subject: Understanding China's Markets Begins With The Right Principles [print this page] China, China, ChinaChina, China, China. Hardly a day passes by without a mention of China in the conversations of international commercial circles. It seems that every business from every sector wants to tap its potential. However, being successful and profitable in this huge market requires astute understanding of the local dynamics.
How do you capture reliable market intelligence in such as diverse and rapidly market, so you can understand the potential risks and opportunities and create practical strategies? First, start with five important principles.
Know where to look for the information you need.
In reality, China is not one market, but several markets due to its sheer size, uneven development and diversity between its regions. Each of Chinas provinces serves a relatively large business community. Hence, market information is often collected and available on a provincial level, rather than on a country level.
To get a good picture of the whole China market, it is often necessary to interview executives from the same company in each of these cities, as each will be responsible for and have a view of a different region of the country. Only by talking to people in multiple centers can you get an accurate overall view of the entire market.
The information collection process needs to be tailored and targeted to the specific cities or regions where local companies will hold the most information. It is also vital to conduct research targeted at cities that offer the most potential for long-term growth strategies.
Find the most reliable source to start with.
Information sources are often fragmented in China. Therefore, try to establish which single source, out of the numerous fragmented sources of information, is likely to be the most accurate and comprehensive.
For example, China is a huge producer of padlocks. In China, 60 to 70 percent of padlocks are manufactured in Zhejiang province. The local industry association in Zhejiang is therefore better informed on production figures and other industry trends than the rest of Chinas provinces.
Obtaining and verifying the insights gained from this single source is more important than trying to cover all the disparate trade associations across smaller centers. Concentrating on getting the information right for this one source is useful for extrapolating an accurate view of the whole countrys production and demand trends.
Look into the real impact of regulations.
Intelligence gathering should always allow for discrepancies between official guidelines and reality. This is especially true when clarification is needed in the area of regulations, where the level of enforcement may vary. The way each province interprets regulations also varies.
While information on regulations is readily available through secondary sources, find industry sources that can comment on how far the regulations are enforced or how they are interpreted locally. Both large and small local players operating under such regulations should be interviewed to understand to what extent regulations are followed and if regulations are equally enforced (or not enforced) between companies of different sizes.
Understanding how long it might take for authorities to effectively enforce regulations, or how long it will take for certain standards to be legislated, will also provide a better understanding of short to medium term dynamics of market demand.
A good geographical spread of interviews is also needed to understand any regional variations in regulations and the factors driving differences.
For example, regulations governing the installation of windows in China are affected by the governments overall aim to save energy. These regulations tend to be more detailed and better enforced in northern China, for example, where higher usage of PVC is encouraged because there is higher need for buildings to be more heat efficient during cold winters.
Talk to people.
All information obtained from secondary sources should also be cross-checked through primary interviews with industry players and experts. Getting first hand insights and opinions on the industry through interviews is the best way to build on secondary data.
Primary research is really the only way to establish most the up-to-date information on the market. For example, talking to your main competitors will help to verify current market characteristics and insights can be used to adjust published data that is only valid for the previous year.
All this still needs to be accompanied by the ability to tell what information is reliable and what information is not. If a company is being interviewed about their local sales, depending on the person being interviewed and individual motivations that may not always be evident, sales figures provided can be either over or understated. Researchers need to have the ability to tell which it is, and find alternative sources to cross check any data that may have been distorted by the interviewee.
It is always good to allocate a number of interviews per company, and address the same questions to people from different divisions or at different levels to make sure the figures match up. Interviewing external parties is also important to establish good competitive intelligence.
Make time to build important local relationships.
In business negotiations with local vendors or potential business partners, putting time and effort into face-to-face meetings is important for establishing trust between two parties.
For Chinese businesses, establishing this trust is the start of the relationship. The details of a contract can only be built after time has been put into trust-building. Companies need to allow time for visits to the market and face time with local counterparts in the total length of time of an investment.
For partnerships or acquisitions, time should be put into long listing and then short listing all potentially suitable companies, and conducting adequate due diligence on them. Partnerships in China have often failed because foreign companies have chosen to partner with the first Chinese company that came along, without taking the time to check if there is a better partner out there. In China there is always a choice, and investors should make sure they are making the best one.
Today, many multinationals with operations in China have set up market intelligence centres in North Asia. This reflects the focus of interest in the China market, and a strong need for market intelligence to tackle the market size and opportunities here. These five principles will be essential for market intelligence efforts to be fruitful in this land of opportunity.
Author: Nicolas Pechet is Vice President and Head of Global Intelligence Alliance China.
