The first article in our Getting to China series highlighted the main objective -- to help you assess China as a viable export market for your business. In the second part of this series, we’ll dig into more specific ways to determine if doing business in China is good for your firm’s growth.
There’s a lot of information out there on the China opportunity. It can be overwhelming. My goal is to make this as quick and simple as possible, to help you figure out if exploring the China expansion in more detail makes sense for your business.
Today we are going to cover the Product ‘P’ of the 5Ps of Global Marketing FrameworkTM.
In my book, The China Factor, I take the traditional 4Ps of Marketing – Product, Price, Place, Promotion – and redefine them for success in emerging markets.
The Product P is evolved and more granularly defined in this context as “Solutions and Innovation”. (For a quick snapshot of what I mean by this, check out my 3-min Google talk).
Redefining “Product” for emerging markets
With exponential growth of Chinese companies and other competitors from emerging markets, the rules of the game have changed. Success factors to winning business internationally have shifted, particularly in emerging markets.
High-tech companies from the West, for example, have traditionally prided themselves on innovating superior quality products. This has been positioned as the primary influence on closing sales in developed markets. The thinking is, ‘Our box is better than our competitors’ box, so the customer will choose us.’ In established markets, where the customer is familiar with the offer choices, this is a successful strategy. Premium products positioned on the high-quality, higher-priced end of the spectrum are often rewarded.
The power of “good” products and a solution approach
But this is not the prevailing outcome in emerging markets, nor even in some developed markets these days. Emerging competitors from the East, especially from China, are winning customers’ business more often and gaining significant market share with less-than-premium products by providing more encompassing solutions to make the sale happen. They are creating products that, nonetheless, get the job done and satisfy the needs of the consumer at the moment, and in the meantime, they quickly work on evolving and developing their product to a higher quality standard. They have ‘locked in’ the customer by offering solutions and they hold them in the longer run as they evolve the product.
This is not just rhetoric. Solid data trends from renowned analyst firm Dell’Oro Group have proven this time and again. A look at mobile RAN market share trends over the last 5 years shows a shockingly consistent downward shift in market share points of top Western-based manufacturers like Nokia/Alcatel-Lucent and Ericsson. By contrast, Chinese companies Huawei and ZTE have seen an almost perfectly reciprocal increase in market share points.
There are many reasons Western-based companies are failing worldwide. For one, the needs of emerging (or evolving) markets are different than those of the West. And while brand equity and quality go a long way, they don’t reign supreme. Buyers in emerging markets value different priorities and critical decision factors.
Canadian companies looking to compete need to evolve the way they do business globally to survive and thrive.
5 reasons product superiority doesn't always win in China
1. One size does not fit all.
A basic business tenant is to ‘know your customer’. What do emerging customers really want and need? Do they need your fully loaded, feature-rich product? Or do they just need basic functionality? Don't recycle mature, premium products for new markets. Develop localized, market-appropriate products that satisfy emerging customer needs based on where they are in the product adoption lifecycle.
2. Product offers are not enough.
Offer solutions. Enable the “YES” choice to be you and not a competitor in market. Chinese companies are good at understanding the encompassing needs of emerging markets. Despite oftentimes average quality -- or less than average quality -- products, they know what the customers want and they give them solutions. I call it the ‘free fries and extra ketchup’, versus just offering a really good burger.
Having local product support staff available to answer questions is important to new customers. Knowledge transfer and training is also key. Helping them figure out how to pay for your products, (financing options), is also a significant component in their selection process. These are examples of offering ‘solutions’.
3. Slow-mover disadvantage.
The cliché term, analysis-paralysis, is symptomatic of many risk-averse companies; it’s a syndrome which frequently causes irreparable loss of market share. Emerging markets and the China market, in particular, shouldn’t be on the fringes of your international business strategy, but a necessary part of your company’s long-term growth strategy. This requires a leap of faith, a higher risk tolerance and, importantly, a faster time to market. Many companies take a wait-and-see approach, get too hung up on immediate return on investment and over-think their product development strategy when making the move to China.
Think less, act fast, create ‘good enough’ products and get to new markets quickly before the multitude of emerging competitors. Rapid time to market is more important than getting there perfectly, but late. Think good enough and now.
4. Know your competition.
Take inventory of all your competition in the China market. Odds are, they are plentiful. Canadians often make the significant mistake of being overconfident in the uniqueness of their product offer. There’s a good chance a Chinese competitor has a similar offer. Maybe it’s not as unique as yours, but it’s probably pretty close.
And be prepared. Your Chinese competitors catch up quickly. They may try to emulate your product offer, and if they’re quicker to innovate and develop new products based on your idea, you’ll lose.
Your Chinese competition may also have the advantage of a foothold on the market segment you’re targeting, or “market access advantage”. Get to know your target market segment well and, in turn, who among your competitors they trust most or already have a relationship with.
Your superior product may be trumped by your competitor’s strong customer relationships.
This step cannot be underestimated. Take time to look at a list of competitors or potential competitors. Consider both direct and indirect (tier 2) competitors. Knowing what you’re up against before you go can make or break your success in China. Or it may result in the decision to choose another, more viable market.
5. Innovate for the China market.
China is growing rapidly. The burgeoning middle-class may be strong candidates for your high-quality, premium-positioned products. But there’s still a significant market opportunity in the emerging customer base as well, those who may be less advanced on your product adoption lifecycle. Consider innovating or re-innovating your product to address that market first vs. recycling your existing product.
For more on ‘reverse innovation’ and ‘disruptive innovation’ read chapter 19 in The China Factor.
Keep an eye out for the next part in the China series. We’ll take a look at how Price ‘P’ is a key part of your assessment of China as a viable market opportunity for your business.