China- A goldmine for consumer goods exporters?
China reduced import tariffs of over 730 products on 1 January this year. The average import tariff after reduction is 4.4 percent, which is around 50 percent of China’s previous tariff under the most favoured nations treatment. Consumer goods, advanced technology and equipment and natural resources are the major products on this tariff reduction list, which reflects China’s strategy to boost domestic demand, seek trade balance, diversify outlets for foreign currency reserve, and seize advanced technology and critical resources to both strengthen China’s position as a world manufacturing base and move up the value chain with better technology and more value added products.
China is the biggest foreign currency holder worldwide and its US dollar reserve is even bigger than the combined US dollar reserves of G7. To cash in its hard work and avoid the potential risks by another round of quantitative easing monetary policy in western countries (which is less possible now though), China has little choice but invest overseas and encourage import.
It seems to be all good news for Australian exporters, especially consumer goods exporters. We have been the biggest mining resources supplier for China and now China is opening a bigger door for Australian natural skincare products, seafood, wine, milk powder and fashion products. Isn’t it?
Hold on. Before we celebrate this exciting opportunity with champagne, there are a few things we must bear in mind so that we can really leverage this opportunity to grow the export to China business.
There is a saying about China’s consumer goods market: “Brand is more import than product, and price is more important than quality.” This summarises the characteristics of 2 market segments in China: The upper market which judges products by brand, and the low end and mass market which is most price sensitive. As a high cost country, Australia can rarely compete with China in product price. We have to focus on brand building and product differentiation to tap into the upper or middle-upper markets in China.
However, given the fact that over 95 percent of Australian businesses are SMEs, Australian exporters do not enjoy the luxury to spend big on brand building in a huge and unfamiliar Chinese market. Lots of SMEs’ marketing investment in China is like a sand dropping into a vast sea which ends up with no or little profit. Considering Beijing and Shanghai each has a population of over 20 million, almost bigger than Australia’s entire population, Australian exporters need to have realistic expectations, start with one city/region and commit all necessary resources to win the battle in this target city/region. It might be smart to just target an identified niche market in one city, gain positive cash flow and then roll out to other markets and regions.
In most cases, Australian exporters are not alone doing the hard work in China. We usually leverage local distributors/agents in China. But one thing I have learned again and again from working with over 200 Australian companies to develop the market in China is never leave marketing to Chinese business partners’ good hands and think they will do the right thing. Unfortunately they may not, especially if they do it alone. Established Chinese distributors/agents may be competent in sales with their existing sales network and market experience, but they are often not willing to invest in building someone else’s brand or are incapable at conducting effective marketing. The mindset of ‘sales without marketing’ due to the practices within previous economic systems, the belief that strong ‘guanxi’ (relationship) makes sales and the concerns for wasting money on building someone else’s brand, are all barriers for Chinese businesses to be keen and effective in conducting marketing for foreign brands. Australian exporters need to leverage Chinese business partners’ local experiences and knowledge, develop a clear marketing strategy and work closely with Chinese business partners to build the brand and market the products in China.
To succeed in the competitive consumer goods market in China, Australian exporters also need to be agile, creative and committed. China works on a speed much faster than Australia. Its ever changing business opportunities and challenges require businesses to respond quickly to the changes. Also the Chinese market is not at a maturity stage and so accepts new ideas, emerging trends and pioneer approaches. Creative ideas, especially creative marketing, may help businesses build brands overnight. However, in most cases, as you may have heard, “when you go to China, double your budget and take twice the planned time to develop the market. Committed businesses eventually all achieve success in China.”