves and the nature of business opportunities and strategies.

Key findings are summaries as follows:

Business Environment : three issues stand out – culture, relationships and government.

• Culture saturates all aspects of business engagement in China at a level, depth and saturation point that is different from other markets. The cultural dimension is central to the execution of the business strategy and to achieving a return on investment in China.

• The importance of relationships is at the heart of Chinese culture. This is the concept of “guanxi” which literally means “relationship”. Relationships have primacy over rules. Unlike in Western culture, the social relationship more often than not precedes the commercial relationship. Demonstrating commitment and establishing trust happens first; only then moving onto business formalities likes contracts and agreements.

• Government means business in China. Governments administer and regulate almost all areas of China’s commercial environment, but their role and how the rules are applied are not always detailed, documented and transparent. This can be a constraint to business. But equally government can be instrumental in business growth, e.g. some case study companies aligned their business strategies with helping government achieve national priorities for technological innovation or training in new skills.

Business Operations: the study produced insights about key features of business operations in China, covering skills, quality, finances, intellectual property, communications, partners and customers, as follows:

• Talent and Skills: There is an indispensible need for the right mix of skills and for the local Chinese manager.

• Quality: Managing quality issues in China requires understanding of the trade-offs between quality and cost often implicit in the approach of many Chinese partners and suppliers. As perceptions and appreciation of the value of quality can differ between China and Australia, it is vital to communicate clearly about quality requirements and to manage expectations.

• Finance: China needs the usual due diligence to ensure the smooth operations of financial and banking transactions, including companies getting paid and being able to repatriate profits.

• Intellectual Property: Minimize intellectual property infringement by being a market leader and competing on design and innovation. This is a more effective alternative to legal redress.

• Communication: Effective communication is a vital tool of trade, not only for managing people in the business, but for productive relationships with suppliers, customers, and partners. It goes beyond access to specialist and competent language and translation services to understanding the social and cultural context of doing business.

• Partners: selecting the right partner is essential and challenging. It requires investment of time and due diligence to ensure that partners are legitimate and compatible with the business.

• Customers and Clients: Selecting the right customer is as crucial as selecting the right partner. Unlike in Western consumer markets where traditional customer segmentation and marketing campaigns are the norm, in China customers are often found through relationships and connections, both internal and external to the company.

Business Opportunities :Insights from the study questioned stereotypes about both manufacturing and services and produced some common threads on the business strategies that drive success.

• Manufacturing: While cost considerations are important, manufacturers are in China for other strategies advantages, not just low cost. Manufacturers are going to China to seek new customers as the Australian market matures, to source products at the right quality and price points, or in response to structural change in their industry as a result of globalization.

• Services: Services are an important and growing part of the Australian export success story, but are often unrecognized and overshadowed by large trade volumes in other sectors like resources. Many Australian service companies are proving themselves capable competitors in China. They have pioneered successful strategic alliances with Chinese partners, positioned their business offerings to align with and support China’s national priorities, and secured first mover advantage by adapting Western concepts of quality and standards to the needs of Chinese end-users. These are potential competitive opportunities for Australia to expand on in its future business engagement with China.

• Strategy: The following success factors are common threads in business strategy proving effective in Chinese markets:

– Engagement in the Chinese market is for the long-term. It requires a strategy for persistence and resilience in the face of potential problems and failures.

– Business strategies need to be focused, whether on a specific region, specialisation or niche business offering. This is vital to avoid being caught in the headlights of the Chinese market’s diversity and huge potential.

– If adopting a strategy as a niche player, make sure that the business offering is ‘best of breed’ with the specialist expertise and value to perform better than competitors.

– Agility, adaptability and an exceptional ability to learn, together with a tailored and well informed business plan, are mission-critical to successful business strategies for both large and small enterprises.

Overall, the main insight from the experiences reported by Australian businesses in China is that success comes from capitalizing on China’s massive change, diversity and scale with agility and fast learning. In particular:

• Whatever the particular business approach, enterprises must be able to deal with cultural differences, relationships and an ambiguous, complex and volatile environment.

• Enterprises must also provide ‘best of breed’ business offerings that are capably and efficiently managed and that present real value to Chinese customers and clients.

• Enterprises must be adaptable, but simultaneously, they must operate to their own well-informed business strategy and put in place all the fundamentals of doing business – operations, sales, management and finances. This makes it more likely that enterprises can secure a return from China’s substantial and growing demand and opportunities.

If you have any feedbacks or issues/questions in regard to doing business with China, please send your feedback/request to Sara Cheng, Manager-Greater China, Australian Business .

Email: sara.cheng@australianbusiness.com.au

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