How to Enter the Retail Market in China as a Brand
China’s expanding retail market offers endless opportunities to foreign investors. When considering new markets, the Chinese local market is high on the list of businesses coming from the US. There are many reasons for that!
Online retail sales in China hit $2.29 trillion in 2020 and are projected to reach $3.56 trillion by 2024, according to eMarketer. The number of digital buyers in China exceeded 710 million in 2020.
It all makes sense now!
In contrast to the US, where megastores rule the retail landscape, China’s retail sector is extremely decentralized and filled with numerous small and medium-sized stores. Cross-provincial merchants are still uncommon despite the rise of chain businesses in China. This is because entering the local market can be challenging.
An opportunity for China’s consumption growth of around $5 trillion over the next decade has been identified by McKinsey. For many foreign businesses, it might be a golden period to enter the retail market in China.
That, however, is not always the case. Google, Tesco, and Uber are just a few companies that have been there. They either had to abandon the plan or start from scratch.
Now that we know what the Chinese market offers let’s explore how to make a legit market entry into the local market.
Here are the important steps that will help you out:
Steps to Enter the Chinese Retail Market
1. Finding Your Target Audience
Although China is a massive market with much-untapped potential for foreign-made goods and services, it may be difficult to find and tap into those prospects. Companies worldwide, from well-established Western multinationals to fledgling startups with no prior experience in the Chinese market, have the same challenge: an inadequate grasp of the local culture and market!
Many international businesses must first understand that the Chinese market needs to be more homogeneous. Foreign enterprises should carefully assess which geographical location offers the ideal vantage position to reach the broader China market, as local markets in different parts of the country vary greatly.
2. Understanding Regulatory Frameworks and Policies
For B2B companies looking to succeed in China’s marketplaces, familiarity with the local country’s policies and regulations is essential. Despite substantial trade liberalization following China’s 2001 WTO accession, numerous sectors are still subject to stringent government oversight.
For example, China’s electrical, petrochemical, and telecommunications industries are very off-limits to international corporations.
Before deciding to join the industry, studying and comprehending the regulatory landscape is an important task. After breaking into a new market, monitoring the laws and regulations that could impact your company is crucial.
3. Understanding the Importance of Social Media
Social media use has skyrocketed worldwide but has yet to reach China in popularity. Chinese consumers are ready to share information on social media about their shopping experiences, buyer satisfaction, and where to locate the greatest discounts. It perfectly explains that the Chinese are described as “hyper-social” by Forrester Research.
Always being able to monitor customer sentiment around your product is critical, not just on social media but across all e-commerce platforms. You require complete transparency that lets you effortlessly access and analyze data from various sources around the clock, receive notifications when negative reviews are found, and monitor trends in consumer sentiment.
4. Keep an Eye on the Ever-Evolving Online Marketplace
Some companies decided to leave the Chinese market completely in 2018, while others announced the closure of their Tmall stores. The most recent companies to announce their exit from Tmall include Watson’s (a health and beauty chain in Hong Kong) and Macy’s (a department store chain in the United States).
One reason for this is that big platforms like Tmall, JD.com, and Netease Kaola are buying more and more merchandise in bulk from brands at discounted pricing. Since these platforms frequently provide the same popular brands and buyers can easily compare costs online, it becomes challenging for multi-brand merchants to compete.
Companies with a large customer base, like Tmall, are able to take advantage of economies of scale by storing their goods in secure Chinese warehouses. The shipping time for orders placed with an American company like Macy’s to reach Chinese consumers can reach up to twenty days.
5. Build your Business Plan with Localization in Mind
China is not a monolith!
Indeed, it covers a lot of ground, has several different cultures and societies, and is home to many different nations. However, still considering China to be a unified market would be a huge mistake.
While this is true everywhere, it is particularly true in China, where huge socioeconomic disparities are reflected in the local country’s pricing and selection. People in tier-two cities like Beijing and Shanghai tend to have higher disposable income, so they can afford to pay more for goods and services than those in tier-three cities such as Baotou, Bengbu, and Cangzhou.
6. Personal Perception of the Brand
While many of China’s buyers still choose established luxury labels, the younger generation prefers specialized products made by smaller companies. Midsize and small brands are perfect for these consumers because they are trying to establish unique identities. Rather than being brand loyal, Chinese consumers are always searching for something new.
Offering higher-quality products and releasing new styles more frequently than in the US is a game changer in the Chinese retail market. A large portion of China’s consumer base is on the lookout for genuine products. They prefer direct communication regarding the value you will provide rather than vague assurances.
Expert Tips to Enter the Retail Market in China
Here are some top expert tips to follow if you are planning to enter the Chinese local market:
- Provide top-class service: In China, speed is everything! First-timers in China’s major cities may find it surprising, but that’s how things are. The fresh meal arrives within 30-40 minutes. The same is true with customer service. People demand fast deliveries, quick responses to questions and concerns, and quick problem resolution. Many moments want responses in under 30 seconds, and people demand personalized responses.
- Partner with local businesses: Foreign enterprises entering China may benefit from this technique. Local businesses can provide business networks, government relations, and market knowledge. JVs (joint ventures) may also benefit from government incentives over WFOEs (Wholly Foreign Owned Enterprise). The PRC government has recently preferred foreign mergers and acquisitions to consolidate an industry and reduce competition.
- Provide third-party services: Like other markets, retailers in China need distribution, wholesale services, BPO vendors, reliable third-party logistics, and supply chain management partners. The PRC government supports foreign investment in emerging services industries that can give the technologies and expertise to flourish.
- Consider KOL marketing: The Chinese word for an influential person is KOL, which stands for pivotal opinion leader. KOL marketing is widely utilized in China retail to improve product awareness and localize foreign brand marketing, building consumer trust and familiarity.
Warning: China is an Expensive Country!
When brands consider their expenditures in China, some fairly outdated concepts stick around. They see it as a simple and inexpensive market to break into. The reality is that making a market entry into the Chinese retail market and establishing a presence there is too expensive.
Companies need to do more than just hope that certain individuals and simple steps will help them set up their online store.
Still, the market is so massive and cutthroat that they will only make it if they have certain unique advantages, like a large customer base, high levels of brand recognition, exclusive access, or a specialized area of expertise where only they dominate.
Brands must do more than being globally recognized in China to attract customers. Brands need to be present on social media. Excellent marketing, e-commerce, and supply chain partners are essential. Moreover, brands need intriguing stories, top-notch content, and sufficient funding to enhance their position and local relevance.
Companies with global sales of $50 million or more have the best chance, followed by those with $30 million or less. Additionally, the first year of marketing alone might cost anywhere from 4 to 10 million RMB ($600,000 to USD 1.5 million).
That’s a lot of money indeed!
The Chinese retail market is rich, but not for every brand. However, the benefits of conducting business in China are starting to beat the difficulties. The credit goes to the expansion of the local country’s economy, making it more welcoming to international enterprises.
Many foreign firms still find business in China challenging, but the old saying goes, “In China everything is possible, but nothing is easy.” However, the difficulty level is getting down every year.
The Chinese market is changing at an unparalleled rate globally, and the country is in a perpetual flux. Therefore, there is no universal strategy that all international brands should employ when entering the Chinese market.
Before you plan to do anything, ensure you’ve thoroughly thought of everything, prepared your strategy, and understood the culture. Launch your brand in a major way and implement your strategy with successful campaigns.
Summing up, it’s not easy at all. But definitely possible!
Executive with 25 years of proven success in call center management and revitalizing business units. Proven career record of producing multimillion-dollar profits through pinpointing operational inefficiencies and encouraging the revitalization of employee morale and corporate culture change.