One of the critical success factors for westerners negotiating in China is preparation and research. Westerners often put themselves at a severe disadvantage in negotiations with Chinese counterparties by failing to do the legwork in advance. Westerners doing business in China must do comprehensive competitive analysis – which includes top-down environmental and structural analysis.
Case Study: Business cards in Shanghai
I had never heard of SNAP Printing in the US. It’s an Australian company with a business model similar to Kinko’s and Sir Speedy back home. They have a branch near my home, and I had my latest batch of business cards printed there.
As it happens, SNAP was not my first choice. I started out at the little graphics design shop around the corner, run by local owners. The last time I was there they did a good job with my simple order, and their prices – like many local suppliers – was about 25% of their bigger international competitors. (Not 25% less – they charged one quarter of the other guys.) This time, however, I walked right out of their shop. The ownership had changed, or they had hired people to run the shop while they pursued other opportunities. The quality of service and professionalism – which had never been particularly high – was now dismal. Even though my standards for this particular job were pretty low I was sure that these folks would under-perform.
So I went back to SNAP. They are not just more expensive – they are at least 4 times more. But they offer international levels of service. They aren’t BETTER than the local offering – they are a DIFFERENT CLASS of product offering.
So SNAP has no competition in China, right? Wrong. In Shanghai there are other several other SNAP franchises, Sir Speedy, Kinko’s and Copy General – and they all seem to be expanding quickly.
Now, if an international investor wandered into the local shop, he would assume that there was tremendous opportunity in Shanghai for a high-quality printing and copying service – and he would be right. But his initial assessment would be incomplete. Unless he did a very systematic competitive analysis, he risked missing some of his most significant competitors – other international investors.
Newcomers to the China market will often find that their real competition is not the pure-local play. There are 2 other classes of competition that China investors have to worry about.
- Multinationals & franchises. Existing businesses that adapt their business model to the Chinese market. (And you can take all those reports about how “the local market prefers familiar products and services”, roll them up into a tight little ball and make like Yao Ming at the furthest wastebasket. International brand managers have a new challenge in China – young Chinese consumers are no longer identifying famous brands as international. McDonalds and Samsung are not foreign, they are simply high-end.)
- Hybrid start-ups. Returning Chinese, ex-pat-local JVs, pure ex-pat plays staffed by locals, overseas Chinese, Taiwanese, Singaporeans and every conceivable combination of expatrepreneurs are popping up all over. These small start-ups are mushrooming up all over urban China, and they are doing well. Nimble enough to exploit niches, they are ramping-up and flipping-out branches quickly and effectively. This class of operation was something of an oddity 5 years ago, but now poses a potentially deadly competitive threat.
More than a few westerners have looked at the local levels of services being offered and decided that there was a gaping hole in the marketplace – only to discover it was being well covered by people they may have gone to school with back in Chicago and LA. Shanghai and the rest of China’s markets are becoming increasingly stratified, with lots of competition at the high end. Some of the players are familiar while some are newcomers.