Do the Due Diligence

As I mentioned in Part 1 of this series, I’m not going into details or specifics of certain industries here. I’m just mentioning general points from my personal perspective and it’s vital you do your due diligence. It’s really important before you even THINK about going into the Chinese market that you do the desk work. What do you want to achieve in China? Is China the market for you? Can you even handle doing business in China? How can you increase your chances of selling successfully in China?

China can feel like a bottomless pit

Before you start trying to find any kind of partner/ importer or decide on how you are going to distribute your products, you need to find out as much as you can. You probably also need to even go there and do some investigation on the ground before you make a final decision that China is the right market for you. Especially with physical products you never should forget that the supply chain in China can swallow an incredible amount of product.  

By European standards the quantities may feel unbelievable: you can deliver in and deliver in and deliver in… all whilst never actually having sold a single piece of product to a consumer.  The supply chain can swallow an enormous quantity of goods. Many brands fell into the trap of delivering but not checking the shelf take off. Even if you invoiced to your importer, the product is only sold once it’s in the hand of the final customer. Just distributing to the shelf doesn’t help you and without a clear plan as to how you are going to engage the consumers, your chances of success are minimal.

China is a market that requires focus

A second point is that you can’t just do “a little bit of China”. Either you do China wholeheartedly with a systematic approach or it’s better to work on a different market. China can be like a black hole for resources: you really need to give it the time, the energy and the investment that it requires. There is no such thing as “just doing a bit of China on the side” – you have to be all-in to succeed.

How does success even look?

It’s really important when you go to China to set yourself clear targets as to what your company would like to achieve on the market. That could be in terms of turnover, profitability, distribution coverage or even in terms of market share. Bear in mind that it may be difficult to manage & measure those across the whole market very accurately. However, be aware that the route that you take to achieve those goals is for certain going to be a very different one to the one that you expect, or the route that you’ve planned!

Don’t make the mistake of making the following calculation:
– Total market for my product is X billion
– My product is in the […] segment which is estimated to make up 25% of the total.
– If I can just get 0.5% of that segment then I’ll have a turnover of Y million (where Y is a large number that will make the owners/your boss very happy).
It just doesn’t work like that, and any potential partner who calculates according to that kind of basic model is either being naïve or assuming that you are.

Trademarks

China is “infamous” for faked branded products and a lack of IP protection. The authorities are trying to change that, but it doesn’t happen overnight. In the meantime there are some basic steps you can take to protect your business as best you can.

Why do I need another name for my brand?

A Chinese name is an important step since many western products names or brand names are not pronounceable for Chinese people. They also might not even be readable for Chinese people if they’re not very familiar with Latin characters.

You can consider these typical ways of transcreating (brand) names into Chinese characters:

  1. the characters may sound similar to the original word
  2. they might be semantically related to the original name
  3. using characters with an auspicious meaning (many Chinese are rather superstitious)
  4. it should sound elegant to the Chinese ear

A classical case study is BMW, which is known as 寶馬  pronounced bǎomǎ/baomaa & meaning “Precious Horse” in Chinese. Another example is Coca Cola 可口可乐 Kekou Kele (kekou means “tasty” and kele means “pleasurable). If you are interested in further case studies, you could check here or here for high quality further reading. Do the due diligence in advance to save headaches in the future.

There are companies such as marketing agencies in most western European countries or also in North America who can help with this transcreation. It’s critical though that a Chinese native speaker should have a look at which characters and symbols you have chosen for the company name before you make any final decision. Be aware that there are differences in the characters used in Mainland China and those used in Hong Kong or Taiwan.

But I registered my trademark globally…?

You might be wondering why I’m talking about this before you’ve even made a final decision to enter the market… Well unlike many other markets, China works on a first to file system. What does that mean? Basically, whoever files for protection on a particular trademark has the protection, whatever the “rights” to that trademark elsewhere. Consequently, if a Chinese company has filed a trademark belonging to you before you arrive in the market, then they will have the rights to that trademark. You will be forced to either reach an agreement with them or pay (sometimes a lot) in order to get your trademark back. There are even unscrupulous companies who specialise in registering trademarks of companies who are not yet in China, but who would have potential.

The moral of this story? If you’re wanting to work with your brand in China you need to think about:

  1. registering extremely quickly
  2. registering both the Latin and the Chinese character names
    The name in Latin lettering will often be a picture for a Mandarin native speaker, rather than a word. (In the same way, a European eye will perceive the Chinese characters more like a picture than writing.)

How can I protect my trademark?

It’s important that you contract this registration of the brand to a specialist who is an expert in the Chinese market.  The best option for doing this is usually the contractual partner of a patent/trademark lawyer in your home market.  Alternatively, your advisor or Chamber of Commerce may have a list of recommended lawyers for this.

In theory, you can ask another contractual partner or a distribution partner to register your trade mark for you in China, or to approach the person who is “sitting” on the registration. A native Chinese (who isn’t a lawyer) might be able to buy back the rights for a lower sum than you as a foreigner. However, it’s essential that you sign a written trust agreement that this partner will hand over all of the rights to the brand to you as soon as legally possible. I wouldn’t recommend that you should consider this option at the beginning of a partnership, but could be a solution at a later stage in a cooperation if you introduce a new additional brand. Whatever way, this is a riskier option and you should consult a lawyer first.

Within the EU, you can also take advantages of the services of the EU IPR Helpdesk. They have a number of helpful resources on their homepage.

This all feels overwhelming 🤷🏻‍♀️

Where to start China can really be like an in transparent jungle in more ways than one… Western companies are now mostly aware of the enormous power of Chinese e-commerce giants, but have no idea of how to use their platforms for successful sales. It’s very difficult for companies who are entering into the market for the first time to know exactly where they should start. Sometimes it feels like new hybrid business models are popping up every day. For example, the short video app Kuaishou has a cooperation with Jingdong.

Do the due diligence about which channels are most suitable for your product - this can feel overwhelming

Decide what you really need

In order to establish what’s the best solution for your products or services you need to think about what really are your requirements on the market. Almost everybody has heard of Alibaba or JingDong, but these giants might not be the right place for your smaller company to start out. (Check out my review of Singles Day 2020 to get some idea of the dimensions and number of products involved). However, unlike other markets, it may be that you can get recommendations from the large platforms as to where would be a better alternative. Unlike in the west, companies don’t have such a fear of recommending somebody else who might be better suited to your needs.

Talk to as many people as possible in order to get a more realistic picture of what is really happening on the market. In this way you can get a better idea about what channel may be the best for your company. There’s no “one size fits all” approach that guarantees success in China. DO THE DUE DILIGENCE!

Be open for solutions that may seem unusual

Be prepared to think differently too. Sometimes cooperations can be successful that on first glance may appear strange to Western eyes. Eg. Car dealers who also trade in expensive wines. The company I worked for was once approached by a Maybach dealer, who wanted to distribute our premium infant formula as a kind of cross-promotion. There were regulatory reasons why this wasn’t feasible, but in his eyes he would have been a great partner. He was well connected (I’ll talk about the benefits of this more in the next part of the series) and had rich clients, who could afford to buy our products.

Do the due diligence before taking the next step

Whatever you decide about your method of market entry and how ever you find your partner to help smooth the way for this, it is essential that you do your due diligence. Research as much as you can about the pros and cons of the various options, evaluate the various partner possibilities (you can also use the methods detailed in my free Ebook “How To Decide Which International Markets To Enter”) and then plan to visit your short list in China. (Obviously, short visits are not possible right now, however it should get easier during 2021). Don’t make any final decisions without having seen how things really look “on the ground”.

Next week in my final part of this series, I’ll look at how to negotiate with your future Chinese partners and how to manage those relationships.

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4 Comments

  1. […] your potential future partners. Now that you know what Zhihu is, build it into your strategy for selling successfully in China. If you need support with developing that strategy, I’d be happy to help you – see the […]

  2. […] the field of ecommerce, whilst there is certainly a “long tail” of smaller platforms, the large players dominate. This may be less of the case in the future however, as the Chinese government has signalled that […]

  3. […] getting started and how to actually manage the business with your partner will be discussed in the next part of this […]

  4. […] stuck in to this, remember: be prepared to think differently as I mentioned already in part 1 and part 2 of this series. Forget the idea that Guanxi is something sleazy and only connected with handing […]

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