Things You Should Know to Make Your Business Grow

gigCMO Discussion - Market to China: Not If, But When Transcript

August 9, 2021

Mark: Hello, everyone. Thank you for joining this week's podcast of "Things You Should Know to Make Your Business Grow". Today, we have a focus on the largest economic opportunity in the world today. It has been for a number of years and will continue to be so and continues to grow, which is China. I’m very pleased to have with us, Mr. Dor Barak, our UK lead of the PTL Group. Dor, if you'd like to say hello.

Dor: Hello, everyone, and thanks so much Siyuan and Mark for having me. It's a pleasure to be with you guys today.

Mark: It’s a pleasure to have you here as well. And as Dor mentioned, of course, we have Siyuan Ren who’s CEO of gigCMO China and CEO of the global gigCMO Group. Siyuan, would you like to say hello?

Siyuan: Hello, everyone. Hi, Dor, welcome to our podcast.

Mark: Anyway, it's great to have Dor with us today. Really interesting conversation about the opportunities and how to succeed in China. As I mentioned earlier in the conversation, China's such a huge economic opportunity. No matter what's going on in the world, there are two markets that you have to participate in if you're going to succeed globally. One obviously is the United States, and now, without a doubt, China as well. The PTL Group is a very important firm for anybody looking to enter China to consider talking to. So Dor, why don't you explain a little bit about what the PTL Group is all about for us?

Dor: Sure, I'd love to. I guess you could summarise PTL Group as a China market enabler. The technical term for that is an operational management firm. Both of those terms are pretty broad, and they're kind of intentionally so because really, we do quite a lot of stuff when it comes to doing business and helping companies in China.

You can kind of summarise our work under two business models. One is what we call operational outsourcing, and that's where foreign companies who want to enter the market or who want to do business in China but perhaps don't want to over commit in setting up their own entity or setting up their own manufacturing line, their own logistics, or supply chain operation. They utilise us and they utilise the service platforms that we provide to execute those functions. We do everything - from recruiting, and then employing staff on behalf of our companies and our clients. We transact on behalf of our clients. We help with importation and exportation, warehousing, and everything else in between when it comes to supply chains. We also have a manufacturing arm that helps companies to do everything from sourcing components, all the way over to R&D, bespoke manufacturing, and then distribution across China. That's kind of the first business model that we run. The second is what we call management interest. Management interest is for companies that are further along in their China journeys, who have already validated, have established that there is a market for them in China, and who are now looking to the next step. That's where they set up their own entity and they use our administrative and financial management teams to actually oversee that entity for them. We'll do their bookkeeping or run their audit, we’ll pay out their salaries, and we'll keep them up to date with the laws and the changes in China so that at the very least, the administrative side of things, they can rest assured are covered. So that's us. I guess the simplest way to think of us is that we are the doers when it comes to any business function or need in the Chinese market.

Mark: Excellent. Thank you for that Dor. We discovered PTL Group as part of our partnership with Go To Market Global, which the PTL Group is also part of. The great thing about what your firm offers is anybody who's looking at China, you remove a lot of the barriers and hesitations people have because you can help market entry for startups, and you can help existing firms scale higher. So basically, you really provide an entry route for just about any firm looking for entry in the Chinese market. That's fantastic for our listeners. Siyuan, China market opportunities and challenges, what do you think? What would you say to firms looking at the Chinese market?

Siyuan: China is a big and complex market, and it has so many opportunities but also possesses so many challenges, especially for organisations in the West. The cultural gap is big, but if I were to summarise my impression of the Chinese market to an overseas company, I would say the mindset in the Chinese market, either from the consumer point of view, or customer point of view, or partnership point of view - the mindset is completely different. When you look at China’s market, before you go into where the resources, where the competition, where the partnerships and opportunities are, do think that Chinese people, Chinese consumers and customers, they think in a very different way than what we do in the West. I would say that opens big opportunities, but also that shows the challenges for people going to the Chinese market. What do you think about that, Dor?

Dor: I think you hit the nail on the head, Siyuan. I couldn't agree more. I think the opportunities in China, I think really speak for themselves. I think China sells itself in terms of what's possible to achieve. It's soon to be the world's largest economy, such a fast-moving economy and has all of these different kinds of burgeoning sectors, be it technology, fashion, and really everything else in between. It's so exciting for so many reasons. I think one product that excitement has developed is the falseness or the false impression of foreign companies saying that they're selling in China. They're saying that they're selling in China, because it's almost like a badge of honour, but really, what a lot of companies are doing is that they're selling but in a very limited capacity, or they have a sales presence in China, but they're getting it completely wrong. They're working with or assuming that if they work with one distributor, or they sell on one e-commerce platform, or one shop, or whatever it is, that they're going to be able to reach the whole of the Chinese economy. China is a huge economy, but it doesn't operate as one mega economy. Siyuan and Mark, I'm sure you both know that it's very, very split, be that by province, or sectors, or demographics. It's the equivalent of companies saying I sell in the UK, but really what they mean is they only sell in Liverpool or Derby, or just one city, or just one market. But then you say okay, well, what about London? What about Manchester? What about Scotland? People don't have that same outlook for China. I think that's a massive challenge that people don't really see is that you can get into the market and you can sell, but are you really capitalising on all of the potential that's there? Are you really exercising all of the different potential revenue streams, all of the different provinces? How much do you really know as well about the market? How much do you know about your audiences and how they're perceiving your products?

Mark: Yes, that’s very insightful, Dor. Early in my career in the 90s, so well before probably both of you were born, I spent a lot of time in China and we always talked about tier one, tier two, and tier three cities, and distribution was absolutely key. And distribution remains critical in the Chinese market. Everybody loves labels, right? As you say, oh, I am selling into China. You might be selling into this little niche, but you really aren't succeeding in the Chinese market. Just like you can be selling in on the, as you said, selling in Manchester and missing the rest of UK, or selling in New York and thinking the US is replicated by your success in New York, which is obviously not the case. China obviously has its own distinctive challenges, and it's a huge country with huge challenges that brands have to look at, how do I develop my business and my brand? Siyuan, would you like to add something to that?

Siyuan: I think both of you covered two very good points. Dor, you mentioned one about the label about foreign companies going to China to succeed actually looking really good for a business. I think that is very true because the Chinese market is so complex and difficult to enter because of various factors, including the cultural difference, different mindset, as I mentioned, and it possesses so many submarkets, and it's diverse. For a company going to China, you need to look at within China, what are the priorities in the submarket, what locations, what segmentations, what target group to start with, and also you need to be patient because to succeed in China isn't quick. You need to have a long term view to see the return, and once the business is established in China, that return will be big. With this complexity and the long term return on investment making success in China a milestone for a business, that's why when you operate and succeed in China, it is significant to a business. As Dor you mentioned, it will be a very good label for a business when they succeed in China. The second point that Dor you mentioned, that within China, it's very diverse and there are so many submarkets. China is huge. When you look at Europe, we see within the European market, there are different countries. You could almost equivalent that within China, from the east coast, to the centre of China, to the west, from the north, to the south. At each region, not mentioning the vertical sectors, each region has their own characteristics. The consumers and B2B customers, they have their own way of doing things, perceive brands differently, and they have different demographic composition and also disposable income as well. So when you say you're going to China, companies also need to be careful or prioritise which part of China they want to go in first, and then expand within China from a logistics point of view, as Mark you mentioned. What do you think, Dor?

Dor: Definitely, definitely. I was going to chime in as well. A lot of what you said there, Siyuan, can be summarised under the term, well, under market learning is the technical term with a more professional term, but I would also just say a bit more crassly is that companies should do their homework before entering China. Now I'll say it, at the end of the podcast I’ll say it, and in the middle, it's something that we're such big advocates of is not just going into the market blind, or even worse than going in blind is going in with assumptions, assumptions that foreign companies have developed here in the West in other market entries that they've tried to facilitate, be that to America or anywhere else in Europe. It's just simply not the same in China. It's almost better to throw everything you know out the window and start with a blank canvas and say, okay, this is my product, I believe it will appeal to an audience in China, but how will it appeal to them? How should I market myself? How should I call my company? What name would I give myself? Whenever I speak to foreign companies looking to enter China, and I say to them, you do realise you're going to have to come up with a Chinese name? Coca Cola in China is different. McDonald's in China is different. People are shocked by this, because for the rest of the world, or at least in the Western world, they speak one language, they have one brand, they have one message, they create one campaign, they have one business model, one form of distribution. And for China, and for all of the clients who work with us, we always advise them to come at it with a blank canvas and say, okay, how will I market? How would I set up my business? How will I sell? When you can do that, when you can approach China with this fresh perspective, it's really those companies that succeed over the ones who just try and take one marketing campaign that they've run in the West and translate it into Mandarin, or who don't spend time learning about who their audiences are, who their consumers are, who's going to buy their products, and who's going to sell them. It's this sticking point that so many companies that--that really is kind of the first step into China. You've started thinking about it, okay, how am I going to action my--what business plan am I going to take? What steps am I going to take? Companies need to hear that, even before they’ve started thinking about entering the Chinese market. I think Siyuan, you touched on that really beautifully, and I just wanted to reemphasise that.

Mark: Yes, I think market expansion to any new market, you really have to sit back and review what your business model’s value proposition is and if it’s tailored for the market you're entering. And I think, Dor, a lot of times when people are going into other markets, not China and perhaps not in Asia, they don't do that as well as they should and don't succeed as well as they could have. But certainly in Asia and China in particular, it's a huge barrier if you don't get that right. I think that's a really important point by both of you, Dor and Siyuan. Even before you really start to think too hard about it, you need to sit back before you commit to anything. At what point should somebody engaged with the PTL Group?

Dor: That is a good question, and one that has a few answers, but I’ll try to be as succinct as possible. We engage with companies at pretty much any stage of their China journey, as we like to call it, all the way over from those first initial thoughts about entering the Chinese market. I do a lot of work with companies who have yet to step foot into the market, but for whatever reason, they've decided that China is a next kind of port of international expansion. We help startups who, like you said Mark, and completely correctly so, we have startups who are still in the R&D stages of developing their product, getting investment, going through the investment rounds, all the way over to companies who have operations in China, who have a business, and they just want to optimise the way that they operate their business. If that's helping them with shoring up their supply chain, or helping them to better manufacture something, or just helping them to audit and manage their businesses. But I would say to any business owner, any director or CEO, who's making these sorts of decisions about where a company could sell, is that companies who are managed effectively in China, who have trusted local partners, who have a business presence that can adapt and can learn quickly, can scale up quickly if need be, so long as they have a good product or a good solution, a good service, they should take a whack at China. They should try and enter the market because I think a lot of companies get put off by the potential costs that come with entering the Chinese market. A lot of companies assume that to enter China, I have to set up a company, I have to spend heaps and heaps and heaps on marketing, I have to recruit a big local team. Those things will come, and no doubt there is a chicken and an egg there in the sense that if you do invest in those resources, you will also see more returns and more--faster progress, I should say. But there are ways to enter the Chinese market that we advocate that are super lean, super cost effective, and limit a company's exposure so they're not over committing from day one. That's the message that we've been trying to get across for a while is have a go at China. The worst case, it doesn't work out, and at least then you know. Hindsight is a beautiful thing.

Mark: Great. Yes, absolutely. Dor, that's excellent. I'm sure listeners would be really interested, what's the minimum entry?

Dor: The minimum entry?

Mark: Cost. You know, to get in there to do the basics? Just so it can help our listeners think, hmm, that's not too bad.

Dor: Right.

Mark: Of course there are other costs, you’ve got to build your brand and establish your salesforce and time in really operating. But to set yourself up as a credible player, to give yourself a foundation for future success in China, what's kind of those costs a firm would be looking at? Because I think many people are going to be surprised and think, oh, is that all, and then I can get going? Because they don't know.

Dor: Yeah, no, sure. Sure. I'll start with the number because I think that people want to hear a number ultimately, and then I’ll work my way backwards. From our estimation, and this includes the service fees that we charge to operate this, you can have a sales presence in China for about, I'd say as little as £70,000 for a year. Why £70,000, and why a year? I mean, we usually say around 100,000 USD. An approach that we advise a lot of clients to embark on is to start with one sales rep on the ground, one sales rep. The reason why we say have somebody on the ground is because it's to avoid the point that I touched on earlier about having the false fad of saying I sell in China. But really, what you mean by selling in China is that you give your product to somebody else to sell, and you have no idea how they're performing. We help companies to recruit and then to employ without the need for them to set up an entity, their own sales rep on the ground, who we always that ensure has relevant market experience. Then what that sales rep will do for the year is they'll go out and they will try and sell your product. They’ll speak to not one, but 50 distributors. They will go and speak with retailers, if you have a consumer product. They'll speak with direct consumers online and ecommerce channels, whatever it is. It's obviously very product or service specific, but that year of runway, giving a sales rep [audio cuts out]. Or if you should jump ship and say, I genuinely tried, I didn't just give my product to a distributor or to one ecommerce platform to sell. I actually had my own physical representation in China, and it succeeded, or it didn't succeed. Okay, well, if it didn't succeed, why did it not succeed? Can you imagine what lessons companies will learn from having somebody on the ground that’s fighting in their corner truly?

Mark: Absolutely. I think you're right saying about $100,000, £70,000. It's a test market in what is either the number 1 or 2 market in the world. If you told somebody, you know what, to really understand the US market, you’ve got to run a test market to  basically get a pair of boots on the ground, which I think is what you're talking about, nobody would think that would be unreasonable. Of course, people would like to do it in a lower cost way. If they go, there's different ways you can test in and do things, but I think for many firms, that's a reasonable amount because if you think okay, $100,000, I will then know the future potential of my business in a market you can't afford to be in. That's not entirely out of the realm of a lot of firms who are looking at the Chinese market and perhaps have succeeded in other markets. I personally wouldn't take China as my first export market. If I'm a UK firm, and I've never been abroad, I think I'd have to learn some of the lessons that apply for international market expansion for any country you’re going to. But I think once you've got a few of those markets under your belt, approaching the China market is a sensible next step. Siyuan, what do you think?

Siyuan: I think I agree with you, Mark. But if you look at China, and especially over the last 30 odd years, China has grown significantly. At the moment, the customers, the B2B customers, and also the consumers, they are hungry for foreign brands, foreign investment, and foreign opportunities. When you expand first internationally, look at the market as a stepping stone and to gain international market exposure and experience, but don't discount China, which has a big opportunity. I think Dor, you have provided very good advice. Also, PTL Group can help companies operate in China. I would say to companies going to the Chinese market, on the strategic level as going to many other international markets, is to study the market itself and also review the business foundation, which covers the business model, and the value proposition and segmentation. As we have mentioned many times in our previous podcasts, the digital advancements will make the companies going to China rethink what is the easiest and the cost effective way, or what is the business model for the Chinese market. The value proposition for the home market and for other markets could be different for the Chinese market, so a review of the value proposition is important. And also focus on not just what features that you can provide within your solutions or your products, but more importantly, what are the benefits that you can bring to your customers in the Chinese market. Don't forget Chinese consumers or business customers, they are very big in brands. Make sure you build a trustworthy and proper brand before you go into the Chinese market. And thirdly, is the segmentation. And as Dor mentioned earlier, within China, there are many submarkets, and the market and vertical sectors are different. Segmentation and the prioritisation of the target group are also very important. When you think about China, think about the strategic and the business foundation, as well as practically and operationally how you go into that market.

Mark: Yes, and that's a great point, Siyuan. I think the other thing, and Dor, I'm sure you've experienced that, and we have worked with a number of clients on that, at the moment when everybody's not travelling, it's a bit more challenging, but for UK companies, there are a lot of Chinese travellers and tourism and now residents in the UK and other countries. That's an opportunity to already understand if you're a consumer brand or a very unique B2B proposition, how those existing Chinese expatriates who are living abroad experience and engage with your product because that diaspora is very strong. There's a showcase strategy that many companies use in duty-free and other places to get first exposure of their brand with consumers from around the world. You might find, as many small UK firms here have, they've developed a local and loyal following of Chinese consumers who have provided a basis for their brand to go back to China and then be picked up and then start to develop. I'm sure you've had those people reach out to you that have had the success that way, Dor. Then they've come and said, okay, we want to invest further now, because we've already succeeded with our test market abroad.

Dor: Yeah, absolutely, Mark. You hit the nail on the head there. China is a completely digitalised economy and also that extends into society. If we think that social media rules all here in the West, in China, it's even more omnipresent. It really is everywhere, and there's a social media platform for everything. The reason why I'm sticking to that point is that the Chinese expats who are here, and I'm in London, there are lots of Chinese who are either here for studies or reside here, who work here, and anything that they consume or purchase here, rest assured that it's not Twitter. In China, there's Weibo, there's Xiaohongshu, there’s Douyin, which is obviously TikTok, and tens, if not hundreds of other platforms that the Chinese people are communicating on. You guys are completely right. Anything that is being conceived here, that is sought after by these test markets the brands are targeting, rest assured that people are hearing about it on the other side of the world, in the Far East, in China. That is a fantastic launch pad for companies who want to get in. Sometimes it is consumer led rather than company-driven, the journey, or the entry into China.

Mark: Fantastic. So there might be some firms here who've already discovered that they're serving, or part of their customer base at the moment is Chinese. They could be researching that further to understand that proposition. Is it going back? Are they having people come into their stores over here, pick up their products and ship that home? Once they've understood that, you're a perfect next stage for those firms because they actually have a proven track record. They've got a proposition that seems to be attractive, and then they can work with you to okay, how do we really make this succeed by focusing resources on the opportunity in China itself, and not just with those who travel and live abroad. Excellent, it’s very interesting.

Dor: Absolutely. And just because we're on the topic of B2C and consumer goods, an area that lots of foreign companies or that appeals to lots of foreign brands and consumer facing products is China's ecommerce ecosystem, let's call it. There's so much on offer there in terms of opportunities to sell to companies in an online capacity. We started working in a hybrid form of online and offline support for companies. We have recently been supporting them also in the supply chain management of their e-commerce operations and on the more administrative and financial side of things. A very common route marking, and as Siyuan was touching on, now is to get to have that test market validation over here in the West, and then say, okay, I can see that my product appeals to Chinese consumers. How can I get it in front of them? What's arguably the easiest way to get a product in front of a wide, or a large amount of consumers? It's undoubtedly the online ecommerce platform. There's a lot to be said and done there as well. 

Mark: Yes, China is one of the great startup nations of the world if you look at the degree of innovation and entrepreneurial skills. I mean, they’ve reinvented markets, and there's a lot of firms over here in the West who actually now scan the Chinese market to see what ideas can they bring back here, because the innovation in some categories is so much further ahead. Amazon's not in the Chinese market for reasons we know that they're not allowed in, but they're always looking to the Chinese market for what are some great ideas I can borrow and reinvent here. There's an important market scanning function in any company who's digital to make sure they understand what the digital experience is like in a country like China because they are so dominant. You’ve mentioned some of the platforms that have crossed over. Siyuan, would you like to add anything to that?

Siyuan: I think that's absolutely right, looking at the innovation, the digital development. Really back to what I said earlier, looking at China, think it differently. Think digital, because digital development innovation is not just a method of doing business. It’s a way of living in China. People live digitally in China. With the technology development and also the new innovative activities and apps and companies coming up every single day, really think it differently when you look at the Chinese market.

Mark: Yes, and I think one of the other things, just before we wrap up, China obviously has a different political system. But one of the benefits of their political system is when the government says we are going to focus on these particular sectors such as AI and healthcare and some other sectors, you know they're going to focus on it, you know there's going to be resources put in, and you know the economy's going to shift in that direction. So again, if you're looking at understanding how to succeed in China, you should also be following what are some of those pronouncements are. Whereas in the West, the government might say that, but it might not happen because there's a different way you have to work things through to shift it. But when the Chinese government says here's what we're going to do, they do it in that regard, because of the way the political system works. Great conversation today, Dor and Siyuan. Dor, it's been a pleasure to have you here. Before we wrap up, is there anything else you'd like to add for our listeners today about the PTL Group? Of course, we highly recommend they come and speak to you guys. You would be the first port of call for anybody looking at the Chinese market, just to have that initial conversation.

Dor: Thank you so much. Yeah, just a final word on the outlook on China, I understand, I experience it in my day to day interactions with companies, that there is a lot of apprehension around China. But I wouldn't be in this industry if I didn't genuinely believe that China needs to be a when and not an if for any company that is seriously looking at expanding globally. I think that there are challenges that come with entering the Chinese market. Mark, you yourself said that you wouldn't have China as a second export destination. And to be honest, for many companies, I wouldn't disagree with you on that front. It is a challenging market. But I think for foreign business owners, they need to have China in their periphery at all times. Because if they're not already in the market, they need to be thinking, okay, how can I enter the market? I guess the fear or the doubt of whether or not they will succeed, the implications of not succeeding, need to be understood in the context of saying, okay, with a small investment, with a good local partner, which we believe ourselves to be, I can learn a heck of a lot, and I can more likely than not succeed in growing and building a robust China operation. So that's my takeaway message. Don't be afraid of China. And if you're not operating and you're not sitting in there, strive to build an operation in there because even if you try, and for whatever reason, it's not successful, I want to guarantee--in fact, I do guarantee that you won't regret the attempt.

Mark: Excellent. Thank you, Dor. Siyuan, would you like to say something before we sign off?

Siyuan: I think I was going to say the same as Dor - don't be afraid of China. The opportunity is fantastic in China. I think if I were going to give some tips on do's and don'ts, I would say do keep an open mind and do research the market and also build your brand, but don't rush into it. It is a long term return, but once you see the return, that return will be great. Don't forget to review your business foundations, the business model value propositions, and prioritise your target market within the Chinese market, and don't be afraid.

Mark: Thank you, Siyuan. Thanks, both Dor and Siyuan, that’s been a great discussion about the Chinese market. I think everybody, all our listeners should make a note that it’s not if, it’s when. Because at some time, that market is going to be so attractive for you, and you will do everything you can to succeed in there. Perhaps it’s not this month, or next month, or the end of this year. It could be early next year, but it definitely has to be on your radar. A great session today on China on our podcast about ‘Things You Should Know to Make Your Business Grow’. I’m Mark Magnacca, CEO and Founder, it’s been wonderful to have you listening with us today. Bye

Siyuan: Bye.

Dor: Thank you.

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