A recent Wall Street Journal article explains how beauty retailers like Sephora are scrambling to maintain sales growth and even closing stores in China in the wake of new online competition.
In my mind, this is an excellent opportunity for aspiring global entrepreneurs.
With just a little digging, you can see how it’s the latest proof that having a strategy for entering emerging markets is so important. And how global entrepreneurs may have a leg up on big business in China… if they can avoid the basic mistakes of doing business overseas.
Many big players have gone to China and failed. While Chinese consumers certainly display a penchant for western brands and concepts (like my acquaintence who opened a booming donut business in southern China), big brands without an adaptable China plan are doomed.
What’s interesting about China is that while its consumers seek value for the money, the widespread nature of counterfeit products and the desire to feel and show affluence often compels them to spend more than western consumers for what are considered top-end products.
The beauty market is an interesting example because it’s products are chief among those the rising middle class of Chinese consumer doesn’t skimp on. Personal care is more a priority among those with disposable incomes than it is almost anywhere else.
Yet websites like those owned by Alibaba and other smaller groups are capturing a share of the pie by finding ways to overcome consumers’ desire for both the shop-a-holic thrill and inherent brand safety inherent with in-store purchases.
Avon’s CEO acknowledged on a recent conference call that mistakes had been made in translating the company’s direct sales business model to China. Chinese market experts readily speak of how direct translations of western marketing, packaging, and branding practices rarely work when entering the market.
As plenty of foreign corporations stumble, I believe the market for entrepreneurs in China is increasing despite the country’s proclivity against producing as many as you’d think, especially among youth.
E-commerce is taking off and creating new opportunities for those that understand marketing to the Chinese audience. The internet continues to roll out across the country and estimates call for 150 million new internet users from 2012 to 2013.
What’s more, broadband prices are making that service more mainstream and available to the middle class. One study suggested the average internet user in China spends a staggering RMB10,000 ($1,650) per year on e-commerce purchases.
China remains a tough market to crack because it doesn’t respond well as a dumping ground for other places’ stuff.
If you’re looking for an opportunity in the largest growing market, China has its share of barriers but the upside potential is huge considering the numbers at stake. This is a situation where being on the ground is essential, and partnering with locals would be especially helpful.
While there are plenty of organic Chinese start-ups, several of my friends on the ground there have told me that local business owners prefer to implement a foreign concept rather than develop their own.
That partly explains why brands like KFC dominate the market and inspire a string of knock-offs who collectively take a small market share.
China is one of the most interesting places in the world to be in, and while doing business there isn’t as easy as you might like, those who put in the work as entrepreneurs or investors have the potential for huge upside as e-commerce serves as just the latest example of leveling the playing field.