China is one of, if not the, most exciting emerging market in our world today. Several industries have taken hold in the Chinese market including automotive and telecommunication products and services. While China presents U.S. companies with many great opportunities, it also presents challenges that can make or break the success of a company’s entry. Common misconceptions and mistakes U.S. companies make in moving into China include:
1. Targeting China as one big market
One major error many individuals make is to assume that China is one market; China is NOT one big market. Why not? For 3 reasons:
I. It has over 600 cities. The existing distribution network and infrastructure do not support a product launch simultaneously cross the country
II. The living standard varies from city to city. The average per capita income is about USD 6000. A premium price product seems too expensive in a small city, but it does not seem too expensive in mega-cities like Beijing and Shanghai with much higher per capita income
III. There are distinctions in its culture, cuisines, dialects, climate, buying habits and more
When you introduce a premium product, targeting China as one market will dilute your efforts, if not drain you of resources altogether. You must first identify where viable markets exist within China. For example, you may need to focus on the upper-middle and upper classes of China with larger disposable incomes or perhaps you wish to target a segment of the population who consumes more of one good or product (e.g. a tomato-based food product will perform better if targeted to northern China given that the cuisine in this region uses significantly more tomato-based products in its dishes).
2. Implementing a U.S. marketing strategy in China’s market
One of the most common mistakes U.S. companies make is to take their U.S. marketing strategy and use it cookie-cutter style-copy and paste the strategy into the Chinese market. Big mistake. Different markets, different strategies. One example may be a U.S. company attempting to distribute spirits through grocery stores in China may have little to no success (versus wild success here in the U.S.) given that most spirits in China are consumed in restaurants. Understanding the context of our industry across cultures is crucial to developing a sustainable and effective marketing strategy.
3. Acting without market research
China is a very different market than U.S. in that your success in China depends on your understanding of your unique market. You must first thoroughly understand your market in order to develop a full marketing strategy. Competition in China may look vastly different from your competition here in the states. Marketing across regions in China should vary to match the unique culture and focus of that particular population. Stepping blindly into the Chinese market can be a major downfall for many.
4. Being unwilling to localize the product
It is rare that a product appropriate for U.S market is perfect for a new market; you must modify a product to make sure you’re serving your new market as best you can otherwise your success may be short-lived. Moving your product or service to China is much more than a simple re-packaging process. In China, most, if not all, companies would benefit from localization. Understand your local Chinese consumers and they will value you. For example, Hunt’s spaghetti sauce is sold in 26.5 ounce jars in the U.S. In contrast, this same product is sold in 4.4 ounce jars in China which accurately reflects the smaller family size of Chinese households.
If you exhaust your U.S. market opportunities and feel rushed into stepping into a new market simply to churn sales, slow down and complete your due diligence. Doing so will save you money and time and will produce greater success in the long run.
5. Failing to clarify and verify validity of your reasons to export
A high-end skin care company has an excess of inventory. They never export in the past, but they are looking for ways to liquidate their products by exporting to China. They begin investing money and people resources to making the shift; however they fail to realize that imported beauty products are highly regulated in China and no buyer in China is willing to move through the compliance filing for one-time transaction. Clarify why you wish to export, what your goals are in exporting to China, and how you might handle any bumps you may anticipate in exporting your product or service.