Market research is the first job for international companies to tackle when they plan to do business in China. The clearer the picture is, the more opportunities you see.
When you plan to market your products or to invest in China, whether you are a market developer, international trader, meter manufacturer or systems integrator, you need first to conduct a market research exercise to save costs and time and to ensure success. You must at least have an overview of the situation in China’s power industry and know something about doing business in China to avoid strategic mistakes at the start. Many international companies are successful and many are unsuccessful in China. Do you know why? Are there any business secrets involved with doing business in China? Yes, there are. Let us share some basics that you should take note of.
THE PAST TEN YEARS
Many international giants were optimistic about China’s huge market potential in the late 1980s and early 1990s. They rushed to make investments in the country, hoping to get a slice of the cake from this largest market in the world. But five years further on, reality had set in. These companies had not prepared themselves in terms of market research before they came to China. They knew nothing about the difficulties of doing business in the country, and they had to learn that frequently-changing local regulations and policies are not easy to understand. They even met strong competition from local suppliers, instead of foreign suppliers, and their local partners were often not as capable as expected. In many instances profits were not as high as these companies had hoped.
IS CHINA A 1.26 BILLION PEOPLE MARKET?
There are 1.26 billion people in China. But this does not represent a market of 1.26 billion people, as 64% of the population is still rural and only contributed 16% of the country’s GDP in 2001, according to the statistics. Opportunities, especially for high-value products, can only be explored in the urban areas. Moreover, you need to find your own market segments and customer groups among which your product can easily become recognised and accepted.
A CHANGING MARKET
Five years ago there was one car per 500 families in Beijing, but now there is about one car per ten families. A person with a mobile phone was considered rich five years ago, but now almost everybody has one. This rapidly changing market means that timing is very important, and that you should attempt to introduce your product when the market is ready. If you begin too early, sales will be poor. If you wait too long, you can only follow your competitors. Therefore you should be there in the planning stage so you have time to prepare yourself and monitor the market changes, ready to take action once the market is ready.
HOW IMPORTANT IS "GUANXI"?
“Guanxi” (relationship) is important everywhere in the world, but “Guanxi” has different meanings now. Five years ago in China you could have been successful with a good “Guanxi”, no matter whether your products were suitable or not. This has led some people to believe that “Guanxi” is all you need. If you are establishing a business in China, you will receive calls from people who tell you what good “Guanxi” they have, and how much they can help you sell your products. After the initial excitement, though, you start to realise that very little is happening. The days when people could be successful because of their good “Guanxi” only, without considering strategic marketing and really understanding customer needs, are over.
“Guanxi” is still important, but it’s not everything. You need a suitable product, competitive prices and strong marketing skills to be successful. Customers are becoming more sophisticated in terms of buying behaviour – calling for public tenders is a good example. If you have suitable products and have developed your own marketing strategy, you may also establish your own “Guanxi”, although the language barrier remains a real problem.
China is not a single uniform market. Economic development, environment, culture, tradition, people’s lifestyles and language (dialects) vary in the different provinces, and this means that the markets are quite different among the provinces. The coastal cities and provinces such as Shanghai, Zhejiang, Jiangshu, Shandong and Guangdong are 10 to 15 times more advanced than the mainland areas. China actually consists of multiple market features, so your business strategy may be successful in one province and not in others. You need to consider different strategies when the situation is different.
Competition in China is also different from many other countries. Most of the international organisations that operate in China believe they have to compete strongly with other international companies. Because this is the way they have conducted business in the US, Japan or Europe, they think they must continue to do so in China.
But this is not the case. You are not really competing with foreign suppliers in China – your real competitors are local Chinese suppliers. The largest market share is taken by the local companies, which grow up very fast and compete with you by copying your products or technology. Comparatively the market share of foreign companies is still very small, so the right competitive strategy is really important in this small market. Even your partner can become your competitor! More seriously, it becomes essential to protect your technology in China by registering your patent technology at the start, to avoid future trouble. The legal environment is much improved now, and will really help protect you.
ACCESS THIS MARKET EFFICIENTLY
Based on the general picture you have of China’s economic development, environment and culture, you should arrange for a market study of the industry you are dealing with to be completed. You have to identify your market niche and set up your own entry strategy. You may also need to adjust your strategy when you do businesses in different provinces or when you find the regulations are different. Thorough market research will help you to become successful in China’s challenging new market.