By BeijingMan

GOLD RUSH TO CHINA. Some 200 companies from small Finland have already established business in China. Similarly, over 300 companies from Sweden and more than 500 from Germany.

Nobody knows how many French companies are there, but restaurants and cafees in Beijing are filled with French speaking students, officers and businessmen.

To boost their businesses, Spain took Cervantes Institute to Beijing and Italy reserved the whole year 2006 as their culture year in China. Year 2006 is also Year of Friendship with India and The Year of Russia.

Asian companies are strong in Chinese markets, their products are valued. But American companies have marketing superiority and they transform China.

China’s domestic companies are learning quickly and quarantee that fierce price competition is in place. They also have advantage of massive local workforce in service businesses.

NEXT - SMEs. Every week tens of foreign SMEs, Small to Medium-sized Enterprises (<500 employees), enter into China’s fast-growing market. Welcome SMEs! But what to sell to Chinese?

CHINA SECRET. MNCs, Multinational Corporations came early to Chinese markets. They know that its hard to be a businessman in China, even with their knowledge, resources, processes and Guanxi, relations.

MNCs know how hard it can be to get things done. Chinese business culture is unique and different. Chinese people may be complicated, having different priorities.

WEAKNESSES OF MNCs. With all marketing resources, Guanxi, government relations and big brands, why to worry? MNCs are not perfect, they:

- are inflexible in making product changes, product fit,
- are slow in localizing and related decision making,
- have high overhead cost of multilayer organizations.

CHINESE TRUST BIG BRANDS. Chinese buyers don’t value much SMEs or their products/services, of which they have never heard of. Market economy is still new, and Chinese ability and confidense to evaluate and conclude is still limited. Chinese buyers go big brands for safety. That is clear advantage for MNCs.

OPPORTUNITY. Small companies look Chinese markets with little knowledge or resources, and with no Guanxi. But they are hungry. Is business possible without pre-build Guanxi? Is it possible to make a rational leap over Guanxi? How is the byrocracy? Standards?

Small companies may not be afraid of narrow margins, unique business culture, or Chinese dragons. They are afraid of missing their China boat.

They can have competitive products but lack marketing power, and therefore have little influence to Chinese customers. Chinese buyers compare non-branded foreign products to similar domestic products which, as a rule, are very cheap. But this doesn’t mean that SMEs have no chance in China.

MARKET ENTRY. China business for a small company starts by finding a local partner, which need not to be a big company. First goal together with Chinese partner should be to build foothold into China by making first aggressive deal.

Chinese industrial buyers are knowledgeable about competition and companies concerned. If an SME can make aggressive start with a local partner, word of mouth spreads within the industry and reputation starts to grow.

PRODUCT FIT. For SME, flexibility to produce “product fit” can become key strength. When sales opportunity comes, small company should be quick to decide and modify its product to match Chinese customer’s requirements and environment: technology, industrial products, standards, interfaces, software and applications, mobile and online games user-interfaces, colors and story elements, content.

Chinese expect products by smaller companies to be cheaper than products with known brands. But SME can be profitable with lower overhead, by using local partner, via product flexibility. Less can become more.

If SME can position itself in China market with one particular strong product, its reputation gets established and Chinese customers will be impressed. Rapidly this will help to sell other products from the same company. There are success cases of rapid market adaptation.

Epilog
IN CHINA SMEs NEED PARTNERSHIP AND FLEXIBILITY

Market entry has many aspects: laws, regulations, licenses, standards, procedures, finance, office, recruitment, tariffs, duty, tax, vat, homologation. Consultants and service companies help in practicalities.

DREAMS. Business in China becomes a park walk with a knowledgeable local partner, an industry expert with Guanxi, sales ability and geographic reach. Such a partner gets sales done and becomes a short-cut into China business. SME can establish an R&D unit to China for localization, local innovations and market adaptation projects. Dream on, dream on!

CHINESE PARTNER. Finding a partner is the most critical phase of market entry. China market is in transition, business culture is unique, language is different. First, learn the partner candidate company and its business capabilities. Next, more difficult part will be the peoples qualities.

Chinese take getting rich is glorious seriously. To implement that famous slogan, there is a risk that some get too serious. That can turn win-win partnership into loose-win or loose-loose middlemanship.

CHINESE CUSTOMERS. SME should not think of changing Chinese customer’s habits. Respect your Chinese customer. Customers don’t like middlemen, but they like vendors, the source. It is important to listen customer’s product requests, then judge. Producing product fit will later save time and resources, and motivate local partner, the seller.

BEFORE ENTRY TO CHINA. For small companies being China-hungry is of course not enough. Decision to meet Chinese competition is needed. SMEs should be able to provide product fit which needs resources and have cost. Clear commitment by head office is needed.

More important than reading tea-leaves is to remember that China is not the “home market”, but different. Feasibility study is needed. Learning about China’s business culture and especially target industry behaviour is a must. Finding an industry expert may be difficult. If not prepared, it is probably cheaper to miss that China boat. One of my friends says that China is still too complex and unlawful for SMEs to enter.

BeijingMan, Beijingman.blogspot.com