Exporting to China

Entering the Chinese Market: an analysis

Before entering a new market, it is always wise to analyse the environment regarding your product or service. China may not be the most suitable market for your product. In order to assess the suitability of China as an export market for your product or service, we recommend using the model of Porter’s Five Forces. With this analysis framework, you can assess China as an export market in terms of competition, entry barriers, substitute products, and the bargaining power of buyers and suppliers.

How can you use Porter’s Five Forces model to analyse the suitability of China as an export market?

Porter’s model of five competition forces is an excellent tool for analysing a field of activity when entering a new market. Using this model will give you a sound insight into the current profitability of your chosen field of business, as well as in the long term. Long-term profitability is difficult to achieve in fields where one or more competitive forces are strong. In order to use Porter’s model for your business, you must look at each aspect of your area of activity.

Buyer power – do you control your buyers or do they control you?

The bargaining power of buyers, ie the consumers of your product or service, can be assessed by answering the following questions.

• How many potential consumers are there for your product? If there are many potential buyers, the position of power belongs to you. If there are few buyers, then they have the bargaining power.
• Is the buyer loyal? Is it easy for them to switch to another product? If you are offering coffee pods, for example, your customer might also need to change their coffee machine in order to switch to another product. However, if your company sells soap, changing to a different product is easy for the buyer. Brand awareness should also be taken into account here – if your product is well-known and loved it is less likely for customers to switch to another brand.
• Is your product special, high quality and expensive? If your product is unique on the market, then this puts you at a distinct advantage. If, however, there are many similar products, the buyer will base their choice on quality and price.

Availability of substitute products – is your product or service replaceable?

A substitute product means a competing product, where “competition” is to be understood in the broader sense of the term. For example, these days, competing products for TVs also include computers, tablets and smartphones. The potential threat to your business of substitute products or services can be assessed by answering the following questions.

• What is the quality, price and functionality of potential substitute products? If substitute products are better, more affordable or more functional than your product, the threat is real. If not, competing products will not endanger your product or service on the market.
• How costly is switching to an alternative product? For example, web hosting providers will often move your website to their platform for free – this makes the cost of switching service providers non-existent and the impact of substitute services on your web hosting business stronger.
• Are the consumers inclined to switch products or services? For example, women are generally less inclined to change hairdressers than men, giving women’s hairdressers more protection from substitute service providers.

Entry barriers – is it easy to get started in this particular business?

Supplier bargaining power – on whom does your business depend?

Here, you should evaluate whether potential competitors would find it easy or difficult replicate your business model.

• What kind of initial capital do you need to get started? Does starting your business require a large initial investment, special education or offices in a specific location? For example, opening a private clinic requires medical education, medical equipment, clinic rooms, etc, while all you need to start a gardening business is the necessary experience, tools and customers. This means that there are more entry barriers to the private clinic market and fewer entry barriers to the gardening market.
• Do you need personal relationships or contacts to get started? If success hinges on having a loyal customer base, friends in high places or good contacts, entering the market will be difficult for newcomers, as entry barriers are high.
• Do market players have patents? If the products already on the market are patented, others will find it difficult to enter the market.

If your business model is heavily reliant on partners performing important work to bring your product or service to life, it is vital that you find answers to the following questions.

• How many suppliers are available? If you are buying components or services from a supplier with a monopoly, they have a great deal of power over you – they can raise prices or extend delivery times and there is nothing you can do about it. However, if you have many other suppliers from which to choose, you are in a strong position to negotiate the best possible terms.
• Does the supplier provide a component or service that is central to your main business process? If you need to buy a key component for your product from an external source, then you are at the mercy of your suppliers. To reduce supplier bargaining power, it pays to have key components or services produced within your company.
• Is switching suppliers costly? If swapping allegiances with suppliers is difficult or costly, the power is in their hands.