April 6, 2020
China Market Entry Strategies

China Market Entry Strategies

think there are a number of options, from
our point of view as an advisory firm, we always want to know the capacity if the company, in terms of their recourses to be able to sustain that option. One of your options is in fact e-commerce through
JD.com or depending on what you are selling there are specialist sites for industrial
manufacturing. There is Alibaba’s Taobao if you are consumer product oriented. So there
are a number of options and I think you have to spend some time thinking about how you
can sell certain types of products on the internet, before setting up your own e-commerce
platform even in Canada, with Chinese language, more and more people have credit cards and
DHL and Fedex do a good job. So it depends on what you are selling and who you are selling
to. Web presence, even in your homepage in Canada with a couple of pages in Chinese so
people understand who you are, and spending some time on social media, and obviously getting
some ads onto Baidu or Google to promote your product can be quite valuable even if you
are not selling on the internet because you are building some sort of awareness and brand
within your core competency of your client base or the sector that you are focusing on.
Traditionally, people have not looked at the internet as something that is viable but the
customs processes relatively poor as the foreign exchange process is liberalizing as we all
know, so the ability for consumers and companies to pay for something using internet, if you
are not inventory even in China where they can pay in RMB, is still a positive area of
focus for certain types of company, especially people that are more focused on the consumer
side or very specialized small component. Second option obviously is to find a partner,
whether it is a distribution partner, systems integrator, a manufacturing partner whether
it would be foreign in Chinese who is using your component, who takes on the primary responsibility
of integrating it so you can develop a certain presence in the market while you look at your
long term strategy and your vested strategy. So finding those partners, including distributors,
with caution though, one problem with the distributor partner generally, is that they
are usually responsive to a market, they are not into the expensive part of the business,
which is the marketing, and brand development and sales process, the very competent servicing,
so you may have to support that process with your own resources on top of it. We have one
client who is in the medical space, and they have very good distributor relationships with
all hospitals. The client is vesting in staff with our support and building the awareness
and understanding of their product. It is a U.S. based company, they are also responding
in a way to opportunities in the market that we have identified, and they are going on
a strategic plan because their long term interest is brand development, so then those two processes
can be bifurcated with you, the exporter, taking on the branding process and the distributor
taking on the fulfillment and payment process. So I think there are a lot of options in that
area, as I said there are also foreign companies, people like Jepsons Jardines depending on
the size and type of your product that do this well and who might be worth talking to,
because they know the space, and they may or may not be interested in taking on you
product. And there are trading companies, state owned and private companies that do
brand development marketing and sales and distribution. So I think that there are a
number of options. In certain cases we advise companies to basically define the value of
your product from a technology transfer point of view, and say we are going to enter into
a license agreement with a key condition being that the product cannot be sold outside of
China without someone’s permission, and selling that technology to a manufacturer
or partner in China who will take on the process and pay you with a lump sum upfront, or with
a lump sum with an additional loyalty payment depending on the length of the agreement of
the sales with the IPR and the trademarks still being retained by the Canadian exporter.
The advantage of that approach is that it allows you to get presence in the China market,
get the revenue out the China market but allow you to use that capital or that success to
go either fight for a larger market share either in the United States or in South America,
because each product has a potential focus depending on what it is in terms of other
markets that might be more important. And the same would apply I think because I think
a lot of people fly to China, they should be looking at other options: there are partners
in Hong Kong, there are partners in Taiwan, there are partners in South Korea, and there
are partners in Japan, who have big presences in this market, either as manufacturing companies
or distribution companies. We recently started a project and we had recognized that probably
the easiest sale is to Taiwan, because it is going to be long protracted sales for Canadian
client, so we engaged the Taiwanese company, and because of the language and because of
the business culture being more curious than the current SOE environment in China, Stare
Owned Enterprise, we were able to get to the chairman very quickly through an email and
set up the meetings with the right people and where it is an ongoing process. So I think
you have to look at getting into China through different bridges, or different channels,
as another option, there are even people, obviously a lot of Chinese in Canada now who
might have a complimentary business in China, they could be selling widgets to banks but
they do not have a blue widget and you are the specialist in blue widgets. They have
a distribution force, sales and marketing force to banks, but they do not have your
product. They might be, because they are looking to expand their business and they don’t
have to go through the R&D process being able to graft onto their existing customer base,
something that you have that they do not have. And the value to them is the tested product;
it is the viable product that is working. The value to you is that they have a readymade
sale force to take on your product, it is just a question of coming up with the right
structure, you could vest in their company, they could vest in your company, just have
some sort of value-added marketing relationship where they are taking your product and providing
the markup they need and paying you what you need to deliver to China. So there are options
even within Canada, the way you structure that, we can get into the third part of this
video, in terms of equity and other options and then there is of course the option of
doing it yourself, which for the right SME is the best way to go if you have the right
product and you have the resources to fund it, because you can set up either a rep office,
or more likely a Wholly on for an enterprise or service or organization, you can either
do the importing yourself or use a trading company or a logistic company to do the importing,
then your relationship that is direct to the customers, where your sales people are talking
to your customers, you are selling the product, you are supporting the product, and that’s
ultimately potentially the most interesting for the right company, but it may not be viable
financially for other company. So I think those are your potential options in getting
into China. You may go through a stage combination for some of these options, you may have a
different strategy for different parts of China, you may have to, depending again on
who you are and what you are doing, you may want to set up and give yourself the key markets,
of North China, have a distribution partner, who is Chinese, for the middle of China, Shanghai,
Shaanxi, Zhejiang, and have a different strategy for the South China, that is relying on Hong
Kong partner. I think you have to recognize that something this big requires multiple
contact points with the market and customer point, so I don’t think you necessarily
want to be trapped by just one approach to China, but again I think that we do not like
to say that there is any given rule for all companies, we like to look at each company,
each sector, each product and capacity where that company is even in its own development
in timeline, in its offshore markets. I think to be realistic, maybe counterintuitive or
something that makes your business in China, you have to ask yourself a question whether
China is the best market for you to go to at this point in time, and whether you are
better off, as we just advise client to look at Australia, because Australia in their sector
has a huge amount of influence in the mining technology’s space, and if they can point
to a customer outside of Canada that is reconfirms to the Chinese mining community that their
technology is accepted, not just because it is happened to be used in Canada, but also
because of time zones and different information flows. You can attack China by getting success
around China, and that could include putting a consumer product into Singapore before Hong
Kong or before you bring it here, so I think you have to look at it with a fairly creative
matrix. One of my favourite quotes recently is from South African naturalist, Lawrence
Anthony, who passed away, he said “I don’t even understand why people begin thinking
in a box”, and I think that is the approach that you have to take to China. Because you
have to look at who you are, what you want to do and what your product is, and then be
creative but also be viable, and be realistic.

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