Mar 5 2015
Successfully entering the consumer market in China is the dream of every company in the consumer sector. Whether you are in vehicles, food and drink, electronics, fast food or any other business selling to individuals, the thought of 1.6 billion consumers all readily approachable within one country is mouth-watering. But of course, nothing in business (or in life itself!) is straightforward; China is unlike any other market in the world.
I recently spoke to a number of senior people at the top of several large and well-known consumer businesses. Several themes have emerged from these discussions about what strategies can make the difference between success and failure. For obvious reasons, some names have been changed, but I have used direct quotes about their experiences.
Freeman H. Shen, Chairman of Volvo China, personally conducted the negotiations between Geely (the now owners of Volvo worldwide) and Ford Motor Company for purchasing the Volvo Car Corporation in Sweden. This purchase by Geely was the first deal of its kind between a western and a Chinese company in the motor vehicle industry.
“It took a really long time to put the deal together,” says Freeman. “And when we took over, Volvo employed about 20 people selling around 27,000 cars a year in China. The Swedish executives did not believe we could make a success of selling more cars in China in very short period of time but we are now approaching 90,000 sales a year only four years later. Meanwhile, China is the most profitable market for Volvo today; and we have two factories in China to produce cars locally.”
Freeman considers Volvo China’s success to be due to three factors: “You must get the product right, the sales and distribution channels right and, in China especially, you must have the right team.”
No doubt many companies operating successfully around the world would give similar advice. But James, who has led a beverage company, agrees that China is so different from elsewhere. “You must live in the country to know it and understand it,” he emphasized. “This beverage company had been using distributors to sell its product.”
The beverage company had a long history in China, but its core brand was old and tired.
“My first task was to identify the right markets and to define a clear strategy for each of our brands,” said James. “Then we had to understand the consumers in each of our markets.” This comes as a surprise to many people – China is not one market. It is many and very diverse. Tier One cities as they are known (Beijing, Shanghai and Guangzhou for example) are more sophisticated and knowledgeable than the Tier Two and Three cities, let alone Tiers Four and Five. “You simply cannot expect a consumer in, say, Chongqing or Wuhan to have the same view of your product as someone in Beijing,” he says.
This is also true of the car industry, says Freeman. “People in Harbin (one of the most northern cities in the PRC) look for very different options in their Volvo from those in southern cities. I guess it’s the same between, say, Helsinki and Rome also.” But the differences between European and Chinese markets for cars go beyond that. “In Europe they like pale colored interiors – maybe it’s because the atmosphere is dark so often. But in China, no matter where you live, dark colors mean prestige. Pale colored upholstery simply will not sell.”
Ben Jones, an executive from the technology and consumer electronics sectors, also emphasizes that understanding customers in different parts of China is critical. “I think the differences between the cities and regions is greater here than almost anywhere else in the world, including both Eastern and Western Europe,” he says firmly. “In Tier Five cities, they use bicycles to shop; e-commerce is unknown yet. In Tier One cities, your products, for example mobile phones, need to be far more sophisticated and can sell for higher margins. In lower tier cities, phones need to just work and they must be cheap.”
Distribution channels are even more critical and complicated for the electronics sector. “During my time in the mobile phone industry, we had endless complications and delays with the huge and powerful network operators who have different technical standards from each other and from the rest of the world. You cannot survive without a very strong product.”
Distribution for most companies means taking control of your sales and marketing instead of leaving it to third parties. “Along with almost every other company, we are looking at e-commerce,” say both James and Jones.
I am also adamant that companies don’t underestimate the power of e-Commerce in the consumer sector. It’s the typical big leap forward in China, like the explosive growth of mobile phones. Everyone is looking to B2C e-commerce and it is highly likely it will surpass traditional trade soon.
To read the rest of this article and more about the other concerns executives and top companies face, download this white paper: 2014 Executive Search & Career Forecast: Consumer Products and Services. This paper presents one-on-one interviews and commentary from leading retained executive search consultants, all members of the Association of Executive Search Consultants (AESC), who specialize in placing executives in the consumer products and services sector worldwide.
This article was written by Charles Bien, from Signium International, for The Association of Executive Search Consultants' (AESC) BlueSteps 2014 Executive Search & Career Forecast: Consumer Products and Services white paper.
Charles Bien is Managing Partner of Signium Greater China, leading Greater China’s industrial search practice. Prior to Signium Greater China, Charles assumed a similar role at another global executive firm. He was Head of Human Resources at Caterpillar China and Yum! Brands, Greater China and before that, Principal Consultant at Hay Management Consultants Asia.
An experienced consultant as well as practitioner, Charles has accumulated close to 30 years of experience in executive search, corporate HR leadership, people and organization effectiveness consulting, as well as strategy consulting.