Entering the Middle Kingdom

And even though China is already New Zealand’s fourth largest export market, our recently signed Free Trade Agreement is expected to help facilitate further trade. New Zealand Trade and Enterprise (NZTE) reckons the Chinese value doing business with New Zealanders because we also believe in building strong personal relationships.

But many companies have failed in China – especially those that didn’t recognise the distinct differences between Chinese consumers and those in the West. Research by McKinsey and Company shows a resurgence of traditional values and beliefs, with Chinese consumers significantly more conservative than their counterparts in other markets. In response to a recent McKinsey survey, almost twice as many consumers in Taiwan say they are willing to experiment with new packaged foods as are 47% of American consumers and 43% of British consumers. Conversely, a significant number of Japanese consumers say they “like to stick to the brands they have used in the past” and one-third of Chinese consumers agree with them.

Getting the notoriously price-sensitive Chinese consumer in the door is one thing; getting them to buy is another. Take the Ikea store in a southern province of China. On hot weekends, it is heaving with families and young couples – a sign of success, surely? Unfortunately, they are there for the air conditioning rather than for the colourful couches or funky lights. Only a handful actually buy anything.

Or what about a typical Chinese sale for New Zealand ice cream franchise company New Zealand Natural? A young couple will enter one of its 40 stores in southern China and the man will buy his girlfriend a scoop of ice cream but have nothing to eat himself, says Asia general manager Campbell Cave. The man may treat himself to a coffee but foregoes the ice cream, Cave says, because the price at 15 Chinese yen per scoop is still relatively expensive when you consider the average income is $2,000 yen per month.

NZTE warns there is no such thing as a typical Chinese consumer. The country has to be broken down into provinces in order to understand consumer preferences and market dynamics. Tom Doctoroff, J Walter Thompson’s CEO of Northeast Asia, likes to subdivide the country’s population into four: youth; the emerging middle class; women; and the old. Each needs a customised approach.

Rob Jeffrey, national chair of Export NZ, has been going to China since 1988 with his agricultural products business Jeffco International. “You need to engage with them socially, culturally and commercially to understand the way they do business.”

The way you introduce yourself is also crucial. The best option is being introduced through an official delegation, a mayor or a business council. And, he adds, if you’re selling a product, you need to understand your niche, invest in the right people and make sure you use interpreters who are working for you.

Throw away the marketing rule book when you arrive in the country, warns Cave. He and his team didn’t do enough market research before arriving in China three years ago, he says, but such information was pretty thin on the ground when they arrived.

Cave does site selection, marketing and store design for franchisees in China and for nine other Asian countries, but having experience of other Asian markets is not necessarily preparation for China.

NZ Natural has to overcome the fact that dairy products are relatively new in China. Although China is said to eat 20% of the world’s ice cream, the vast majority of Chinese are not used to cold food products. Ice-cream smoothies, which dominate Australasian sales, have bombed in China because most consumers don’t like cold drinks.

“Starbucks came here and educated people about coffee,” says Cave, somewhat hopefully. NZ Natural wants to do the same thing with ice cream, even if it is one scoop at a time (95% of China sales are individual scoops of ice cream).

So how do you get your message across in such a vast market? Conventional TV advertising is too expensive, says Cave. “The stores are the most important form of communication that we have.” A number of NZ Natural’s stores are cafes rather than the kiosks prevalent in New Zealand, and site location is absolutely key.

“You very quickly learn not to think about headcounts; you need to focus on the right sort of customer.” Cave chose cities like Guangzhou and Fujian which have a warmer climate and a relatively wealthy population. “We try to be in the main shopping areas. People who come into the main centres have the money.”

Dennis Murray, founder of e-learning company Intuto, says the education sector in China “knows exactly what it wants” and that you have to be patient, persistent and attentive. He first opened Intuto China in July 2005 and did not start selling product until May 2006, some 10 months later. It now has 20,000 students.

Murray has learned to be clear about stating his distinct advantage over competitors when presenting his product in China. And collaboration helps. Intuto China has partnered with the Communist Youth League of China (CYL), which has a presence in every university nationwide. The CYL (Murray compares it to the Young Nats) has a jointly-owned website with Intuto called I Xue Xi (I love learning).

While the English language market in China is predicted to grow for a further 20 years, competition is increasing and the challenge for any New Zealand company is to provide the required scale, Murray says.

Real estate company Ray White is another trying to break into the Chinese market but has gone about it slightly differently. NZ CEO Carey Smith and a team from Australia went to Shanghai two years ago and bought an existing business. The brief was simple: to remain a Chinese agency selling to Chinese.

Ray White China does the full gamut from residential property management and tenancies to residential and commercial sales. It now has 15 offices in Shanghai, despite the fact the city already has around 200 real estate brands, ranging from one-man bands to the largest chain, Century 21. In some streets there are 20 real estate offices side by side.

The Chinese real estate industry is hugely different, says Smith. All the property is leasehold, owned by the government, and marketing is all word of mouth. There are no open homes, no Property Press. “From our point of view, a lot of the sales potential would have to do with its sales people,” says Smith.

He’s seen some key changes in the market in just two years. “A lot of Chinese have seen houses as a means to live,” he says. “Now they see them as a sign of wealth.” And Ray White plans to be there to benefit from that.