Market Entry Research for China’s Industrial Sectors

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By Thomas Ward

SHANGHAI, Dec. 2 – When considering entry to China’s industrial sectors, some foreign investors think in terms of China as an emerging economy. Although this is true in some sectors, and the IMF still classifies China as a developing nation, it is a country that holds some US$2.4 trillion in reserves and a current sustained annual growth rate close to 9 percent. Several of China’s industrial sectors such as high speed rail, telecommunications, wind and solar power, petrochemical processing, automotive, and steel production are performing at levels on par or better than some western countries.

With this in mind, China’s industrial sectors are interested in procuring only the best and proven technologies from abroad – technologies that will enable them to operate more efficiently, reduce pollution and enable them to sustain growth in their domestic and export markets. Foreign companies that wish to provide such technology will find that they are welcome, but should proceed with a well designed strategy based on current and in-depth comprehensive market knowledge.

The first step to be taken is one that is often overlooked. It is that of trademark registration. This should be done prior to exposing one’s brand to the Chinese market, even if the entry decision has not been made. China’s trademark regulations allow for trademark registration on a first-come first-serve basis without qualification of trademark ownership. Often, foreign companies have entered the China market with considerable investment only to find that their trademarks have been registered by another party.

With trademark registration underway, the strategic research process can begin. Although each industry requires different data, the methodologies of discovery are basically the same – employing secondary and primary research to provide a balanced and objective report along the following guidelines:

Preparation
To prepare for the research, it will be important to thoroughly convey the objectives of deliverables of the work to the research firm. This will enable them to tailor the project design and schedule to meet the objectives to develop an effective market entry strategy. The technology should be clearly described with technical support available for queries from researchers. The project should not commence until the client is thoroughly satisfied that the researchers understand the scope of technology and how it is intended to fit into the targeted industry.

Initial research
The initial “desk top” secondary research will provide a general market context of relevant government regulations, market size and trends, prevailing economic factors, brief descriptions of competitor operations and listings of industry targets for primary interviews in the field. Normally this work is completed as the first phase of a two phase project. At the juncture between the two phases, the research team and client will review the initial findings prior to proceeding to the second phase for primary research.

Primary research
In the second phase, the research team goes into the field for primary research. In cooperation with the client, interview questionnaires will be designed for face to face field interviews, as well as on the phone, with industry experts, government regulators, end users, competitors and any other parties that can provide the relevant information to meet the requirements of the project.

It should be noted that within Chinese society this can be a lengthy process as most Chinese are reluctant to be interviewed without authorization from their superiors, a referral from a known person, personal reward, or a combination of any or all of these.

Within this phase, the information gathered from the interviews is compared against the data gathered by the secondary phase. The data is then verified, analyzed, and synthesized in a consistent format for incorporation into the final report.

Final report
The final report will recap the verified information from the first phase and articulate the findings of the field research with conclusions as to the size of the entry window of opportunity for the client. A proposed entry strategy is then written, usually with options, to demonstrate the ways and means of entry for the client.

For optimum results, it is recommended that the client bring the research team leadership to the home office for an in depth review of the findings with all of the client stakeholders. This will assure that all parties have ample access to the report and the opportunity for challenging and verifying the project findings

At this point, the client would then weigh the options of available entry paths. Some would elect their entry to consist of establishing a representative office and working through agents and trading companies for sales and distribution. Others may move forward to establishing a wholly owned foreign enterprise, or foreign invested commercial enterprise, with imported inventories, a sales team, and field technical support. For clients with needs to manufacture in China, the options of a joint venture, acquisition, or green field plant construction and operation may be considered.

All of these options, as well as a critique of the secondary and primary research, should be discussed thoroughly with the research team leadership in a project review meeting. From this meeting a set of path forward options can be developed as action items for the client’s China team.

As the options are considered they should then be reviewed with qualified China-based legal, accounting and tax experts to determine the advantages of each choice of entry. The gathered opinions should then be shared with the appropriate corporate legal and accounting team for future alignment with the chosen option.

Once the option and direction have been selected the client management can then design the initial draft of a China business plan. This plan should have a thorough review by all interested parties on the client team; the China based legal and accounting team, and the operational portions of the plan with the market research team. This will enable all of the project players to critique the plan and be aligned for the path forward.

Thomas Ward is the president of PIM Ltd. – a Shanghai-based consulting company providing market entry research and analysis on China’s industrial markets.