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What Types Of Studies Are Being Conducted?

Across industries, it is noticeable that the type of research commissioned is markedly different from the situation in Europe and North America. In the West, research reflects the objectives of companies operating in mature markets, who want to establish customer loyalty, achieve differentiation through branding, monitor the satisfaction of their employees, develop new concepts or segment their target audience. Typical research projects are therefore customer and employee satisfaction studies, branding studies, concept tests and segmentations.

In China on the other hand, a high proportion of research projects (over 60%) are focused on market assessment studies, in which clients (often foreign companies) are asking for a comprehensive explanation of how markets are structured, who are the key players and what is the market size. The following paragraphs discuss the type of business-to-business research being conducted in China:

Market assessment studies

Market assessment studies make up around two thirds of all business-to-business studies conducted in China, whether by Chinese or foreign research agencies. The profile of the companies commissioning this work varies hugely:

• Medium-sized foreign companies are responsible for a high proportion of market assessment projects, as they seek evidence-based advice on whether entry into the Chinese market is feasible for them, and if so, how they go about making the most of this opportunity.

• Larger Western companies often have a relatively limited presence in China (perhaps just a rep office in one of the largest cities) and seek advice on how to become really serious players within the market, in terms of routes to market and potential geographical locations in particular. Most of these projects are commissioned by Western headquarters, who often seek a cross-check to the information they receive internally.

• Chinese companies typically commission Chinese agencies to identify diversification and export opportunities.

Customer satisfaction

Customer satisfaction projects are far less frequently commissioned than in Western markets; nevertheless a significant minority of Chinese and foreign companies are commissioning this type of work. In business-to-business markets, most customer satisfaction work is conducted in product rather than service markets, with engineered machinery the main sector currently requiring this type of work. This reflects the fact that this sector is relatively mature in China, with established channels to market and a competitive environment requiring companies to gain an edge over the competition. The second key sector in terms of business-to-business customer satisfaction research is the IT sector, another competitive industry with scope for differentiation and high end-user requirements. Providers of software packages such as CRM systems are a key audience. However, whilst most of the machinery companies commissioning business-to-business research are foreign, the IT companies tend to be Chinese.

Acquisition studies

Acquisition studies are extremely popular amongst foreign companies seeking to establish themselves in China. A couple of drivers are behind this trend. Firstly, foreign companies recognise the necessity to obtain local staff and knowledge in order to fully understand their target markets, and to be convincing to local buyers. Secondly, market entry regulations in many industries require foreign entrants to access the market only through joint ventures with Chinese partners. To many Western companies therefore, acquiring a stake in a Chinese company, or setting up a completely new company with them as a partner, is the only viable way to enter the Chinese market. For this reason, pharmaceutical companies and foreign banks are particularly likely to commission acquisitions studies as a prelude to a possible due diligence process.

Pricing studies

Pricing studies are commissioned largely by foreign clients, either as part of a wider market assessment project or in their own right. The difficulties of conducting pricing research in any geography are well-known – asking a respondent how much they will pay for a product or service is extremely unlikely to result in a reliable response, and techniques such as conjoint analysis and SIMALTO can be confusing to many respondents. This is particularly the case in business-to-business markets, which tend to involve more complex value propositions than consumer sectors, and is certainly the case in China. As a result, most pricing research involves a combination of mystery shopping with suppliers and projective questioning to target markets. A mixture of foreign and Chinese businesses commission this type of work.

Segmentation studies

As foreign companies with a presence in China seek to build on this presence by refining their marketing strategy, segmentation studies are starting to be conducted in business-to-business markets. Companies in businesses related to the petrochemical and pharmaceutical industries are most likely to commission this type of work, due to the fact that they tend to deal with relatively homogenous target markets, and are experiencing severe difficulty in differentiating their products, and therefore making adequate margin, in China.

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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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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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How Well Do Westerners Get Their Message Across?

It can therefore be seen that the means by which Westerners seek to communicate with potential Chinese customers leaves room for improvement. Perhaps more important is the question of the messages Western companies actually convey, and how well these correspond to what the target market wants to hear.

There are a number of messages that most Western companies communicate extremely effectively, and others where the correct message is not being heard. On the positive side, Western companies are seen as synonymous with high quality and professionalism, something which is exemplified not only in the products and services being bought, but throughout every aspect of the organisation. Conversely, Western companies are seen as inflexible in a number of ways, ranging from the product or service specification through to negotiations and procurement procedures.

High Quality Products and Professionalism

Most Chinese buyers start from the position that the offering will be high quality when they begin to evaluate a Western company, and that usually turns out to be the case. In other words, it would appear that Western companies are doing a good job overall in terms of meeting their clients’ product and service requirements. A typical comment by a Chinese buyer in our survey was as follows:

“We are discussing with British company, we feel its service is better and more normal than local providers.”

General professionalism is seen as a key distinguishing factor between Western and local Chinese companies. This manifests in many ways, ranging from the product itself, through to company literature, appearance and knowledge of staff, and paperwork. Many Chinese buyers and business owners describe Western companies as more systematic and organised than their Chinese counterparts:

“German companies are extremely polite, professional and systematic. The paperwork is always in order and the products are well made and durable. They work seriously with strict principles.”

Poor Ability To Listen

An inability to listen is a common criticism of Western companies amongst Chinese buyers. The importance of this cannot be overstated, and this relates partly to the need to show respect to any potential customer. Most importantly, only by studying customers’ requirements and how they evolve in China, can any company hope to engage with and meet the needs of Chinese companies.

In general, the process leading up to the sale of a product or service in Western markets is clearly structured (see Figure 7 below). It begins within a department inside the ‘customer’ company, where the need for a particular product or service is identified and then broadly scoped. This typically gives rise to the construction of a briefing document or ‘spec’, in which the broad requirement is more closely defined. Thirdly, potential suppliers are searched for, and the ‘spec’ discussed with or sent to a number of them. This may lead to some fine-tuning of the spec. Proposals are then prepared, there is sometimes a little more scoping and negotiating, and then the decision is made.

Figure 7 – Decision Making In The West

Within Chinese companies each stage of this process runs more or less concurrently. Typically, the initial contact with potential suppliers happens at a relatively early stage, when the definition of the customer’s need is still developing. It may not even be certain that the product or service in question is actually needed. The potential supplier therefore becomes a participant not only in the definition of how the need can be met, but also in the definition of the need itself. Briefing documents are rare, as are structured tender procedures. Indeed, there is a huge opportunity for the company that successfully assists the Chinese business in the definition of its need, in that there is a high likelihood that the same company will be asked to meet the need it has just defined.

Figure 8 – Decision Making In China

Of course, there are a number of unknowns. The Chinese buyer may well be speaking to a number of other potential suppliers, who will be defining the customer’s need in entirely different ways, meaning that the nature and extent of the ‘competition’ will remain something of a mystery.

The role of suppliers as definers of their potential customers’ needs is one reason for the longer sales process in China and other Asian markets. Almost by definition, the initial enquiry to the supplier is rather vague, meaning that a number of interactions between supplier and buyer will be necessary before it has even been decided what the customer requires. This in turn elevates further the importance of trust and an ability to establish a strong and trusting relationship with the potential customer. All of this means that the successful sales person will be the person who listens to and takes account of the client’s constantly evolving requirements, rather than the person who ‘dives in’ by specifying a solution and writing a proposal as soon as an enquiry has been received.

“Many Western companies don’t know our requirement; indeed they promote their product blindly. Of course, we want the machinery with comprehensive and precise function as much as possible. However, they always emphasise that their products are good looking. As for low prices, we care for it definitely, but quality is the most important for us”

Therefore, Western companies are prone not to communicating their message in the wrong way; rather they tend to make a far more basic mistake: they refuse to listen, and therefore communicate completely the wrong message.

Tendency Towards Exaggeration

Whilst the quality of Western companies’ marketing communications and the knowledge of their salespeople is seen as a real strength, there is a feeling amongst Chinese buyers that this can lead to a tendency to exaggerate the qualities of the company, product or service in question. This can damage trust, something which usually proves fatal to any attempt to sell to a Chinese business.

Chinese businesses are now experienced at dealing with Western companies, who have been contacting them as potential suppliers or customers for a number of years. This has led Chinese companies to look out for early signs of potential problems, and many are particularly wary of new entrants from the West whose infrastructure or product offering may not yet to be established in, or tailored to, the Chinese market. Chinese buyers are particularly adept at asking questions that get to the core of exactly what a supplier’s offering is, and equally good at picking up exaggeration, something which is seen as symptomatic of a new entrant desperate for a sale.

Unwillingness To Negotiate

Linked to Western companies’ perceived unwillingness or inability to listen is a similar ill disposition towards negotiation. This may well relate to the fact (already discussed) that definition of the customer’s needs and definition of how to meet those needs tend to happen concurrently rather sequentially in China. This can make Western companies feel unsure of exactly what they are negotiating about, something they tend to try to resolve by insisting on more structured negotiations.

Western companies are also prone to showing a sheer unwillingness (rather than inability) to negotiate, even walking away when ‘the going gets tough’, wrongly assuming that all differences are irreconcilable. This is absolutely the wrong approach in China, where negotiations are extensive and the opening price is almost never the price the customer ends up paying.

“Their attitude to working is active, but they always make the same mistake that our disagreement can’t be resolved in time, and walk away.”

Rigid purchasing procedures are a frequent complaint, as is a tendency for companies to regard certain issues as simply ‘out of bounds’ at the negotiating table. Payment terms is one example of this, but so, surprisingly, are many aspects of product or service specification. Too many Western companies are unwilling to make their offerings sufficiently bespoke to the Chinese market.

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