3 Tactics Entrepreneurs Can Use for Startup Success in China
How do you persuade a country that loves tea to start drinking coffee? Starbucks wanted to know. A case study on the coffee giant's entry into China, published recently on The Balance site, broke down how the world’s largest coffee-cafe chain convinced Chinese consumers to switch habits.
Its message? According to the study, Starbucks successfully entered the China market in 1999 by incorporating local tea ingredients into new blends and locating its shops in high-traffic locations. Ultimately, it also inspired waves of copycats.
For entrepreneurs similarly attempting to expand, China boasts the ideal market. Its gross domestic product has seen a slowdown, but that GDP is still forecast to break $17 million by 2020, according to the OECD. Thanks to the Asian nation's increasingly global views and a burgeoning middle class, its consumers are ready to spend -- especially on foreign startups with creative marketing.
New brands cannot assume that Chinese buyers are patiently awaiting their arrival, though. Instead, those brands -- maybe yours is one of them -- must empower Chinese consumers at the local level, breaking through their overwhelming number of choices to provide clear, accessible value.
Learning from past successes
Fortunately for entrepreneurs with aspirations in China, forerunner companies have already blazed a path toward success in that nation.
LePur, a premium yogurt startup, gained Chinese consumer trust through social media engagement. Its marketers wove a dramatic story about the brand’s high-quality ingredients that are imported from Southeast Asia, and pushed a lifestyle that spoke to health-conscious Chinese consumers. By leveraging WeChat -- the “app for everything” in China -- LePur has interacted directly with users, instilling unparalleled brand ownership.
American cookie maker Strictly Cookies achieved success in China, meanwhile, by diversifying sales channels. Strictly Cookies is now everywhere I look in China -- accessible on WeChat, in retail, through wholesale or on an e-commerce site.
Related: Learning From China's Entrepreneurs
How to penetrate the Chinese market
Lexie Comstock, founder of Strictly Cookies, spoke to me about her own brand’s great success in China: “Don’t be married to one sales channel," she advised. "Adding the wholesale channel was crucial to getting our brand out there. Five years later, it’s our biggest revenue source, and we sell to over 60 cafes and restaurants.” So, taking a page from Comstock's book, here are more valuable tips for expanding or even launching in China:
1. Champion authentic value. Don’t overcater to Chinese standards. Many consumers here have travelled internationally and are familiar with foreign tastes. Instead, balance localization with authenticity.
Tier-one Chinese cities, like other major cities around the world, are global markets. And, authentic, quality products succeed everywhere. As Comstock put it, “I realized pretty early on that cookies are delicious and universal. You don’t need to make a cookie with pork floss or chicken feet to appeal to the Chinese market.”
Egg, an all-day dining café, didn’t change a thing about its model when it debuted in a large Chinese city. Instrumental in Egg’s success was its faith in savvy consumers understanding the authenticity of its product and seeing it as desirable. When I spoke to founder Camden Hauge, she told me, “Anything that debuts in these markets today should be able to stand on its own in any international city.”
When Boxing Cat Brewery entered China, the market didn’t yet care about craft beer. Rather than attempt to parachute in as the cultural savior of beer, the brewery developed localized messaging. Studying consumers led Boxing Cat to offer its beer in its food outlets, demonstrating the beer's value by relating it to something locals already understood.
Boxing Cat founder Kelley Lee said her goal in opening the food and beverage side of her business was to educate consumers and help them associate great food with great beer. “Sounds simple,” she told me, “but if you’ve never heard of craft beer and don’t know what it is supposed to taste like . . . how do you know what is good and what is bad?”
2. Connect with your consumers in meaningful ways. Founders outside of China can’t use cultural ignorance or the language barrier as an excuse. Rather than ignore consumer tastes, get to know them and discover how to connect their emotions to your brand.
The secret to succeeding internationally is transforming products into lifestyle experiences. Chinese social media makes it easy for brands to build their stories through regular community engagement and to figure out what consumers crave.
When it comes to such community interaction in China, Cambio Coffee and Lizzy’s All Natural (a health food brand) do it right. Cambio had a strong foreign presence, but nothing in China. After studying Chinese consumers extensively, the company chose to engage local consumers through coffee-centered educational events and tastings, allowing them to adjust flavors to suit local palates.
Lizzy’s All Natural used a similar strategy: connecting with consumers through cross-promotional events with established Chinese lifestyle brands, including Mobike, part of China’s bike-sharing boom. This allowed the company to ride the coattails of existing market-sector influencers while encouraging consumers to spread the word on social media.
3. Know China's legal landscape and be smart about compliance. Understanding the legal bounds of an emerging market is key. Starbucks wisely strove to prevent competitors from copying its business model in China by leaning on intellectual property laws. Consequently, several of those copycats mentioned above took legal missteps in their effort to emulate the coffee giant and make inroads in China.
Elizabeth Schieffelin, founder of Lizzy’s All Natural, advised not to be afraid of the copycats in the first place: “It means you’re doing something right. Stay on top of your game and innovate instead of complain.”
China’s legal system is improving, but its laws, contracts, compliance and tax policies are more starting points than hard rules. When you add in rumor-mongering and misinformation, knowing what to do in a legal situation gets confusing. Avoid falling into a mess by limiting the amount of information revealed on social media and at trade shows. Register licenses with the right scope and stay vigilant about intellectual property protection, including trademark registration. Stay proactive about compliance and information security, and budget for the unpredictable, such as suspiciously similar products and services.
Hurdles are inevitable, but with proper preparation, failure is not. As Bob Boyce, founder of Blue Horizon Hospitality Group, told me, “Comply with local regulations, even if they don’t make sense.”
Finally, build good “guanxi.”
Guanxi refers to the system of social networks and influential relationships that facilitate business dealings in China. Cultivate a network of qualified, trustworthy people to rely on for support, direction and insight. Nurture relationships with people who can move processes along, and thoroughly vet potential new partners. By staying selective and engaging consistently, you’ll grow mutually beneficial relationships.
For founders looking to make big gains, no market is as primed as China. Chinese consumers won’t accept just any foreign business, but by following these steps, you can prepare your company to establish long-term success here.