Jinfo: Characterising the dragon - undertaking research in China

Characterising the dragon - undertaking research in China
Jinfo Blog

1st March 2006

Abstract

When entrepreneurs and investors think about steering their companies towards Chinese shores these words should be remembered - learn quickly, as it could be some time before the cash starts coming in!

Item

Mike Taylor Harold Geneen, the founder of MCI Inc., once said, "In the business world, everyone is paid in two ways: cash and experience. Take the experience first; the cash will come later".

The Chinese economy, growing at a gravity-defying rate of 9.5 percent per year, offers immense opportunities, stemming from a population base of 1.3 billion souls. The success that global powerhouses like Nokia, Wal-Mart, Microsoft and Ikea have had on entering the Chinese market makes it tempting for smaller Western companies to try to piggyback the Dragon, but the scale and diversity of the Chinese market are incredibly daunting. Any researcher trying to understand Chinese demographics to facilitate the launch of new products or services needs to keep the wider picture in mind.

The disparity between east and west China is an interesting illustration. The China Human Development Report of 2005 gives an intriguing insight into the dynamics of the Chinese population. According to the report, China's Gini coefficient, representing income equality across the population, is more than 0.4 and on an upward trend (source - United Nations Development Program report on China, from 2005. Download of the full report available at: <http://digbig.com/4gqwf>).

Note:- The Gini coefficient is an Inequality Indicator - it measures the inequality of income distribution within a country, varying from 0.0, which indicates perfect equality, with every household earning exactly the same, to 1.0, which implies absolute inequality, with a single household earning a country's entire income. Latin American countries are grouped at the top of the scale, with Gini coefficients of around 0.5 - 0.55; in the UK the figure is 0.25.

This income disparity is particularly pronounced between the eastern cities of Shanghai, Beijing and Guangzhou, where consumers are looking for experiences and products on par with those in Hong Kong and most other developed markets, to the west of the country, where consumers are seeking far simpler functional benefits for much lower costs. For example, city-dwelling, office-working consumers of laundry products use washing machines and have more garments in their wardrobes. On the other end of the demographic spectrum, small-town blue-collar workers have different needs and requirements - a smaller wardrobe, washing them less frequently, and not necessarily using washing machines. For the record, the regional income-divide between the eastern (industrial) and central (agrarian) Chinese belts has surged from 1.42 to 1.52 in a span of six years, from 1997-2003, according to the UN China Human Development Report of 2005.

Each sub-segment is huge. As an example, China's top four cities alone - all on the Eastern coast of the country - account for a market sizeof over 30 million people. That's the challenge - carrying out meaningful research while dealing with a mind-boggling maze of data. Likely to drive a researcher up the (Great) wall!

Variations on a Chinese theme

Imagine - 56 different ethnic groups speaking scores of different languages and dialects - astounding in their variation across the nation with myriad dialects and forms. To sum it up: the heterogeneity of the Chinese market requires researchers to look at it not as a single mass market, but as a large number of smaller markets. This makes designing a comprehensive questionnaire a tricky affair, needing to accommodate a wide range of disparate views, not to mention languages.

Collection of data and its collation is going to be tough. Ensuring that the sample of respondents corresponds to a representative slice of the market is a challenge which, from a Western viewpoint, can sometimes be overwhelming. A local Chinese partner will be able to help you decide which regions are the primary targets for the products or services you are researching, as well as which language will be most appropriate for those target groups. Without a local plan, deciding in London to conduct the interviews in 'Mandarin' will limit hugely both the respondents and the quality of the results.

To further muddy the picture, basic demographic information about the population provided by government agencies or culled from published reports cannot be relied upon, as illustrated by the official population figures. Since the 1970s, the communist regime in China has restricted couples to a strict 'one child' policy. It is believed that an unspecified number of couples may have hidden from the census authorities the actual (higher) number of offspring. One estimate pegs this 'unreported population' figure at over 100 million -- twice as big as the UK population!. (see Foreign Policy Research Institute report on "The limits to China Growth" Spring 2004: <http://www.fpri.org/orbis/4802/dreyer.limitschinagrowth.pdf>).

Primary data collection is complicated still further by variances in economic development, purchasing power, and cultural factors, all of which lead to differences in consumer behavior across and within the large and diverse regions of China. Concurrently, infrastructure problems and the size and heterogeneity of the market make it difficult to identify and select representative samples and to organize survey research. Phone-based research is also very hard to conduct - China's cultural norms call for face-to-face interviews traditionally using a female team. Other cultural differences are even more marked - our CEO was surprised when, after a lengthy, in-depth interview by a major national newspaper about Evalueserve and our plans in China, the (female) interviewer concluded by giving him a big hug ...

Don't believe everything you read

An additional complication on conducting primary research in China is that non-Chinese-owned companies are not allowed to build their own survey facility for B2B or B2C phone campaigns in China. As a result, it is absolutely critical for any company trying to conduct research in China to develop local links and strong, trust-based relationships with good, Chinese-owned, primary research agencies.

Published company results in China are also not straightforward. Those of us who are accustomed to the strict, regulated reporting requirements of the West may get a severe headache when contemplating the multiple different ways of reporting the same information in China. External influence can sometimes mean that figures are amended before release, making reliance on a single source a high-risk strategy. Triangulation of data points through multiple sources and original modeling, when needed, are the only ways to ensure painting an accurate picture.

With all these challenges, what are WE doing there?

Evalueserve is a research company based in India. Since we were founded in 2001 we've grown to 1,000 full time, highly qualified research professionals who deliver desk research, financial analysis and B2B surveys for clients in the US, UK, Continental Europe and the Far East. Our client base is a mix of other research companies, who use us as a hidden back-office and some corporate clients for whom we either deliver one-off projects or build a full time, dedicated team.

Through 2004 we fielded increasingly frequent requests from our clients to study Chinese markets. We began by conducting research from our base in India, recruiting Chinese speakers and using Chinese partner companies for the B2B interviewing. This approach produced great results but was slow and more expensive than it should have been. We decided that the only way to accurately research the Chinese market was to be within it, so in mid-2005 we sent one of our senior guys to China to choose a location and open an office. He took with him one of our Chinese team members from our International Language Centre to help with local issues.

Two months after selecting Shanghai as a location, we had a fully-operational facility with seamless training, recruitment and IT systems linking into our India hub, and we were starting to train the first few team members in the our way of work. Now, five months from opening, the team comprises forty people working on live, paid projects for clients in London, New York, Tokyo and Hong Kong.

The opening of the office and starting to deliver work was surprisingly straightforward - there is significantly less red tape than in London or Delhi. Yet the infrastructure in Shanghai is of a similar standard to any modern global metropolis such as Paris, Manhattan or Sydney.

A key part of our business model is for the delivery team lead to interact directly with the client, without an onshore gatekeeper or project manager. This ensures no 'transmission losses', gives a much higher quality end-deliverable and gives the delivery team leads a much more rewarding job (thus reducing attrition). My personal experience during a recruiting visit to China in November was that students who are in the current graduation year have exceptional English language skills, but those who graduated three or four years ago are very variable - we could not use some of the most able candidates in a client-interfacing position without significant training. This is very different to India, where all students have their formal education in English from an early age, with the result that their English is normally significantly better than mine!

One additional benefit to being in China is that we are now much closer to the time zones of our clients in Hong Kong, Tokyo and Seoul, and can hire English, Chinese and Japanese speaking MBAs and finance graduates directly from the best universities in China, without the issues of bringing them to India.

Researching the Chinese market is not easy - it requires patience, a multi-region strategy and contacts with local companies who can help. The potential market, though, is huge for companies with the patience to understand what they're getting in to and wait for the returns.

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