Selling Direct

The Chinese are quite good about selling direct when they can. And there are good reasons for this. First, when they are new entrants to a market their charm and high level of customer attention helps them to win over customers, or at least to get a foot in the door. This is particularly advantageous when their product or offer is not superior but more on the average side as compared to other competitor solutions.

Moreover, going direct is generally easier for them than for Western companies, as labor costs are typically lower and they have access to a ready supply of personnel—albeit usually more junior, less-experienced personnel. Going direct is also a way to learn while practicing—when you don't have expertise or an established plan of action, learning on the job is a good way to acquire knowledge. And when you have a willing customer who is just pleased to receive so much attention, it works out.

Oftentimes the Chinese will swarm the customer with employees they have flown in; they may have staff relocate to the area and even plant representatives at the customer site if they are permitted to—but again, these are often junior-level people who learn as they go. This approach expresses that they care about the customer's satisfaction, and many customers are pleased with the high level of attention provided directly by the supplier. It rates particularly high in comparison with suppliers that go through local distribution partners, which is often the practice of Western companies selling in emerging markets.

The Chinese take this direct approach particularly with must-win battles. To become more accepted and trusted, Chinese companies like to show that they are local and here to stay by hiring locally. However, these are often front people, and the decision making is still centralized back at headquarters.

Selling directly also allows them to secure the contract in any way they possibly can—meaning the customer intimacy that they foster allows them to fully understand what a customer is looking for and needs, enabling them to bring all hands on deck to put together the complete deal.

As they are eager to gain credibility outside of China as worthy global multinational companies, the direct approach also allows them to provide financing from the CDB (heavily backed by the Chinese government), which has been reported to offer amounts ranging from $10 billion to $30 billion to one company alone. This ultimately allows them to gain market credibility and customer references. While their success in expanding into developing countries is more apparent, the Chinese have also gained much traction in expanding into Western markets as well. For example, Haier, China's largest domestic appliance maker and one of its most valuable brands, has an international cachet and a manufacturing plant in the United States.

Selling with Partners

Despite their affinity for direct selling, the Chinese also like to use partners for their distribution arms (think global, act local). Partners are sometimes used as local agents to ease the path to new customer acquisition, particularly in tough markets such as developed countries. Partners may have access to industry segments that the Chinese (or other new entrants) do not have, thereby lending credibility or an established reputation to a new supplier.

Trusted local channels or foreign direct sales teams with a proven brand are effective market entry and placement routes. For example, in the case of penetrating developed markets, Huawei targeted the enterprise segment through a joint venture with 3Com named H3C Technologies, which was later purchased by HP. Partners are often offered an attractive incentive—whether it's money, access to the China market, human resources, or something else—to support the incoming company and for taking on the risk.

If the customer is a key, desired win, going after it through a partner may still involve collaboration and the vendor's involvement in the form of inundating the customer with vast amounts of direct support and personnel. This is often the case with larger accounts or with government tenders.

Partnerships

The Chinese are quick to create partnerships with other companies, and quite attractive companies at that. The contribution that the partners provide (such as access to a Western customer base, credibility and integrity as it relates to product quality, intellectual property, etc.) supports accelerated growth and market access and will often catapult the Chinese company further along its desired market development path. Most importantly, though, the partner usually offers a tremendous learning opportunity for the Chinese company.

As a society the Chinese are voracious learners, and this trait is applied most aggressively in the quest for success in business. They are good at knowing what they know and understanding what they still need to know in order to be successful in their endeavors. They identify who can offer this knowledge and then they strike up a partnership. For example, if innovation is a weak point, they are keen to collaborate with leading-edge Western companies or with innovative countries to take advantage of their knowledge-transfer collaboration programs—something that is prevalent in Canada as well as in the United States.

The partnerships are also established to produce complementary product lines, which offer the Chinese company access to an entirely new customer base.

Many of the partnerships have a very short duration. The Chinese are very efficient when it comes to their partnerships and know quickly when they have run their course, based on their targeted goals and what they have gained. They very much have a learn-and-leave attitude, which leaves the jilted partner feeling deceived and disgruntled. The agreement is often not fulfilled to the degree or expectation of the disappointed partner. The set of rules used by the Chinese usually differ from those of the established partner and may change along the way.

The Chinese use the partnering company to learn all they can about a certain dimension of the business (usually an area in which they are weaker), then they move on when they no longer need the partnering company or once they have acquired the product innovation knowledge, market-entry access, or employee base they need.

In addition, some new entrants leverage partners in countries in which they are new entries, then as they mature within a country they go direct.

Local Presence

Foreign customers usually prefer that their suppliers have a local presence. This presence can be in the form of the supplier itself setting up an office or even a manufacturing plant locally, or the presence can take the form of an established local partner who is trusted in the area and familiar with the local business practices and rules, thereby making it easier for the customer to enforce them.

The Chinese are good about hiring locally, particularly at the executive level, in order to gain credibility with customers in the area and to establish a sense of security. The individuals hired tend to be well known in the region or in the industry and their reputations translate into stability for the Chinese company.

In Australia, for example, Huawei appointed former Victorian premier John Brumby and onetime foreign minister Alexander Downer to the board of the local arm of the Chinese telecommunications giant when it was looking to win key government supply contracts and to overhaul its reputation. They also appointed former rear admiral John Lord, a 36-year veteran of the Royal Australian Navy, to a position of independent director on its newly formed Australia board of directors.¹

Partnering with Customers

As noted in Chapter 9, another aspect of China's market penetration and customer acquisition strategy is partnering with their customers and taking on more of a partner role than a supplier role in the industries in which this is possible. Expansion outside of China involves higher costs as well as higher risks and becoming a customer's partner adds even more financial risk, as in the case of agreements around shared-revenue plans. Huawei, for example, was very good at implementing this strategy and has reportedly jointly formed innovation centers with several of its major carrier customers such as Vodafone, BT, Telecom Italia and France Telecom.

Market Access Exchange

Other times, partnering with a customer can be a win-win exchange. A particular customer or country may want to obtain access to the Chinese market; therefore partnering with a Chinese company may allow it that market reach and facilitate expansion beyond its domestic market.