Being “China Ready” means gaining an understanding of the resources and capabilities required to develop, enter, and ultimately grow in the market.
By Mike Arand – NZTE China Business Development advisor
Lately the question “Are you China Ready?” seems to be heard often and many are starting to ask what does “China Ready” really mean?
Without doubt there is opportunity for many NZ companies in China. The top line numbers continue to be staggering – a total population of 1.4 Billion, 446 Million households, 670 Million netizens (internet users), and an economy that is set to have 470 Million middle class households earning over US$15k by 2030 (compared to the expected 133 Million households in USA earning over US$15k at the same time).
And, as the Economist recently pointed out, even at a growth rate of 6-7% which is considerably lower than the average of the last few decades, China will add another US$900B to GDP by end-2016. That’s like adding an economy the size of Indonesia or the Netherlands in less than 18 months!
Even at this slower growth rate, in the so-called “new normal”, the Economist expects that China is expected to have GDP of 36 Trillion by 2030.
So an economy of this size with ongoing growth, with continuing urbanisation and a growing middle class which is driving huge growth in consumer demand must offer opportunity, right?
Many of these factors are behind China now competing with Australia for New Zealand’s top export destination. It must be remembered, however, that China is also the top export destination for more than 120 other countries.
The trade buyers and the consumers are absolutely spoilt for choice with a myriad of options for products and services with different brands, origins, prices, and a host of other attributes from other imported products and services. And the competition is even more intense with some very savvy, skilled, well resourced, well-funded, and often entrenched local competitors as well.
The top line numbers in China suggest the opportunities are huge, but the challenges to reach sustainable and on-going profitability are also huge. In addition to the intense and very good imported and domestic competition China throws in challenges including demanding compliance and regulations, difficult labelling requirements, strict border control, language complications, and high supply-chain and logistics costs. There are also numerous different markets within China spread over a large land mass.
These are just the start of the challenges!
This is why I recommend to companies that they need to be prepared, they need to be present in the market, ready to persevere when it gets tough, and build strong partnerships. They also need to have a passion for turning China into one of their largest and most profitable markets ingrained throughout the company.
You could argue that this is true for any market. And while that is a valid argument the “size of the prize” in a market like China means that it justifies more resource and capability and more effort to reach success.
This is where companies need to ask themselves are they “China Ready?”
Being prepared for China means digging much deeper to understand the market, the trade, and the consumers; there is significant resource required to dig deep and understand the consumers in China.
You need to Gain an understanding of who the target consumers are, where they are, when/how they buy, what their options are, and, what their needs are. This is very difficult to do when sitting in an office in New Zealand, or even by visiting China a few times a year.
Likewise, it takes considerable time and resource to gain a deep understanding of the competition, the route to market, the regulations, the border entry requirements, the local supply chain, the channels, the partners, and the value chain.
Being “China Ready” means taking a long hard look at the resources and capabilities both currently available and required for taking on a significant market. It means asking if the company is prepared to deploy these resources and capabilities to research and understand the market, the channels, the channel partners, and the consumers.
China is a market which has the potential to be the largest market for many New Zealand suppliers, but there are a lot of resource required to even just reach a decision on whether to enter the market or not.
So being “China Ready” means gaining an understanding of the resources and capabilities required to develop, enter, and ultimately grow in the market, It means then making decisions on whether to divert, or add, those precious resources and capabilities towards building a long term sustainable and profitable position in China.
Next being China Ready means digging for a deeper understanding of the market and taking a long hard look at whether the company will persevere when the inevitable barriers and hurdles arise – will the company continue to commit those scarce resources to the market when the going gets tough?
In short, being “China Ready” means understanding how those top-line staggering big numbers translate down to meaningful opportunities for your company; fully understanding the challenges and hurdles, fully assessing and understanding internal resources and capabilities required, and, building an absolute passion throughout the company for developing, entering, and growing a long term sustainable and profitable position in China.