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CHINA – Why? What? How can I play my part?

Trade Advice

In this article, NZCTA member and China consultant, Sabrina Douglas-Jones touches on what it takes to be part of the world's most dynamic and arguably largest marketplace: CHINA. She shares her views on going about business in China.

A few words about myself: Originally from Germany, I lived and worked in China for almost a decade – both for Corporates and an Entrepreneur. With a Masters in Fashion Business and Retail I have led strategy implementation for some of the worlds’ premium luxury brands on the ground.

Now based in NZ for four years I have gained a solid understanding of New Zealand’s economic environment, and the weight kiwi companies punch above.

I have an extensive global network and repository of lessons from my own businesses including exporting services to China and crucially through work with a variety of NZ clients.  

Leveraging this unique east meets west position, I am relocating back to Shanghai early in 2018 – with the mission to catalyse NZ businesses wishing to exploit the far eastern opportunities. Through experience I can identify, and crucially activate using credentials recognised within my extensive network – balancing what you know with who you know is key.

IS CHINA FOR YOU?
A rising economy, a growing upper middle class and sheer purchasing power may just be some of the appealing attributes when you think about China. But taking the leap into this vast and sometimes mysterious place is often hard to gauge when trying to plan for the growth of your business by balancing risk and budget.

Due to the ‘small’ world of now being truly mobile tech (see facts below*) China is an instant 24/7 market place where savvy consumers are demanding products and services not available domestically or at least in sufficient supply. E-commerce in China is sweeping the board and cross border is becoming an increasing mandate. Last year online sales in China hit $366bn, almost as much as in America and Britain combined: The significance of Mobile and Ecommerce has become a convergence for Chinese Consumers – but there is room yet, now a virtually cashless economy and blockchain tech rising will see changes that put China on a level far ahead of the west.

*Some quick facts:
•    China’s population of internet users accumulates to currently 751 million, exceeding the population of Europe.
•    More than 95% of internet users in China use mobile devices to go online.
•    About 80% of adults in China’s biggest cities already shop online.
•    There are 938 million WeChat active monthly users worldwide, which makes for approximately 900 million hours a day.

China is big, and it is foreign – with various cultures, languages, rules and regulations that seem to constantly change and thousands of players in the market. How would you compete? Do you have what China (still) needs?

Some have succeeded, but I have seen failures along the way too. What is the secret recipe? Is there a secret recipe? What is it that makes others land successfully in the market and why am I still struggling to make the first move – what to do? Where to go? Whom to speak to?

WHERE TO START
I would suggest asking yourself a few basic questions, there is no immediate answer required but it will get you thinking – I will detail what to consider for some* of those questions in this article later-on:
•    Offering* – Is my product or service relevant to the Chinese market? Who are potential competitors?
•    Goals – Why do I want to enter China? What is the purpose for such a move and what objectives have I set to achieve these goals? Are there alternative markets that may be smaller but more suitable? What are potential risks I may be facing?
•    People – Who do I want to target? What is my customer segment and what does that mean in terms of size? Where are those customers exactly and how could I reach them?
•    Strategy* – Where do I stand with my business right now and have I considered all aspects of the various possible trade channels with China? What is my plan and what resources do I have to achieve those objectives? And what sort of actionable timeline do I foresee?
•    Collaboration – Who will I work with to understand and access channels being part of my objectives.
•    Commitment – What resources (budget, staff, management priority, etc) am I able to commit realistically that reflect an achievement of the set objectives?

CHINA: WHAT DO I KNOW AND WHAT SHOULD I KNOW?
With a population of 1.4 billion, socio-economic developments and overall growth rates, it is no surprise that many NZ companies feel that if they could capture even a fraction of 0.1% of this market they would be successful.
114 cities in China have more people than New Zealand. China has many facets and therefore need to be segmented when evaluating the market. Consider topics such as
•    Languages and Dialects (yes, various!)
•    Cultures
•    Geography and Climate (North / South, East/West, Tier 1, 2, 3, 4 cities, typhoon seasons vs winter temperatures etc)
•    Education and Employment / Skills vs Salaries
•    Competitive Landscape

On another note, you need to be aware of / need to ask yourself (or need to partner with someone that knows):
•    Government regulations, laws, taxes, treaties and policies that relate to foreign trade and investment.
•    Do your due diligence: How to find qualified partners and clients?
•    What Infrastructure can I utilize and what do I need? What distribution channels are in place and how can I access them?
•    Who are potential service providers that you need (e.g. who can provide cold supply chain B2C deliveries when it comes to grocery ecommerce?)

China has more consumers than any other country worldwide. By 2020, 51% of consumers will be Mainstream or Middle-Class with an income of USD16k- USD34k pa. Discretionary product and service categories such as recreation and personal items are showing the fastest growth in the CAGR 2005-2020.

Means: Chinese consumers are trading up; they are more sophisticated, look for quality and are increasingly experience driven. Wealthy Chinese are younger (typical Audi buyers in Germany are in their 50s; in China they are in their 30s), and hence more familiar with technology. There is a strong need to express individualism and a sense of aspiration to affluence. This needs to be strongly considered when looking to compete.

SOME IDEAS ON HOW TO START
This is NOT one fits all and it strongly depends on your product, but here is a general idea on how to start (Offering & Strategy)
Offering:
Broadly speaking, all products and services that represent values of the NZ Halo are in demand by the Chinese (upper-) middle class consumer.

KEEP IT REAL: New Zealand is a progressive nation of creative idea-makers delivering new solutions, whilst always caring for people and place
1.    Natural Ingredient FMCG
2.    Baby & Infant Products
3.    Alcoholic beverages and water
4.    Innovation, Sports & Sustainability
5.    Services (Sabrina is also co-founder and partner in a successful and award-winning, multi-disciplinary design studio that exports design services from New Zealand to China (www.i-n-d-j.com)

The above outline is by no means exhaustive and simply illustrates a few segments that have proven their place in the market.

Strategy:
1.    Start NZ domestic
a.    ~170k Chinese NZ residents in New Zealand
b.    ~ 50k Chinese students in New Zealand p.a.
c.    ~ 400k Chinese tourists p.a.

Activate those channels, make it easy for this audience to purchase your product. Understand values, needs, channels and payment options.
An example for this could be as simple as to ensure you have a mobile page (let alone considering having a Chinese version of your website) or to consider QR codes within your advertisement that provide a call-to-action. Make your product and sales platform easy to be accessed and familiarize yourself with Chinese payment options such as Alipay or WeChat Pay.

Alibaba’s Alipay is used by ~520m people (Q1/2017) reflecting 54% of digital wallet payments. It’s competitor WeChat Pay, reflecting 40% of mobile payments provides payment services such as Quick Pay, QR code Payments, In-App Web based payments or Native In-App payments.

A short comment here about WeChat (Weixin in Mainland China). WeChat is a social media and messaging app, like Facebook and WhatsApp combined. But it is also used for business communications, sending and receiving money (as explained), mobile payments, gaming, ordering food and taxis and more.

This is crucial to understand, consuming in China or by Chinese nationals has developed along a path of least resistance – it is effectively a cashless economy now so digital wallet understanding is essential.

2.    Utilize cross-border ecommerce and natural NZ partners:
There are various services available in New Zealand to have your product being offered to China via cross-border ecommerce. Identify your natural partners / ecommerce distributors. These can be official and rather large platforms (TMall partners representing New Zealand products such as Xinxilan TMall (Xinxilan = New Zealand), but also – and often underestimated - individuals with a high follower range (WeChat, Weibo, Taobao, etc.) have proven to support word-of mouth sales and endorsements. Support Chinese Key Opinion Leaders in New Zealand relevant to your product and let your product speak for itself through their Social Media channels.

I have worked with KOL’s in New Zealand that target specific market segments and a relevant audience. These have over the years achieved high credentials, a huge number of followers resulting in unique endorsements of segments such as primary products, premium accessories and others. KOL sphere in China is quite different to the Instagram world we inhabit –as live blogging has taken the country by storm and continues to evolve.


3.    Find partners in market:
IF you have not done it yet – and you should have: This is where you go traveling. Go and see the consumer. Meet potential partners. Make your due diligence and try to read between the lines. Test partners – don’t do exclusive deals. Pilot your potential partners. Consider what resources are available to you to gain a better understanding of rules and regulations (labeling, customs, border, etc.). Your partner should be able to handle this, but knowledge is power – so you would want to familiarize yourself with the country you are selling to. I would still consider this step low-risk as your growth potential, resources and KPI’s depend on the choice of your partner. Your involvement can be as little as selling FOB – job done. Or it can be as mutual as you wish if you aspire to be more involved in the success and development of your brand or products in China.


4.    Be there
Whether a JV or a WFOE (Wholly Foreign Owned Company) is the way forward, this depends on your commitment, your product, your partners, your customers – bottom line: Your plan. There is not one fits all solution.

You also may want to consider natural partners. These may be your competition in New Zealand due to market size, but they could well work as an alliance for you in China. Consider for example the Zespri co-operation supporting hundreds of Kiwi Farmers being part of a greater story and on top ingeniously rebranding the Chinese gooseberry. This is just one of the examples that prove that the ‘greater than the sum of its parts’ idea.

Listen to the market and your consumers. Stay committed to your decisions, but stay flexible in your approach, i.e. Plan – Listen – Adjust – Plan – Listen… You get the point.

CONCLUSION
All of the above can be overwhelming. And depending on where you stand in the process it can be quite challenging to activate the next step.

Let me summarize:
1.    Talk about it, start making China a topic to discuss – look for sparring partners or someone that has done it, been there. Ask yourself some important questions or discuss them with someone that can provide you with critical feedback.
2.    How well do you know the market, and are you clear about the significance of Mobile and Ecommerce convergence for Chinese Consumers? What could you do to become more visible and accessible for the Chinese consumer?
3.    Is your offering relevant to the market?
4.    Make a plan – Be committed, but stay flexible in your approach.

This article was originally published on the Icehouse blog:
https://www.theicehouse.co.nz/blog/china-why-what-how-can-i-play-my-part

About the Author:
Sabrina Douglas-Jones not only runs her own consultancy (www.sdjconsultancy.com) but has also partnered with the Icehouse where she provides coaching and consultancy in General Business Strategy with a focus on China in areas including Market Entry, General Business Operations, Marketing and Brand Management. Sabrina is happy to discuss your ideas and questions about China and your business and can give you a supporting & experienced hand along the journey.  

Sabrina is also a member of NZCTA.

Some ideas and examples on where Sabrina could help are:
o    Making your business more visible and accessible to NZ Chinese residents but also to the 400k Chinese inbound travellers every year.
o    Utilizing relevant Chinese Key Opinion Leaders in New Zealand to start spreading Word-of- Mouth and cross-border ecommerce. This can be as targeted as identifying segment and geographic targets in China or simply being part of major cross-border ecommerce platforms representing New Zealand products.
o    Activating relevant Social Media.
o    Scoping and understanding the market.
o    Determining the suitability and need for your product or service.
o    Identifying the competition, e.g. reputation and pricing.
o    Better understand and interpret local laws and regulations.
o    Connecting you to the right and trusted contacts when it comes to all facets of the business, such as e.g. business development (incl. distribution), marketing including social media, research, Finance & Administration, HR, etc.
o    Selling to China without being in China means in most cases: Non-residential withholding taxes. Process, Authorities, Rules, Tax Treaty Advantages.
o    Setting up your own company in China or including finding suitable partners for a potential partnership.

Although the path to success in China may likely come along with obstacles, the rewards of this commitment can be beyond anything you’d have imagined.

Sources:
The Economist, McKinsey, China Skinny, CINIC (China Internet Network Information Centre), Emarketer, CNBC, NZ Story, Wiki

By Sabrina Douglas-Jones, SDJ Consultancy

Contact Details:
Sabrina Douglas-Jones
sabrina@sdjconsultancy.com
LinkedIn https://www.linkedin.com/in/sabrinadouglasjones
WeChat sabrinadouglasjones