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White Paper on Market Research In China – Part 1 of 4

Today sees the publishing of the first part of our brand new white paper – Market Research In China. Part 2 will be published this Thursday – 21st September

Introduction

To most Western companies, the idea of conducting or commissioning market research in China is a difficult, if not daunting, concept to grasp. Frequently, the perceived barriers of researching a Chinese market are seen as so insurmountable that no serious consideration of the potential benefits is even made. Too often, research agencies and potential clients alike are beaten before they begin.

The barriers to researching the Chinese market are, it is true, substantial. Indeed, in a country of over 1.3 billion people (one fifth of the world’s population), 200 language dialects and 57 ethnic groups, it is often difficult to even talk of ‘the Chinese market’ as one coherent entity. And then of course there is the ‘information’ issue – what,Western companies ask, are we allowed to ask, and how reliable will the information be?

Valid as these and other concerns are, the good news is that China is rapidly and inexorably evolving into a truly modern economy. Markets such as IT and automotive are developing apace, and promising to become truly world-leading. Chinese industry is increasingly deregulated and empowered, and, in keeping with the country’s arrival on the world stage, eager to invest in foreign companies as well as accepting investment from Westerners keen to establish themselves in China.

For companies wishing to conduct or commission research, therefore, the opportunity in China is enormous. Here we have a huge, diverse, growing, increasingly affluent and innovative economy, which is eager to share its ideas with potential investors. China might not be the easiest country in which to conduct research, but for the research buyer, the value of the information obtained is likely to be enormous.

This white paper seeks to provide the reader with a picture of how research is conducted in China, the factors that characterise Chinese research agencies, and the issues that should be borne in mind when commissioning research in the country. We begin by exploring the size, structure and origins of the industry, before providing an overview of the companies active in the market, the way in which research is conducted, and finally the issues that should be borne in mind when commissioning research in China. Throughout the paper we place particular emphasis upon our own area of specialism and expertise, business-to-business research.

Origins Of The Chinese Market Research Industry

Prior to the mid-1980s, market research in China was limited to consumer research managed by the State Statistical Bureau and conducted by Government departments. The research was largely limited to statistics on expenditure and production in different State-controlled industries.

In 1985 however, Proctor & Gamble (the multinational provider of branded products ranging from snacks to washing powders) was in the process of establishing its first operation in Greater China, an office in Taiwan. In order to make this venture, as well as forthcoming operations within Hong Kong and Guangzhou, a success, the company sought market information specific to the consumer markets in which it operated. Deciding that the company’s information needs could not be fully met by the publicly available statistics, P&G’s Market Research Director set about conducting the first non-Governmental consumer research in China.

Proctor & Gamble’s information requirement continued past the establishment of its Taiwan office, as subsequent offices were established in Hong Kong in 1987 and Guangzhou in 1988. The multinational’s increasing need for market information resulted in the establishment of China’s first research agency, in Guangzhou in 1988. The newly formed company was called simply ‘The Guangzhou Market Research Company’.

The insistence of Proctor & Gamble on bespoke market information would prove to be the birth of the Chinese market research industry as we know it today. The Guangzhou Market Research Company (which is no longer in existence) introduced a wide range of data collection and analysis techniques to the Chinese market. This resulted in a wave of highly competent Chinese researchers who would go on to form and direct some of the country’s leading market research agencies. Today, Chinese agencies such as URC (United Research China), Acorn China and Research International (China) are all directed by former researchers from Guangzhou Market Research Company.

Market size and sectors

Whilst the Chinese market research industry has been in existence for around 2 decades, its development has been relatively slow, and even today the value of market research commissioned in China is worth, approximately, a modest 5,000 million RMB (UK£350 million). The market is however growing rapidly at around 20% per annum (figures as of May 2006). Assuming this impressive growth rate continues, the value of
the market research market will double in value within the next 5 years.

Business-To-Business Research – Size & Sectors

The role of business-to-business research within this overall picture deserves some attention. For the purposes of this paper, we will define business-to-business as market research in which the views of businesspeople are sought, in order to facilitate a business decision. We include not only ‘businesspeople’ in the traditional sense, but also anyone else who contributes to a study in the context of their employment. We
therefore include, for example, projects in which the views of Government officials are sought (of which there are many), and medical or pharmaceutical projects in which organisations seek the views of physicians or surgeons.

Estimates as to the proportion of Western market research markets accounted for by business-to-business research usually put the figure at around 10%. In China, however, the proportion is estimated to lie
at around 25% to 30%, putting its value at around £90 million – £100 million. It is this ‘b2b’ sector of the market that is expected to see most growth over the coming years, with Chinese companies increasingly open to the idea of obtaining the views of businesspeople, and Western companies more and more hungry for Chinese business opinion. Current growth in this part of the market is estimated to lie at around 25% per annum, meaning that, incredibly, it will double in size within 4 years.

It is worth noting at this juncture that the concept of business-to-business research within China is even newer than the concept of consumer research. There is no clear record of exactly when or how this part of the market developed. However, it appears to be the case that the market evolved gradually, as projects commissioned to explore consumer opinion gradually incorporated the views of businesspeople. The consensus of the market indicates that this part of the market developed an identity of its own around the mid-nineties. Since then, there has been a surge in business-to-business research, which has accelerated since the turn of the millennium. It is noticeable that many of the senior people within Chinese agencies previously led operations within Hong Kong, and have moved to the mainland in the last 7-8 years.

In terms of the industries in which most market research is conducted, here again the picture is changing rapidly. Nevertheless, some clear patterns are emerging, not least that the FMCG sector (which, as noted above, effectively started the market research private sector 20 years ago) is increasingly buoyant. In terms of business research, the level of work commissioned can be ranked as follows:

1. automotive
2. petrochemical
3. IT
4. telecoms
5. pharmaceutical and medical
6. financial

In the case of the automotive and petrochemical industries, most research is commissioned by foreign-owned companies with joint ventures or subsidiaries within China. In the case of the telecoms and IT markets, however, indigenous companies increasingly have the budgets and strategic vision to recognise the benefits of business research. The pharmaceutical/medical and financial sectors are both significant, but above all have huge potential. The financial sector is now exposed to increasing competition, with State-owned companies registered on the Chinese stock exchange and permitted to commission market research. The pharmaceutical/medical market is also growing rapidly, and companies within and outside China are seeking information in order to be able to profit from the huge Chinese market.

Across industries, it is noticeable that the type of research commissioned is markedly different from the situation in Europe and North America. In the West, research reflects the objectives of companies operating in mature markets, who want to establish customer loyalty, achieve differentiation through branding, monitor the satisfaction of their employees, develop new concepts or segment their target audience. Typical research projects are therefore customer and employee satisfaction studies, branding studies, concept tests and segmentations. In China on the other hand, the picture is very different, in that a high proportion of research projects (around 60%) are focused on market assessment studies, in which clients (often foreign companies) are asking for a comprehensive explanation of how markets are structured, who are the key players and what is the market size. Whereas in the Western economies research buyers generally seek intelligence that will help them progress in existing markets, in China much of the research is about entering new markets, or indeed entering China itself.

Part 2 of this white paper will be published this Thursday (21st September)

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