Many U.S. small businesses are missing the boat when it comes to China

By Geoff Light

In recent years, China’s strong middle class has attracted attention from businesses worldwide. Boston Consulting Group (BCG) estimates that there are 25 to 30 million middle-class households in China. BCG also notes that these households don’t seem to be losing momentum. Since 1999, middle-class households have accounted for a steady 36.6 percent of China’s wealth*. If American companies are poised to reach these consumers, both businesses and the U.S. economy will have a lot to gain.

Large, American corporations – such as Wal-Mart and Starbucks – paved the way for other U.S. companies to sell products in China. Most recently, high-end fashion retailers have set up shops in the country.  American Fashion Designer Marc Jacobs, for example, has almost the same amount of Marc by Marc Jacobs stores in China as he does in the United States.

But, China doesn’t have to be a market for only a select few global conglomerates. Many U.S. small businesses also are selling their products in China – but not enough have taken full advantage of China’s potential. According to the Commerce Department’s U.S. Commercial Service, the export potential of small and medium enterprises (SMEs) is “enormous.” SMEs account for almost 97 percent of U.S. exporters but still represent only about 30 percent of the total export value of U.S. goods*.

If an SME is not looking at China‘s business potential, it should be. Without a strategy to reach China’s consumer market, U.S. businesses stand to dull their competitive edge.

Wanted: American goods
Chinese consumers buy American products – and they want to see more of them on store shelves. In 2005 and 2006, UPS conducted a survey of urban, middle class consumers in China to help its customers do business in the world’s fastest-growing economy. The 2006 survey revealed that American DVDs and CDs, moisturizer, athletic shoes and blue jeans are most popular among Chinese consumers.

China’s complexities
To be successful in China, American businesses cannot assume that “one size fits all.” China’s people live across 3.7 million square miles with multiple climates and speak countless dialects. So it’s not hard to imagine that Chinese consumers – like Americans – have diverse preferences.

The China consumer survey found that purchasing preferences varied by age group, gender and geographic location.

Do celebrities pack a punch?
According to the research, almost half (46 percent) of consumers surveyed between the ages of 20 and 29 say they like celebrity endorsements, whereas 29 percent of respondents between 50 and 59 want to see celebrities in advertisements.

The survey also found that consumers in China want the best products – not necessarily the cheapest. Marketers should communicate messages of quality in advertisements, as it is the number one factor when making a purchasing decision.  The More than half of consumers (56 percent) hope to hear messages about quality ingredients or workmanship in ads for U.S. products.

But who is the best person to endorse the quality of a product? We engaged local employees and their friends to serve as sounding boards for what our survey uncovered.  Of those we spoke with, we found that Cui Ping, 31, from Beijing, likes celebrity endorsements for imported products. But Yuan Rong, 29, from Xian, doesn’t. “Celebrities are everywhere,” Rong said. “You have to see them even if you don’t want to.”

In contrast, Ping said that celebrity testimonials imply product quality. “I believe that companies that can afford expensive celebrity endorsements have real strength. To me, the more famous a celebrity is, the better the product will be because celebrities have to take care of their reputation.”

This commentary underscores that while quality may reign supreme, there is no consensus on who is the best person to communicate quality-centric messages. This commentary is also a good reminder that China and its growing middle class of consumers are not a mass market as they have wide-ranging opinions and preferences.
 
Credit cards and more
Opportunities for small businesses will continue to grow as Chinese consumers use credit cards and shop online more often. More than half of consumers in the survey said they used credit or debit cards for shopping, and 40 percent have shopped online.  We expect this trend to grow as many consumers are looking to further integrate their credit card into their lives. A 2007 Citibank report on cultural insights of Asians and their credit cards, found that 43 percent of those surveyed were eager to see their credit cards double as a form of personal ID*.

How to conquer the new frontier 
With a strong consumer base spanning ages, cultures, geographies and genders, China isn’t merely an “emerging market”; it’s a new frontier for many U.S businesses. How can the average American business take the first steps to take the mystery out of exporting to China? UPS offers the following tips:

1. Know before you go
Research is the critical first step for businesses seeking to export to China. This Web site (www.chinasuccessstories.com) provides noteworthy anecdotes from others who have had business and social experiences in China.  Another good resource is from the U.S.-China Business Council, which supports U.S. businesses in China and offers news and other resources for U.S. firms. Its Web site is: http://www.uschina.org.
2. Find the right partners
Partnerships are the key to doing business in China. Small companies, in particular, can get ahead by using the existing infrastructure and relationships of buyers, distributors and transportation companies.
3. Make smart transportation choices
Some transportation companies can make things even easier by consolidating shipments to save time and money. For example, shipments being flown to multiple Chinese cities can clear customs as one unit and bypass distribution centers to speed up delivery times.
4. Automate and integrate
Pick a transportation provider with technology that specifically understands customs regulations.  UPS recently launched a paperless customs form that automates all customs information, meaning that you don’t have to manually input tedious customs documentations. Inaccurate or incomplete customs forms are the number one reason parcels get held up at customs. 

Geoff Light, International Business Development Manager, UPS: www.ups.com

* “Wealth Markets in China; Exciting Times Ahead.” The Boston Consulting Group Inc. December 2005. Tjun Jang, Thomas Klotz and Thomas Achhorner. 
* “Why Export.” U.S. Commercial Service. http://www.buyusa.gov/philadelphia/whyexport.html. 
* “Payment Evolution Report.” Citibank. June 2007. http://www.citigroup.com/citigroup/press/2007/070625d.htm.