One of the most common mistakes I witness when a business expands is assuming that what works in one market will work in other markets. It might seem relatively easy to work out nuances of a new area and tweak your marketing and sales model to suit a new region – and it often is if the areas are nearby.  If you were based in Georgia and you open an office in Florida for example, you just need to learn to carry an umbrella and make sure you buckle down for the storms.

I have just returned from China and, among other things, I sat down with some businesses that are based out of the US but they have an office or two in China and I wanted to learn how they approached the Chinese market compared to a western market – such as Australia.

Before I start, I want to dispel a couple of myths and give you some facts about China. Many people say China is big. It isn’t. Big doesn’t even come close to describing the country. Humungous on steroids might be more accurate – but even that comes up a little short. With a population of 1.339 billion it is 58 times larger than Australia. In China when they say you are one in a million there are a thousand just like you. Technically that is now wrong – there are 1,339 just like you! Their largest city, Shanghai, has approximately the same population as my entire country. There are 118 cities in China with a population over one million and 39 over two million. Australia only has five over one million. Life seems cheap. The crazy Rafferty’s Rules of road traffic results in 446 traffic deaths each year per 100,000 cars owned – compared to Australia’s figure of seven. We are constantly discussing the reduction of our road toll yet they seem to accept the casualties. Over 100,000 people died in workplace accidents last year and I can understand why. I saw one building with four-storey scaffolding – made of bamboo and lashed with fencing wire. I saw gardeners trimming hedges down the centre of a motorway just standing on the roadway (with hi-vis jackets admittedly) while cars went past at 120km/h a few centimetres away. They have 134 million people existing on less than $1 per day which helps to explain their average per capita GDP of only AU$5,413 (ours is AU$40,234). And lastly, you can’t see the great wall from the moon. The apparent width of the Great Wall from the moon is the same as the apparent width of a human hair from a distance of 3.2km. Your eyesight would have to be 17,000 times better than 20/20 vision to see the wall from the moon.

When these businesses first started in China several years ago, the first methodology was to attack the market with a similar approach to other countries and then tweak it as they went. They quickly found that it needed more than a tweak. Labour is cheap. Total cost of an experienced engineer is about AU$5,000 per year. The typical solution to any problem in China is to throw more people at the problem. The Grand Canal in China is a major transport route down through the centre of the country. It is 1,794km long and was dug by hand – five million pairs of them – back in 486BC. The IT industry is no different. IT companies will often try and sell based on more efficient use and better productivity from staff by implementing better computer networks and better software – in particular if you can automate some processes and remove the boring, repetitive and tedious work from your expensive and highly skilled workforce and let them engage in other work that is more challenging and can’t be performed by computers. The typical solution in China is to just have people perform the boring and repetitive work. Why bother with efficiency when lots of people are available for very low prices.

Where some of these organisations really started to gain traction was when they managed to gain some sales to some large organisations which gave them immediate legitimacy in the market. As in many cases, the first sales are the hardest sales. The other area where these businesses managed to really start to drive sales in the market was by showing cost-savings for one-off projects. Once clients started to realise using a particular solution to deliver a specific project was faster and cheaper than human labour, suddenly the pitch was modified and the sales flowed. Having said that, China is so large and the business model varies so dramatically from region to region, there is no one broad brush stroke that will apply to the entire nation so the model is continually changing. In general though the Chinese industry is tech savvy and is quite open to leveraging best-in-class technology (until they try and copy it!)

Marketing is a challenge. There is no community of resellers in anything like a similar fashion to Australia. That makes finding the right marketing to reach potential clients more difficult and they have had to understand Chinese habits before deciding upon marketing plans. SEO is still important – but not with Google. China has their own version of Google, called Baidu, so the well understood model of Google optimisation needed to be modified to understand other providers. Obviously no Facebook and Twitter removed the well understood social media platforms as well.

China is a single-party state governed by the Chinese Communist Party. Internet censorship restricts the use of many sites such as YouTube, Twitter, Facebook, BBC News, and Amnesty International. This censorship can also make the Internet painfully slow – which is not great if you have a solution that relies on the Internet.

Discounting creates a completely separate issue. Everyone in China expects some haggling. I think if a marketing company offered a free product, a Chinese person would want to haggle for a better deal. Many organisations in China are truly global organisations and would typically expect the same return on their product no matter the market – but China is a market unto itself so they have to be a little more flexible here.

When you look at the population density of China – 139.6 people per km2 compared to Australia’s 2.8 people per km2 it makes sense to reduce the commuting and use clever remote solutions – particularly in the major cities. Unfortunately the concept of cheap labour still means that sitting someone in a vehicle for half the day commuting to a job is still seen as reasonable.

If you do break into the Chinese market, the rewards and there and with 54,794 new babies born every day in China, I think you will continue to have new markets to sell to!

The most important point is that every market is a little bit different. Every new territory or area you move into requires some research and a commitment to understanding the nuances of that market. The differences may not be as extreme as China but if you can master the differences in a new market the rest of your already successful business model will drive your success.

Tell me if you have thought about breaking into the Chinese market at md@smallbusinessrules.com.


Science Quiz Question

This month I want to explore physical sciences in our streets. We drive and walk over manholes every day without thinking too much about them. Underneath our streets is a complicated network of sewers, data and power conduits, storm drains and more. Access to these networks is often via manholes. Of course, a manhole needs a manhole cover. The question for this month is: “Why are manhole covers round?”

Science Quiz Answer

The story goes that Microsoft started asking this question as one of their standard job-interview questions. They wanted to analyse how people approached a left-field problem – especially one with many possible answers. I have often asked this question in job interviews and it delivered some very amusing results – none of which really helped me choose the candidate but many of which gave me a laugh. There are a number of reasons manhole covers are round but the primary reason is that a round manhole cover cannot fall through the hole. The hole is slightly smaller as the cover sits on the lip just under the surface so no matter what angle you approach with the cover it cannot fall down the hole. (A Reuleaux triangle or other curve of constant width would also work but a circle is easier to manufacture). A square manhole cover, for example, could be twisted at an angle and dropped down a square manhole.

There are several other logical reasons that a manhole cover is round. The best response I received during job-interview questions was that it was quite obvious why the manhole cover was round. There was a round hole in the ground so it needed a round cover on top!

In reality, it is easier to dig a round hole therefore putting a round cap on top makes sense. A round cover also doesn’t require alignment when replacing the cover. A square or rectangular lid would have to be aligned before inserting the lid. Manhole covers are also heavy (50kg or more) so a round cover can be rolled along when moving it.

As an interesting sidenote, manhole covers can be very dangerous when a car race is held on a street circuit. A modern race car creates a vacuum underneath the car so the air pressure on top of the car helps push the car towards the earth – therefore increasing grip. The vacuum is enough to lift a manhole cover – and this has actually occurred in a race with spectacularly disastrous results. During street races, manhole covers are secured in place before the racing is allowed to commence.


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