China exporters and manufacturers – was the last 5 years a challenge?
The recession which hit US and European markets was probably the most significant challenge that Chinese manufacturing has faced. For many young entrepreneurs it was their ‘first’ recession, and was significant for its sudden impact, and depth. We saw previously successful factories struggling to fill 40% of their capacity. This came at a time of labour shortages, increasing costs, and additionally an appreciating RMB which impacted margins.
The response to this challenge
Factories in China addressed these challenges in different ways, and there was no quick solution. But what these circumstances did focus attention on was the steadily developing China market. Selling to China seemed a logical strategy to adopt to offset declining exports. So many companies turned 180 degrees and started to look at the Chinese consumer, often for the first time.
What they found was a complex market, much more complex than shipping containers to the USA. they soon realized that they needed additional knowledge to fill gaps in order to develop a host of new marketing skills. Some of these were
- Product strategy – the traditional source for product design was from export customers and suitable mainly for export markets. The China market usually demands products that are developed specially for the Chinese consumer in China
- Product design – all the designs were owned by overseas customers, so to copy those designs, even if they were suitable for China, would risk infringement of copyright. Perhaps that did not matter a decade ago but IP law is now much more advanced and it is a serious matter to copy products from another company and fraught with risk.
- Distribution channels – to reach the Chinese consumer, a distribution strategy needs to be developed, that takes into account wholesale and retail routes to markets which are spread over a massive geographic area. Very different to filling a container and shipping out through Yantian port…
- Sales and marketing skills needed in the China market are totally different to those needed in the export sector.
- Pricing skills need to develop from cost plus costing, (to meet an export target price,) to covering the many new costs, such as marketing, advertising, sales force, logistics, R & D, and other channel specific costs that do not exist in exporting.
- Tax implications, need review, to ensure that the company is compliant with VAT and able to recover input costs.
- Brand differentiation – how to develop a position?
If this was not enough, the whole issue of developing a meaningful brand position for the Chinese product and penetrating an established market became one of the most critical factors that would determine success or failure. How to develop a brand that would be relevant to the increasingly besieged and selective Chinese consumer, and win a position long term? This was probably the most important challenge of all, as without this solution, the product cannot easily be differentiated and could remain a commodity. A commodity is sold on price alone, so real added value of the brand would be lost.
A brand licensing strategy addresses almost every one of the above issues, and equips the licensor with a brand that helps develop a long term significant enhancement in product positioning.
Product > Name > Logo > BRAND – the transition from commodity to consumer awareness and sustained profitability