Best Practice for Small Business. Marketing ideas for small business.

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

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Findings from business-to-business market research specialists B2B International show manufacturers and suppliers the importance of installers in the decision-making process of showers.

Knowledge is power in any market, but gathering this information can be difficult. This is especially so in building and construction, where distribution chains are extended and producers have little contact with the professions and trades who influence the final choice. Keeping ahead demands timely knowledge from opinion formers, such as the installers, who play a pivotal role in equipment choice.

To meet this information need for shower manufacturers, business research specialist, B2B International, runs a twice-yearly Shower Brand Preference Monitor. Showers are one of the most dynamic sectors in the plumbing industry and this survey canvases the opinions of 500 installers throughout the country. It has around 40 questions, some open ended and some nominated by manufacturers.

This monitor provides information on the UK shower market to help a shower manufacturer grow their business and is extremely useful to indicate where suppliers need a deeper understanding of market dynamics and to establish how trade and professional intermediaries influence product selection.

B2B director Matthew Harrison explains “In many branches of construction and industrial marketing, there are key trades and professionals who play a critical role in directing the choice of materials, fittings and components. Our research shows that installers (plumbers) are the key to the shower market, having three quarters of the influence on the brands of showers that are installed. In the two years that we have been running the survey, we have seen how brand preferences have moved and how new developments such as the emergence of digital showers have impacted on the market.”

The subscribers to the survey include the three leading UK brands, which account for around 75 percent of the market. The survey looks at all types of showers and provides feedback on the pivotal issues that affect the installers’ recommendations.

The shower market is highly fragmented (electric, standard mixer and power shower) but three brands continue to dominate – Mira is the installers’ favourite with Aqualisa and Triton as the next favourite brands. Reasons for choice of shower have changed since the previous Monitor in 2006 from recommendation, reliability and performance to good availability and aftersales.

Installers remain relatively positive about the future, with the move away from baths to showers seen as the key reason. Consumer preference for showers is attributed to current contracts and installer advertising, conservation of water, and home-owners spending more on their existing properties. The recommendations installers would make to improve showers would be ease of installation, better looking showers and price. Installers continue to receive most information about showers from merchants and less from trade journals and literature from manufacturers.

Research shows the typical profile of an installer: 77% are proprietors or partners in their businesses, a typical plumber is aged 45-54 with only 6% of plumbers aged below 35, 71% are CORGI registered, 85% of showers installed are for domestic properties, and typically they install 18 electric showers, 22 standard mixers and 8 integrated power showers per annum.

B2B believe the same panel can provide key data on other major plumbing decisions, such as boilers, fires and bathrooms. Matthew observes that such monitors can be useful for other areas of building and construction. “Wherever suppliers have a common need for deeper understanding of market dynamics and the detail behind the issues that direct product choice, monitors provide a means of tracking opinions and understanding the pivotal issues.”

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According to AIMRI (Alliance of International Market Research Institutes), China is fast becoming one of the hottest consumer markets in the world. The Chinese economy in 2006 grew 10.7% from 2005 to 2.7 trillion USD. With 1.3 billion people, China represents 20% of the world’s population.

Sales Skyrocketing
As a result, sales of consumer goods in China are skyrocketing. In 2006, more than 100 million mobile phones were sold there, accounting for 10% of the global volume. Some 13% of Nokia’s global revenue was from China in 2006. By the end of last year, more than 250,000 foreign companies were registered and in operation in China. Of Fortune 500 companies, some 470 have invested in China.

This unprecedented economic expansion has led to double-digit growth for its research industry. The value of marketing research commissioned in China is approximately $600 million USD, and the market is growing around 20% each year. Marketing research in China covers many sectors, including autos, finance, medicine, real estate, IT and telecoms. In addition, FMCGs are seeking to expand beyond the larger Chinese cities in to smaller, more rural areas. Although people living in less developed areas of China earn less money than those living in larger cities, their great numbers make them a compelling target.

However, traditional face-to-face data collection no longer meets all businesses needs, especially for large projects and multi-national surveys. While the shortage, and expense, of interviewers is prohibitive, the following reasons are why face-to-face interviewing in cities is becoming more difficult:

• There is an increasing mistrust of strangers
• With security guards in communities, it’s difficult to visit respondents in their homes
• People are changing their addresses and telephone numbers more frequently; and
• There is increasing concern about privacy

The need for fast, timely marketing research is critical. CATI, CAPI, and online data collection methods are quickly becoming popular in China. As of January 2007, China had 137 million internet users, up 23% from 2005. Chinese internet users, of whom 76% have broadband, are online an average of nearly 17 hours per week. Penetration in urban areas is high, especially among middle and high end consumers and youth.

It should be noted that data obtained through internet sampling is of high quality. As it is anonymous, people tend to be truthful. With the flexibilities of time and place that internet sample offers, respondents have time to think about the questions so the data collected is more precise. There is no bias caused by interviewers or during the data checking.

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Why Do Western companies get it wrong?

Before moving on to discuss how companies should implement change in terms of their marketing and selling approaches, it is worth considering why Western companies often target the Chinese market in an inappropriate way. There are a number of reasons for Western companies’ apparent lack of understanding of how to market; many of these are self-evident and all of them stem from a lack of experience in the market.

Life cycle
Some of the ‘mistakes’ made by Western companies in terms of their marketing and sales approaches and messages can be explained by the fact that many of their Chinese activities are relatively new. Companies are providing solutions to needs which have only just emerged, and mutual understanding between buyers and suppliers is still developing.

There has been a strong tendency for Western companies to undervalue the importance of marketing in China, seeing it as something that takes place not at the beginning of the product life cycle, but once channel access and market penetration have been achieved. This is extremely surprising, given the sophistication of marketing techniques in the West, and may result from a lack of knowledge of the target market, as well as a lack of confidence that marketing techniques will be successful.

Focus on product, channels and price, rather than promotion
If Chinese companies tend to regard promotion as the only aspect of marketing, there is an opposing tendency for Western companies in China not to pay promotion enough attention. Western companies entering the market have frequently conducted some kind of channel (place) research, as well as an examination of the likely prices the market will bear. They have usually given a good level of consideration as to which products will appeal, albeit with insufficient thought to how these will need refining. However, analysis of the market assessment research being conducted by market research agencies in China will tell you that the 4th ‘P’, promotion, has often been completely ignored. Company resources have been thrown into understanding the size and nature of the market opportunity, with much less emphasis placed on how that opportunity should be communicated directly with the target market.

‘We know best’
A valid criticism made by Chinese businesses of their Western counterparts is that they sometimes appear hard-wired in thinking that everything they do is automatically superior to the local competition. Essentially, Western companies forget that marketing is about the profitable satisfaction of needs, and that if a need is different in China to the West, then the value proposition must also be different. Westerners tend to try to ‘re-educate’ Chinese buyers, rather than simply providing a value proposition that meets the market’s existing needs.

“Marketing is a ‘Western’ discipline – it’s less important in China”
Some Western companies, many of them guided by Western market entry consultants, tend to overstate the importance of relationship building in China, in that they see it as a substitute to marketing effort, rather than a complement. Good salespeople are sometimes left stranded alone in a small representative office, with no marketing capability to complement or assist them.

Communication problems
It cannot be denied that there remains a significant language barrier between Chinese and Western companies, albeit one that is closing as huge numbers of Chinese businesspeople learn English and increasing numbers of Westerners learn Chinese. Once companies need to interact at an operational rather than strategic level, mutual linguistic understanding can often be lacking.

Tips For Successful Selling In China

So, based on our own experience of selling in China, and in particular the experience of our clients and survey respondents, are there any ‘golden rules’ that can be used by foreign companies looking to market and sell in Chinese business-to-business markets? The answer is, of course, that there are differences by industry, geography and a host of other factors. We would argue that it is perfectly achievable for a Western company to succeed in the Chinese market, so long as it remembers the basics of marketing, and is prepared to adapt these to the local environment:

Remember the marketing basics – Product, price, place and promotion are all important. All should be researched before and after market entry, in order to ensure that the value proposition meets and continues to meet the target market needs.

Patience – Patience is required when applying the marketing basics to the local market. In particular, the sales process is longer and more complex than in Western markets, and local buyers will take time to be convinced that a Western company has the ‘local’ credentials to meet their needs.

Listen – Only by listening will you be able to understand and therefore meet the local market needs. Chinese companies do not want to buy a product or service that has come straight off a shelf in the West.

Relationships – Focus, but do not over-focus on relationships. Any salesperson must be prepared to be ‘friends’ with a potential supplier. However, this is as well as, not instead of, the 4 P’s of the marketing mix.

Be confident in your quality – Western companies start from a strong position, in that they are usually assumed to have excellent quality. Focus on the value you add, and be prepared to explain why you can add value in China specifically.

Be methodological, but flexible – One of the qualities that defines Western businesses is their methodological approach to doing business. It is clear that when this turns into a dogma about how business should be done, Chinese companies quickly lose interest in your offering. However, do not be afraid to highlight the methodological nature of your offering, as this is something that is valued by Chinese businesspeople and seen to be lacking in some Chinese businesses.

Be prepared for plenty of negotiation – The Chinese approach to completing deals relies heavily on many rounds of negotiation, and this is something that any potential supplier must be aware of. It is almost inconceivable that your first proposal (particularly your first price) will be accepted. Companies wishing to do business in China should consider the price they are willing to accept for their offering, but never open negotiations at this level.

Avoid exaggeration – Focusing on the credentials you have, rather than exaggerating to make up for perceived deficiencies, is to be recommended. Chinese companies want above all to trust their suppliers.

Matthew Harrison is a Director of B2B International and B2B International China, and currently based at our office in Beijing. If you would like to share your views on this paper or hear more about our research, consultancy and training services in China, please call the Beijing office on +86 (0)10 6515 6642. Alternatively comments and queries can be emailed to beijing@b2binternational.com.

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Comparing Different Western Countries

Most of this paper has talked about Western companies in general, and aims to provide recommendations on how Westerners should seek to market and sell themselves to Chinese businesses. It is worth, however, considering how companies from different Western nations are considered. Figure 9 summarises the main strengths and weaknesses of companies from the 4 largest Western economies, as perceived by Chinese buyers and business owners.

Figure 9 – What Characteristics Do Chinese Buyers Associate With Suppliers From Different Western Countries?

How Do Chinese Companies Compare In Their Marketing and Sales Approach?

We have devoted a lot of time to critiquing Western companies’ ability to market to Chinese businesspeople. But how do Chinese companies compare? The answer is that, despite the experience they have of dealing with target clients in their own country, there is much room for refinement and improvement. Below is a summary of the key criticisms Chinese buyers level at their local suppliers:

• Inconsistent product quality
• General lack of professionalism
• Unsophisticated approach to marketing and promotion, with websites, brochures and other promotional materials seen as poorly presented and uninformative
• Disorganised approach to paperwork
• Surprisingly, Chinese companies are seen as not willing enough to attend conferences
• Written communications seen as vague rather than direct
• Specific mention made of some Chinese companies’ tendency to turn up at the customer’s office uninvited – this is often seen as extremely impolite and unprofessional

The above criticisms highlight two key issues. Firstly, Chinese buyers and business owners assess suppliers on their merits, and are as willing and able to criticise Chinese companies as they are to criticise foreigners. Few Chinese buyers pretend that Chinese companies do not have room for improvement on a number of important issues. Secondly, it is clear that there remains, and will remain for a long time, an opportunity for good quality Western companies to enter Chinese markets, usually on the basis of a high value added, high price offering. Western companies must recognise however, that their competitive advantage on quality and professionalism issues is eroding, and will continue to do so, making innovation and efficiency increasingly important requirements.

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