Archive for the ‘Market Research China’ Category

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Kebabs and the competitive environment

Alaric Fairbanks this week makes our mouths water with the mention of some of his favorite local kebab stalls.  However, on a more serious note, Alaric is analyzing how street vendors of this relatively undifferentiated offering encounter many of the same problems faced by much bigger organizations in different markets around the world.

As almost anyone with a penchant for mutton and beer will tell you, one of the best things about living in Beijing, providing you don’t live right next to a stall (they can be quite smelly, and the lack of toilet facilities coupled with beer consumption of patrons can be problematic for neighbors), are chuanr, or kebabs.  Mutton, chicken hearts and tendons, washed down with a bottle or two of Yanjing beer are, for me at least, pretty much indispensable to life in China’s capital city.  But can this tell us anything about the business environment?  Interestingly, for me at least, this came up in a recent conversation I had whilst patronizing my favored stall.

This must be one of the toughest markets to be in, and in many ways can be seen as representative of the competitive environment in undifferentiated markets, especially in China.  Let us take, for example, a quick look at Porter’s Five Forces applied to this business model.

• The threat of new entrants: Obviously barriers to entry are low (an improvised barbeque is not a significant cost) and switching chuanr vendors is fairly easy. Similarly, adding to the product range, for example with ram’s penis, can be very easily copied by the competition.

• Supplier power: The raw material – mutton and other assorted parts – forms the substantial part of costs relative to total purchases, and there are almost no substitute inputs.  To make matters worse, these raw material costs have a huge impact on total cost.

• Threat of substitutes: Again a problem, as it’s not difficult for the customer to switch to ma la tang (numbing and spicy soup) or rou jiamo (a very distant cousin of the hamburger).

• Customer power: Price sensitivity of customers is pretty much a given in many markets in China, and chuanr are no exception.  Buyer information (in this case buyers know the going rate for the product as it is the same everywhere) leaves little room for incremental increases.  Backward integration by customers is, on the face of it, less of an issue as most of us will be pretty unwilling to invest in our own barbecuing equipment. Where there is a problem here, is when selling through a small restaurant, as there is little to prevent the ‘partner’ setting up their own stall.

• Rivalry or competitive intensity: Here we have a very fragmented market, almost entirely composed of sole traders.  Fixed costs are low, having a limited impact here on rivalry in some respects as they do not have a great role in the unit cost of chuanr; however, this does mean that entry barriers are low.  The nature of the raw material, mutton, does have an impact, as these perishable products must be sold immediately.  Fortunately, exit costs are low, as equipment is not highly specialized and no one is ‘forced’ to stay in the market.  This is also not a market that so far has lent itself to product differentiation or branding, thus almost commoditizing the market.

So what does this tell us?  Many of the markets we look at in China, and elsewhere, exhibit some of these characteristics, particularly in the areas of new entrants, substitutes, and low levels of differentiation.  There are, though, examples of companies growing or moving out of unattractive markets, and differentiating themselves from the competition in a seemingly commoditized market.  Equally, there are some examples of differentiated product and service, and expansion in the chuanr business: Xiao Li, arguably the best producer on Yong An Li East Street, has an embryonic brand, recently added a few plastic stools and a table to complement his offering, and has doubled his workforce with the addition of his charming sister.

Posted in Alaric Fairbanks, Competitor Analysis, Market Research China, SMEs, Thursday Night Insight |
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Economic storm in a teacup?

In a week of undoubted economic turmoil across the globe – and in particular for American and European markets – Alaric Fairbanks, General Manager of B2B International’s Beijing office, gives us a timely analysis of how things are shaping up in China.

Over the last few months and particularly days, many of the conversations I’ve had with friends and colleagues in the UK and Europe have, at some point, unsurprisingly centred around the seemingly never-ending series of crises affecting the major economies of the West: credit crunch, fuel prices, Northern Rock, Wall Street Crisis, I could go on.  So how do things seem in China? Is the pessimism that I sense being felt in the business community here?

Firstly, let’s have a very brief look at overall economic forecasts: this week the Asian Development Bank adjusted its forecast for economic growth in China in 2009 downwards, by 0.3%. There are a number of factors behind this, including, of course, decreased demand in export markets resulting in a reduced trade surplus, increased production costs, an increase in the value of the renminbi and rising commodity prices. Bear in mind, however, that this reduced growth forecast for next year still stands at 9.5%. A slowdown, maybe, but the economy is still developing at a rapid rate.

Taking into account this backdrop, how are things on the ground? Recently we conducted the first British Business Climate Survey for China with the British Chamber of Commerce. 17% of members were represented, ranging from large multi-nationals with years of experience in this market to newly established branches of SMEs. Whilst there were some issues, such as a lack of transparency, regulation and availability of appropriately skilled staff, the overall outlook was extremely positive, with over 80% being somewhat or very positive about both the business environment and their own companies’ performance in both the short and medium term. Possibly the strongest indication of this is that 54% of respondents stated that they will definitely invest further in China within the next three years.

It could be that those running Western businesses in China are all natural optimists: how else could you cope with the ambiguities, constant change and minor frustrations that confront us every day? I don’t think this is the case, however. You may say, come on then, can you come up with any other evidence that this apparent optimism is justified?

Well, yes I think I can: exports from the UK in the first eight months of this year stood at over £1.6 billion, which is a 50% increase on the same period last year (UK Office of National Statistics). All this in a market that has been the UK’s fastest growing export market since 2002. For us in the service industry, we can point to the fact that services exports to China are in the UK’s favour, at around £1.5 billion last year. The confidence is also borne out by the amount of British investment in China, which stands at over £7 billion, making the UK the largest single investor from the EU in China.

It is worth pointing out, however, that not all business shares the confidence, with those involved in export and sourcing already feeling the pinch. This also applies to domestic, particularly in lower value-added industries such as textiles, which are already operating on wafer thin margins, and certainly feeling the downturn in their existing markets, and there are reports of factory closures, especially in Guangdong and Zhejiang. And I am not saying that no other companies here will face problems; some undoubtedly will.

In general, however, I think – as I hope I have shown – the economy, although not without its pitfalls, is worthy of the confidence shown. And B2B International? – Well put us with the 54% of UK companies I pointed to earlier, as we are moving to bigger and better premises before the year end.

Posted in Alaric Fairbanks, China, Credit Crunch, Market Intelligence, Market Research China, Recession, Thursday Night Insight |
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Are you an effective communicator?

Jason Zhang was a little surprised when the five shirts his friend had bought for him arrived in the mail; he had been expecting to receive long-sleeved shirts and yet found his new garments had short sleeves. Although he thought he had been clear in his request, Jason discovered to his detriment that effective communication is not always as easy as you think…

Last summer, during my visit to Tianjin, I bought a couple of long-sleeved shirts in a department store. These shirts fit me very well and I really love this particular brand. Unfortunately, they’re not available in Beijing, where I live.

A week ago, I rang my friend who lives in Tianjin and asked her to buy five shirts on my behalf. During our conversation, I briefed her in detail on the particular brand name, the size, my favored style and color, and certainly what was an affordable price for me. I thought that was all the information she needed to make the purchase. However, I was wrong as I didn’t communicate to her one of the key pieces of information – long sleeves! In the meantime, she didn’t check this information with me either as she took for granted that short sleeves would fine with me. This is understandable, as Beijing is pretty hot in summer – with daytime temperatures as high as 38 degrees centigrade. Most people on the street have short-sleeved shirts, but my preference is long sleeves.

This is a real example to illustrate the importance of effective communication in our life and our workplace. Basically, in the workplace, at any given time, we all have to communicate in some way with our internal or external clients. As an effective communicator, you can bring real concrete benefits to your work and your organization. At the very least, you avoid having to do things twice, as you get it right in the first instance.  

In our capacity as professional consultants, perfect communication – both internal and external – is a crucial factor in building our sustainable competitive strengths, like efficiency, productivity, and a comfortable working environment.

As a business-to-business market research agency, our typical clients are marketing and business development professionals from national and international organizations. They come to us for help in making difficult and expensive decisions. At every point in the process, these clients’ expectations for effective communications from their suppliers are very high.

You would agree with me that the foundation to effective communications is precise information via an appropriate medium at the right time. At each contact point with clients in our work, effective communications are vitally important, from taking enquires, RFQ/RFP (request for quote/proposal), briefing, commissioning meeting, project design, through to the final reporting. It is our company’s normal practice to deliver an interim presentation, to ensure all the parties involved in the project have the same level of understanding of the exact project deliverables. 

Within the marketing research and consulting business sector, to ensure client liaison in an effective and efficient way, your essentials skills are listening, plus market insight, to understand a client’s particular business and needs.

In any communication, trying to use easy-to-understand expressions rather than special terminology or abbreviations, is a good idea. Let me give you an example. Last year, we conducted a market assessment study for a leading American industrial valve maker, to help them penetrate Asia’s pharmaceutical markets. For this market entry study, we used PEST (Political, Economic, Social and Technological) analysis to review the attractiveness of the opportunity and the barriers to entry to each individual market in Asia. When our project team leader and myself co-delivered the final presentation to the Client, we kept talking about PEST and IPR (Intelligence Property Right) issues in China. When we approached the end of presentation in the Q&A session, one of the audience asked the question, "What do you mean by PEST and IPR?" I then realized we should have clarified the abbreviations we had used.

It is quite normal in all walks of life and in all ways of communication to expect the audience to have the same level knowledge as we do. However, on many occasions, this is not the case. This is the reason why our project team always has detailed briefings, commissioning meetings and interim presentations with our Client. With these efforts, we can ensure both sides have the same level of knowledge and expectation from the marketing research and consulting project.

The other day, I got an email enquiry forwarded by our New York office. There were merely two sentences in the email: "We’re from Brazil looking to acquire a Chinese company. What is the cost and time frame for you to research this target company?"

How do you find the communication of this email enquiry? If you were sending out an enquiry for this sort of buying and acquisition study, what information do you think you need to provide to your agency?

Posted in Acquisition Research, Jason Zhang, Market Research, Market Research China, Thursday Night Insight |
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Market Entry In China: Lessons To Be Learned

Entering any new market is difficult. This is especially so when companies attempt to expand into territories where there are stark cultural and operational differences between the nationality of the company entering the marketplace and the host country.

As we’ve identified countless times at the Market Research Blog, and in several white papers on the subject, entering a market such as China can be fraught with difficulty for the unacquainted, and that being prepared for a different way of doing things is the best possible grounding.

Paul Denlinger, a strategic consultant in China, has identified some reasons why US companies in particular have struggled in the People’s Republic. Key amongst his findings are that US operations cannot simply be “scaled outwards” when starting out and that very different ground-rules apply:

Why most US Entries Fail in China
July 14th, 2008
By Paul Denlinger

The consulting industry in China is flourishing. After all, it is the largest potential single market in the world, and everyone is flocking to it. New companies need information and advice about how to tackle the unique challenges of this market. For any MBA who is fluent in Chinese, or who has grown up in China, and is familiar with the tools of the trade, such as financial modeling, business negotiations and company valuations, China represents an “iron rice bowl” which will make their careers for years to come.

Or is it? My experience is that there are errors which are repeated over and over again. It gets like being condemned to watch a single Broadway show, over and over again, where the only things which change are the sets and the actors; the lines are the same.

I have covered one of the major fallacies in a previous posting, Getting Past the China Market Hype, which covered their initial reasons for entering China. This posting will cover some of the reasons for failing post-entry…

For More, Click Here

Posted in Market Assesment, Market Research China, New Product Development |
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Misunderstanding The Chinese Workforce

Employee satisfaction, just like customer satisfaction, is a variable concept: What pleases one customer or employee is likely to be completely different from what drives contentment in another. In other words, employees can just as well be segmented as customers.

And just like a customer satisfaction segmentation, identifying what motivates employees can be approached from different directions, whether in terms of demographics or needs.

One particular way in which workers can crudely be divided is by nationality. It has commonly been observed that international workforces differ greatly in what they look for in a job.

A caution against this type of profiling is the danger of stereotyping. This is especially so in the case of China, where the received wisdom has been that Chinese employees are solely motivated by money.

However, as the following study, reported in the Wall Street Journal suggests, this perception may well be an outmoded one:

Misunderstanding the Chinese Worker: Western impressions are dated – and probably wrong
By KATHRYN KING-METTERS and RICHARD METTERS

Ask multinational firms to describe what motivates Chinese workers, and the responses are remarkably consistent: Money is the only thing that matters.

"Chinese have zero loyalty to their employer," one executive at a manufacturing firm told us. Said the general manager of a Shanghai hotel: "The most important motivator is money."

But those perceptions may be outdated and wrong.

That’s the picture that emerged when we interviewed, observed and surveyed employees at three Western-branded hotels in China last year and this year. Many of the workers we studied wanted more than just a paycheck from employers, took pride in being part of a team and often were willing to go beyond minimum requirements to solve problems on the job.

While some of the West’s impressions of Chinese workers may have been accurate when U.S. multinationals first started doing business in China in the early 1980s, our findings indicate that what Chinese workers want from a job and what they are willing to put into it has changed since then.

And if what we discovered in the hospitality industry runs true across other industries in China, then multinational companies may be using the wrong incentives to attract and retain Chinese workers. By focusing solely on salary as a motivational tool, they are giving short shrift to things such as training, time off and community building — incentives that could go a long way in a highly competitive job market.

For more click here

Posted in Customer Satisfaction, Employee Satisfaction, Market Research China |
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