By Casey W. Xiao-Morris
China’s Emerging Markets: A Tremendous Exporting Opportunity
To many American companies, doing business with China means purchasing Chinese products and exporting them to the U.S. But as someone who grew up in China during a time of robust economic development, and especially as a professional consultant who helps American companies expand into China, I have seen countless examples firsthand where the business relationship goes the other way. Exporting to China is a thriving business with an ever-growing list of success stories, and I would like to share some of this prosperity with you in this piece.
Given the size of the middle class and upper middle class—estimated at 300 million and growing, on par with the population of the entire U.S.—it’s impossible to ignore the Chinese consumer market. As reported in Nielsen, the consumption economy contributed 60% of the gross GDP in the first half of 2015. The takeaway for American executives is clear: China is not only a place to purchase from; it’s also a massive consumer market with tremendous potential to grow your company via exporting.
Perhaps the largest obstacle facing American businesses is adapting to differences between the U.S. and China vis-à-vis business culture, market environment, consumer behavior, and laws. All of these play a critical role in shaping the way that your business should assess, navigate, and conduct business in China.
In certain ways, expanding into China necessarily means starting from scratch. This is something which successful businesses often have trouble with, since many established companies attempt to replicate what they’re already doing in the U.S. For example, we recently worked with a brand based in Philadelphia that had focused its digital marketing strategy in America on ranking highly in Google’s search results, but in China that was far less important than achieving success with Baidu, the most popular search engine in China. For every business opportunity in China’s emerging markets, there’s a corresponding challenge that you’ll have to overcome.
5 Important Realities to Consider
1. Is it feasible?
Throughout my consulting career, I have seen countless companies jump to hasty conclusions and enter the marketplace prematurely. Before making a major investment, it’s critical to do research on the viability of your business plan by thinking deeply about three questions:
A) Will you have customers?
B) What are the true costs of entering the market?
C) How competitive is your market in China?
2. Is it the right time?
China is now a buzzword in international business and it receives a tremendous amount of media coverage, much of which focuses on the extremes. You need to ignore the hype and think smartly about whether your business is prepared to dedicate time and resources towards expanding to China in a way which won’t disrupt your existing day-to-day operations.
3. Is your company’s top management committed?
Success in China requires starting from the very beginning and exploring the market opportunities anew. This will undoubtedly require dedicating time, resources, and employees to the project as well as a strategic timeline with realistic expectations. If you skip this step, you’ll find yourself unprepared for what’s to come.
4. Does your company have sufficient financial resources?
Contrary to public perception in the U.S., it can require significant financial resources to break into the market in China. China is not a cheap country to do business in, especially once you factor into account high-capacity employees, regulatory compliances, local set-up, and promoting awareness of your brand.
5. Are you exposed to any risks?
Factoring risks into account is critical, especially focusing on the way that they relate to bringing your technology to China. Conducting due diligence is essential, as many American companies have made the mistake of bringing superior technology to the Chinese marketplace that wasn’t legally protected. While China’s policies on these matters are improving, there is still a lot of progress to be made.
Next Steps for Entering the Chinese Market
Below we’ve outlined the concrete steps American businesses hoping to begin exporting to China should take while moving forward with their plans:
1. Finding the most Effective Approach
Having a high level of knowledge of the local market is essential to making strategic choices about the best way to start doing business in China. Should you set up a local company? What types of sales agencies or local distributors will you aim to work with? How will you go about improving awareness of your brand among your target market?
2. Enter the Market in Phases
In order to maximize your defenses against potential risks, don’t move your entire business at once. Rather, begin with initial testing in a particular region or sector, and learn from the opportunity before investing all of your resources.
3. Localize or Fail
One of the most important pillars of success in China is that only products and services tailored to the preferences of the local population are going to succeed. Many American companies make the mistake of assuming that the branding work that they’ve done in the U.S. will influence consumers in China. The reality is that when you take a look at which American corporations have experienced the most success in China, they are all companies which focused on localizing their operations from the onset. At each stage of the game, the primary perspective to be considered is one which understands the needs of the local market.
4. Choosing the Ideal Partners
Many American companies do business in China via local distributors, and it’s important to evaluate your potential partners closely before agreeing to work together. One of the primary reasons that business can stagnate is because your distributor lacks the means to connect you with a large number of consumers. In many cases, your distributor may not have sufficient financial capacity or business experience, and this will take a toll on your entire operation. Take this into account when you’re decide the number of Chinese distributors to work with.
5. Grow Steadily but Gradually
Success in China requires humility in being willing to grow one step at a time, and it’s unrealistic to expect to become an overnight success. Growth is gradual and requires building off of one success into another—for example, once you possess an effective model with one distributor, follow the same guidelines with other distributors. The same holds true when you expand from one region into new areas. Remember, China has over 200 cities with populations of over 1 million people—reaching them will take time and ambition.
A Brief Story of Success
By now you understand that success in China is not going to be instantaneous, but the result of implementing an effective step-by-step strategy catering to the needs of Chinese consumers. In case you’re feeling discouraged, I want to reiterate that the opportunities for success exist and are plentiful. You just need to put in the effort, like a client of mine based in Southern California which manufactures nutritional products.
Directed by our consulting agency, instead of getting swallowed up by their large competitors like GNC, By-Health, and NBTY, the client opted to enter emerging markets including high-end health management clubs and private physical examination centers. As a result, they’ve experienced successful results in a short amount of time, and now their operation in China accounts for 20% of the company’s entire revenue.
The takeaway is that opportunities do exist, but they need to be approached strategically, with the help of professionals that have on-the-ground knowledge.
Casey Xiao-Morris is the chief China market consultant at Leverage China, LLC. She has used her decades of international business experience to help American companies to expand successfully into China’s emerging markets. She has created unique strategies that have helped small companies all the way to a Fortune 50 corporation. She is in an unmatched position to facilitate your company’s entry to China. She can be reached at cxmorris@LeverageChina.com.
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