Conducting China market research before diving into doing business in China can provide valuable insight into understanding the various Chinese markets, the opportunities it can provide as well as issues that arise within them, making it easier to identify customers in China. The failure rate of foreign businesses in China is high, but it is fair to say that the opportunities available far outweigh the risk of failure, considering the astonishing increase in middle-class consumers and the wide expansion of urbanization leading to a demand of Western goods and brands. US and Canadian companies may take advantage of this increase by familiarizing themselves with the market to avoid possible failure.
Threats in the Chinese Market
Top brands such as McDonalds, Adidas, Starbucks, and IKEA have already seized their opportunity in China and flourished, proving that middle-class Chinese consumers prefer foreign brands and products. This has created an overabundance of competition for foreign industries seeking doing business in China, making it imperative to have a herculean strategy for not just entering the Chinese market, but thriving in it. Another threat to the opportunities lying in wait in China for foreign businesses is that Chinese businesses are no longer content with simply being manufacturers of foreign products but are coming into their own as Business to Consumer companies. While people may have had reservations about the quality of Chinese goods, services, and products in the past, this is slowly changing as Chinese businesses are increasing their level of quality.
Failure Was Inevitable for Some Giants
Forty-eight percent of the foreign business, including multinational companies with well-known brands, have unsuccessfully entered the Chinese market and fell out miserably. No company is too large to fail. Under-estimating the market differences and difficulty level has led even EBay, a company successful in every market around the globe, to fail in China. Similar stories took place with other foreign giants such as Best Buy, and even the international sensation “Barbie” because market researchers underestimated the power of social and cultural norms in China.
Steps for Entry and Identifying Customers
The first critical step is conducting market research. Identify the real opportunity available for you in China, and most importantly, the size of the challenges ahead of you. There is no market around the globe which offers a rainbow of opportunities without tagging along a few challenges. Identifying the opportunities and challenges ahead of time allows you to solve these issues before your China market entry. Much time and money can be saved when market research is conducted at the earlier stages of entry.
China market research does not have to be expensive. We offer market study packages starting at a few thousand dollars. Alternatively, you can conduct your own research utilizing many free resources available, such as conducting an online search for market data and trends using the Chinese search engines – Baidu and Sogou. Some e-commerce retailers offer sales data for free which can be invaluable information in furthering research into the various Chinese markets.
While there is fresh opportunity in China, it is not without trials. Giants across many industries have failed in China because of their lack of understanding and research concerning the Chinese markets in which they were entering. Skipping the market research and making assumptions is a dangerous move and can lead a business down the path of some of the biggest companies who have failed in China. Conducting China market research will go a long way in helping you avoid the same mistakes as these companies, whether you choose to use a consulting firm or do your own research.
Casey W. Xiao-Morris is China Business Consultant at Leverage China, LLC, specializing in capturing China’s market opportunities for American companies. Casey can be reached at cxmorris@LeverageChina.com