Even since the Industrial Revolution, Western companies hold absolute advantages over local competitors from the perspectives of ideas, technology, process, quality and scale. Base on them for decades Western business enjoy the leading position to dictate what products to produce and distributed, and how consumer will buy and pay for them. The consumers need them.
Today, It is not a dispute anymore that China is the largest singular economic entity on this planet. The effects of Western advantages are quickly diminishing for those who want a piece of action there. Over the past 3 decades companies from all over the world have come to China to explore business opportunities. Some are highly successful, most are doing okay but not as explosive as they had hoped, and a lot of them failed and left.
Large companies that already have brand recognition, competitive products and services as well as substantial investments can afford to carry on with their global strategy and products, at least for some time. So it is no surprise that the likes of Dow Chemicals, Apple, Ford, BMW came to China and made lots of money: but what if you are one of the middle-of-the-road brands that enjoy a good reputation in the Western world but can’t quite crack the China nut quite open? Over the years I have dealt with a lot of such companies and have observed the following common mistakes.
The top dog of the organisation that runs the China business is NOT local. The word ‘local’ refers to mentality, not skin colour or race. Executives with deep company background may know the products and company culture well, but what’s important for competing in a local market are knowing the law of the jungle and attracting and keeping people who are right for the China market. Unfortunately, the tendency of many MNCs executives is to use people who are more like themselves than those with what the company need. Another common issue is estimating the market based on what they know, which is typically less comprehensive and acute their local competitors. Finally for those who come from the HQ they tend to succumb to the HQ group think and lack the audacity to make bold moves, which is often needed in the China market. With strong HQ-centric thinking, in many cases executives responsible for China business results blame the failure to reach goals on ‘This is China’ and ‘The unfair Chinese system’ but in fact, it was their own lack of local knowledge that caused it.
Attempt to sell the same products and services in this market. This issue applies more readily to the food & beverage and the professional service industries. The Chinese taste, habits and values are different. KFC have tried to launch in China back in the 90s with their home formula featuring chicken pieces and failed miserably. Today when a Westerner walks into a KFC in China he will not recognise its menu; it’s like a Chinese restaurant and yet it is extremely successful. Burger King has been sticking with its ‘flame broiled burger’ message and is reluctant to stray away from its success formula. As a result it is struggling and its growth in China lags behind global and local restaurant chain giants. By the same token, in terms of the professional service industry Chinese businesses in most cases have long placed Western ‘best practices’ and business models in low value. This does not mean Western methodologies have no value and they don’t need them, it just means you have to convey your messages in a different way. For professional service to be relevant in China they need to partner with hardware and software product vendors; form alliance with local shops that needed your unique skills; as well as repackaging their message in a well defined niche area.
Don’t know how to do marketing in China. Marketing is the art of reaching the people interested in what you got and manipulating their emotions to get them to pay you. Chinese people get to know and trust a business and their products and services differently from people in the West. Chinese people are more reserved in nature and have a herd mentality, and people they trust heavily influence their purchasing decisions. So off-line marketing activities focusing on small groups are more effective; you hit one, you will also get others. Also, Chinese people like deals. Successful new businesses such as taxi apps, on-line stores, now fast-food chains have budgeted a lot of money to build potential customers habit in using their products and services. Of course not everyone has the cash to burn, but having dedicated customer experience manager and department is an important tool. Finally, Chinese people do not like high-pressure sales techniques; they like to make decisions in the background without being pushed. That’s why platforms such as Taobao and DianPing are so popular as the consumers totally control the decision timeframe.
Putting all the eggs on the Tier-1 and Tier-2 city baskets. On the surface the strategy of focusing your business in the Tier-1 and Tier-2 cities makes sense, as that’s where people aggregate. However the reality is that demand for goods and services in large cities are approaching saturation and that the Chinese government is reforming the economic structure in the Central and Western part of China. Local government officials have performance targets to transform the economic infrastructure of their cities and create non-agricultural industries and high-quality jobs. Hence the demand for sophisticated process knowledge and skills are high, and people from these smaller cities are happy to work with foreign companies even if brand name is not well known. This presents a fertile ground for foreign small/medium companies to establish their brand. Unfortunately a lot of these kinds of companies are missing the opportunities, as their ex-pat leaders do not want to live anywhere other than large cities.
Reluctance to work with local partners. When companies venture out of their comfort zone they typically find someone they know to travel together, quite often their global partners. This may be convenient and comfortable at the beginning, but in the long term this move limits the strategic thinking of the company. It is a natural tendency to piggyback on the global partners existing geographic coverage, industry access and existing clientele. However such dependency blinds the need to find local partners that can provide real synergy and innovative insights in the local market, so no break through ideas that can shake things up are generated. For example, a large MNC that is in the process of transforming itself from a traditional manufacturing model into one that focus on physical mobility life-style is struggling in China to make the strategy work. The global management team had misjudged the reach and popularity of its global third-party payment partners in China, when they finally realized this problem they were clumsy in forming new partnerships with local third party payment incumbents.
Ignoring important government plans and signals. It is true that the Chinese government and legal systems are complicated, as you can imagine should be the case for a 1.3 Billion people country. But China is one of the most transparent government when it comes to announcing where they want to invest and focus. The recent “One-Belt, One-Road” development policy states very clearly where the Chinese government will focus their economic development efforts. Businesses that could take advantage of this policy can gear up and make a move. Unfortunately a lot of senior leaders in foreign companies do not heed this clear direction, as they might not have the concept of opportunities that far from their comfort zones of mega hubs such as Shanghai, Shenzhen and Beijing. On the other hand Chinese companies have the audacity to go somewhere new. For example Huawei spent 10 hard years in Africa wedging into the market from scratch; now it is the most well known communications equipment brand in Africa, a market poised to grow in the next 40 years.
I assume that the goal of any business is to stay competitive and maximise profit. The points made here are just some of the obvious ones and there are many more subtle ones that affect business results. However paying attention to these items would probably take you company father on the road of success in China.
