The Value of Building Your Brand in China
About a decade ago, businesses became aware of the magnitude of challenges associated with doing business in China and other emerging markets. For the most part, the customers with whom they'd be doing business with were still "the usual suspects," so the challenges were mainly around operations and logistics.
Some time ago, a client showed us his "nightmare room." The walls were covered with 11 world maps, one for the present year and one for each of the next 10 years. Pins showed the locations where major customer support was occurring today and where it was forecasted to occur. From a sparse pin collection concentrated mostly in North America, the sequence resembled a pincushion.
The strategic advice we provided involved focusing upon existing customer relationships and identifying how collaboration with those customers could facilitate entry into new countries. We emphasized that the challenge of the pincushion was also an opportunity to deliver increasing value to customers, helping them to deal with the complexities of new global markets.
A senior executive involved with the "nightmare room" story concurred with our assessment. He noted that his firm now attributes nearly 40 percent of their sales to customers in new markets — new markets that accounted for less than 5 percent of the company's sales a decade ago. "In 1999, we should have bought an additional box of pins and just stuck them into random locations in China. It's now our largest single market, surpassing the U.S. last year," he said.
This firm's experience isn't unusual. China continues its record of extraordinary growth, with every year consistently showing increases at or near the double-digit range. The progression of the Chinese income distribution has reflected that ongoing growth. Chinese consumers now have an appetite for products and services that were only dreams a decade earlier.
The executives who underestimated China’s potential in 1999 are unlikely to do so in 2011. China is now on everyone's radar. There are major changes that must be considered in developing 2011 plans to grow in China’s markets. In 1999, the customers of interest were global firms who entered China in order to take advantage of low-cost manufacturing potential. The cultures and processes that these global firms put into place were familiar ones transplanted from North America, Japan and Europe. Today, the growth plans of many companies focus on the China market itself.
Going forward, a China growth strategy must respond to the needs of the China market itself. This requires a massive transformation in strategy and thinking. In Western markets, firms win business on the basis of product, service and price advantages. Then they focus on building a strong customer relationship in order to sustain that business. In China, firms win business on the basis of relationships first. Then they focus on the product, service and price challenges that are on the minds of their customers to sustain that business.
Knowing that the 2011 growth plans of many companies depend on succeeding in China’s markets, we've identified several lessons that firms must recognize if these plans are to yield the desired results. All of them require a willingness to embrace new ways of doing business:
1. Success won’t come quickly. Even though growth is galloping in China and many firms have had to learn to adapt to "China speed" in product development, relationship building in China doesn't occur overnight. It takes much longer to build a relationship in China that delivers on sales and profits.
2. Recognize that business relationships have a significant personal dimension. One firm we worked with was involved with a Chinese firm that completed an acquisition. From Western perspectives, the acquisition could have been considered a solid asset to the proposed relationship. The Chinese firm was distracted and found the new people in the room totally confusing. To develop relationships in China, continuity and consistency are quite important. Executives involved in developing these relationships must stay the course.
3. China's economy, while changing rapidly, is inherently local. The supplier that will be the best partner in Beijing is unlikely to be the one most successful in Chengdu, and vice versa. Because relationships are everything, the concept of a strong national firm is, at most, an emerging one. Thus finding partners is a task that must be implemented on a local basis, many times over, in order to reach all of China’s markets. This doesn't mean that each prospective partner won’t argue for a national, exclusive relationship. They'll want that. But they're unlikely to be able to deliver successes beyond the local markets in which they're strongly positioned in terms of relationships.
4. Western businesses need to be prepared for the other parties that will inevitably be at the table in relationships with Chinese firms. Years ago, we hosted a Chinese delegation to the U.S. Several days were devoted to meetings with a U.S. firm, focusing on a significant joint venture that seemed to be a solid one for both firms. On the final day of the meeting, we watched as the discussions moved forward and saw solid interactions over dinner. All the signs seemed to be totally encouraging.
After the dinner, to our dismay, we heard the Chinese senior delegate lament the waste of time that had taken place. When we asked why he felt that way, his response was, "The mayor didn’t come to the dinner." In China, involvement of key government officials is a prerequisite to anything of consequence being done. There are critical third parties (e.g., government, design institutes, universities, etc.) that must be included in the relationship if it's to flourish.
Building relationships isn't the only way in which doing business in China will pose unfamiliar challenges, but it's one that must be understood and addressed by those firms that see their growth in future years including a significant level of success in China. The opportunity is clearly there, but it will challenge many firms to realize it.
George F. Brown Jr. is the co-author of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs. He's also the CEO and co-founder of Blue Canyon Partners, Inc., a strategy consulting firm working with leading business suppliers on growth strategy. George can be reached at email@example.com.