By Matthew Harrison, Director of B2B International

Introduction

The growing importance of the Chinese economy is no secret. This huge country of over 1.3 billion people (one fifth of the world’s population) has an economy that is now the fourth largest and has recorded an average growth rate of around 10% for the last two decades, making China a leading economic power on the world stage.

The huge importance of China has had an impact across industries, and the market research industry is no different. Market assessment research briefs which 10 or even 5 years ago might have ignored Asia completely, or perhaps asked for a passing glance at Japan, are now routinely including China as a country where opportunities must be assessed. Medium-sized companies are beginning to establish a presence in China, whilst the multinationals, many of whom still have a limited sales presence rather than a meaningful penetration in the country, are asking how their rep offices and loose distribution networks can be turned into a more entrenched presence.

The message for market research companies is therefore clear – there is now a serious and extensive requirement for information on Chinese business-to-business markets, and this requirement is certain to grow.

This white paper seeks to provide the reader with a picture of how business-to-business research is conducted in China, and the issues that should be borne in mind when commissioning projects in the country. We also seek to dispel some of the half-truths and urban myths that have built up around the Chinese and Asian research industries.

Note: For the purposes of this paper, we will define business-to-business research as market research in which the views of businesspeople are sought, in order to facilitate a business decision. We include not only ‘businesspeople’ in the traditional sense, but also anyone else who contributes to a study in the context of their employment. We therefore include, for example, projects in which the views of Government officials are sought (of which there are many), and medical or pharmaceutical projects in which organisations seek the views of physicians or surgeons.

Who Is Conducting Market Research In China?

The value of ‘pure’ business-to-business research in China is estimated at around $USD50 million, a figure which is more than doubled when projects exploring the views of doctors, Government officials and other non-consumer research is included. This figure of $USD50 million is growing at around 25% per annum, meaning that it will double within 4 years. As a point of comparison, the Chinese market for consumer research is estimated to be growing at 17%-18% per annum. The huge growth in business-to-business research reflects the facts that Chinese companies are increasingly open to the idea of obtaining the views of businesspeople, and Western companies more and more hungry for Chinese business opinion.

In such a young and evolving industry, it is perhaps not surprising that the providers in the market are extremely different in their origins and business models:

Medium-sized and large Chinese market research agencies
Medium- and large-sized Chinese agencies (those with a turnover of over $US1.5 million, most of whom are members of ESOMAR) have many years’ experience of conducting market research in China. Most of these companies’ clients are Chinese businesses, or foreign businesses with an established presence in China. The individuals purchasing the research are almost exclusively Chinese. When it comes to Western clients based outside China, Chinese research agencies’ activities are largely limited to interviews and desk research - they are conducting almost no ‘added value’ services such as analysis, statistics and presentation development. Hence, most foreign clients outside China are foreign market research agencies.

These Chinese research agencies also conduct a small amount of international work, mainly by subcontracting to foreign agencies. However, the price of conducting research in the West is prohibitive to most Chinese clients; therefore this type of project takes place very infrequently.

It is worth noting that these medium- to large-sized agencies are relatively few in number – in fact there are no more than 20, and this number may well decrease as industry consolidation continues to occur.

Small Chinese research agencies
Smaller Chinese research agencies, that is those that turn over less than USD$1.5m, are almost exclusively fieldwork-only agencies, carrying out data collection for the larger agencies in China. These companies number around 1,200 and are an invaluable base for the industry as a whole, in that they are geographically dispersed and can gain information from the remotest areas of the country.

At present, most requests for business-to-business research are focused on China’s first- and second-tier cities, meaning that most business-to-business work is conducted by the big city agencies. Concerns by business-to-business agencies about quality, coupled with businesspeople’s increasing willingness to provide information over the telephone, mean that in-depth telephone interviews (rather than local agencies) are increasingly used to gain information from businesspeople in relatively remote areas.

Foreign research agencies
Foreign research agencies have operated in China for almost 2 decades, following the arrival of AC Nielsen in the 1980s. In fact, around half of all full service agencies are subsidiaries and joint ventures of foreign companies. This can be a real advantage to Western clients, who want not only Western style information delivery, but also client liaison capability within the same time zone as them. Hence projects conducted jointly between the ‘Chinese’ and ‘home’ offices are common. Foreign agencies conduct a great deal of work for foreign businesses outside of China, and also compete with the higher quality local agencies when it comes to working for Chinese branches of foreign companies.

Over the past 3 years foreign business-to-business research specialists (such as Psyma Business Research and B2B International) have started to arrive in China, whilst larger, more general agencies, such as Synovate have increased their business-to-business focus. These players have positioned themselves at the high end of the market; indeed both Synovate and B2B International position (and staff) themselves to a large extent as consultants. This reflects the fact that so much business research in China is market entry and market assessment focused, requiring action-oriented conclusions, firm recommendations, and ultimately access to lawyers and accountants who will guide companies through the market entry/expansion process.

Over 90% of the business of foreign business-to-business agencies is from Western clients, be they located in China or abroad. However a small number of Chinese clients now have the budgets to commission Western agencies to conduct export studies in Western countries, and this trend is expected to increase over time.

Foreign consultancies
So much work from Europe and the US is market-entry based, and therefore strategic in its nature, that management consultancies offering a high value added service have added some market research to their portfolio. Conversely, foreign research agencies (such as Synovate Business Consulting and B2B International) have focused on recruiting consultant-researchers who can focus on adding value and advising on market entry at the end of a project.

Market entry specialists
Companies and organisations focusing on the legal and transactional aspects of market entry have positioned themselves as providers of market research to new entrants, albeit much of the market research is sourced through the market research agencies and consultancies. A good example of an organisation offering access to market research in the context of more general market entry services is CBBC (China-Britain Business Council) – see www.cbbc.org and click on ‘Market Intelligence’.

What does this mean for Western research buyers?
It is clear that there is a good range of organisations capable of providing information and intelligence in relation to Chinese markets. It is equally clear that different types of organisation are set up for different client bases. Our advice to the Western buyer - unless your company already has a strong understanding of the Chinese market and a Chinese-speaking in-house manager – would be to target the Western-owned market research companies located in China. Such companies have experience not only of Chinese markets, but just as importantly experience at examining those markets through the eyes of a Western business. They also have the linguistic capabilities and understanding of Western clients’ requirements that makes them easy to use as information providers.

A summary of the market for business-to-business market research in China is provided below:

Figure 1 – Which agency to use, and when

from b2bsee * B2B Blog