Your product has been doing phenomenally in your home market and its time to ride this wave of growth and expand into a new market. But which market? How do you know that your product and business are ready for the market that you wish to move into?
Market expansion is a big risk – worth taking for some, not so much for others. There are many considerations that go into deciding on a new market – size, cash flow, resources, internet penetration among others (link to blog on market expansion). We take a look at the cultural and political factors that need to be considered when evaluating potential markets to expand into, using companies who chose China as their target market as case studies.
Consumer reaction to your product (External)
Proper and thorough market research is essential when evaluating markets to go into. While it is important to find out if there is enough room for your business in the market, whether there are profits to be made in the market, market size etc, it is equally as relevant to know your target audience inside out – who they are, characteristics of their culture, how it affects their actions and potentially the consumption of your product. A customer-centric approach needs to be at the forefront of every decision, as they are the ones who will be consuming your product after all. This is especially important for companies who are looking to expand to unfamiliar and emerging markets with cultures that are different from their own.
However, many companies do not place the appropriate amount of importance on this intangible factor when deciding to move into new markets.
Ebay’s Foray into China
Ebay, one of the world’s largest e-commerce corporations with 85% market share, having seen resounding successes in their prior expansion efforts, set out to conquer the Chinese market in 2004. However, whatever market research they had done did not prepare them enough for their expansion into China. It is almost safe to say that the experience was a disaster from start to finish – from its internet-focused advertising strategies to a market that was not internet savvy yet, to allocating management that was inexperienced in dealing with the local market culture. This culminated in Ebay withdrawing from the Chinese market and yielding to Alibaba’s Taobao, which had adapted its product and implemented localised sales and marketing strategies that appealed to its customers – all due to having a deep familiarity and understanding of the market culture.
Localisation is key when it comes to market expansion – right down to the language. Marketing campaigns that failed due to translation errors sometimes make for a good laugh but can have some serious repercussions for the business in question – loss of reputation and money in addition to dealing with a PR disaster.
This case study drives home the point that your product and the accompanying strategies should be adapted and localised to the market that you wish to expand to. Market research needs to go much deeper than just profit-loss analysis and into the psyche of your target audience and customer. Focus groups and surveys will help to find out how receptive consumers are to your product, and having experts who understand the market to lead your efforts is also important for the long-term.
Political Considerations (External)
A major player in your market expansion plans is the government. The government in the market that you wish to expand into needs to be receptive to your product. If the laws of the land clash with your business’ or product’s core values and principles and you are not willing to adapt it to fit, then it might not be a market that is ready for your product.
Google’s struggles in China
Google’s relationship with China has been tumultuous, to say the least. Google’s main USP is the provision of objective search results for its users, while China is known (almost notorious) for its strict Internet censorship laws that all businesses, both local and foreign, need to abide by. Their clash was inevitable. The tech giant’s troubles started almost immediately in 2000 when it introduced the Chinese-language version of Google.com. It was slow and unreliable due to the extensive filtering conducted by the country’s internet service providers. Google made many concessions through the years and tried to adapt its search engine and related services to comply by the country’s regulations, including setting up a separate Google.cn that blocked certain websites, SERPs (search engine results page) that told users when results were censored, not offering Gmail and Blogger on the mainland, and services that involved the collection of personal or confidential data among others, while also facing fierce competition from the home-grown Baidu. The final blow came when the Chinese government blocked the Google’s global website as a “punishment” for failing to remove pornographic content. The year 2010 saw Google being a target of a massive cyber attack and finally resulted in the tech giant agreeing to pull out of one of the world’s largest consumer markets, and ending the censorship of its services – choosing to stick by its product’s core value of objectivity.
Google and Facebook are still trying to find ways to balance their core principles and business opportunities when conducting market and business expansions, as seen by their efforts in entering China again. It is important for you to assess whether your business is ready to adapt to the market, not just because of your consumers, but because of their government’s political priorities.
Getting it right – Starbucks
While there are many embarrassing examples of companies getting market expansion wrong, credit needs to go to brands doing it right. In 1999, Starbucks had everything going against it in its quest to enter the Chinese market. A traditional tea-drinking culture, a fledgling market (at the time) that was largely unfamiliar and many companies coming back home with tails between their legs after failing to break into the tough market of China – not exactly a welcoming market even for a world-famous coffee chain.
Starbucks took it as a challenge and conducted extensive market research for years, speaking to locals and conducting site recces for potential cafe locations – something that their other American peers Walmart and Best Buy failed to do. Sales and marketing strategies were crafted placing the customer and their culture, first.
In the end, it all paid off. Starbucks broke into the market with a resounding success, targeting the then-slowly expanding middle class that saw it as a symbol and place of status and modernism. It managed to establish itself in the mainland by forging partnerships with local businesses. Recognising the importance of localisation, it designed its stores to mimic traditional Chinese teahouses, and localised their drinks to cater to their customers. Their sales and marketing strategies were also adapted for the market e.g. its loyalty programme which utilised WeChat, instead of a physical card like in many other countries. It is not an easy feat, to sell coffee in a country that has a centuries-old tea-drinking culture – but Starbucks managed it, and pretty successfully.
The key takeaway from the above-mentioned case studies is that localisation is god. From your product plans to your sales and marketing strategies, nothing should be duplicated and repurposed for a different market. Moving into a new market comes with plenty of hurdles, both financial and cultural, but it is imperative that your business align itself with the prevailing culture in order to fully reap the benefits of this expansion.
Our Insights feature has a wealth of information that can help you in your research in expanding into Asia. Drop us a line if you’d like to find out more about how we can help your business!