Consumer Trends and Market Entry Strategy in China
With over 1.4 billion people, China is the second most populous country in the world. It also doubles as the second largest economy following the US, which makes it an important player in the global economic field.
Most Western and African companies find it challenging to penetrate the market successfully because the Chinese market is large and complex, with a couple of factors influencing consumer behaviors.
Chinese consumers are at the forefront of demographic shifts and technological adoption, making it an interesting market to explore.
Market entry strategies are a vital consideration for any company looking to explore the Chinese market, as are trends, and the Chinese culture. Other factors that shape the Chinese market are the high population, rising income, and other changing demographics.
Overview of the Chinese Demographics and Consumer Behavior
Considering the enormous size of the Chinese market, it is necessary to view the consumers in various demographic segments. China’s consumer markets are segmented into age, geographical regions, educational level, tech savviness, family size, and income levels. There is also a group of consumers that fall into the eco-conscious segment following the rising concerns about the environment. These set of consumers are more willing to pay for sustainable products and alternatives even though they are more expensive.
Chinese consumers are made up of mostly young, educated people ages 20-40. Unlike their parents, young people in this category tend to purchase online and save less, as they prioritize quality over low prices. They believe that price is a notable indicator of the quality of a product; the higher the price, the better the quality, and then lower prices mean low quality.
With the rise in income level and improvement of living standards, China has become the largest market for luxury brands. Consumers in the rising middle class are more focused on quality products. High-end products of major brands like luxury cars are sold in certain geographical locations such as Hong Kong, Shanghai, and Beijing, where people are not reserved in their spending.
Technological savviness has also influenced consumer behavior. Since the emergence of e-commerce platforms, there has been a high rate of independent purchases by consumers. With millions of internet users in the country, the volume of online retail purchases and payments by consumers has increased greatly and is expected to increase in the coming years.
Emerging Consumer Trends in China
After the pandemic, new consumer trends began to rise. Chinese consumers have become more practical and less driven to take part in impulse spending. There is a rise in rational consumption whereby consumers are price-sensitive and purchase decisions are based on quality and functionality.
According to a Chinese customer survey by Deloitte, a higher percentage of respondents expressed that they prioritize cost-effectiveness, family needs, durability, and aesthetics when making purchase decisions. Customers looking for cost-effective products proactively research brands and retailers offering promotional discounts and coupons for their products.
Omnichannel customer service is another consumer trend in China. Customers need fast services and quick resolutions in their interaction with brands. Omnichannel is a recent trend and is preferred by customers because it lets them interact with brands across their various online media platforms and devices, and yet have the same customer experience. So far, this trend has boosted more loyal customers because it is a frictionless process that leaves customers satisfied.
Chinese consumers are a tech-forward audience whose digital savviness is unmatched. Mobile payments have become a norm in retail purchases. The e-commerce trend in China shows that for businesses to be successful, they must have a strong digital presence on media platforms like WeChat as a customer service tool and Alibaba, which has integrated live streaming into its platforms.
Most foreign brands leverage these platforms to boost customer engagement by hiring local influencers to entertain and highlight products in real-time, driving more sales and active purchases.
Chinese Market Entry Strategies
China has a robust digital economy and a huge customer base that is attractive to businesses and investors. Without well-planned market entry strategies, it could be tough for foreign brands to successfully penetrate and gain footing in a highly competitive market like the Chinese market. Most local players already have market dominance. It will take more than a nice product to not get defeated in the market.
Here are ways to be ready for the competitive Chinese market.
- Research to learn more about the Chinese market: The aim of researching before entering the Chinese market is to get to know your customers, understand how the market works, and know their competitors among already established local players. The Chinese market is large and always evolving. It will be an edge for businesses to understand market trends to stay ahead of the competition.
- Connect with local experts to help you navigate the market: Leveraging the knowledge of local industry experts is one way any business can gain access and thrive in a volatile market like the Chinese market. Local experts may also have customer contacts and a working sales network that businesses can leverage.
- Choose a suitable location: The most logical places to start when entering the China market are in top-tier cities with dense populations like Shanghai, Guangzhou, and Beijing. These markets have lower risks, fewer operational costs, and are good for testing foreign brands. Commercial opportunities with good infrastructures and fewer risks are also in other provinces like Wuhan, Tianjin, Chengdu, and Dalian.
- Create localized contents that align with the Chinese culture: Product localization that resonates with customer values and preferences is a way to boost customer satisfaction and loyalty. Businesses can choose to localize all their product documents that the public comes in contact with, such as product names, labels, and manuals. Contents on websites and social media platforms can be translated into the language of the region to better aid the understanding of the product by locals. Chinese are culture-sensitive and will always prefer any brand that mirrors their cultural values or beliefs.
- Choose appropriate social media platforms and sales channels: Some products do better in the physical market than on e-commerce channels. It is necessary to stay current with online trends and establish a digital presence that can aid customer engagement and support.
Mode of Entry into the Chinese Market
In setting up businesses in China, entry modes must be considered and coordinated to avoid disruptions of the business by the Chinese government regulatory bodies. There are three main modes of entry into the Chinese market. Each mode of entry is characterized differently based on legal status, business scope, invoicing and contracting, labor employment, and shareholder capacity.
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Wholly Foreign-Owned Enterprise (WFOE):
This is the most preferred entry mode available to foreign businesses playing in the Chinese market, even though it has high risks. It is called “Wholly Foreign Owned” because it is a Limited Liability Company (LLC) that is single-handedly established with the capital of the foreign investor. WFOE operates a separate legal entity status and is allowed a generalized business scope as specified during the business registration. There are no limitations on hiring processes for WFOE, so both foreigners and local Chinese can be hired.
This entry mode has three different types:
a. Consulting WFOE: This LLC is permitted to operate as a consulting business in the Chinese service industry.
b. Trading WFOE: This type of LLC is expected to register at Customs to import and export goods. Trading WFOE is only licensed to engage in wholesale and retail trading as well as other franchising activities.
c. Production WFOE: LLCs under this category are permitted to manufacture goods in China but must pass through the Environmental Impact Assessment (EPA) before receiving a business license and beginning operation.
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Joint Venture (JV):
A Joint Venture is an LLC in which a foreign business partners with a Chinese indigenous company. It is somewhat similar to WFOE in features but is different in structure. Most foreign companies prefer this market entry mode because it establishes a relationship with Chinese partners who already have the production facility, customer contacts, sales network, and a vast knowledge of the local market. Joint Venture means that both the Chinese and foreign stakeholders will jointly manage the company.
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Representative Office (RO):
Unlike the Joint Venture and Wholly Foreign-Owned Enterprise, a Representative Office doesn’t operate as a separate legal entity. It is more like a branch or liaison office of a headquarters that has been in existence for at least two years. RO is limited in its business scope. It is only permitted to conduct market research and surveys for the headquarters but isn’t allowed to issue invoices or even engage in any business activities on behalf of the headquarters.
Adapting Market Entry Strategies to the Chinese Culture
China has a unique business culture that every brand doing business in the country must familiarize themselves with to be successful. Running a business in China requires an in-depth understanding of business etiquette, the language of communication, and the decision-making processes of consumers.
China is not just a market. Its vast population makes it a goldmine for international businesses. With over 1.4 billion people, China presents a unique market opportunity with varying trends, tastes, and cultures.
How do global brands successfully adapt their products to such varied audiences?
Adapting products and services to the taste and culture of Chinese consumers requires a deep dive into understanding the market trends and consumer preferences. It is beyond translating and interpreting product labels. Brand content on e-commerce platforms, social media profiles, and company websites should be translated into the local languages that the Chinese consumers understand.
Localization is a smart business strategy. It is a way of incorporating cultural nuances in product branding such that it appeals to the tradition of consumers. Brands can demonstrate respect for Chinese culture by actively participating in the region’s festivities.
Recognizing and engaging the values and social norms of locals during product branding shows regard for their tradition, and in turn, boosts customer satisfaction and loyalty.
An excellent way for a foreign company to avoid cultural pitfalls while introducing its product to the Chinese market is by hiring language translators and interpreters, as well as local experts who understand Mandarin as the primary language of communication, symbols, and tone of voice that resonates with the cultural heritage of the people.
For instance, a successful adaptation by Starbucks is seen in its use of Chinese design elements in the ambiance of its store interiors and in its offer of tea-based beverages that appeal to the taste buds of local consumers.
Conclusion
As the world’s second-largest economy, the Chinese market presents opportunities for businesses looking to expand globally. Brands can leverage their growing customer base by expanding their reach to a varied audience.
GPI understands the complexities that come with entering the Chinese market. Market entry strategy gives brand direction and a clear plan on how its products and services can successfully penetrate any market.
With our extensive industry experience, we offer strategies that help your business adapt its contents and products that resonate with the trends, tastes, and culture of the Chinese people.
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