Thinking About Expanding Into China? What You Need to Know

Jan 21, 2014 3:37 PM  By

Are you thinking about expanding globally into China with your brand?  There may be some things you will want to think about before entering into the Chinese market with your business.

During their session at the NRF Big Show 2014 last week, Eric Matrullo and Andrew Traub of Alfilo Retail USA, which structures and manages equity-linked and IPO-backed licensing programs for American and European brands,  explained the facts and challenges of entering into this market.

According to their presentation, China is the largest market for fashion and retail brands.  Many brands have expressed interest in entering into China.

The apparel market in China has seen a rapid growth since 2008 and is expected to see four times the growth by 2016, according to the presentation.  China represents 30% of the global fashion market growth.

China has the world’s largest online population with 130 million accounts with ecommerce producing more than $190 million in 2012 sales, according to the presentation.  China’s etailing industry has been growing 120% compound annual growth since 2003.  There are six million ecommerce merchants on the marketplace Taobao.

In China, marketplaces are price competitive and there is limited opportunity for international retail brands, according to the presentation.  This poses a challenge for both U.S. and European merchants.

While the market in China is an excellent opportunity for merchants, it poses a challenge for both U.S. and European merchants.

The solution to alleviate these challenges is to identify, attract and partner with the best Chinese firms, according to the presentation.

Some of the challenges surrounding distribution entry into China include Hong Kong distributors only reaching Tier I and Tier II cities, there is a high cost of building brands in China with no long-term guarantee and Chinese companies want long-term agreements.

According to the presentation, when it comes to licensing entry into China the challenges include needing a master licensee to manage regional branding and pricing strategies, there are few Chinese companies successful at retail rollout brand and brand management and sales and royalty reporting and collection are often challenging.

Ownership +  joint venture strategies include needing resources and expertise to finance and maximize retail expansion or purchase a local firm.  Joint ventures from the beginning can create challenges.

The benefits of the license + joint venture attract the best Chinese companies, it aligns the interest of U.S. brand and Chinese partnerships, it provides time to evaluate the Chinese partner and there is a flexible exit strategy.

There are various models to consider as innovative strategies in order to enter into China.  Merchants may want to consider a license to joint venture model, a license to own model  or a China IP acquisition with cash earn outs.

So what is your China strategy?  According to the presentation, you will want to develop the right strategy for your brand in China, you will want to find the best partner in China and motivate them and lastly, don’t wait because the door won’t stay open forever.

 

 

 

 

 

 

 

  • Charlie Rudkin

    Thanks for the summary of Matrullo’s and Traub’s presentation. Regardless of the path we take to gain entry and thrive in the vast and growing Chinese marketplace, it is very important that merchants, brands, agents/representatives and others seeking a presence there enlist language service providers to help with all aspects of communication. Whether translation of important communications, marketing materials, legal documents, patent/copyright discovery documents; or interpreting at conferences, sales meetings, contract negotiations and the like; transact business in the local language not only demonstrates respect but is goes a long way to ensure success in your business dealings.