I realize it is outside of the traditional China sourcing topics, but so many friends and family have asked me about how to open the China market for western products, I thought I would offer some comments to our readers who are contemplating a sell to China strategy.
The following cases involved wine and spirits, but the same principles apply to many other industries from pet food to appliances. A friend of a friend in Tennessee recently got a distillery up and running. He asked me about what prospects might the China market hold for his product. Here is my response:
We have a sister company called www.SPimports.com that focuses on bringing in western products to China. So I do have experience with beverages, both alcoholic and non-alcoholic. The good news is that the China market for imported wine and spirits is huge; the bad news is that the China euphoria has caused every distiller, brewer and vineyard to try to make a China play and at the moment, only two types of companies are successful:
a) PULL STRATEGY
The big brands with huge marketing budgets that pull in the clients. For example, in China, they don’t buy by the glass at the bar. To the contrary, the bars and clubs are almost 100% bottle service. A group of friends or business associates sit around a table at a bar, club or KTV. That means everybody around the table sees the brand and this will give face (so important in China) to the person ordering for their friends. The only guy at the bar ordering Jim Beam is me, because I put taste over face. Chinese want the high-end Scottish stuff! Most local consumers can’t taste the difference between a good whiskey and a bad one, but they know the brands from the TV ads and that is what they order. So the brand “pulls in the buyers.”
b) PUSH STRATEGY
Less famous brands (of various price points and quality) don’t have the budget for a national PR campaign in China, so they utilize a push strategy where they set up relationships in a key market (one city at a time) or key channel (KTV bars in a certain city) with key players to push the product. For example, work with a chain of bars or a KTV house (they can have 1000’s of KTV rooms in a single district!) to push your brand. The adverts are local inside the establishment, the staff is trained up on how to promote this brand and most important, everybody from the boss down to the KTV girls gets a piece of each sale.
This push strategy is VERY hard for the following reasons
a) Every level has problems with corruption and bribes
b) You still have to find a way to get the product imported into China. Legally or illegally, it will cost money. Assuming you went the legal route, you would need to register the product in China, convert the labeling to Chinese, and get the product safety tested and so on.
To make a long story short, unless the TN company has a product so unique that one of the major brands allow the TN brand to piggy back, the you are looking at a push strategy in one form or another. It could be small scale focused on a single district or it could be multi city depending on the budget. But to get 1 bottle or 100,000 bottles into China legally, you still have the upfront costs mentioned above in terms of registration and labeling. If the TN company has 100’s of thousands of USD to open the China market, then perhaps we can offer some suggestions, but if they don’t have the budget and plan in place, I would advise not to make a China play at this time as this industry is one of the most dangerous in terms of shady practices and business pitfalls for the uninitiated western businessperson.
I wish I had better news for you, but I wanted to give you my honest opinion.
About the Author
Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com).