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Doing business in China

Hitting the Wall in China, Pt. 2

In Pt. 2, we’ll continue to address the challenge facing many U.S. companies doing business in China B2B markets: they feel they’ve “hit the wall,” achieving only lukewarm success in an economy that appears to be strong and on-target for growth. We’ll now explore two additional explanations that speak to educating potential customers on a product or service’s value and committing to a strategy when it comes to meeting customers’ multifaceted needs.

Forgetting How You Build a Business

Overlapping with value propositions that are just plain misguided, or appeals to decision-makers with totally different goals, is the notion of education. In some cases, the market isn’t as much different as still at this time lacking knowledge.

Participants in many consumer markets in the U.S. forgot long ago the techniques of selling an application; they can sell their dishwasher as doing a better job of removing baked-on food than Brand X, but how many recall the pitches that convinced Americans that owning a dishwasher would be a good idea? They can describe their oven as stylish and efficient, but how many remember how to convince buyers that they would be better off by owning an oven? In China, very few homes have either a dishwasher or an oven; it is a huge potential market. However, building a better mousetrap will not cause the Chinese to beat a path to your door if they don’t understand the “mice problem;” a back-to-basics approach to educating the market is key. Some very clever local companies have produced compact dishwashers that also wash vegetables, with a special bin and special cycle—this is a “no-brainer” application since washing vegetables is a key activity in Chinese homes. Offerings such as these make up a large part of the display in some very modern home centers.

The same holds true in B2B markets. Early on, relying on “Western experts” led the Chinese to become an important market for high-end building products and systems. We spoke recently with an American architect who has been working in China for decades and he spoke to the change he has seen:

“There is a major trend moving away from hiring foreign experts like me to design facilities, toward hiring local architects who have worked for me. They are confident and clever, and I am proud to see them succeed. They have skills that are broad, but not deep, however; they know how things are done globally but not why they are done that way. They know how to build a hospital that looks like a U.S. hospital, but not one that functions like a U.S. hospital. They don’t understand whether a change from established design practice is good or bad. They make compromises on safety and patient well-being purely through lack of knowledge.”

In that sense, things were too easy in the beginning when there weren’t Chinese experts. Now that the Chinese buyers and their influencers have confidence, they need to be convinced about applications and products.

Suppliers must remember how they educated other markets that their product would improve hospital and patient performance and repeat that process in China. The assumption that things will be easy because there was emulation in the early days is a big mistake.

Not Sticking to Your Knitting

Finally, we see the contrary of value drivers that do not drive value: the companies that have followed the money too well. Some China teams have been so aggressive in seeking out sales opportunities that they are challenged now to manage an array of products and services that were sold only because a single customer wanted to buy them. In some cases we have observed, the China offering is now totally different from that of the rest of the world, and the competition is made up of global champions who happened to be late to China. These B2B suppliers are in a no-win situation of having no shared expertise of a global network, not having the volume of other markets to support their cost base, and often not having enough sales in China to go at it alone.  It is especially true in areas like software or complex services, which require a very large economies of scale.

Contributing to the problem were distributors/dealers. In China, those intermediaries primarily succeed based on their relationships with a set of customers. As a consequence, their business model is built around supplying everything that a set of B2B customers needs to buy. When there is a gap in one supplier’s product offering, even if there is no synergy with existing products and/or the space is occupied by excellent suppliers in the market, a dealer has every incentive to encourage the supplier to enter that space.

And in China there are still gaps to be filled. We were among the most vocal in suggesting that, for instance, missing service organizations in the China customer chains might need a manufacturer to get into the service business. Producers of aftermarket auto parts and chemicals entered the auto repair service business precisely because there were no trusted partners through which to sell their products. As that changes, the important decision becomes whether to compete with those partners or exit the service business at some point.

In few fortunate success stories, the China business has pointed the way to a new global opportunity. Yet, in our experience, more often the China business remains a small outpost, surrounded by a world of really tough competitors, some of whom are important partners elsewhere.

Reorienting the business away from a set of “follow the money” niche businesses to a coherent and value-producing model is often painful. Customers will be disappointed, dealers will be shocked, and headquarters will need to take a hit on sales before the new model bears fruit. However, it’s essential and needs to be done carefully and with a clear strategy.

The Chinese B2B marketplace today is ripe for opportunities. Rather than making assumptions based on success in other global markets, U.S. businesses need to take a strategic approach to meeting Chinese customers where they’re at and understanding what motivates and truly supports buyers at their stage of economic development. Working with various clients in this space, we have determined that U.S. companies can increase their chances for success in serving the Chinese market by:

  1. Making a stronger connection between their value proposition and the buyers’ needs
  2. Taking the time to educate buyers on the relative value of their product or service offering, and
  3. Taking advantage of only the “best” and most appropriate opportunities to create new solutions for customers in an ever-competitive global economy

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