With some 1.4 billion people, China is an enormous market opportunity for consumer brands. It has the fastest-growing middle class in the world, and a hunger for premium lifestyle products. So how do U.S. firms break in and build a profitable position?
Frank Lavin thinks he has the answer. Previously the U.S. Ambassador to Singapore and Under Secretary for International Trade in the Department of Commerce, he's the founder of a Shanghai-based venture, Export Now. And, full disclosure, we co-authored a book. We sat down to discuss how to crack the Chinese market. Here are three key things he's learned:
1. When you're ahead of the curve, you have to build it first and see how customers react
Traditional market research does not work when you are trying to do something new and different, according to Lavin. Instead, you need to build your idea and see how the market reacts.
Explained Lavin, "Did Jeff Bezos do market research when he started Amazon? When we started Export Now, it was such a new idea that we could not have done market research. When we talked to corporate America, we asked them what they were trying to do in China. They said they wanted to be there and many of them were willing to pay to ship their goods there and use our department store model."
2. Succeeding in Chinese e-commerce depends on marketing and logistics
Export Now learned by the market's reaction that logistics alone were not enough to generate significant revenues for the U.S. companies. "These small companies were selling $5 million a year in the U.S. and they were surprised to discover that they only generated $1,000 to $2,000 in revenue in China. It was a night-and-day difference--it was not solely about distribution," observed Lavin.
3. Seek customers who want to invest in marketing their products to Chinese customers
This insight has led Export Now to pursue a different set of customers. "We realized that success depended not just on distribution but also marketing. Look at Starbucks. It's big in China now but when Starbucks launched in China, it was going into a tea culture. It had to explain why people drink coffee, when it's appropriate to give it as a gift, and what it means emotionally," noted Lavin.
And Export Now is working with the National Football League, which also recognizes the importance of introducing its brand before it can achieve significant sales of its merchandise.
As Lavin argued, "The NFL is doing show-and-tell to the Chinese to explain to them what football is. And they are making it into a family event in China. Now they have 400,000 people who follow their Tweets on Sina Weibo. They are building an understanding of American football that will ultimately make people in China eager to buy jerseys, footballs, and other NFL products."