Competing with China

12 May 2009 Laura Mitchelson

China’s economic growth has dominated the headlines, with the increasing threat of Chinese competition a major issue. Laura Mitchelson of Amber explains to CEO how to address China's growing influence.

Businesses in China have rightly invested significantly in understanding Chinese consumers and end users. Without deep awareness of purchasing behaviours and trends, businesses risk losing market share and missing opportunities for increased sales.

The motivations and aspirations of the Chinese consumer are well documented. All but the greenest of foreign managers understand the regional and generational differences between consumer groups and the need to stay ahead of consumer trends in order to maintain market share. This applies as much to B2B sectors as it does to the B2C world.

"Trends and developments in many markets are now driven by Chinese customers, Chinese purchasing managers, Chinese distributors and Chinese sales tactics."

Since China’s economic opening, this understanding of consumers and end users has driven businesses. Once they know which segment of the market they are selling to, businesses have been able to push their messages and rely on their increasing spending power in China to carry growth. For most, this was sufficient because foreign businesses generally sold on the basis of high quality and more sophisticated products while any local competitors were taking the lower price point end of the market and winning in those areas where budgets or spending power was lower.

The pace of change in consumer preferences is slowing. It is becoming more important for multinationals to understand and track the capabilities and strategy of Chinese competitors. It does not matter if you are selling high-end wallets, an online travel service or pressure gauge equipment to the gas industry; businesses all over the world are at risk of losing customers to a Chinese competitor.

Trends and developments in many markets are now driven by Chinese customers, Chinese purchasing managers, Chinese distributors and Chinese sales tactics.

It was rare, even as recently as the 1990s, for foreign businesses in China to be overly concerned about the activities and investments of mainland Chinese competition. What’s changed?

Chinese strengths

International best practice is alive and well in many Chinese businesses, from manufacturing process technology to supplier consolidation and from logistics to customer service. Some businesses have built strong teams on the back of multinational trained staff and many hire non-Chinese with international experience into senior positions.

In the regulatory environment, Chinese companies enjoy strong support for their activities, both formal and informal, giving them an edge in key state-owned industries and in most competitive bid situations.

Overall, the business environment has become tougher for all business in the past year but Chinese companies are better able to manage the transition to lower margins and leaner operations than others because they are often leaner to begin with.

Over the past few years, we have learnt not to be surprised by Chinese companies making rapid changes in their organisations and direction. These changes in strategy may be less well researched and less sophisticated than foreign businesses are used to but the whims of the Chinese consumer and the B2B market demands this pace. The strategy is not ill conceived if all that is needed is to have a strategy at that point in time to gain market share. Most mid-sized Chinese companies do not have a strategic plan and therefore do not have sales and marketing plans and budgets either. This makes understanding their approach challenging.

Competitive advantage for foreign businesses used to be simply a question of persuading end users that the quality advantage was worth paying for. That time has gone and in some sectors, local competitors are more expensive than the multinationals. We are seeing a huge market share grab by Chinese companies.

For example, five years ago pharmaceutical companies with R&D in China were primarily working on clinical trials and tabulating results from other countries. They are now more likely to be working on drug discovery and improved manufacturing processes.

Because of current challenges for all businesses, many find themselves competing or having to prepare to compete in markets that were traditionally the preserve of mid-size, Chinese competitors and it is a daunting proposition. Often, we do not know anything about the competition.

Challenges to learning more

One of the main challenges to managers is predicting the moves of competitors. There is no complete Dun & Bradstreet service, limited statistics on demographics, almost no sophisticated business research panel, low customer loyalty programme penetration, and few details of company strategy listed on company websites. It is also difficult to find out the names of senior management from websites.

Business data - addresses, contact details and names of senior management - in the US decays at the rate of 4-6% per month. China has a faster decay rate but at this stage, no-one knows how fast because the figures are not processed.

The scale of the problem is also a challenge. According to the State Administration for Industry & Commerce in China, there are around 9.7 million registered companies. One client recently was trying to keep track of what they described as their "key 125 competitors in China". Not easy.

Below are three key issues businesses find challenging:

"It is becoming more important for multinationals to understand and track the capabilities and strategy of Chinese competitors."
  1. China has limited information infrastructure so carry out regular market updates and consult a wider range of information and intelligence sources than you would in a more developed market and do not rely on the internet for answers.
  2. When trying to understand the competition, take advantage of expert input. Use researchers, either internally or externally, who have first-hand experience with primary research in China and who can read behind the lines and truly interpret what they are hearing, seeing or reading. Find people who can ask the questions that solicit concrete answers and who systematically cross-check and triangulate information.
  3. There are always time lags in information and statistics. There is a delayed reaction for many industries in China meaning it is essential to double check the official growth or trend figures against the predictions of those within the industry and within your competition. With a generation shift every three to four years, bear in mind that some of your younger team members are not old enough to bring any historical perspective to the analysis they do on industry or competitor developments.

Using sales teams

If your sales team is empowered to keep you ahead of your local competitors, then you have nothing to worry about. If, however, you have a young or unmotivated or poorly trained sales team with less than smooth communications to management, they need empowering. Vital information about your competitors will simply not be finding its way back to decision makers unless you open this channel.

The depth of experience and knowledge and local market understanding of your team in China makes the difference between winning and losing customers. Generally, we think that sales teams are not a good filter of key information about market trends or competitors. They are incentivised to sell, not inform policy, but so many of the businesses we work with gather most, if not all, of their competitor information through their sales teams.

If you are dependent on internal sources of information on the way markets move and on your competitor’s plans, use these methods for maximising the output:

  • Ensure that information is flowing from top management down
  • Reward efforts to improve information flow
  • Build a core team of information management experts based on personality – often women are more willing to share information than men
  • Offer concrete examples of where improved business intelligence and knowledge sharing within the company has led to improved sales or to better customer retention
  • Remind teams that ‘competitive intelligence’ is an independent and important business function in 80% of Fortune 500 companies
  • Ensure that you are clear of the intelligence needs of everyone in your organisation at all levels
  • Make sure everyone knows how to use the web to maximum effect – this is not a given in an environment where cultural values and background play into ideas of what is strategically important
  • Appoint a steering group of senior managers to offer guidance on the organisation’s continuous business intelligence function
  • Include business intelligence gathering in the job descriptions of all your mid- and senior-level managers
  • If you can, bring in an external competitive intelligence consultant to work alongside your own teams for a defined period or get them to conduct workshops with key information carriers (including managers) on specific intelligence issues – you will be pleasantly surprised at what is unearthed

With the right approach, Chinese competitors are not hard to comprehend and the value in understanding them is repaid in spades as many successful businesses in this market can testify but what happens when ‘the China effect’ is not managed? The risk of surprise looms. Surprise normally means shrinking revenue for a period of time while everyone considers how to re-design the approach in the light of a new competitive threat. Eliminating this element of surprise increases profitability. It is that simple.