“He who learns but does not think is lost,
he who thinks but does not learn is in great danger”
– Confusius, China’s most famous teacher, philosopher, and political theorist, 551-479 BC
You made some clever choices. You have an overall company strategy and your business is doing ok, despite the economic crisis.
You don’t expect strong growth in Europe or the US over the next decade. Maybe you are thinking to go to China — the promised land with its double digit growth…
Here are 5 strategy challenges that you are most likely to encounter when you enter the Chinese market with your business. It’s the second article in the China series.
#1 Strategy Challenge — Illegal Copycats
Once you are somewhat successful, you can be sure someone will illegally try to copy your product. Some copy attempts will be very amateuristic and won’t cost you much business – think about examples like Hike (Nike) or Noklia (Nokia); others will be much more professional. The 1 million dollar question is: ‘Can you do something about the illegal copycats?’
Although you cannot expect miracles from this action, make sure you protect your Intellectual Property (IP) in China. The rules and regulations are different than in the West, so make sure you go through the motion together with a Chinese IP specialist.
#2 Strategy Challenge — Price Fights
Similar to copycats, but on the legal side, Chinese are masters in detecting opportunities and will move quickly and strongly into a market space when you have proven the sales potential for them. As they won’t be able to copy your technology or brand at the start, they will almost always go for a price fight – a fight that you cannot win.
Solution? Think hard about your price premium and make sure you educate your (potential) customers about the extra value they will get when buying your product. To achieve this, you need a solid sales and marketing (brand premium) strategy and execution. Your product alone will not cut it.
#3 Strategy Challenge — Lack of Information
Chinese business moves at the speed of light – so also their decision taking. And it’s something we are not used to. When people ask me – I’m Belgian – why it takes so long to choose a government and why it seems we do fine even without it, I always say — partly as a joke — “In China they take more decisions in 1 hour, than the Belgian Government does in a year. So it takes some time before their absence is noticed.”
The different decision speed can take you by surprise – especially as the information flow is not always transparent. If you don’t watch out, you will always be catching up. It might even get you in trouble, as some laws change overnight.
So put your ear to the ground or, even better, get yourself some local, well networked, ears to get crucial information fast.
#4 Strategy Challenge — Size of the Country
China is the 3th largest country in the world. Only Russia and Canada do better. Therefore, a one size fits all won’t work. You need to segment the market and prioritise, if not for the different customers needs it’s needed to pace yourself to avoid overstretching.
Also, make sure you take the size of the country into the equasion when you take strategic decisions on location. You might be tempted to launch production in the West of China, as labor costs are amongst the lowest of the whole country. But Western China is a long way from the coast. Think about the total cost of the supply chain, including transportation and ability of your suppliers to follow and serve you.
#5 Strategy Challenge — Chinese Companies going Global
If you believe that your competitive battle will be fought out in China – far away from your headquarters – I which you good luck. You might not have seen any Chinese competitors in your industry on your home turf, but that will change in the next decade. The Chinese are well aware that the European and US market is a pretty tough crowded space that demands a different approach compared to China.
Behind the scenes many Chinese players are trying and testing – an approach they master very well – in smaller markets in Africa. Weather through acquisition or with own local operations, they are building capabilities to attack and concur the more difficult markets. And once they have the expansion capability mastered, they will move to Europe and the US. Use the same approach and learn about your future competitors in their home country and get ready for the competitive battle in your home country.
