Intercedent Insight – March, Moving with the Times

China is consuming more and imports are on the rise: a recent report by the US-China Business Council, a non profit organization of roughly 240 leading US companies doing business with China,  shows that that in 2010, US exports to China rose by an mpressive 32 percent.

Nonetheless, selling to the domestic market remains more difficult than other forms of business engagement in China including local production or procurement for export.  For those wishing to succeed in selling to the domestic market, the quick pace of constant systemic change and new trends in emerging demand China means it is essential to regularly review and re-set corporate strategy, business planning and operating tactics.

The clichéd “Billion-Plus” market concept is largely a myth; indeed, sales programs for China may outperform if they are initially focussed on a province or two, tightly defined customer segments, or specific channels to market.  

Many companies have found that targeting sales in outlying second-and third-tier cities may result in better returns than all the time and effort required to succeed in the relatively developed coastal provinces, where international and domestic competitors are more active and business operating costs are rising sharply.  

Capturing emerging Chinese demand will require proper market research, keen analysis, and regular visits to the market by the Board and executive management team.  To executive successful sales programs real time service and technical and logistics support from head office will invariably be required.

As well, executive management must find and engage effective local sales and marketing teams and listen to, and take on board, the feedback they give on how to best sell to local customers.  Introducing incentives and bonuses systems tied to performance for local staff is best done as early as possible in the selling process.

Unlike in the past decade, when the preference was for foreign businesses to go it alone in the China domestic market, the benefits of establishing co-operative selling arrangements, agencies and partnerships with local players are now back in vogue with the emergence of  more professionally run and adequately funded local Chinese marketing and distribution companies.  There are powerful arguments for sharing the selling infrastructure and personnel of trusted local partners rather than setting out to establish and manage your own.

Sales underpin business performance and new demand for foreign goods, technologies and services are emerging across a spectrum of industrial segments in China.  This is good news for international companies which can position themselves to be part of the move of the Chinese economy towards domestic consumption - particularly if they commit to identifying and working with effective local Chinese partners.  

Of great concern, however, is that companies producing or procuring manufactured goods in China are seeing steadily rising costs for labour, utilities and locally-procured raw materials.  Additionally, forecast increases for these items will likely be magnified by the increasing strength of the RMB Yuan against other currencies.

Given these upward price pressures, we question whether the traditional business model of manufacturing/sourcing in China will be viable in five years time.

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