With an economy larger than the combined value of Russia, Brazil and India, and around 1.4 billion potential consumers, China poses a key opportunity for SMEs. Australian SMEs are particularly well poised to take advantage of this opportunity, due to our geographical proximity, the China–Australia Free Trade Agreement, and the generally high esteem in which many Australian products (such as wine, fresh produce and supplements) are held.
That being said, entering the Chinese market is no simple matter – in fact, some of the biggest companies in the world, such as Uber and Nike, have made significant missteps in this market and even been forced to withdraw.
So how can we avoid making similar missteps? Here are the 5 most common China market entry mistakes that brands need to avoid.
- Not doing your homework
We often see SMEs entering the market with many assumptions: that their product will require little or even no adaptation to the China market, that the market in China will respond to similar messaging in the same way as the local market, that they can simply set up operations and “figure things out as they go”.
In truth, little of your past experiences will apply to China. What businesses need instead is a beginner’s mindset. A strategy needs to be slowly built from the ground up, with careful consideration for local dynamics, including things like product-market fit, culture, operations, supply chain and regulations, any of which could potentially make or break your Chinese foray if not properly understood. And in order to get a proper handle on all of these complex issues, businesses must invest a lot of time in research and analysis.
Too often, though, we see companies attempt to leap into the market with both feet, with insufficient planning and little in the way of strategy beyond sending resources to China and starting to localise operations. Inevitably, many of these companies are forced to exit the market as quickly as they had entered.
One key way of getting a grasp on this complex market is to travel to the country as much as your budget will allow. You can do as much reading and research from home as you want, but none of it will compare to experiencing the culture and seeing how the market behaves and interacts with technology for yourself. Being there in person is also crucial when it comes to building relationships – another essential component when it comes to succeeding in the China market, where you will need to rely heavily on local partners in order to execute your strategy.
If your schedule and finances allow, you may even want to spend a significant amount of time there. As Asia Pacific Leader for Operations Advisory, Peter Liddell, wrote in KPMG’s report Succeeding in China:
“Despite regularly commuting to China (from Australia) for more than 8 years, many of the key issues raised and the subsequent lessons shared within this document were not truly understood until I had been living in China for more than 6 months.
“The ability to grasp the entirety of an issue and analyse the drivers of complexity, as well as conjure effective solutions, takes time and on-the-ground knowledge.
“Frequent travellers consistently miss the opportunity to get to the bottom of such operational complexities and, therefore, the majority of ‘fly in, fly out’ executives are inadequately equipped to manage the challenges of doing business in China.”
- Going in with unrealistic expectations
Another mistake we often see SMEs make is going in with unrealistic expectations. Many think lessons learned in their local market can be applied to China, and that past performances can be replicated using the same techniques. The sheer size of the Chinese market also leads many to create vastly optimistic forecasts, setting themselves up for a rude shock when things don’t progress quite as fast as they would like. This often leads companies to pull out too soon, rather than continuing to build on their progress until they start to see a return on investment.
This is another reason it’s so vital to do your homework. Having a full appreciation of the challenges – such as a completely different digital ecosystem, strict and complicated bureaucracy, and a highly competitive environment, just to name a few – and the time it will take to overcome these challenges will allow you to set realistic and incremental goals. Remember, entering the China market often means that you need to start completely from scratch. The key to success is testing as early and cheaply as possible, and being flexible enough to adapt quickly to your learnings.
This is also incredibly important when it comes to setting a budget. It’s not unheard of for companies to spend their entire expansion budget without any success. Dealing with the China market’s many complexities takes money, so it’s important to factor in and, if possible, overbudget for all possible contingencies in order to avoid disappointment.
- Not having a clear targeting approach
One thing we sometimes see is SMEs tending to focus their efforts more on China’s 7 mega cities (those with more 10 million residents). Rapid urbanisation, however, has meant that the distribution of the population is moving from being predominantly based on the eastern seaboard to being spread more evenly through the inland regions. As a result, there are now 37 cities with more than 3 million residents each, and 170+ cities with more than 1 million residents.
Focusing solely on Tier 1 cities, where competition is intense and a much higher investment is needed to be heard above the noise, may not be the right move for SMEs with limited resources. Instead, by focusing on fast-growing cities such as Hefei and Yangzhou, SMEs give themselves a much better chance of achieving top-line growth, as the affluence in these cities is steadily increasing, yet these communities are often underserved compared to bigger cities (meaning potentially more demand for your product).
Another thing SMEs get wrong is treating China like one big homogenous market, when in fact most of China’s 31 provinces are as large as small- to medium-sized countries, and each have their own unique needs, tastes and behaviours. Part of the research phase should be looking into China consumer trend data and trying to understand demand for your product in these very different markets.
This type of data is crucial in determining to what extent your product will need to be localised to appeal to your target demographic. The trick is to not go overboard with localisation – after all, a large part of the appeal of your product will be its ‘foreignness’ and the perceived quality that comes with that, so completely altering your packaging and translating everything to Chinese is likely to remove this appeal and, worse, make people think it is a counterfeit product. That being said, you will need to tailor your product, packaging, value proposition and/or messaging somewhat in order to speak to the needs and preferences of your audience. It’s all about achieving a balance between the two – and a balance will be difficult to strike without a deep understanding of who you’re speaking to.
- Betting on just one horse
When marketing to Chinese consumers, it might seem sensible to focus on one channel at a time. After all, the digital landscape is completely different, and trying to wrap your head around platforms like WeChat and Weibo is not easy – surely it’s better to master one, then move onto the next, right?
In truth, reputation and trust is very important to Chinese consumers – arguably more so than to Western consumers – and the days you could sell a product purely by virtue of being Australian are long gone. One survey found that “on average a Chinese consumer will make 10 to 12 visits to online and offline touch points – including search engines, product sites, and physical stores – before buying an expensive item such as consumer electronics”. This means it’s vital that you try to set up your various touchpoints – most importantly your website, WeChat account, and preferred retail channel – as quickly as possible, in order to give consumers the information they are seeking and to build brand awareness.
That being said, all the brand awareness in the world isn’t going to do much good in and of itself. Brands also have to consider all the other stages of the customer journey – engagement, conversion and delight – to develop a successful integrated marketing strategy that will help ensure long-term success.
- Not taking advantage of the local Chinese population
Australian businesses wishing to enter the China market in fact have a huge advantage – a large local Chinese population right at their doorstep. Yet despite this, we see few SMEs leveraging this all-important asset.
SMEs can make the most of the local population and help set themselves up for success by doing things like performing market research, testing their new messaging or localised product, or hiring local Chinese staff or interns. This will effectively give SMEs a head start, allowing them to iron out some of the bigger kinks in a safer and cheaper way, before moving into the China market in earnest. This will help avoid potentially costly missteps like poor or inappropriate packaging/product design/advertising, misuse of the Chinese language or misunderstanding of cultural nuances.
Yes, entering the China market is highly complex and fraught with difficulties – but that doesn’t mean it’s impossible. Avoiding these 5 common mistakes will put your business miles ahead of your competitors, and give you the very best chance of succeeding.