Exports to China? Not so Easy, Friend…..

by Julian Righetti on October 22,2012 in China Trade ,

Exports to China? Great idea! 1.3 billion consumers! Wow! Millions of new middle class buyers! Great! Massive bureaucracy and competition…..yes. Getting into the “exports to China” hustle is a tough business. Here are a few ideas that are being tried and some factors to consider.

Exports to China: Understand Your Consumer

If you’ve achieved some success in the USA, Australia, Chile, or elsewhere, you probably know your customer really well. You know how they think, what they need your product for….but do you appreciate consumer tastes in China?

Some companies like KFC have had a lot of success, whereas others have failed massively.

There are some industries, where just having a foreign brand can be valuable for marketing exports to China:

Pharmaceuticals-That’s right, nobody trusts domestic pharmaceuticals because Chinese consumers think they’re fake or knock-offs.

“Chinese police said Sunday they seized more than $182 million of counterfeit pharmaceuticals last month in the latest attempt to clean up a food and drug market that has been flooded with fakes.” –http://online.wsj.com/article/SB10000872396390443517104577570873358416532.html

While you might not be Phizer, I think Chinese consumer sentiments related to healthcare touch other products as well, including, medical devices, nutritional supplements, cosmetics, etc. I often hear that Chinese consumers “trust” or prefer Western cosmetic brands because they think the product’s efficacy is higher.

I always like to compare Bawang Shampoo and Rogaine….(This issue is particularly important to me)….

Bawang uses Jackie Chan as a sponsor. They have about 14% of the shampoo market but their products claim to increase hair growth for men. This claim is backed up by Chinese medicine, herbal extracts, etc. etc.

I thought this brand had a pretty competitive position in the marketplace several years ago. Proctor & Gamble dominate the shampoo market, but Bawang was holding its own. Then…..

http://www.globaltimes.cn/china/society/2010-07/551764.html (DOH! Bawang causes cancer!)

If something in China doesn’t cause cancer, please email me, because it seems like everything does nowadays….still, why take a risk on a hair growth product that causes Cancer–just switch to Rogaine….(I am not a spokesperson for Rogaine)

Food-Western brands of food are seen as premium, luxurious, and “safe”. Yes….safe, after so many milk poisonings in China,

http://inventorspot.com/articles/unhappy_meals_chinas_top_8_fake_foods

High-End Consumer Goods-Even with fake apple knock-offs all over the place, owning a “real” apple product is a major status symbol in China.

When you study the Chinese market, consider where your product will fall in the value chain. Are you going to compete with low-end providers? How will your branding, marketing, and product quality compare to what’s already available on the market?

Exports to China: Small and Medium Producers

One of my friends has started an import company (importing

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into China/food exports to China). They received lots of inquiries from many people interested in “tapping into the market here”. They have successfully imported Georgian peanuts, milk, bottled water, and various other products….

Here is what they typically say:

-Nobody here knows what your product is-your product has no brand value-no supermarket, distributor, or retailer will pick up a product that has 0 brand value with their customers.

Imagine if these were next to the bananas in your supermarket….

So, what can you do?

-Build an online platform-

Limited risk, low exposure-

http://www.taobao.com/index_global.php

http://www.360buy.com/

You’ll need to pay some activation fees (for 360, it’s a good amount of cash, 10k to 15k)….but at least you’ll be directly marketing to consumers in China.

-Work and hustle with distributors-Direct to the Mainland

The only problem with this is that it can take a very very very very very long time.

-Build a Launch Point-

A lot of companies invest in one area-Shanghai-Tianjin-Hong Kong-Singapore-that are more affluent and serve as the test-case for their product’s launch into China….Plan on spending a lot more money.

We met a group of US physicians who were opening a medical cancer center in Shanghai. After 2 years of permitting run-arounds, several million USD in investment blown, and only a few walls built with no plumbing, the risks to this strategy are high.

-Limited Sales to Firms that Cater to Foreigners in China-

Many of my favorite products, I pay probably 200% more than prices in USA. I must go to small specialty grocery stores scattered around places in China. These can serve as useful entry points for your products.

http://www.jennylou.com.cn/?main_page=page&id=15 (One popular grocery store chain that features a lot of international products).

The Graveyard of Failed US Companies in China:

http://www.financeelements.com/business/best-buy-failed-in-china.html (Best Buy Fails-Market too Competitive)

http://www.businessinsider.com/ikea-home-depot-china-failed-2012-9 (Home Depot Fails-Chinese consumers don’t want to do it themselves)-Consumer Tastes Strategy Failure

Taco Bell-Chinese People Do Not Like Tacos….Consumer Tastes Strategy Failure

Oh and don’t forget the massive AQSIQ customs issues associated with importing any products into China……..

What do you think?

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