First, the growth of the Chinese market, then the whims of the Chinese customer and now it’s the threat of Chinese competition that is making the headlines writes Laura Mitchelson from Shanghai.

Businesses in China have rightly invested significantly in understanding Chinese consumers and end users. Without deep awareness of purchasing behaviours and trends, businesses risk losing market share and missing opportunities for increased sales.

The various motivations and aspirations of the Chinese consumer are well documented. All but the newest of foreign managers here understand the regional and generational differences between different consumer groups and the need to stay ahead of consumer trends in order to maintain market share. This applies as much now in B2B sectors as it does in the B2C world.

For the period since China’s economic opening, until very recently, this understanding of consumers and end users has driven businesses. Once they know which segment of end user they are selling to, businesses have been able to push their messages out to these groups and rely on the increasing spending power in China to carry growth. For most, this was sufficient because foreign businesses generally sold on the basis of high quality and more sophisticated products while any local competitors were taking the lower price point end of the market and winning in those areas where budgets or spending power was lower.

Things are changing fast as we all know, but the pace of change in consumer preferences is now slowing. What is becoming more and more important for multinationals to understand and track is Chinese competitor capabilities and strategy. It doesn’t matter if you’re selling high-end men’s wallets, an online travel service or pressure gauge equipment to the gas industry, businesses all over the world are now at more risk of losing customers to a Chinese competitor than ever before.

We will not go into the global threat of Chinese competition here but will remain focused on the Chinese market where multinational and Chinese companies are competing for the same customers like never before. Trends and developments in many markets are now driven by Chinese customers, Chinese purchasing managers, Chinese distributors and Chinese sales tactics.

It was rare even as recently as the ‘90s for foreign businesses here to have to be too concerned about the activities and investments of Mainland Chinese competition. What’s changed?

CHINESE COMPANY STRENGTHS

International best practice is now alive and well in many Chinese businesses, from manufacturing process technology to supplier consolidation and from logistics to customer service. Some have built strong teams on the back of multinational trained staff and many hire non-Chinese with international experience into senior positions.

In the regulatory environment, Chinese companies enjoy strong support for their activities, both formal and informal giving them an edge in key state owned industries and in most competitive bid situations.

Overall, the business environment has become tougher for all business in the past year but in many ways, Chinese companies are better able to manage the transition to lower margins and leaner operations than others because they are often leaner to begin with.

Over the past few years, we have learnt not to be surprised by Chinese companies making rapid changes in their organisations and direction. These changes in strategy may be less well researched and less sophisticated in some ways than foreign businesses are used to but the whims of the Chinese consumer and the B2B market changes demands this pace. The strategy is not ill conceived if all that’s needed is to have a strategy at that point in time to gain market share. Most mid-sized Chinese companies do not have a strategic plan and therefore do not have sales and marketing plans and budgets either. This makes understanding their approach challenging.

Competitive advantage for foreign businesses used to be straightforward – simply a question of persuading end users that the quality advantage was worth paying for. That time is gone and in some sectors, local competitors are more expensive than the multinationals. We are seeing a huge market share grab by Chinese companies.

As a specific example, just five years ago, the pharmaceutical companies with R&D in China were primarily working on clinical trials and tabulating results from other countries. Now, they are more likely to be working on drug discovery and improved manufacturing processes here.

Do you really understand the R&D or manufacturing excellence or marketing strategies of your Chinese competitors or do you always feel closer to your foreign competition on these fronts?

Because of current challenges for all businesses, many find themselves competing or having to prepare to compete in markets that were traditionally the preserve of mid size, Chinese competitors and it’s a daunting proposition. Often, we don’t know anything about the competition.

CHALLENGES TO LEARNING MORE

One of the main challenges to managers is predicting the moves of competitors. There is no complete Dun & Bradstreet service, very limited statistics on demographics, almost no sophisticated business research panels and very low customer loyalty program penetration as well as very little detail of company strategy listed on the websites of most Chinese companies. It is often difficult to find out the names of senior management from websites too.
Business data (addresses, contact details and names of senior management) in the US decays at the rate of 4 percent – 6 percent per month. China has a faster decay rate but at this stage, no-one knows how fast because the figures are not processed.
The scale of the problem is also a challenge. According to the State Administration for Industry & Commerce in China, there are around 9.7 million companies registered here. One client recently was trying to keep track of what they described as their “key 125 competitors in China”. Not easy!
These are some of the things we know businesses find challenging along with some ways we have found to counter those challenges.

1. China has very limited information infrastructure so carry out regular market updates and consult a wider range of information and intelligence sources than you would in a more developed market and don’t rely on the Internet for answers.

2. When trying to understand the competition, take advantage of expert input. Use researchers, either internally or externally who have first-hand experience with primary research in China and who can read behind the lines and truly interpret what they are hearing, seeing or reading. Find people who can ask the questions that solicit concrete answers and who systematically cross-check and triangulate information.

3. There are always time lags in information and statistics. There is a delayed reaction in many industries in China meaning it’s essential to double check the official growth or trend figures against the predictions of those within the industry and within your competition. With a generation shift ever 3-4 years, bear in mind that some of your younger team members are not old enough to bring any historical perspective to the analysis they do on industry or competitor developments.

USING SALES TEAMS

We feel that this issue needs a mention. If your sales team is empowered to keep you ahead of your local competitors, then you have nothing to worry about. If, however, you have a young or unmotivated or poorly trained sales team with less than smooth communications to management, they need empowering! Vital information about your competitors will simply not be finding its way back to decision makers unless you open this channel.

Now, the depth of experience and knowledge and local market understanding of your team in China makes the difference between winning and losing customers. Generally, we think that sales teams are not a good filter of key information about market trends or competitors. They are incentivised to sell, not inform policy and yet so many of the businesses we work with gather most, if not all of their competitor information from their sales teams. If you are dependent on internal sources of information on the way markets move and on your competitor’s plans, use these methods for maximising the output.

SOLUTIONS

1. Ensure that information is flowing from top management down
2. Reward efforts to improve information flow
3. Build a core team of information management experts bases not on random selection across the organisation but on personality – often women are more willing to share information than men
4. Offer concrete examples of where improved business intelligence and knowledge sharing within the company has led to improved sales or to better customer retention
5. Remind teams that ‘competitive intelligence’ is an independent and important business function in 80% of Fortune 500 companies
6. Ensure that you are clear of the intelligence needs of everyone in your organisation at all levels
7. Make sure everyone knows how to use the Web to maximum effect – this is not a given in an environment where cultural values and background play into ideas of what is strategically important
8. Appoint a steering group of senior managers to offer guidance on the organisation’s continuous business intelligence function
9. Include business intelligence gathering in the job descriptions of all your mid- and senior- level managers
10. If you can, bring in an external competitive intelligence consultant to work alongside your own teams for a defined period or get them to conduct workshops with key information carriers (including managers) on specific intelligence issues – you’ll be pleasantly surprised at what’s unearthed

With the right approach, Chinese competitors are not hard to understand and the value in understanding them is repaid in spades as many successful businesses in this market can testify but what happens when ‘the China effect’ isn’t managed? The risk of surprise looms. Surprise normally means shrinking revenue for a period of time while everyone has a think about how to re-design the approach in the light of a new competitive threat. Eliminating this element of surprise increases profitability. It’s that simple.

* Laura Mitchelson is the Managing Director of Amber, a business intelligence and market research company which assists businesses build knowledge about China. Laura is based in Shanghai.

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