Commentary: How you can succeed in China

By Frank Liang, Centillium Communications -- Electronic Business, 4/25/2007 8:35:00 AM

The word “China” triggers a number of associations for many people: a country once ruled by dynasties, the world’s largest population and, most recently, the future home of the Summer Olympics.

When you add technology to the picture, broadband is also on the landscape. This technology was a stepping stone for Centillium to enter the Chinese market, and I’d like to share our business experiences with you.

Centillium’s business strategy has been to leverage its successful deployments and legacy in servicing Japan in the DSL broadband arena to diversify its expansion into growing markets – China included. The company first set up operations in Shanghai in 2001 to support its burgeoning customer base, and sees great growth potential.

China’s broadband deployment continues to achieve growth milestones. In fact, according to analyst and consulting firm Ovum, 2007 is the year that China will become the No. 1 broadband market. The firm also forecasts that China’s broadband market will grow by a CAGR of 75 percent to reach 139 million subscribers by 2010.

Broadband will be a key driver for growth in other industries as well. China’s consumer electronics industry, for example, is expected to achieve more than $94 billion in sales revenue by the end of this year, according to Research and Markets.

While China continues to be a hotbed for cutting-edge broadband and consumer electronics technologies, making in-roads in China requires knowing how to capitalize on certain opportunities and how to overcome the challenges of entering a market with intense global competition.

Yin and Yang

While the Japanese and Chinese markets are intrinsically tied together, it’s surprising how many differences there are between them.

One difference between them is pricing and performance. In China, competitively priced products with adequate performance are preferred to pricy, cutting-edge technologies that can (quite honestly) burn a hole in a CFO’s wallet.

Although the importance of local support and relationships is critical in both countries, it takes more time and effort to land Japanese customers, but vendor loyalty typically lasts much longer. In China, the courting period is not as gut wrenching, but companies run the risk of being eliminated by a competitor.

All said, China is one of the biggest markets for ADSL and VDSL broadband technologies – with PON as a close third. Because the country’s infrastructure can support bandwidth-intensive VoIP, DSL and PON applications, semiconductor companies have started to reap the benefits. 

We have learned that keeping in close communication with Chinese customers is critical. By obtaining input on what the latest applications and requirement trends are, customers can be first to market in terms of Broadband 2.0 technologies such as HDTV, IPTV, and VoD.

That brings up another opportunity: There is a true sense of the market being a level playing field whether you’re the David or the Goliath in China. The opportunities are endless because of the demand for consumer electronics products, the exponential number of new companies establishing themselves and a huge workforce hungry to reach new heights. Chinese companies are on their way to reaching solid market share worldwide. 

In China, we’ve found that companies with the best cost and feature trade-offs are winning the battle. 

The Great Wall to China: The biggest barriers

Now don’t get us wrong – there are barriers to establishing business in China. One of the roadblocks for vendors of all sizes is having local support in place to keep customers happy. China is a large territory, and with 1.31 billion people, that means there’s a lot of area to cover.

Another challenge stems from price wars. Companies must stay ahead of the curve. If they don’t, Chinese customers have a variety of competitive solutions available to them and they are not afraid to leave their current provider, especially if other companies are seen as having better brands and more cost-effective solutions.

In addition, there is no formal RFP process in China. What typically occurs is the customer already has an internal project set up and will ask each vendor to send detailed information on its solution, price quotes and an estimated delivery date. The company will make a decision based on that information. If it’s a commodity product, bidding processes are put in place, with a selection process that can be protracted and complicated. Customers may even start designing a product with a vendor and then decide against taking it to production.

While service providers and government agencies are starting to use RFPs more often as a vehicle to get business done, and larger companies will occasionally use a formal RFP process, it mostly appears that previously existing business relationships are critical to win “inside” projects.

So what can vendors do to win contracts in this market? Here is some advice that we have gleaned from our experiences.

Top 10 tips for doing business in China

1. Pricing must be competitive. You have to stay competitive all the time, since Chinese customers usually have multiple solutions on hand compared to other areas where customers may not have ample resources. You should have a product that can sustain extraordinary pricing and competitive pressures and strategize/plan for the long term. 

2. Have a product that is more enhanced than the competition, with key product features targeted to the customer. Shorter lead times, ideally less than four weeks, can help tip the scale.

3. Have a local presence and a dedicated support infrastructure. Ideally, have engineers on-site in less than 24 hours to handle critical customer issues. Make sure the engineers speak Chinese and have architectural knowledge of your products. 

4. Establish relationships with powerful procurement groups. 

5. Learn new ways of relationship building and work hard to maintain your accounts. Because of low cost structures, Chinese companies can afford to have up to three parallel designs. 

6. Be prepared for multiple designs from the competition; understand customers’ will to stay in an advantageous position in multiple ways.

7. Beware of spot market pricing and the risk of getting dropped because of non-compliance or poor support. 

8. Pick large vendors close to the government when it comes to electronic or telecom semiconductor business.

9. Develop trust by delivering on promises before expecting anything in return. This may require significant upfront investment without a guarantee of payback.

10. Chinese companies are gaining market share worldwide quickly. They will expect that their silicon partners will have world-class R&D and support infrastructures to penetrate European and American markets that tend to be more demanding than the local China market.

Frank Liang is sales director, Asia, Centillium Communications.