China Planning 101: Take Off Those Rose-Tinted Glasses

American firms today cannot afford to ignore China. You know this and so does everybody else. So take the first step towards doing business in China and start planning. The question is how your company can do business in China and be successful. Most US companies are turning a profit with their China operations. You will need to do your China homework and plan carefully to join this group.

US companies have long looked at China as a low cost manufacturing platform or place to source goods. But increasingly China’s opportunity-rich domestic market is the focus of attention. This lesson will discuss planning for companies that want to sell in China.

Whatever your focus, base your planning on realistic assumptions. Don’t, for instance, get carried away with the overall size of the Chinese market when estimating sales potential in China. Consider instead how many of China’s 1.3 billion are realistically likely to buy your product or service.

The more you know about the market and your potential customers, the more likely you will be to make realistic assumptions about prices, sales potential, and operating costs. Determine how your customers break down in terms of age, income, and location. Are you targeting people concentrated in top tier cities like Beijing and Shanghai or are they more dispersed? Marketing strategies and selling costs can vary enormously depending on who and where your customers are.

You are likely to be competing against both foreign and domestic companies. In many sectors some of the toughest competitors are very savvy, very nimble Chinese companies that most Westerners have never heard of. Make sure the domestic competition in your industry is on your radar before you get your China start up underway.

The best way to determine your prospects in China is to base your planning assumptions on worst case scenarios. Take sales targets and pricing. To begin with forget about your US pricing scheme. While affluent consumers are increasingly attracted to value propositions, millions of Chinese still base purchasing decisions on price alone. You need to be prepared to compete on price.

Set target prices based on what you’ve learned about China’s domestic market. Use the demographics you gathered on your target customers and your experience from the US and elsewhere to estimate sales revenue and the costs of sales and distribution. Then add in “the China factor”. Knock ten points off the revenue projections and add ten to the cost estimates. Run the numbers again and see where you stand. Knock twenty point off and run the numbers again. In addition to knowing what it takes to succeed in China, you need to know the absolute minimum required to survive there.

China will throw unexpected changes your way. Yes, there are tremendous opportunities and many foreign companies do very well in China. But business in China can be very unforgiving to companies that are not well prepared. You need to plan for success, but also have a clear understanding of your China pain threshold. Instead of getting caught off balance, worst case projections based on realistic expectations will help you roll with realities on the ground.

It seems everybody has something to say about China these days. How do you filter out the noise and get to the reliable, targeted information you need to plan? Our next post offers some thoughts on doing your homework for China.

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Who is on Your China Team?

Building a China Team to do Business in ChinaAfter you have a basic strategy and plan, one of the first steps towards business success in China is getting the team right. You need a strong team to do the research and set up your China venture.

Your China Team Defined

One of the first questions you will need to answer is how big is your China team. We suggest that you consider the people in China and their support staff at the home office members of the China team. Both sides need to be on the same team with the same understanding of your project and the situation on the ground in China.

Corporations that view their China team as only the people in China risk creating conflict that impacts negotiation, sales and marketing on the ground in China. Ideally, the entire c-suite is aware of the differences in business environment, operations and culture. Things are simply done differently and setting goals with western expectations will inevitably harm productivity of your China venture.

Selecting Good Candidates

Selecting the right people for your China team is a difficult process. Corporations typically pick executives who have been successful in other areas, which is a smart move. However, corporations need to look at why the executive was successful and managed that success. Just because an executive can lead and operate a business with great success in the United States, does not mean that the same executive will succeed in China.

Working in China requires a lot of adjustment and candidates who are flexible have a better chance of success. Executives that focus on building and maintaining relationships rather than transactions will do better for obvious reasons. Furthermore, people who are able to approach relationships from a step-down perspective have a better chance of building strong relationships in China. Ideal candidates will have lived abroad before, already speak basic Chinese and have a good understanding of Chinese business culture.

On the head quarters side of the team, you need people who are willing to learn about Chinese business protocol and the business culture. They should understand how relationships are formed and how this impacts business in China. Finally, they should have a basic understanding of how sales and marketing are different in China. This will help the team be productive.

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Are You Ready for 2018?

China's Economy will Pass the United States in 2018In 2018, China’s economy will surpass the United States’ economy in size. The United States will not automatically become a third world country, but certain trends will continue. We will see more opportunities for US companies to do business in China. We will also see more Chinese coming to the United States to visit or live. Both of these create opportunities for you, but only if you are ready.

What Do You Need to Know?

Recently, I sat down with Steve Barru China Business Hand  for a long talk about what people need to succeed in the new world that’s coming soon. We thought about what a business executive walking off of the plane in Beijing needs to know to be successful.

It was an interesting discussion. Steve lived in China for 25 years, while I was in Taiwan for 8. He brings the perspective of a political scientist with on the ground experience in China and I bring a background in social work/psychology, and business experience in Taiwan.  We talked about details including understanding guanxi and face, but we also talked about the big picture. What are the big areas that business people traveling to China on business need to master?

We talked it over for a while and decided that there are a few answers. Companies really need to have a sound strategy, realistic goals and a strong China team. In developing each area companies need to consider the business environment, how business is conducted in China and then business and social etiquette. All of these are intertwined and impact one another. It is particularly true that both your ability to conduct business in China’s business environment is impacted by your understanding and proper use of the business culture.

The government plays a larger role in business than in the United States, which combined with the different business culture creates a difficult environment to understand and navigate. People still market, sell and deliver goods and services in China, but there are distinct differences in how this is done. These differences are created by both the business environment and business culture. The business culture is more formal and requires an investment in developing relationships before doing business.

Steve and I have agreed to work on a white paper to introduce these topics in more detail. Watch this spot for announcements.

Comment Below: What’s Your Company Doing to Prepare for China

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