Whilst the Chinese market is huge, it also has a reputation for being challenging to enter, meaning that you should only start on this journey if you are serious about it. This series is a collection of what I feel are the greatest challenges entrepreneurs face when trying to break into their market with their products. In part 1 I’d like to look at how companies are underestimating China as this is probably the biggest challenge that companies face when considering entering the market.
Table of Contents
China needs the right strategy (& that’s a different one to your home market)
I’ll say it again, just to make it really clear: to enter China needs a China strategy. Yes, that should be aligned with your Asian strategy and your global strategy but for sure there will be pieces of that strategy which need to be unique to the Chinese market.
No matter how often people hear this, most companies still believe that THEY will get this right. They forget in this process that China is evolving so fast that the strategies which were successful in the last 10 years are highly unlikely to yield comparable results in the decade to come.
Your strategy for China needs to take into account the fact that the consumer in Shanghai has different values and expectations to a consumer in Changsha. If you’re looking to export food products then those clients probably have different taste preferences for example.
The Chinese consumers are among the most discerning worldwide and actually really spoilt when it comes to customer service, so you need to consider how you can serve those needs.
IP Management & Brand Name
A China strategy can’t be complete without an IP (intellectual property) strategy. China works with a “first to file” system that has led to a whole business sector springing up of “brand sitting”: companies registering (mostly) foreign trademarks in the hope of being able to either sell them back to their owners later or to win court cases for violation of “their” trademark rights.
Part of your IP strategy is also the topic of choosing an appropriate brand name. This is unlikely to be a consideration elsewhere but can make the difference between not being discoverable online and being literally the hottest thing since sliced bread. Remember most Chinese search for products with Chinese characters so having a Chinese brand name is key here.
Be flexible. The Chinese are extremely open to new business models and ways of purchasing so it would be naive to consider you can just make a plan and then stick rigidly to it. Chinese consumers tend to be more open for new developments in the fields of IT and this has led to a massive upswing of digitalisation and AI driven enterprises, which the more conservative European consumers can hardly even consider.
You can expect almost each step of your processes in China to be digitalised in some way. That of course includes virtually all of your marketing as well as potentially your supply chain. Depending on your products, it may be usual to track each individual SKU as they move across the country right up until the moment they are in the consumers’ hands.
China is extremely content hungry so usually brands have to create large volumes of additional content for use in online marketing.
Strategy considerations specific to entering the Chinese market
Consequently for China, even more than for other markets you need to consider:
- Which locations are suitable for the various phases of your market entry
- How to make your strategy consumer centric?
- What is your IP strategy?
- What is your digitalisation strategy?
- How will you enter the market? With which business model? Eg Cross Border E-Commerce, Distribution, direct investment
- Who will be your partners and how will you find the right ones (& build the relationships with them)?
- Which parts of your global marketing strategy are suitable for being localised and how much new content will have to be created additionally?
- How will you manage the shifting landscape of regulations?
China is huge & diverse
It’s easy to underestimate the sheer size of China. Flying from Shanghai to Urumqi (east-west) will take nearly 6 hours and from Harbin to Guangzhou is 4½ – those are the dimensions of a continent.
Also, as with any geographical region of that size, it is not a homogenous society neither in socio-economic terms nor in cultural aspects. China truly ranges from highly digitalised mega cities such as Shanghai or Shenzhen, with their 5G coverage and electric bus fleets through to cities which most western Europeans have never heard of, never mind can identify on a map.
Hard to Quantify
It can be really hard to get a handle on how big the Total Addressable Market (TAM) not to mention the Serviceable Available Market (SAM) for your products in China. If I had €10 for every time someone asked me about the size of the infant nutrition market, then I could probably retire as a rich woman tomorrow.
If you ask 5 people about the total market size then you will probably get at least 6 widely varying answers. In the example I mentioned above about infant nutrition, back in around 2016 Nielsen valued the market at around €12 billion whilst Mintel quoted €27 billion, which is quite a difference of opinion!
This makes it hard to really make a great business plan if you are just entering into the market as there are so many estimations involved. Usually all you can do here is pick an internationally accepted as reliable data source & use their figures as a basis for calculation, whilst also talking to as many people who know the market as is practical.
Supply Chain Challenges arising from China’s size
Despite rapidly developing infrastructure, the sheer size of the distances that have to be covered to move products to offline retail around the country add to the complexity of the market. This makes it a potential supply chain nightmare.
Not only do you have varying levels of infrastructure, but there are also a range of climate zones from sub-tropical to continental steppe.
The country is so huge that you can sell “ONTO the shelves” almost indefinitely – at least you can have that impression as a small brand – without actually having ever reached a Chinese consumer who bought a product OFF the shelf. That is a scenario that can look good for several months until the dream of “making it in China” comes to an abrupt end.
- pick your regions strategically at the start and stick to your plan at least for the initial months until you have a feel for how consumers are accepting your products. For consumer products, you might want to think about regions such as Zhejiang, Jiangsu, Guangdong & Shanghai due to the purchasing power. However, obviously that also means that the competition levels are the highest there, so it could also be an option to start with inland cities such as Wuhan and Chengdu. You can do great business in lower tier cities too with the right strategy.
- Think about your packaging before you enter the market. If you are selling into lower tier cities in the south of China, having a thin paper sleeve around a product will probably end badly in the humid climate. Also there are more insects etc around in the sub-tropical climate than you would find in Europe. (See my post on the topic of packaging to learn more about climatic and other international considerations)
- As the country is so huge, consider more robust transport packaging than you would need for Europe. Whilst in many ways China has fantastic infrastructure, regional distributors may treat your products in the same way that baggage handlers do your luggage…
- Keep a close eye on the rotation from the shelves – Chinese consumers are especially sensitive on the topic of remaining shelf life & you don’t want to get a bad reputation when just starting out
Not a place to make a fast buck
China is sometimes seen as a kind of El Dorado or a goose that lays golden eggs. Perhaps it was at one time, but those days are definitely over.
Competition is huge and it can be a long road to success, although it’s worth it if you persist long enough to break through.
As with other markets though, you should certainly expect to invest for some time before you start to see a major return. China is certainly no longer a get rich fast kind of market.
China is an expensive market to do business in
There are a number of factors that leader to companies underestimating China in terms of the potential costs involved.
- As I’ve mentioned several times the levels of competition are insane as the size of the market means that everyone wants to be there. This puts pressure on brands to make themselves noticed to consumers.
- Supply chains are long. I don’t just mean from your home market to China but also within China itself, leading to increased transport costs.
- With long supply chains you also often have a lot of complexity. Potentially several layers of sub-distributors who all need to earn a living and be motivated that your brand is worth investing their energy into (when they have so much choice).
- Staff in Shanghai will probably cost more than in your home market for the equivalent position (if you are in Europe)
- The level of regulations (& changes) means that you have to be flexible with your product redevelopments but also adds an additional layer of expense eg. an organic audit for China is a completely separate process to your existing certification and requires annual renewal
- Marketing and advertising is expensive.
Assuming that you know best
This is perhaps the most risky aspect of underestimating China.
It doesn’t matter how well you know your brand and what it is capable of.
It doesn’t matter how many international markets you are already working in.
China really is that (one) market where many things do work differently.
As I mentioned above, Chinese consumers can be extremely demanding (especially when it comes to the speed & levels of service they expect) so treating the market like a “developing country” will be a road to disaster.
Especially post-Covid there is an increasing consciousness in Chinese culture and a pride in locally produced products which wasn’t there to the same extent prior to the pandemic. The Chinese consumer will always have the choice to take either a local or another imported brand.
Listen to the local experts when they explain to you how things work now in China, and accept that you will always be learning about the market. Unfortunately there are also a huge number of people out there who will try to sell the idea that because they once spent 3 days in Shanghai that they are experts on the market. Be careful of giving their opinions too much weight – they may have valid things to say but it probably won’t be the whole story.
Is underestimating China the greatest challenge to entering the market?
I believe so, at least in many cases. Companies get this picture in their mind of dabbling their toe into the waters of the Chinese market and becoming rich before Christmas. Unfortunately it doesn’t work like that.
Yes, China can offer huge rewards over time, but those rewards always come with a certain risk and the need for stamina. To quote a cliche “if you can make it there, you’ll make it anywhere” as there are many challenges to getting started & before the market can become your golden goose. Is China worth all the effort? Definitely, if you take the time & make the effort to do things right.
There are huge potential benefits to actively selling into China, however you need to enter the venture with your eyes open to the challenges.
Thinking that working with a consultant would accelerate your international expansion?
If you’d like to learn more about working with me for support on your internationalisation projects or personal export knowledge, you can book a 30 minute international clarity call here.
If you haven’t already signed up for my free e-book about how to select which international market to enter next, you can do so here, or using the form below.
If you enjoyed this content please share it on social media or recommend it to your network.
Pin this post for later!
If you are interested in selling in China, you might also find these posts interesting:
- Successful Selling in China Part 1: The Background
- Successful Selling in China Part 2: Do the Due Diligence
- Successful Selling in China Part 3: Building Guanxi for Success
- China Challenges Part 1: Underestimating China
- China Challenges Part 2: Understanding Chinese Business Culture
- China Challenges Part 3: Keeping up with “China Speed”
- China Challenges Part 4: Finding the Right Partner
- China Registration Regulations for Overseas Food Manufacturers from 2022
- New Trends in China, new Opportunities in Trade
- Top Basic Concepts of Cross Border E-Commerce in China
- Alberto Antinucci: Preparing the Best Market Entry Strategy
- Julia Bingel: Top Tips for Entering the Market
- Laura Cortes: Custom Product Development and Sourcing
- Food and Beverages Trends You Should be Evolving with
- A Sweet Business Opportunity? Entering the Chocolate market
- Get the Scoop on the Ice Cream Market in China
Marketing in China:
- What is Zhihu? How can you use this for your B2B Marketing in China?
- Have you thought about using Kuaishou for China Marketing?
- Using Bilibili marketing in your China Strategy
- Livestreaming driven social commerce in China as the future growth engine?
- Leverage Toutiao’s AI to target Chinese consumers for your brand
- What are the Differences between Douyin & TikTok?
- How Double 11 online shopping festival evolved in 2022
- Trends to Focus on in Chinese Consumer Behaviour
- China’s Pet Market Trends & Consumer Behaviour
Other relevant posts:
- The 2022 Beijing Winter Olympics: Sustainable & Digital
- A Short Guide to Navigating the New China Data Privacy Laws
- Lunar New Year Traditions around Asia
- What is the story of the Chinese Zodiac Animals?
- Year of the Tiger 2022: what can you expect working with Tigers?
- 2023 Year of the Rabbit Characteristics: what is your benmingnian year?