How to Succeed with Chinese B2B Customers Today

A number of our business-to-business (B2B) clients are now needing to take a long-term look at their operations in China with fresh eyes. It’s not the same country they entered 20 years ago with so much hope and ambition; the economy grew even faster for longer than anyone could have predicted. And yet, for many, the past 20 years of growth and change has brought considerable disappointment.

The most difficult truth is that for decades, western companies have lamented that Chinese B2B customers don’t appreciate the value that they create. The sometimes subtle but often explicit question to us has been, “When are they going to grow up and start appreciating quality and value?” Instead of addressing the different drivers of value, many western suppliers have merely hoped for Chinese B2B customers to change.

Now that China’s markets have grown, for many, success with Chinese customers has been getting more elusive rather than achievable. Many have “hit a wall” with a market share far below their global level and with no obvious prospects for duplicating the success they have known elsewhere. What, then, can one do about “hitting the wall?” We would ask those who have had this challenge to consider the cause and address three business imperatives, the first of which we will detail in this post:

Focus on value drivers that drive value
Go back to basics in building a business
Graduate from “follow the money” to “be who you are”

Focus on Value-Drivers that Drive Value

We could cite hundreds of examples of a mismatch between a company’s value proposition and the needs of Chinese customers. Early on, stubbornness in refusing to adapt to China was understandable; most believed that the Chinese would soon catch on and start to value the same things that customers at home value. However, today foreign suppliers are faced with a modern, rich, and sophisticated China that still isn’t much like home.

A very common difference is time horizon. Despite its thousands of years of history, China is a fast-moving market with little experience and even less trust in the longevity of business models and relationships. In the US, we value products that last for a long time and require little attention. Building equipment suppliers go to China with value propositions centered on long warranties and lack of required maintenance, and neither is of particular interest to most potential Chinese buyers. The typical responses we get to questions about supplier value creation are:

“We don’t expect this building to be here in 15 years, so why would we want a 20-year guarantee?”

“No one in China keeps a cell phone for more than a year; why would we want the components certified for 3?”

“Why wouldn’t we prefer to have fast service than expensive products that seldom need service but when they do it’s a challenge?”

Many companies had immediate success with expensive, over-specified products, when China was a very backward country. When products were new to China, buying the best—even at high price premiums—made sense. Yet, as local buyers gained confidence, got more familiar with the plusses and minuses of various offerings, and learned their own drivers of success, they became more sophisticated buyers of products, but not necessarily buyers of more sophisticated products.

We have written at length about “Second Mouse” business models in China: “the early bird gets the worm, but the second mouse gets the cheese” illustrates that sometimes it’s better to be the fast follower than the pioneer.[1] The approach of China’s fast followers is to tailor their offerings to be “almost as good as Brand X, but at a much lower price,” or in their words, to provide a much more attractive price-performance ratio. In some cases, US companies have cracked the code for succeeding in the mid-market, but mismatched value propositions are much more common than successes.

Another common theme is different decision-makers. Taking one recent example, in the US, commercial buildings are built to accepted standards of quality and efficiency, often to meet energy efficiency demands or fire and safety regulations developed over decades. As such, sophisticated building products, especially related to quality, safety, and security, are mandated. In China, developers most often do not face such an environment. Furthermore, they often do not have a stake in success after construction is finished; their key to success is getting access to land, conserving cash, and putting a building in place quickly and at the lowest cost possible given the project’s positioning.

In Chinese commercial office projects, individual offices are left as shells to be finished by the new tenants. Outside of a handful of the most advanced cities, even the climate control systems are chosen and installed by the first office or shop tenant. Solutions built around creating efficiency for an entire commercial complex will, thus, find little resonance outside of a few very high-end opportunities.

Safety, fire, and environmental regulations that drive business models in the US are usually absent in China. They’re the clearest example of different decision-makers. Some have succeeded in getting elements of global regulations written into Chinese law. However, most of the time, meeting the regulations at the lowest price is the goal that buyers describe to us.

Whether it’s different roles, different mindsets, or different rules, China does present a challenge when US value propositions do not match the needs of Chinese B2B customers. While part of the answer is messaging, more fundamentally it’s making sure that the customers value the offerings. In order for companies to continue on a successful path, or reverse disappointing results, we recommend making hard, realistic decisions now that the shape of China’s future is far more clear.