How do you eat an elephant? Or how to approach doing business in China.
Napoleon once said, "China is a sleeping giant. Let her sleep, for when she wakes she will move the world." The giant is awake now and has already become one of the largest economies in the world. China is also large enough for us to have to do business on their terms. It’s probably one of the most foreign places we can talk about in terms of the society, behaviour and mindset of people and businesses. In order to do business with the Chinese, we need to forego our usual expectations and practices. Here are a few areas to consider.
Focus on a region to reduce risk
One of the biggest mistakes European companies often make is to say, "We want to sell in China." They should instead be asking, "Where in China can we sell?" – and then focus on a region. The volumes we can talk about in China are on a whole other level and often unattainable for Small and Medium Enterprises (SMEs) just starting out. With many smaller cities having "only" 2-5 million inhabitants and regions of 50 million people, these are more than decent markets in European terms, especially for smaller businesses. Focusing on a single region, also reduces risks. If your annual capacity is 400,000 units and you receive an order for one million from China, you have to seriously consider whether you can take the financial risk of investing to expand your production. Starting small, keeps it safe.
Large orders: a challenge for SMEs
A small Danish brewery received their largest ever order by far from a major retailer and had to work shifts throughout the night to produce the order. Another drinks producer had the concern that six months of their entire production was on a ship to China, prior to payment. In both cases, it turned out well, but it is something to be aware of.
Sometimes, delivery deadlines can be very short. One of Scandinavia’s largest household bedding producers from Denmark, filled an order of ten containers of duvets with one of the largest Chinese online shops for Singles Day – the biggest annual shopping day in the world. The Chinese buyers wanted even more, but it simply wasn’t possible before the deadline. The contact was facilitated by the Enterprise Europe Network contact points in Denmark, Erhvervshus Sjaelland, and in China, EUPIC in Chengdu.
What to sell in China
What could you be selling in China? Look at China’s five-year plan and see where the driving forces are. The plan outlines all priority areas the government will invest in where development should focus. Areas like modern/sustainable agriculture, urban transport, clean water and environment, and welfare. Chinese food consumption is increasing, and the farms and producers are required to become more efficient and use more and more sustainable and safe technologies. Chinese elderly are increasingly living alone, so technologies that help them live independently for longer will be in demand. European companies are in a great position to supply these.
Buyers love brands
One of the challenges is that Chinese buyers love brands. It’s not unheard of that while the buyer might say that they are looking for innovative European products, they actually mean "new by Carlsberg". For small companies, with high-quality goods, it takes a little more effort to sell successfully in China, as the brand isn’t known. This can mean focusing on niche markets and stores, "smaller" second tier cities, and be ready to spend more time on the market. Most European delegations seem to go to Shanghai and Beijing. Look further afield.
Develop your relationships
You need to be very present and if possible it’s good assign a staff member either in Europe or in China who will join any relevant trade missions, fairs and networks, and chase up and push any leads that might come your way. China is not a part-time market.
You need to be ready to spend time and money developing your relationships in China, as relationships or "guangxi" are incredibly important. Chinese like referrals from people they trust and already work with. If you are interested in contact with a Chinese company and don’t have anyone in your network who could open the door, see whether the Enterprise Europe Network can help facilitate an introduction.
The Enterprise Europe Network is your network
A good example of long-term cooperation between Enterprise Europe Network contact points Agro Business Park in Denmark and EUPIC in China, developed around Danish technology providers in the smart farming sectors in Shandong and Sichuan, two areas known for animal husbandry. This relationship has already contributed to a large number of contracts and joint projects. To name a few: the opening of a Danish environmental advisory service in China, with several contracts with local authorities; a technical component supplier selling to a major Chinese biogas plant construction company; new greenhouse technologies being introduced in Shandong region and cooperation on improvement of fertiliser composition. And many other projects are still being discussed.
China is where future growth is coming from
This is the tip of the iceberg. We haven’t touched upon any IP and regulatory issues, taxation, use of social media, business culture (Ganbei!), local politics, or any other "different" behaviour we need to be aware of. All of this sounds daunting, with many hoops to jump through, time and money to spend with no certainty of any outcome, in an environment which is very different from what we are used to in Europe. But we can’t deny that Asia and especially China is where future growth is coming from. China is already the world’s largest cleantech market by some margin. In 2019, China is expected to overtake the US by retail spending and become the world’s largest retail market. There are many opportunities for European SMEs, it just takes commitment.
So, how do you eat an elephant? The answer: one bite at a time.
About the author
Triin Udris is a project manager at Erhvervshus Sjaelland, a Danish Enterprise Europe Network member organisation. She is based in Suzhou, China, to strengthen the relationship with Chinese Enterprise Europe Network contact points and help more Danish companies onto the Chinese market.
Source: The Enterprise Europe Network blog >>>