May Insight - SMEs Marketing and Selling to China-Options for the New Kids on the Bloc

The viability of the SME is globally understood to be a key component of prosperity, employment and innovation.

The OECD Centre for Entrepreneurship, SMEs and Local Development issued a report earlier this year entitled Fostering SME’s Participation in Global Markets. The reported denoted the high level of interest within SMEs and also the critical importance to SMEs of exporting to BRICs countries including China.

Governments, management and shareholders are aware that today’s SME can be tomorrow’s global leader.  Blackberry, Corona and Amazon are all recent examples of small companies that grew quickly into major players through exports.

All of these companies have established, after trial and error, at a much later stage in their development than most SMEs a growing business presence in China.  It is an understatement to point out that finding the right market development strategy for China for these successful companies has been easy.

What then, can the start-up or smaller SME, contemplate in terms of its options to have the right business approach for China?

A key step is internal. The Board, management and ownership must ask two key questions-Will the rate of return and strain on the company from another market be faster and a cheaper investment? Is the company’s product or service competitive and unique enough to be able to win market share in China based on the important but objective commercial terms of price, quality and service?  The biggest mistake an SME can make is to invest its future in China based on the promise of relationships.  If an SME is internally not able to answer these questions then government trade services, industry contacts with China experience and advisers can be used prior to investments in marketing and sales trips being made.

The first, but often over looked option, especially for consumer focused products is e-commerce. Amazon,360buy or setting up your own e-store via Fireswirl or a similar company are just a few of the many internet based marketing and sales solutions.
A second option is to appoint either an international or Chinese owned distribution partner via an agency or distribution agreement. This is what the Harvard Business School labelled 20 years ago as a value-added marketing partnership.  The upside, especially if immediate purchases and sales milestones are included, is very little investment in the market. The downsides are potential loss of intellectual property, limitations of growth and finding a distribution partner that will invest in the push side or expense of market development.

A third option is to identify strategic partners in Chinese and international companies that use your product or service as part of an overall turn- key solution or project sale.  This is safer approach but may limit the market size.

A fourth option, that requires initially registering patents and trademarks, is to license your technology or brand to a local partner.   This limits the risk but also the upside unless there is an additional royalty agreement included in the agreement.

A fifth option would be to divest part of  the shares your company to a Chinese firm or entrepreneur with complimentary sector experience and task them with being responsible for the development and execution of sales within China.

A sixth option is to set up your own representative office or invest in setting up a subsidiary company in China. This permits full control and participation in the upside but there is a higher investment cost.

To determine which of these six options is the best approach for an SME to take to China is contingent on completing an analysis of the product, sector, revenue targets for China and existing human and financial capacity of the company to support a China focused strategy.

Alexis De Tocqueville wrote “In a climate of unlimited industrial rivalry, intense competition customers will pay for ….excellent workers” or the products done by artisans and craftsmen.  The SMEs are in some respects the modern artisans. SMEs are also the lifeblood of European and North American economies and their ability to sell in China moving forward will have a major impact moving forward on the economic strength of western nations.

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