China Now, Not Later

China is a notoriously difficult market for foreign companies to penetrate. A successful expansion strategy should emphasize early entry and quick adaptation.

Many companies prioritize expansion to the China market behind growth in their home market and footholds in similar countries. Commonalities in region, language, culture, legal systems, etc. play a big role in determining where first to expand.

By the time these firms start expanding to China, company culture has grown more rigid and entrepreneurial drive has been replaced by growth targets and internal procedures. Concerns over IPR, branding, product design and compliance make it difficult to move into higher risk markets. In the meantime, a domestic Chinese competitor has begun selling a cheaper product in China and growing market share.

When foreign entrants finally expand to China they soon discover how rapidly Chinese competitors innovate. Chinese companies are not afraid to launch products in the germination stage to gain market feedback and inform further iterations. They prioritise learning fast, innovating rapidly, and customer experience. Chinese competitors have a natural familiarity with Chinese customers (both B2B and B2C) and a more established network. These advantages allow competing Chinese companies to operate  and establish a product-market-fit more quickly.

Late arrival and poor adaptability to highly competitive landscape leaves many foreign companies at a disadvantage compared to Chinese domestic competitors. Notable examples include Amazon, Google and Uber. These companies all initially gained market share but were eventually overtaken by Taobao, Baidu and Didi, respectively. These examples prove that even with serious targets and significant financial backing, international entrants do not always succeed in China.

Entering the China market earlier allows more time for successful product localisation and mitigates against being outcompeted by local competition. An early expansion should focus on: localising and evolving the product, engaging with local experts and partners, and gaining market feedback quickly. These measures will boost a firm’s advantages vis-a-vis local competition and produce competitive products for Chinese customers. This early expansion strategy is set out in the table below.

Figure 1. Traditional vs China-speed Expansion Timeline: Comparing a traditional market expansion route with one tailored to capture China market growth.

Key advantages to early entry

  • Localisation. Start testing early and adapt the product to exact local needs. Many companies wrongly assume that what worked in their home markets will work in China. However, Chinese people perceive and experience products differently. When entering China, a company should assume they have lost product-market fit and need to rediscover it. Given the deep cultural differences in China, localisation of products must go further than merely language translation.
  • Product evolution. Chinese consumers are not shy to stress test or even exploit new products. They are notorious for finding issues or loopholes in products and services. By releasing faster product updates, showing a willingness adopt customer feedback, new products can evolve more quickly. Regular market feedback allows for unseen flaws to be corrected and products to be tailored better.
  • Find a niche. China significantly varies from region to region. It is similar to the EU in terms of cultural diversity, but with stronger central government.. Different provinces have unique specialities and demands. Finding the correct geographic region for a given product offering is essential.

Where to start?

  • Begin working with local partners on small sales/procurement. The barriers to entry are manifold in China, including language and cultural barriers, lack of business contacts and local regulations on foreign investment and setup. Having a trusted partner on the ground can alleviate many of these issues. This is especially applicable to smaller companies that do not have the time and resources to manage a drawn-out China entry. The relationship with the partner is built up over time and can then turn into a joint venture.
  • Launch a pilot project. Significant learnings can be gained by setting up a pilot project. During this exercise foreign companies can gauge price points, approach deal structuring and begin to collect early feedback for future product development.
  • Begin talks with industry experts. Conversations with relevant industry experts is where much practical and actionable information is gained. It is important to start these conversations early because this is where the reality of a China expansion starts to form. The critical opinions of senior Chinese managers serve as invaluable perspectives for new companies to learn from.

Due to China’s dynamic and unique business landscape, companies expanding to the market need to figure out how to position and grow products and services. An early entry with an emphasis on learning fast and adapting quickly can greatly increase the chances of a successful expansion. This has been our learning over the years.


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