China, coming ready or not
Our new-and-perfectly-formed Agony Uncle, David Downs, ponders the many things that can go wrong when you want to sell to the biggest market in the world
Dear David, I’ve got a great product and I want to sell it in China. I figured out that I only need 0.01% of the market to buy it and I will make a killing. I’m on a plane next week - please set me up to meet the head of Alibaba.
Ah, the classic market entry business model for China. Unfortunately, we see this approach all too often at NZTE, and variations on the erroneous assumptions and flawed logic show up again and again. Let’s unpick some of the issues with your plan… “I’ve got a great product…” While it’s important that you feel positively about what you are making and selling, that doesn’t mean it’s the right product for the market, or that your potential consumers will like it. Products that appeal to Kiwis don’t necessarily transfer across borders – many companies need to change their products to meet the market needs, in both packaging and product design.
Food companies here aren’t in the habit of making red bean flavoured drinks, or sweetcorn ice cream, but these would be more popular in most of Asia than our own hokey pokey ice cream or Black Forest chocolate.
Recently we went with a dairy company to China, where they proudly showed Chinese consumers their packaging – bucolic scenes of serene cows, peacefully chewing in early morning Waikato, the mist rising gently from the dewy ground. The Chinese hated it – they thought the cows looked cold outside and that the mist was smog. “I want to sell it in China” Excellent - but which of the Chinas do you want to sell it into? It’s a classic error to think there is only one, homogenous place called China. In reality China is 31 provinces, all very different – culturally, demographically and physically.
For example, Yunnan in the southwest is subtropical; Heilongjiang in the northeast is subarctic and very different consumers live in each. Having the same strategy for both would be flawed. The key thing is not to go to ‘China’, but to one bit of it. One region. One city, heck, even one suburb, is probably a big enough market for most Kiwi businesses. “I only need 0.01% of the market” One of the most alluring facts about China is that there are 1.3 billion people. 1.3 billion! That’s like, 260 New Zealands! When you do your business modelling in Excel all those people make it easy for your business plan to pop up huge profit projections.
As my first sales manager taught me - don’t believe your own bullshit. Your market isn’t 1.3 billion people; it’s the population of the locality you are selling to. In fact, it’s only a proportion of them – the ones with enough wealth to buy your product.
Don’t be dismayed by the smaller numbers; there is plenty of demand in China. The ‘rise of the middle class’ is demonstrable – the fastest growing food & beverage sectors at the moment include pet food (66% growth in the past two years), bottled water ( 35% growth) and snack bars ( 33%). Clearly, Chinese consumers aspire to be like Ponsonby residents. “I’m on a plane next week” Oh dear – comments like this smack of being under prepared. It’s important to spend time in any offshore market you are targeting, but to do real business, you need to be ready. “Please set me up to meet the head of Alibaba” Well, congratulations, you’ve recognised the radical impact of online selling in China. China passed 300m online shoppers in 2013, and total online retail in 2014 was 40 times the value for 2009. But you aren’t going to meet the head of Alibaba, T-Mall, Taobao, or any of the others. China doesn’t work like that. Invest in some Chinese language skills in your team, learn more about the online sales channels, try something small to start, and make sure you can meet the demand you might create.
Recently a Kiwi company launched a new product on a Chinese retail site on Singles Day (November 11 – 11/11, get it?) and was immediately swamped. Singles Day is where young, unattached Chinese are encouraged to spoil themselves online – Alibaba did $9.1 billion of business on Singles Day 2014.
If you find that statement contradicts my previous points, then you’re beginning to get it; China is confusing, contradictory and frustrating. Last piece of advice - don’t confuse the unintelligible with the unintelligent.
——— Food companies here aren’t in the habit of making red bean flavoured drinks, or sweetcorn ice cream, but these would be more popular in most of Asia than our own hokey pokey ice cream or Black Forest chocolate