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How the West Could be Won
Mike Bastin Nottingham University's School of Contemporary Chinese Studies

Firmly on the agenda of many business plans for 2013 will be expansion into China's second and third-tier cities in central and western China, where more and more foreign firms are focusing attention. Despite a cooling in China's economy, growth prospects outside the tier-one cities of Beijing, Shanghai, Shenzhen and Guangzhou are more and more attractive. However foreign firms may need to adapt their China business model for these cities.

Chinese inhabitants of these less developed areas are often suspicious of foreign firms and therefore a large exercise in gaining trust is necessary before any real market penetration can be achieved. Ways of gaining this trust could be the formation of joint ventures with local companies or to consider co-branding. Co-branding entails the public presentation of two or more brand names on the final market offering - Sony-Ericsson or Intel Inside.

China's second and third-tier cities are well endowed with local brand favourites that local Chinese value but that can also benefit greatly from co-branding initiatives with respected foreign brands that will help them to improve quality, consistency and packaging. The lesser known Chinese brand will receive a huge boost in trust and credibility from the public association with a foreign brand, even if the foreign brand is not that well known. Country-of-origin image will help if the foreign brand is not that famous. Foreign companies that originate from developed countries can piggy-back on any reputation the country has in certain industries, such as Germany in engineering and France and Italy in fashion. The foreign brand will gain with immediate access to the Chinese brands loyal customers and with this opportunities to build trust and gain greater insight into all aspects of the local business environment.

Co-branding partners need not necessarily be from the same industry, they need only seek to serve the same target market. A co-branding alliance should help to capture the attention of the local consumer and present a competitive partnership. Such a tie-up will also serve to minimize any reaction from other local competitors and also help cement good working relations with all local stakeholders including the local media and local government.

Co-branding helps to limit risks, especially capital investment. The foreign partner brings brand awareness and respect as well as technology know-how and management skills, while the local brand operator should play a leading role when it comes to financial investment and local knowledge. As a result, the foreign firms should learn from their Chinese partners whose workforce would be motivated to build a competitive combined brand. The Chinese partner's management and workforce should also acquire more modern management and technological skills necessary for their own international expansion.

A patient approach is also key to success for foreign firms operating outside the main cities. Do not expect explosive gains in the short term. Rather, learn about the market, build a firm base with gradual penetration and understand the strengths and weaknesses of other local brands. 2013 is the Year of the Snake, an apt symbol of the snake-like strategy that foreign firms need to follow with their expansion plans across China. But when the snake decides to attack, it does so with deadly, decisive speed. Foreign firms should do likewise.

(Source: China Daily)

 

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