Hurdling the Barriers to Entering the Chinese Market

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Is China relevant to you as a direct marketer? Though most will say "yes" because China has been a leading low-cost supplier of consumer products in recent years, only a few can say with confidence that they are ready to enter the Chinese market.

The hesitation is well founded. Only a few big names such as Amway and Avon seem to have succeeded on this complicated new frontier. And even for them, the path has been fraught with obstacles, including differences in culture, business practices, government regulations and intellectual property protections.

But considering that by 2010 about 400 million Chinese city and suburban residents will achieve a middle-class living standard or higher, China as a marketplace is simply too much of an opportunity to ignore.

Chinese consumer spending is likely to grow 10 percent yearly, reaching Renminbi (RMB) 6 trillion ($750 billion) by 2008. Meanwhile, a further appreciation of the Chinese currency against the U.S. dollar ($1 = 8 RMB) in the next few years will push up the cost of everything made in China and make selling to Chinese consumers an important hedge against lost margins. If you already make products in China, the time to consider how to sell in China is now.

Direct marketers need to address various China-specific issues to launch products successfully. For example, direct sales marketers must limit their sales hierarchy to one level and be prepared to invest about $10 million into registered capital and another $2.5 million to cover security bonds required to comply with the latest government regulation on direct sales.

Though this is a significant entry barrier for multilevel marketers, other channels are available, such as direct response television, direct mail and catalog. Various DRTV programs have run in China for about 10 years. A major Chinese DRTV marketer, with reported sales of $75 million and $100 million in 2003 and 2004, respectively, is said to be planning a U.S. IPO this year.

Yet enormous room still exists for sector growth. As of 2004, reported Chinese DRTV sales were less than 0.1 percent of reported national retail sales, whereas the U.S. figure was 2.5 percent in 2003 and growing.

For DRTV marketers, one vital point is to understand and appropriately leverage the complex webs of Chinese television coverage. These consist of the Chinese Central TV station (CCTV), 31 provincial stations and many municipal stations.

CCTV has national reach, but also extraordinarily high ad rates. Each provincial station, in addition to its provincial reach, also has its own satellite channel that can be seen throughout the country. And though municipal stations tend to have limited reach, those in major cities such as Beijing, Shanghai and Guangzhou often command significant viewership with concentrated buying power.

As a result of this spectrum of television possibilities and the differing demos they reach, local adaptations of established infomercials - consisting of much more than simple dubs - are critical to a launch. In these respects, establishing a reliable relationship with a local partner is crucial.

Doing direct marketing in China clearly has a learning curve. However, the demand for quality products from 400 million middle-class consumers can make it worthwhile. As China becomes an increasingly important market for growth for the world's business leaders and entrepreneurs, formulating a China marketing strategy is a relevant, time-sensitive strategic decision.

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