The success of China that we hear in the media is often true for many companies. One of the success stories is Volkswagen who dominates the automotive industry selling one out of four cars in China. But success doesn’t come easy for the majority of foreign companies setting up shop in China and hoping to cash in on the China boom.
What are the key factors of success for a foreign company setting up in China?
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The key factors of success for a foreign company in China
Adapting to Chinese customers
Most of the time Chinese people will use an idiom 入乡随俗 , meaning when in Rome, do as the Romans do. This is a reminder to foreign businesses who wishes to market their products to the Chinese market. There are different rules when you want to make business in China (see this article). One of the major difficulties for foreign companies in China is adapting to the consumer’s demands. Every industry has it own code in China depending on whether one is business-to-business or business-to-customer. Foreign companies generally have a hard time finding an offer that suits their target.
Of course everyone has heard about the big successes and massive potential the Chinese market holds, but the reality is success does not come quick and a lot of companies are realizing the success isn’t coming quick enough.
Western companies often have a hard time grasping the consumer’s demand because the usual organized market research done for more mature markets can’t be done as easily or at all in a new market like China.
The research studies about market, consumers/targets and competition are a good way to better understand the consumers. Listening to our partners is essential, this is why Chinese entrepreneurs spend most of their time outside interacting with their staff to collect and combine data.
Price Placement for a Product
It can be tricky having to compete with local businesses due to their bottom low prices and tight margins. Even if a company does grasp the market with the right margins local competitors will soon follow the trend and flood the market with the same product, sometimes for cheaper.
Generally, new foreign companies in China have little knowledge of the fierce competition they will be facing. There is little to no online information about the market or what is available, and even if there is information it is often hidden or not updated. What might have been true 2 to 3 years ago might not apply anymore.
Prices change and so does the positioning of competitors. Chinese enterprises in the textile and electrical industry are trying to up the level of their market. They are launching brands, and putting in huge efforts to improve the quality of their brands to compete with the Western brands. (See fake brand China)
Prices change and the positioning of competitors as well. Chinese enterprises in the textile and electrical increasingly trying to move upmarket. They launch their brands, are making huge efforts to try and improve their quality of branding in the West. (See fake brand China)
In many areas, it is important to know where to place these competitors and how to stand out above the rest.
Managing Chinese People
Guess what, Chinese people have different customs compared to us Westerners! This statement seems so trivial yet so little is understood of the Chinese way by many Western policymakers in China. We sometimes think we are slowing opening up the mysteries of China but at times their behavior still escape us.
Chinese people were not brought up in the manner as most Westerners were brought up. It is a completely foreign culture that only recently Westerners are starting to be aware of. In addition, the diverse regional differences complicates the already hard to solve cultural puzzle. Figuring out the nationalistic Northerners, the ambitious Shanghainese, a relaxed Sichuanese, and the traditional Cantonese just to name a few will surely show just how diverse and complex the Chinese market is.
Fortunately, there are codes to surviving the Chinese business circuit.
Code 1: Chinese people put a big emphasis face and the act of saving face, understanding the concept of ‘mian zi’ will help you solve a big piece of the cultural puzzle.
Code 2: Relationships, ‘guan xi’ is another big part of setting up business connections in China. Sometimes a relationship you establish with companies or people is more important than the product.
Code 3: Chinese people are able to work very hard for long hours and are primarily motivated by money.
Another problem in management is communication. Most of the staff member’s English skills are not up to par professional business wise to understand and comprehend instructions given out by foreign managers. Things are gradually changing where foreign managers are asked to communicate in Chinese rather than to ask the staff adapt. Efficiency level is much higher when the manager is communicating clearly to the staff, and that usually means the company has to adapt in every way possible and one of the ways is adapting to the staffs.
It is much more efficient when instructions are carried out in Chinese by the managerial staff to ensure accuracy and productivity.
I’m no professional headhunter, but years of exposure to the Chinese job hunting market I must warn people about the expectations of recruiting well trained and qualified Chinese staff members.
Some companies like Ikea, for example recruit young experienced people, and train them thoroughly according to the standards of Ikea.
Some continue to recruit mercenaries, these are highly skilled Chinese people who has been educated abroad. They are well skilled and have an international way of thinking to contribute to a company.
The only drawback with the job force is that they change their jobs regularly.
Internal promotions in China are few, but with a job change one can receive an average of a 20% raise.
The HR department is absolutely crucial in China. One must know the right people at the right positions in order to face the challenges of keeping a consistent staff.
Protecting ones technology, know-how and brand
All thorny issues! All companies face this problem: the lack of protection of intellectual property throughout the country encourages the development of copiers & imitators.
Even some of the largest brands have to worry, it is a constant legal battle for companies like Apple and KFC.
The example of Baijius
Protection of know-how is also difficult for Chinese businesses. For example, Baijiu brands are copied constantly. One industry leader Maotai announces that it will increase spending on fighting against counterfeits. Each Chinese New Year, there are dozens or hundreds of Communist Party cadres who are poisoned with false Baijiu (in real prices). Legal services of the trademark has shut down dozens of fake producers or dealers in mainland China.
Marks Baijiu (Chinese liquor made from rice) will copy all.
We copy the ads, packaging, bottles, slogans. This high profit sector is fiercely competitive. To stand develop its branding is a way to protect its know-how. Chinese consumers are afraid of “false” and generally have confidence in a product brand. The Chinese consumer Baijiu found refuge in the great brand names, and will be reluctant to taste a brand he does not know.
The protection of Chinese brands is finally Baijiu their brand image.
Control costs and purchases
Buying things with Chinese prices is a real challenge and a real pain for many Western societies. Chinese suppliers have this old habit of letting the prices get to the customer’s head. European & U.S. customers receive the highest price and Chinese companies have the same products at prices / conditions much more favorable. I’m sure this is something everyone is aware of.
What conditions to receive a desirable price?
State buyers purchase volume and position of strength compared to a supplier. If you buy in bulk the Chinese will bend over backwards to provide the best price, as soon as possible … however if you have small quantities, be ready to deal with suppliers, some will not even begin to deal with you. (More information about buying this product in China)
It is imperative for a company based in China that wants to sell into the Chinese market to reduce its costs to offer products at a competitive price.
Chinese people do not have the same standards of quality as of Westerners. Generally they are more focused on quantity, so Chinese workers and leaders will always struggle to understand what “quality” standards really mean or “European quality”.
An awareness is needed to establish a quality culture in your organization, and implementation of a rigorous process ensures quality.
Chinese people often think that a good quality is a waste of time, money and causes trouble, but from a quality engineer working for a long time in this country, once the quality process is implemented, they will follow the instructions much better than foreigners and are generally satisfied with the quality policy of their group.
I am unfortunately not a “quality engineer” and for this reason I will not dwell on this subject.
Developing a brand and the company name in China conveys a good image, why is it so important?
Because it is a competitive advantage to be difficult to be copied by competitors. Having a strong brand will help keep your legitimacy on the market.
Controlling the image of your company, control your reputation, it is the “contract of confidence” as Darty say. This confidence has increasingly gained consumers. The brand is the image and branding gives deal with Chinese. Sell products that give the face is very profitable in China (as elsewhere). One key categories that have more resources and need to assert themselves with their families
Pull & Push: generally works better demand pull than push in China, because Chinese companies know how to be on the ground, but find it harder to attract customers.
I’ve given you some great tracks. this list could be completed thereafter. I welcome your comments and your feedback.