Expanding Into China? 6 Tips You Need To Know
Emerging markets such as China are understandably very attractive to many companies; but while they offer huge opportunities to expand, entering these regions poses its own set of challenges. It is crucial to understand that having a great product is far from enough on its own to ensure success.
I would like to share how a multinational beer company was able to successfully implement a ‘route-to market’ (RTM) project in China. The company had been operating in China for 10 years with presence in several areas of the country, but by introducing some changes to their commercial model, they saw a noticeable improvement in their short-term results. These are the lessons learnt:
1. Be specific
Have clear, specific outcomes in mind: a commercial diagnostic is developed through profound, field-based knowledge of the market which is used to later define the desired goals.
Also have a very clear idea of the economic model for the wholesale distributor structure that you want to implement. This will allow you to decide who to work with and why.
It is important to be very precise in the instructions given to your collaborators. Due to historical cultural factors, and given the lack of experience competing in open markets, employees in China tend to desire very clear guidelines on how to achieve their expected goals. Without this employees may feel lost, which can put both the commercial diagnostic and the expected result at risk.
2. Study the market
In China, structured reporting systems between wholesale distributors, local distributors, and producers often do not exist. In other words, information and knowledge does not reach the producer obscuring who does what, how much is sold, and at what price.
For this reason, the beer multinational created new reporting systems from scratch. Due to China’s huge market dimensions, the company defined a concrete geographic area in which to work: its teams visited eight cities over the course of some months and carried out many interviews with distributors and points of sale, with very specific questionnaires. They also used market research, in addition to information the firm already possessed.
Upon analyzing the information they discovered that, in some circumstances, they had up to six levels of distributors between production and point of sale, each one of whom took a share of the margin. Some of these intermediaries had enormous power simply for being “in the middle” but without adding value. The company also realized that their own sales force had developed very deep relationships with many of these distributors, which made changes even more difficult to implement.
3. Stay in the field
RTM projects are not solved from an office and in China, even less so. In fact, given the speed of change in the country, it is essential to stay in the field and understand the nuances of the day-to-day work of the local distributors.
4. Anticipate risks
If you have decided to design a new, simpler, and more direct way to get your products to the market, you should anticipate and evaluate economically all the possible risks. Remember that China’s dimensions are very, very big: the country’s provinces are as big as Europe and for example, there are more than 150 cities with a population of over one million people. Consequently, if you are planning to stop working with a particular distributor in a particular region, you must be very clear on how you will make up for this loss and at what pace. Understand that for some time, sales will suffer before making a comeback. Anticipating such changes is important so to measure their real impact later.
5. Not one but many Chinas
China’s regions are different in many aspects: socio-demographic, consumption and market differences… So while it is always prudent to develop a pilot roadmap, in the case of China it is even more important to be able to validate the main discoveries of this pilot and the subsequently-defined outcome. You should also be sensitive to the pace of implantation, because market maturity in each zone is also different.
6. Roadmap, target and pace of implantation
Your roadmap should take into account these local dimensions when planning your RTM project: establish a myriad of variables (geographic, socioeconomic such as urban/rural) and beware that you might need to work on different adaptations for each region and at different times.
In the case of this company, the firm did not apply the same RTM model at the same time in all markets. The company developed a guided transition plan, where different wholesale and retail distributors were adjusted step by step, adapting to local specificities.
Thanks to the changes introduced and the way they were brought into practice, the company saw important and very positive results: they grew in the areas where changes had been introduced whereas in areas which were still operating under the “old” system, they saw their market share diminish.
This post is a copy of the original published in Forbes on 16/6/2014.