ShanghaiSkyline
May 22, 2019

Say (Shang)hai to China: 4 Things to Consider before Expanding East

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For centuries, merchants from Europe have travelled West for gold, and East for silk.

Today, with Brexit casting uncertainty on trade between the UK and Europe, plus the growing size of the Chinese market, it’s no wonder that Western brands are looking to China for their next big opportunity.

Right now, the population of China is 1.419 billion. It’s the second biggest consumer market (after the US), made up of 23 provinces, each with an increasingly affluent population, speaking at least eight different languages (plus hundreds of dialects).

It would be near-impossible to sum up the 4th biggest country in the world in just one blog article. Instead, we’ll cover 4 things your brand should bear in mind when expanding there. These are perhaps the biggest differences between Western markets and China, and should help your brand fall on the Starbucks side of success, side-stepping any D&G-style faux pas.

Stop! 🛑 Before you go on…

So you don’t fall at the first hurdle, you should look at the list of encouraged foreign investment industries. If your sector isn’t listed, foreign involvement might be restricted in some Chinese provinces, or even banned country-wide. That’ll dampen your plans all right.

🚦Got the green light? Read on…

If your sector is on the list, come right in!

Once you’ve waded through the boring bit (the business regulations and compliances – sorry legals!) you know you can operate in China, but should you operate in China? Here are the 4 biggest hurdles you need to jump over, before you can expand here.

1. Culture differences

We won’t patronise you by reminding you that you probably speak a different language to the Chinese market. We will, however, highlight that having an English to Chinese translator on-board doesn’t even scratch the surface of the cultural differences you need to bear in mind.

Pace

In the Western world, trust is the default position, allowing new business partners to shake hands quicker than the market moves. In China, however, trust is earned in a new business relationship. Add to this a consumer market that moves at lightning speed, in search of world-class status in several industries, and it can be easy to be outpaced. You need one eye on developing solid business relationships, and one eye on evaluating the evolving market. Both are critical to the success of your expansion, but they take place at very different speeds.

Location

There are almost as many differences between coastal and inland China as there are between China and other countries. In China, market maturity, consumption and consumer behaviours all vary dramatically from province to province. Knowing that you need to reconsider product-market-fit for the Chinese market isn’t enough. You need to reconsider product-market-fit in each province, perhaps even each city.

As scary as it can be, admitting you don’t know much about the new market is vital. Then, filling that knowledge gap should be your next step. You have two options:

  • Partner up: Even McDonald’s, one of the biggest brands in the world, sold 80% of their operation to a partner, in order to succeed in the Chinese market. A joint-venture, even for the world’s biggest companies, can make strategic sense when entering such a unique market. A partner – whether in equity, operations or both – can help by sharing their market knowledge and understanding of business regulations.
  • Research, research, research: Whether you opt to use a partner or not, there’ll be a significant need for consumer intelligence before, during, and after launch. In a market that moves as quickly as China, keeping your ear to the ground with regular research dips can allow you to quickly absorb and react to feedback.

2. Product tweaks

Bad news if you’ve got a black logo… Black is closely related to bad luck, evil, and sadness in Chinese culture. And white isn’t much better; it’s worn at funerals and traditionally symbolises death. Whether you decide to build a new product for the Chinese market or adapt your current product is up to you. If you take the latter path, be prepared to make some substantial changes to your product line – the colours you use are just the first part!

You’ll also need to translate marketing messaging and product copy. Consider both the native Chinese languages, and the make-up of the expat community, as guides and manuals need to be re-written in alternative languages for the largest international communities.

Top10ForeignNationalitiesinChina

3. Local competition

A quick history lesson: the Communist Party of China have ruled since 1949, and still rule China today. Economic reforms in 1978 reintroduced capitalist conventions, such as privately owned companies and free market competition. This allowed home-grown enterprises to develop before the country was opened to foreign investment in the 1990s. Foreign companies began to launch in the newly-opened Chinese market in the early 2000s.

Because of this, the very oldest Western influences in China are no more than 20 years old. This means that competition from home-grown companies with decades of history behind them is a direct challenge, and stiff competition between local and international companies causes areas of China to be so technologically advanced that you may find you’re too late to enter the market competitively. This isn’t the end of the road, though. The stark differences in consumer habits and wealth between different provinces mean your product is likely early elsewhere. If you reach these markets at the right time you can ride the wave as consumer tastes catch up.

By researching a number of provinces you’ll discover whether Shanghai and Beijing are good choices for you, or whether the markets are already too crowded. In this case, smaller cities might be a better starting point. Using Attest, you can filter your research by province or prefecture (city) to understand the different opinions, motivations, and behaviours throughout the country.

ChinaProvinceSelection

4. Getting infrastructure right

With provinces bigger than any European country, it can take some blue-sky thinking to overcome infrastructure hurdles. It can be challenging to establish trustworthy freight partnerships over such large distances, and losing a supplier in just one city can mean jeopardising access to millions of consumers. The Chinese market presents a whole host of new challenges, including their epic week-long traffic jams.

Unfortunately, you won’t escape the problem with digital infrastructure instead. Affectionately termed The Great Firewall of China, web censorship will heavily impact your digital processes, with sites including Google and Facebook banned. Foreign sites that aren’t banned are sometimes “throttled” by the restrictions, making them so slow they’re practically unusable.

While Western markets are just getting to grips with Whatsapp as a marketing channel, the Chinese equivalent, WeChat, is already commonly used to market to consumers. It’s vital that you understand both the logistics of setting up your digital infrastructure, and that you conduct media consumption research to find out how you can access your Chinese consumers through the channels they’re already using.

Next steps…

We’ve only scratched the surface of the considerations you should take when expanding into China. It’s a land of seemingly endless possibilities, as ultra-competitive markets grow at unparalleled pace, but with some geographic areas lagging behind and offering alternative opportunities.

You must do your homework. Consumer research can uncover key cultural and behavioural differences from your home market, varying consumer tastes, competitors with traction in the market, media consumption habits, plus geographic and demographic variance. With this research in your back pocket, you’ll be able to validate your expansion, and mitigate risks.

To discover more about using Attest to assist your international expansion plans, check out our International Research page.

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