Due to its fast development and economic growth, China offers great business environment and opportunities for many European firms willing to enter China market. Every year, more and more foreign firms penetrate various sectors of Chinese economy creating challenging conditions and high competition in the market. However, it is not easy for foreign producers to enter the market without good strategies and knowledge about it. The difficulties, which may arise, include asymmetric information about the market, inappropriate entry strategy, lack of access to distribution channels, difficulty in finding a reliable factor and cultural difference. Therefore, it is crucial for foreign producers to know the specificity of Chinese market and its rules of game to be successful and competitive market player.
Due to high competitiveness in Chinese market with a lot of domestic and foreign producers, it is vital to have an effective strategy, which would help to participate successfully in the market. There are several facts, which should be taken into account while designing entry strategy. It is important to reveal potential customers and predict demand for foreign product. Chinese consumers may react in a different way than the Europeans to the same product; therefore, cultural differences should be taken into account. Moreover, it is worth considering future demand growth, which can be either positive or negative depending on the adoption of a product in Chinese market. As a result, a company will be able to increase production capacity in advance, if demand is expected to grow, thus not losing revenues in the future. Firm, willing to enter China market is expected to measure its current capacity in order to be aware of whether it will be able to satisfy existing demand or not. Additionally, timeframe for entering the market is crucial for a newcomer to calculate possible costs and payback period. It will also depend on demand, which is if high, will lead to short payback period and successful settling in the market.
For a European company seeking to enter China market there are various distributional channels, which can be used to introduce a new product to Chinese customers. The way of product distribution can be either direct in indirect implying that with direct method a product goes directly to hands of customers, while with indirect method there is a mid-seller between foreign seller and customer. If a company chooses to distribute its products directly, online shop, catalog or sales team can be used. However, a lot of foreign producers choose an indirect method of distribution because their knowledge of Chinese market and other aspects (such as culture) might be limited. As a result, they choose to rely on Chinese specialist agencies that are expected to be aware of the market. There are several ways of indirect product distribution including value-added reseller, dealer or consultant agency. All three types either buy product from foreign company and resell it in domestic market, or give advice and guidance on distribution channels. The main disadvantage of indirect method is existence of mid-person between buyer and seller, what automatically increase price and may have a negative effect on demand.
Daxue Consulting provide valuable services and solution to optimize your approach of China market and help you to build the best strategy to enter China market. Our staff has strong knowledge and experience of China market, distribution and consumers and offers you the most suitable advices for your entry strategy.