3 Secrets of Success for Doing Business with China

Posted by Philip Driver on May 24, 2019 7:10:40 PM
Philip Driver

Looming large in our lives for the last 40-plus years China never seems to be out of the news. The current burgeoning trade war with the USA burns up the majority of the headlines and you’d be forgiven for thinking that it’s probably the end for any Western organisations wanting to break into the Chinese markets. Bloomberg even reported recently that European companies operating in China said doing business became harder over the last year, with slowing output, rising wages, the trade war and other factors adding to the challenge.

Doing Business in China

But the rulers of the Middle Kingdom are no slouches when it comes to driving business agendas and are fully cognisant of the need to protect their reputation as the region of choice for overseas investors. They have already begun the process of transitioning away from economic equilibrium with the USA and towards a service and consumption driven economy rather than a manufacturing and export one.

While it has never been easy for European organisations to run a business on Chinese soil, the rewards are still worth it – if you follow the rules.

To prove it we’ve taken a look at how the German sportwear manufacturer and fashion brand Adidas established a foothold in the Chinese market more than 20 years ago, making China their biggest growth region, and a key reason for their phenomenal global success in recent years.

Success Factors for doing business in China

China is a complex market and a product of its history both modern and ancient. In analysing Adidas’ approach we concentrated on the following three key success factors:

1. Working with the Chinese Government

2. Localisation and ‘Guo Qing’

3. Relevancy and Marketing

1. Working with the Chinese Government

Working with the Chinese Government

Despite what could appear to uninitiated outsiders as a capitalist marketplace, Chinese industry remains heavily controlled and regulated by the government. Even with a growing private sector many companies remain wholly or partially owned by the state. And those that aren’t may have government officials on their staff or as advisors to the company as well as employees that are party members. This level of involvement can seem very alien to western companies and feel like interference or control.

While this may be true, we would argue this is simply an extension of the Chinese principles of guanxi ‘relationships/networks’ which are fundamental to doing business in China.

Adidas’ 20-year presence in China has given them a chance to develop a detailed understanding of the Chinese government as well as build up a network of influence across retail and manufacturing. Time spent on relationships is something the Chinese value greatly and is apparent in the business banquet and gift giving culture. However, this alone may still not have been enough for them to secure success in the region.

What the Chinese government prize more than anything else is investment for the benefit of China and the Chinese people, and this is not solely about creating business value or jobs.

To this end Adidas has done several major things: sponsored the Beijing Olympics, established over 8,000 retail stores as well as an HQ in Shanghai, contracted with over 250 local suppliers to provide 50% of global production, and sponsored a national school soccer program including an educational TV series. While some of these ventures may initially have been loss-making for Adidas in the short term, from the Chinese perspective they showed an amazing commitment to China and the Chinese market and further solidified Adidas as one of the major sports brands that consumers should embrace.

2. Localisation and ‘Guo Qing’

Localisation and Guo Qing

Localisation in any market is a key success factor and it’s no different with China. We would argue that it’s even more important here where cultural differences can also be further influenced by the immense geography. Most western companies entering the Chinese market understand that localisation is key, such as KFC who retain their core competencies and brand but have radically different menus in China and also ‘within China’ as Shanghai stores can have differing menus to Beijing, for example.

Adidas have shown a commitment to localisation in China in several key ways: the opening of a ‘Creation Centre’ in Shanghai whose purpose is to generate unique and original designs solely for the Chinese market; holding a competition for Chinese consumers to design the official Olympic kit of the Beijing games to be worn by the Chinese team and all officials; and opening ‘brand centres’ in Beijing and Shanghai. This demonstrates real commitment to the market as well as a “China First” approach which is not standard practice for western companies.

3. Relevancy and Marketing

Relevancy and Marketing in China

The Chinese consumer has gone through some dramatic changes in the 20 years since Adidas landed in the region. Chinese consumers are now much more fashion conscious with nearly a third saying that they like to keep up to date with fashion trends. ‘Casual’ sportswear like Adidas accounts for nearly 60% of the fashion market. While good news for Adidas and other fashion businesses operating in China, staying relevant in this rapidly evolving consumer environment can be difficult. Chinese consumers have moved from being price led to being interested in quality and brands, something that in China is often perceived as being inherent in western products.

Adidas has found several ways to remain relevant to different groups of Chinese consumers. For example specifically targeting the female market, who are increasingly becoming health conscious, using devices such as the “all in for #mygirls” campaign to appeal to young females with messages of fitness and sisterhood; opening ‘women only stores’; supplying the Chinese women’s volleyball team, tennis player Coco Xu, track and field champion Liu Hong and recruiting the Taiwanese actress Ning Chang as brand ambassador.

Another example is the “One in a Billion” campaign that leveraged the growing rise of individualism and expression in China, targeted at young Chinese people who are growing increasingly independent, wealthy and living alone. The advert for the campaign was highly stylised and emotive and featured major Chinese sports stars as well as Chinese football ambassador David Beckham.

Adidas are by most benchmarks an already highly successful company that upon entering the Chinese market could have simply replicated their current corporate practices and marketing. However, when we view their activities through the theorised three key success factors, we can see that they have time and again tailored their activity specifically for the Chinese market and in many cases have followed a “China First” policy which can then be rolled out globally.

For information and advice about doing business in China, get in touch today.

Topics: marketing, China

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