KEY QUESTIONS EVERY COMPANY SHOULD ANSWER BEFORE ENTERING THE CHINESE MARKET
In 2021, China’s Gross Domestic Product totaled $17.46 trillion USD, making China the world’s second largest economy behind the United States with its GDP of $23 trillion USD. As a result, China boasts one of the largest consumer product markets in the world. In 2021, “the total retail sales of the consumer goods industry in China amounted to approximately 44.1 trillion yuan” or about $6.59 trillion USD. Many western companies desperately want to expand into China; however, the country “remains an elusive market” for most American and European businesses. “In the S&P 500, a mere 41 companies generate 10 percent or more of their global revenues in China.” The Chinese market is incredibly complex. It is difficult to gain traction in the market without a thoughtfully constructed growth strategy. It is critical to understand factors like Chinese social media, e-commerce partners, cultural differences, and geography. These are just some of the forces that help shape one of the most unique markets in the world. Below are three key questions every company should answer before entering the Chinese Market.
1. SHOULD YOU LOCALIZE PRODUCTS FOR THE CHINESE MARKET?
Because the Chinese market is so competitive, it is critical to build a strong product offering that will resonate with Chinese consumers. According to the Harvard Business Review, “there are many factors that drive brands’ success or failure in penetrating a new market, including the company’s level of commitment to the initiative, governance structure, leadership, strategy, and more, but the product offering itself is a key component.” It is important to conduct rigorous in-market customer research. Any company looking to enter this market needs to understand their Chinese customer base. “In some cases, Chinese customers’ preferences and behaviors will differ from other markets enough that the product itself must be tailored for China.” As the Chinese market continues to grow, “many global companies are increasingly willing to go the extra mile to customize their offerings for China.” For these companies, the market size justifies the cost of localization. “To succeed in a new market, brands must carefully consider which elements of their products and business processes would most benefit from incorporating local characteristics — and when it’s best to stick with a global standard.”
2. DOES YOUR COMPANY HAVE A STRONG SOCIAL MEDIA STRATEGY?
Many western companies simply don’t understand the importance of social media to the Chinese market. Social commerce is a term that refers to “purchases made via social media.” In China, social commerce sales generated $351 billion USD last year. For comparison, social commerce sales in the US totaled just $36 billion USD in 2021. During Singles’ Day, a major Chinese shopping holiday, in 2020, “Viya, one of China’s most popular influencers, live-streamed to over 149 million viewers on Alibaba's Taobao Live platform.” Her audience was equivalent in size to the entire population of Russia, the ninth largest country in the world. During her live-stream, Viya’s audience generated $719 million USD in sales. “Viya was just one of many – that day, over 66,000 live streamers across different Chinese platforms attracted a total of 709 million viewers.” Many companies looking to enter the market struggle to understand Chinese social media because social media simply does not generate the same level of revenue in the United States or Europe. It is critical to grasp the impact social media in China can have on your brand and sales.
3. IS YOUR COMPANY IN A POSITION TO SUPPORT AN EXPANSION INTO THE CHINESE MARKET?
It often takes several years to gain traction in this market. “Entering the China market requires a startup-like period that’s longer than many entrepreneurs anticipate.” Because it takes time to build acceptance in the market, companies “need enough capital to make the initial investment, but…also should have a long-term financial plan in place.” In addition to financial reserves, it is important to develop long-term partnerships to sustain the new market entry. Expansion into the Chinese market is not something most companies can do alone. For example, companies need to develop strong Tmall partners. Tmall “is the largest business to consumer retail platform in Asia” with 124 million active Chinese shoppers. Tmall is a complex ecosystem, and it is an incredibly difficult business channel to manage remotely. Any company serious about an expansion into this market needs to take time to develop and vet credible partners to help distribute and support sales growth in China.
At CASTUS, we have experience growing international brands in the Chinese market. We understand the key data points and influencing variables that need to be identified when planning for this kind of expansion. Our team can provide the needed strategic direction to help streamline the expansion process and optimize resources as you grow. Talk with our international expansion experts to start planning your international expansion today.