19 Mar 2015

Cost-effective Ways for SMEs to Test the Chinese Market

Thanks to the internet and globalisation, many believe that testing new markets for opportunities is easier and cheaper than ever before.

However, not all markets are easy to crack and China is a particularly tough one. Small businesses tend to lack the knowledge and resources to compete in China. Companies that do find success tend to test various approaches before selecting the right ones and embarking on their expansion programmes.

We’ve recently been running a series of in-depth case studies looking at Western brands tackling large emerging markets. We started off by looking at how British institution M&S shifted a ton of frocks online in China, and last week we saw how Kellogg’s realised they would have to persuade Indian consumers to try consuming milk cold if they were to recover from their initial cornflake crisis in India.

This week we’re moving away fro m the big brands and looking at ways for smaller companies are having a crack at China. Specifically we’re going to examine a few ways to test the waters of a new market before you plunge in, especially if you’re a smaller organisation without the resources of a global brand like M&S or Kellogg’s.

It’s estimated that getting your product into China can cost upwards of £60k – a budget well outside the scope of most small businesses. Unsurprisingly, despite the market opportunity, many small businesses in the West are hesitant about venturing into China on the basis of financial risk alone.

Of course there are other concerns too – from concerns about product copying and a general lack of knowledge of how to succeed in Asia. No wonder then that where small businesses export at all – and less than 5% do – they usually focus on just one market besides their own.

We’re exploring some ways smaller enterprises can explore the idea of exporting to China without wasting huge sums. Below are several ideas for researching export markets and a few contacts that may be useful if you’re thinking China may be a market for you.

Government help

UK Trade and Investment (UKTI) offers support for UK businesses to export overseas. Services offered include grants, trade shows and they can even match funding for travel and assist with up to half the costs of market research in your target market. The UKTI claims that companies that start working with them gain an average of £100k in additional sales within 18 months.

There are a number of ways to bring in the help of the UKTI; using web chat, calling the business hotline (0300 456 3565), or booking a face to face meeting with a business adviser.

US-based businesses can take advantage of services offered by the Small Business Administration (SBA) – a government agency that provides support to entrepreneurs and small businesses. SBA helps lead the federal government’s efforts to deliver 23% of prime federal contracts to small businesses – a move that is being mulled over in the UK too as the government comes under scrutiny for not providing enough support to small businesses.

Networking

Don’t underestimate the power of networking when it comes to exploring export ideas, whatever stage you are at. There are many free or low cost business networking groups that will let you talk to those with experience in your target market, or other businesses exploring the same issues. Speaking to your local Chamber of Commerce may be one way to find out about export-focused events and groups in your area.

This month, Google Campus is running an event in London exploring how entrepreneurs can do more business with China.

The Meetup website offers a number of business groups dedicated to doing business in China – many events are free or have a very small ticket cost. The advantage of networking is you don’t have to bring a fully-developed idea, or anything beyond an ambition, and listening to others at these events is a valuable way to learn.

Online advertising

Online advertising is a great way to test a market while sticking within a strict budget. If you’re targeting China, it’s probably best to use Baidu Wangmeng rather than Google AdWords if you really want to get a feel for the market since Baidu commands over 70% of the Chinese search market – compared with just 3% for Google.

Just make sure your ads and landing pages are translated into the right language for the country or region you’re targeting. You can also use services such as Amazon, eBay or Tmall, if you’re targeting China, to try a few initial products and marketing messages.

These communities tend to have large numbers of users so could prove to be effective channels for market testing. Whatever your approach, it’s wise to use native translators with expertise in translating content in your are of business to increase the likelihood of success.

Auction services

Some enterprises have found an auction service called iPai to be a cost-effective way to dip a toe into China’s massive market without over-stretching your budget. Based in Shanghai, iPai is an auction company that helps international firms introduce their products to Chinese consumers at a fraction of the usual costs of entering a new market.

There’s a hefty sales commission and a charge of around £10k to join the auction but the service probably still compares favourably to the usual costs of trying a new market. The auction scenario is also a good way to determine the price the local market will bear.

Your products will be offered at the company’s live auctions in Shanghai (around 100 per year), in local malls and online. Familiar consumer goods such as handbags and watches have been especially successful with the auction crowd in the past but products new to the Chinese audience have included things such as craft beer and deep fat fryers.

iPai claim to be choosy about which products they will carry, meaning the failure rate is low and apparently only 10% will go unsold in a typical auction. If your products don’t sell in one auction, they will be offered again at a different time. If you decided to proceed with your exporting after the auction, iPai can offer help with matters such as sales logistics and registering trademarks.

Whilst the company website isn’t very revealing, there’s slightly more on the Facebook page.

Other ideas

If your industry has one, your trade association may be able to advise on exporting. The British Chamber of Commerce also offers export advice and can connect you to Chambers in your area of the country.

You can sometimes get information for importers from the embassy of your target country so it’s worth approaching the relevant embassy to see what they have to offer.

Some commercial organisations may offer market reports for your target market, often at a cost. Euromonitor is a good place to start looking for relevant ones.

Find the right partner

Whatever strategy your small business decides on, you’re going to require the services of experts in the local language, culture and business environment.

So, try establishing a suitable agency partnership; a UK-based one with a good local partner in your target market would probably offer the best working relationship. It’s worth having some initial talks with a few agencies to shape your thinking around exporting before you commit to a partner or even whether this is the right approach for you.

The success of your international marketing relies on your ability to communicate effectively with your target audience so choosing the right agency will be critical to success in China.



 
 

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