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Chinese Markets Offer Opportunity to the Forward-thinking

One complex economy making strides to regain ground lost in the 2008 global economic downturn is the Chinese Market. With a steep decline in export demand, Chinese markets have looked into retooling the way they conduct business within China factories and other sectors in an effort to fully bounce back to the global export leader it recently was.

According to the Hong Kong Trade Development Council, Chinese Exports have taken the biggest hit; domestic demand remains high, keeping Chinese factories and manufacturing up and running. In fact, domestic demand for goods is on the rise, as noted by many leading China industry market researchers. As workers continue to receive pay increases, the demand for Chinese manufactured luxury items such as leather and other high end consumer goods moves steadily skyward.

The focus now may be on domestic stability in China, but getting back on track with their booming exports is the real objective. China’s top 10 key industries for export are:

   •   Cars
   •   Steel
   •   Information technology
   •   Logistics
   •   Textile
   •   Nonferrous material
   •   Equipment manufacturing
   •   Petrochemicals
   •   Ship building
   •   Light industry

These industries are the backbone of the China export economy. With a changing world and demands for ‘Green’ living on the rise, Executives of the state council led by Premier Wen Jiabao have called for a restructuring and reinvigorating of these ten top Chinese industries, and the China factories that support them. This kind of forward thinking is what made, and continues to make, one of the world’s largest and strongest economies thrive.

With export demand down, Chinese officials are looking into ways in which they can turn their domestic demand outward. For example, Chinese factories are now looking into the world trend of “Going Green”, meaning the days of energy consuming industry are on their way out and an energy efficient economy is emerging. Already significantly farther down the road on many environmental technologies than the United States (such as solar panel manufacturing, where China leads the world), this also presents a solid opportunity for Western entrepreneurs seeking to break into China’s manufacturing business and solidify business partnerships on a green and global scale.

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Knowing who you sell to…

Successful advertising in China means understanding the China consumer market. A new study by Accenture provides insight, based on a survey of Chinese consumers.

Quality, trustworthiness, and the message of a brand or product are the most important factors for the Chinese consumer. Even though different types of consumers were identified, these qualities always shape buying decisions. Even “patriotic” consumers, who consistently prefer Chinese brands, can be swayed by considerations of quality.

These results are particularly noteworthy for their “Chinese characteristics,” if you will:

Chinese are quite aware of the quality problems (and even scandals) that have enveloped some Chinese products. It is gaining a particular meaning in China, especially during these times in which the country is seen as achieving a new position of power. Domestic brands have, according to the study’s authors, gained a similar standing as foreign brands in Chinese consumer opinion. Thus it is all the more important to see that brand trustworthiness extends to its relationship with the country; that is, whether a company is seen as contributing to China’s development, or simply as trying to extract a quick profit.

Engagement with China also adds to the brand message, which interacts in important ways with the Chinese concept of “face:” Chinese consumers pay close attention to what a choice of brand/product tells about their social status.

China is also the home of “guanxi,” relationships that form important ties of mutual support. And so a friend’s recommendation, extended to the rich world of Chinese social networking sites and the product reviews that are very popular in them, are a particularly strong influence on China’s consumers.

It was not pointed out explicitly by the study’s authors, but women are playing a more dominant role in China’s emerging consumer groups as well. On study by Wei Shang-Jin and Zhang Xiaobo (see the article here) found that China’s high household savings (particularly in families with a son) exist to ensure that the heir could compete on the marriage market (which, thanks to China’s skewed sex ratio, has been becoming extremely competitive). This translates to an area where spending will be seen as necessary – when wanting to gain and keep the affection of a woman.

Sources:

“Seven lessons for building a winning brand in China.” Paul F. Nunes, Susan A. Piotroski, Lay Lim Teo and R. Michael Matheis. Strategy & Leadership, Vol. 38 No. 1 2010, pp. 42-49 [only available to subscribers or if paid]

The mystery of Chinese savings. Wei Shang-jin

Wei, Shang-Jin and Xiaobo Zhang (2009), “The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China” NBER Working Paper 15093 [only available to subscribers, for free if accessed from a developing country]

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Developing Markets in China: The Case of Wine

China is increasingly developing a middle class looking to act according to its status. The symbols it is looking for include the accoutrements of their position, such as a car and brand goods, but also the appropriate behavior. One case in point for how this plays out in competitive markets in China is wine.

During banquets, predominantly a male affair, beer and clear spirits are still preferred; but wine, especially red wine, is seen as higher-class. Also, health properties of red wine have been widely publicized. Predictions claim that along with economic and income growth, consumption of wine will grow.

As a recent case study concerning the promotion of Chilean wine shows, advertising in China can still have great effect in a market segment. The marketing campaign in question is credited with having elevated Chile from fifth to fourth place among wine exporters to China.

Two opposing trends representative of developing markets in China are at work here:

Potentially less discerning customers who want to show that they have joined the ranks of those drinking wine will simply go for what is available and affordable to them. These are predominantly the domestically-produced wines of Changyu, Dynasty and Great Wall, which are sold through both on-trade and off-trade channels (e.g., restaurants and supermarkets, respectively). Currently, these three companies together hold a 50% market share and gain two-thirds of the Chinese wine industry’s profit. All three are working to improve their products’ quality and (international) brand standing.

Imported wines, like so many foreign brand goods, still exert an aura of quality and may thus be preferred by higher-class customers. However, knowledge of brands and producers is limited (an obstacle the Chilean wine campaign set out to overcome). Thus, purchasing decisions are based either on common knowledge (e.g. associating France with wine), or simply by looking at the price tag (with higher prices an indication of quality, and “giving more face”).

These newly affluent consumers in the middle class form part of a group (together with many of the young generation) that relies heavily on the Web 2.0 (social networking) for entertainment and for gathering and sharing information about products. Thus, the marketing campaign (developed by Ogilvy China) used online videos, a “digital wine book” and blogging to educate potential consumers about the quality of Chilean wine in a way that was fun and engaging, ensuring word would be spread. An effective approach to advertising in China, indeed.

Thus, it is not only important for companies wanting to partner with Chinese businesses and developing markets in China that they have an online presence in Chinese (as formerly pointed out), but also instrumental for companies in China to develop their brand in ways that speak to the modern Chinese consumer eager to experiment and share experiences with new products.

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China Investment Opportunities: Setting Ourselves Up for Success

As China is getting more assertive and the government’s stimulus money is buoying the economy, the China investment opportunities seem to be getting more difficult.

As ChinaLawBlog’s Dan Harris reports, hurdles are increasingly being placed in the path of foreign companies wanting to operate in China Clive Palmer’s recent run-in with Li Xiaolin (chairwoman of China Power group, and daughter of former premier Li Peng) is instructive: He was trying to show his prowess by pointing out the export contract he had signed, only to clarify its being a framework agreement.

Lessons to take away from this incident are rather more complicated than just increasing difficulty, however. As pointed out by John Garnaut (in the Sydney Morning Herald, Feb. 15, 2009) investment in China cannot be completely removed from politics – and business with China increasingly has to be done on Chinese terms.

As Australia’s “The Age” pointed out, cooperation is commonly approached the Western way, focusing on legal contracts. As in politics, China’s increasing standing has led to a belief that China should now be just like any other business environment, but it may be becoming even less so.

Going in for a quick buck and treating the Chinese business partner as unequal is raising rather more reminiscences of China’s past weakness nowadays, making things more difficult. On the other hand, especially in this environment that is apparently focused on mutual benefit and cooperation between equal partners, building trust over time becomes all the more important.

Things still need to be done to be legally airtight (ChinaLawBlog has great examples for this, e.g. here or here), but also with a better engagement in the Chinese way of doing things through guanxi (relationships).

Clive Palmer’s travails also provide another lesson: Even if the investment climate in China is getting rougher, China continues to grow and develop – and look for future investment partners. China investment opportunities will, no doubt, continue to present themselves to smart Western business executives who understand the differences between, and the similarities with their “Western business mindset.”

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Chinese business Executives turn to the web for potential partners.

Since China has more internet users (298 million) than the U.S. has residents, it should be no surprise that Chinese business executives turn to the web first.

When it comes to proactively looking for business partners and suppliers, almost half of all Chinese businesses rate Websites as the most preferred method, followed by Conferences or Trade Fairs.

These results show that nearly 1 out of every 2 Chinese business executives turn first to the Internet for learning about new partners, vendors and business suppliers. Although in-person events rate high, Executives clearly prefer online methods of information gathering.

Can Chinese business executives find you on the web? (Not if you’re only in English!)

In China as in the rest of the world, the internet is the core of any integrated, cross-media marketing, sales or promotional campaign. Search engines (including both organic and paid search results) are the preferred method of finding partners like you, followed by a read through industry publications.

It should be no surprise then that when Chinese executives want to either find you, or learn more about you and your firm, that they turn to the Web.

Questions for your organization to ask:

  • Does your organization have a Chinese version of your website?
  • Are your key marketing materials (corporate and product overviews, for example) downloadable in Chinese?
  • Do you have access to a reliable list of contacts – including phone numbers – of potential customers or partners?

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Business in China: Contracts Subject to Cultural Interpretation

You may have heard horror stories about contracts not being honored by Chinese partners. Has this scared you off of doing business in China? Don’t let it.

Let’s start with the obvious: contracts are a problem everywhere in the world. Even in the U.S., breach of contract is notoriously difficult to sue for. There’s just something that makes human beings nervous about putting commitments in writing.

That said, is there anything to the claim that “the Chinese don’t value contracts like Americans do”? Per usual, the answer is yes and no. We’ve covered the ‘no’; now to the ‘yes.’

It’s true that the legal document known in English as a “contract” is seen differently in China than it is in the U.S. To a “typical” American a contract is a set of legal obligations. If you don’t fulfill them, you can be sued. The contract serves the ultimate purpose of getting something done, regardless of who the parties are and what feelings they might have. Only the task at hand matters.

The contract is a way of saying: “We all know what there is to be done. Here is a breakdown of who’s responsible for what. We know we may want to change things, but we know we can’t, because this is what has to be done, and since we’re all strangers here we’re not really sure we can trust the other guys, and we need a guarantee that they’ll uphold their end of the bargain.”

The last piece is the key to the whole deal. And it’s perfectly fine in American culture. But not in Chinese culture, which is much more focused on relationships, and on maintaining good feelings towards those we work with. A Chinese “translation” of the above statement would go something like:

“We all know what there is to be done. Here is a breakdown of who’s responsible for what. We also know that this is an agreement among people, and as we get things done together we want to be sure we don’t ruin any relationships. So if we run into trouble we may have to reconsider what we write down here. These are guidelines; what’s more important is that we work together when there are problems and make sure that relationships stay intact.”

One crucial thing to see about this is that it has nothing to do with what we call “honesty.” Nothing whatsoever. Both views of the contract are perfectly “honest” in their own ways. But because of all the cultural baggage Americans bring along with our views of contracts, it’s very easy to go from “my Chinese counterparts want to rework the contract” to “the Chinese are dishonest.”

Will your business have to deal with cultural differences when it comes to contracts and their enforcement? Most likely. But it doesn’t have to go down the familiar and unproductive road of finger-pointing and crying foul.

Know what you’re dealing with. Expect it and understand it. If you do you’ve got a leg way up on your competition. While they’re busy complaining, you’re working things out and moving forward, solidifying your partnerships, and laying a foundation for future business in China.

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Product quality and brand strength wins business in the Chinese market

Can you prove product quality and superiority?

Price aside, product quality is by far the most important thing Chinese businesses look for in potential business partners – nearly 4:1 more important than the next most important quality (which happens to be Strength of Brand).

As learned through a recent China Prime marketing research report, all other categories fell short. Product quality is rated as most important (at 60 percent), followed, as mentioned above, by Strength of Brand was (15.2 percent), Industry Experience (11.2 percent), Professionalism (10.3 percent), Personal Connection (2.5 percent), and Other (0.8 percent). Although interpersonal elements (personal connection, professionalism, and even strength of brand) are of importance, product quality is of notably higher importance in the Chinese market.

If you’re selling – or trying to partner with – Chinese business to Presidents and CEOs, then you’d better hone your brand image as well.

B2B oriented businesses are slightly more likely (61.9 percent) than B2C companies (53.8 percent) to indicate that product quality is most important in the evaluation of potential vendors, it remains the most important factor across segments and titles.

Overall, strength of brand is of greater importance to Presidents and CEOs (20.6 percent) than of Managers (15.5 percent), Legal Representatives (13.4 percent), and Vice Presidents (8.8 percent). Companies with a B2C focus report that strength of brand is of greater importance (24.7 percent) than those companies with a B2B focus (12.9 percent).

For B2B firms, the importance of brand strength is much lower (12.9 percent) than for consumer facing firms (24.7 percent). Interestingly, industry experience (11.2 percent) professionalism (10.3 percent), and personal connection (“guanxi”) rated significantly lower across all segments and titles.

Questions for your organization to ask:

  • Can you claim – and prove – product quality and industry expertise?
  • Can you present your company in a way that supports these key points? Professionally, with a strong brand?

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Chinese Entrepreneurs: A Community Eager for Products and Services

There’s a new generation of Chinese who are becoming entrepreneurs by choice, instead of necessity.

In a recent article on Alibaba.com, it was reported that at Tsinghua University, the “fastest growing academic program is in innovation and entrepreneurship.”

Calling this new trend “the entrepreneurship of opportunity”, Zhang Wei, professor of entrepreneurship, noted that previous Chinese entrepreneurs “were entrepreneurs out of necessity” who came from meager economic backgrounds. But this is no longer the norm.

Tsinghua is also working with Goldman Sachs and HEC in Paris as part of Goldman Sachs’ “10,000 Women” initiative. Over 450 new women entrepreneurs are expected to graduate from this program over the next five years, and the first one is under way with 50 students.

Seasoned entrepreneurs are in learning mode, too

Now in its fourth year, Cheung Kong Graduate School of Business’ CEO and CFO programs continue to attract Chinese entrepreneurs and managers in a wide variety of industries, in the state and private sector.

This year’s courses included:

> China’s Economic Adjustments amid the World Financial Crisis
> The Future of Chinese Capitalism
> Transforming a Start-Up to a Professionally Managed Company

Cheung Kong GSB is China’s first private, non-profit independent business school, offering MBA, EMBA and Executive Education programs.

Entrepreneurs have their day in China

Since 1994, entrepreneurs in China have been recognized annually by “National Entrepreneurs Day. “ This year’s conference was recently held in Kunming, Yunnan province from May 17-18.

Featured entrepreneur forums:

> Trend analysis
> Industry revitalization and opportunities for the west
> Win-win situation for employers and employees in crisis and corporate social responsibility

Getting to know Chinese entrepreneurs

To find out what matters to entrepreneurs in China, you might want to check out NextStepShanghai.com, a networking hub for entrepreneurs in China.

NextStep has attracted thousands of members since its founding in March of 2007:

“NextStep provides a forum for like-minded entrepreneurs to collaborate in building new businesses and also helping one another navigate the many pitfalls of conducting business in China. As entrepreneurs, we all understand the importance of a strong support network in pursuing our successes.”

NextStep’s entrepreneurial “support system” features monthly business forums, as well as a monthly social networking event.

The entrepreneurial spirit is alive and well

Like entrepreneurs the world over, small business owners in China are eager for tools and knowledge to help them grow and reach their goals.  If you are considering marketing to Chinese businesses, you may want to think about products and services tailored to the needs of this lively business community.

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Success in China: Time to Getting Personal with Your Chinese Business Partners

A good friend who has been having remarkable success in China brought up an interesting topic at dinner the other night. Turns out that – as he’s become closer to some of his Chinese associates – they laughingly tell him (over meals occasionally featuring bugs, beaks and other mysteries to the Western palate) how many Western sales people and business execs spend a great deal of energy to “get the meeting” with Chinese counterparts, then blow any deal by leaving it at that.

Whether for partnerships, sales, distribution deals or other ventures, the effort goes in up front. Then they blow it. Why? For many Westerners, “a meeting” is the key. Yet for many Chinese, business relationships are built on personal interactions outside of business as well. Not to say that relationships are it – in fact, quality product or service, solid reputation and other issues are no less important to Chinese buyers than any others – but the trust that only a relationship can help drive is critical to successfully doing business in China.

Reviewing a survey of Chinese business buyers perceptions of Western business, it’s no surprise that Chinese buyers are particularly interested in working with companies – and the people who represent those companies – that see beyond business relationships and show interest in their personal lives of their Chinese business partners.

Bottom line, if you get the meeting then go for it. But don’t stop there. Not only are relationships built away from the office, but business often gets done as well. Understand that for your Chinese business partners, the quality of the relationship can be viewed in direct correlation to the way that relationships have a personal impact on the people in question.

So don’t be surprised – or shy – if your soup appears to wink at you. Just wink back, and grab another whiskey…

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Yes, the Chinese Market is different. But high quality is universal.

Most Western Executives have preconceived notions of some sort, when it comes to doing business in China. But where does perception end and reality begin?

For centuries Western businesspeople have dreamed of the riches to be had by “tapping into the Chinese market.” And while there are riches to be had, your organization stands little hope of success if you don’t follow the same business basics you’d follow anywhere. It’s easy to get caught up in the “China hype.” But it’s critical to recognize that many sound business practices transcend culture. If you don’t have a good product or service to sell at a reasonable price – and know what your customers want – then you’re probably not succeeding on your home turf either. China is a rich opportunity. But it is the ultimate capitalist market. Losers go home, often with significantly less cash and several hard-earned lessons in humility. It doesn’t matter where in the world you’re doing business. If you’re not offering quality and value to people that want what you’re selling, you’re sunk.

While Guanxi are important, that is step two – step one is to find and target your China business prospects, and prove the worth of your product or service, and that of your organization.

In our recent China business market survey, Chinese executives ranked product quality as far and above the most important factor as they consider potential business partners and suppliers. That shouldn’t surprise, but given all the talk of the importance of guanxi, or relationships in China, it’s easy to forget that while guanxi are important, they’re useless unless what you’re selling is what the market needs. Chinese buyers – business and consumers – are famously demanding and nearly impossible to fool. Don’t even try.

Instead, find out what they want. Listen to the Chinese market. And recognize that in China, as in business everywhere, a clear understanding of your market and your competition is the foundation for any successful venture.

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