China Market Research Strategies
To obtain accurate China market analysis, foreign companies must use appropriate market research techniques
by Charles Oliver and John E. Coulter
An All-China Women's Federation member (center, front) interviews household heads for a market research project in rural Guangxi.
China's markets are difficult to research and understand because of a rare combination of five factors. The first is the country's size, comparable only to the United States, India, Brazil, and the European Union. Second is its rate of market change, which compares only to developing economies such as India and Brazil. Third, though considerable secondary information is available in China, it is often old, questionable, or inaccurate, and the methods by which it is produced are rarely understood. Fourth, China's markets are fragmented and diverse. For example, more than 1,000 brewers compete in China's beer market and around 100 companies manufacture elevators. Most of these are small, regional companies that rely on multiple distributors. And fifth, individuals and businesses are often unreceptive to direct research inquiries. Making sense of this market thus demands more systematic research than is needed in more orderly and established markets.
Market research methods and sources
The worldwide market research industry is only 50 years old and has operated in China in a comparable form for only 10 years. Concepts such as business-to-business (B2B, sales from one business to another) market research and business-to-consumer (B2C, sales from business to individual consumers) market research thus are fairly new in China. B2B research often occurs in health, manufacturing, and technology sectors; B2C research is typically used for a range of fast-moving consumer goods and specialty items--such as sodas and autos. Large-scale B2B research is quickly developing in China as buyers become more willing to invest in research to obtain a better understanding of their markets. Finely detailed B2C research, which is already well developed in China, has a wide range of international and domestic providers such as ACNielsen and Facts and Factors Marketing Research Co. Ltd.
Large-scale B2B research is quickly developing in China as buyers become more willing to invest in such research to obtain a better understanding of their markets.
Few B2B market research methods are consistently used in China, and B2B research is generally conducted less systematically than B2C. B2B research logistics are also more difficult. For example, an in-depth interview with a buyer may be conducted in a controlled environment--such as a meeting room. But obtaining an interview with a factory manager or a chief engineer at a government telecom bureau may involve several attempts, and even if the interview occurs, the researcher must judge whether the responses merely tout the official line or reflect the truth.
The most common methods for B2B market research in China are anecdotal research, use of experts, use of government connections or relationships (guanxi), secondary research (information that is already collected and printed in publications such as statistical journals and newspapers), and systematic, primary research (information collected through a strategic program of first-hand accounts, including interviews or meetings). Each of these research sources is valid but only for certain types of information (see Table 1).
| Table 1: Value of Information Source by Type of Information in China (1 = not useful; 5 = very useful) |
| Type of Info | Anecdotal | Experts | Inside Guanxi | Secondary Sources | Systematic, Primary |
| General market trends | 4 | 3 | 3 | 2 | 5 |
| Demographics | 1 | 1 | 1 | 5 | 1 |
| Market opportunities | 2 | 2 | 3 | 1 | 5 |
| Partner search | 2 | 1 | 3 | 1 | 5 |
| Market size, share | 2 | 1 | 1 | 2 | 5 |
| Regulations | 2 | 3 | 1 | 4 | 2 |
| Project information | 1 | 3 | 3 | 2 | 4 |
| Competitive analysis | 2 | 2 | 2 | 1 | 5 |
| Detailed price information | 2 | 2 | 1 | 2 | 5 |
| Sources: Charles Oliver and John E. Coulter |
Though foreign and Chinese B2C market researchers in China may use any of the research methods described above, the most commonly used B2C methods include focus groups, polling, and test-response. These are systematic in nature, though different from systematic B2B primary research. In B2C research, experts and guanxi are used less frequently.
Anecdotal research
Anecdotal research, common in China, occurs when a researcher "asks around" about an issue by questioning customers, distributors, or friends. The key to using anecdotes to collect information, follow leads, and even tap opportunities is to be in the right place, to listen, and then to check the information thoroughly using other avenues and angles. For example, the first foreign onshore oil lease was granted in 1985 as a result of a chance meeting of two passengers sitting beside each other on a flight from Guangzhou to Haikou, Hainan. Anecdotes related in such ways can identify market trends. But acting on news gained solely from anecdotes is folly. Researchers must question why the information is being offered, whether it is true, and who else has been told.
Use of experts
China's academic institutions, industry associations, and even state-owned enterprises and government offices contain an army of well-qualified experts who can offer advice and insights on market trends, regulations, and approaches to specific projects. Many are facing retirement and are more than willing to contribute for a modest fee. These experts can help design research programs, point out good strategies, and find errors. Given China's traditional respect for seniority, working with such experts can facilitate research access that would be more difficult otherwise.
The danger in using experts, however, is that sometimes the most venerable are out of touch with the latest technology and approaches to social issues. They may assume a dogmatic, didactic, and inflexible approach that does not suit genuinely open-ended market research. Also, many experts cannot provide good quantitative information on a market. For these reasons, market research in China should be based less heavily on expert opinion than in developed countries. Caution, and trial attempts to involve an expert under consideration in nonsensitive, noncore tasks, may reveal strengths and weaknesses that a resume and interview cannot.
Use of guanxi
Performed correctly, a systematic, primary research program may offer dozens of anecdotal insights including specifics on, for example, who will make major purchases next.
Information acquired from an insider with whom the researcher has a relationship of some kind (such as a family member, former classmate, or colleague) can provide vital insights into an industry. Without guanxi, researchers may traverse figurative miles, while the key answers are behind a closed door mere steps away. In one commissioned research project, for example, the international client was mystified at abnormalities in supply and demand volumes of a key input. One of the researchers had a former colleague in the research project's target city. The researcher made a courtesy call to the former colleague's aunt, who was a production manager in a factory making the product in question (a bulk, generic herbicide). The aunt delivered the basic formula revealing a substitute raw material that was banned, dangerous, and cheap. The researchers then refocused their inquiries, with some subtlety, to quantify the extent of the problem. The right guanxi can be a big help, but it is no substitute for systematic research.
Secondary source research
Identifying and analyzing secondary sources is more of an art than a science (see Table 2). Data published on production, stocks, consumption quantities, and especially on the money values and indexes of such data, need to be treated critically. Much of this data, be it from the government itself, organizations, or research companies in China, is governmental in origin. China's government is vertically organized, so each industry's ministry or department collects its own information. Often, various departments collect statistics on the same topic using different, often flawed, methods and scopes (for example, different series collected by various agencies can define administrative regions, time spans, and commodities differently). When researchers use secondary sources it is imperative that they compare multiple sources and include long time series--because it is harder to distort information over long time periods.
For secondary sources in China to gain credence, the sources should reveal methodology and definitions. On many occasions, wild discrepancies in data series make sense after the primary source data collectors explain their definitions and methods.
| Table 2: Valuable Secondary Sources |
| Source | Main Use |
| Yearbooks | The China Statistical Yearbook is in English, while various industry yearbooks are in Chinese (see www.chinayearbook.com) |
| Print Media | Some industry journals (for example in the agriculture, oil, textile, and auto sectors) are useful, though almost all are in Chinese |
| Internet | Various company and industry websites, though little is available on specific companies |
| Ministries | China's National Bureau of Statistics (www.stats.gov.cn/english/index.htm) and the General Administration of Customs (www.customs.gov.cn) provide a good start. |
| Various databases | Quality varies greatly; many have incorrect or out-dated information |
| Sources: Charles Oliver and John E. Coulter |
Systematic, primary research
Primary research is typically the most extensive, reliable, useful, time consuming, and costly approach. Though this is true anywhere in the world, it is especially true in China. Data that come through primary research in China can be valuable but can also be incomplete, misleading, or even false. Cultural differences may result in subtle differences in answers and in the interpretations of responses. In the interview process, for example, Chinese company representatives are more reluctant to speak negatively of themselves or positively of their competitors than in the West, and often make claims that have no rational basis. Interviewers must have first-hand experience with primary research, read between the lines, ask questions that bring out concrete answers, and cross-check as much as possible.
Systematic, primary research is different from anecdotal research in that it is structured to canvas, at the B2B level, a representative cross section of buyers in organizations in an industry. To be of any use, primary research on end consumers requires professional, China-specific cultural skills, plus the practical wisdom to address and overcome many potential biases and pitfalls.
How to Conduct a Successful Case Study in China
Companies should consider four key recommendations when planning case studies.
1 Carefully consider who will conduct the interview. To get the best results, choose people with the appropriate status, education, gender, and region of origin. Sometimes a pair of interviewers can obtain a better response than just one. For certain sectors--especially sectors with imported, prestigious products--having both a Chinese interviewer and a foreigner present elicits better responses, even if the foreigner is just "for show." But if interviewing about a sensitive issue, such as when determining the extent and pervasiveness of malpractice, a foreigner's presence can be a disaster. 2 Use local branches of civil society groups that know their neighborhoods well to conduct interviews. For instance, members of the All China Women's Federation make excellent interviewers: they have access and trust at the household level, obtain accurate data, and work efficiently and relatively inexpensively. In one case--a multilateral-funded environmental project that involved interviewing residents for resettlement--local city officials and foreign experts were horrified by, and openly condescending toward, slum dwellers on either side of a channel running through the city. Officials and experts assumed residents would welcome a resettlement plan until the women's federation gathered income data and comments. The federation discovered that the richest household killed pigs and delivered fresh meat to the nearby five-star hotel, prostitutes earned higher incomes than the city officials trying to help them, and, most important, no one wanted to move from the city center. The facts showed that the project designers had been wrong and needed a new approach. 3 Structure questions with an open mind and build in some difficult questions for cases in which the interviewer gains the interviewee's confidence or in which the interviewee seems willing to offer more information. By using this method in various trials we discovered that some staff did not want to work for foreigners, that some individuals thought "serving the people" was more important than a financial bonus, and that some communities (for example in Tibet) did not want more money or more material goods at all. 4 Seek divergent views. Using official channels yields only official facts; research performed through alternative routes frequently leads to surprising results. For example, in Western countries it is common for factories and their suppliers to make a higher profit from spare parts than from original unit sales. In one northeastern China engine joint venture, researchers learned that employees, facing cutbacks, used their access to technology to sell copies of almost the entire range of spares at a small margin above what it cost them.
In another example, an international commodity trader was mystified at the low official figures for national sugar consumption, which did not seem to track the changing diet of city dwellers. Meetings with importers and administration officials brought the same response. Consumption was calculated by adding production, trade, and changes in stocks. Independent participatory research including visits to international-standard beverage and food processors, and interviews at supermarkets and fast-food outlets, indicated there was a shortfall of 4 million tons of sugar or substitute sweetener. On inquiry, officials showed reports that the substitute product factories had been destroyed to maintain a high price for local sugar farmers. Further inquiries independently revealed that local food processors, especially in poor areas, were readily buying substitute sweeteners. Posing as foreign traders, the researchers obtained quotes from illicit factories for large quantities of saccharin. Armed with the evidence, the international commodity trader formed an alliance with food processors operating above board to pressure the cheaters into retreat.
— Charles Oliver and John E. Coulter
B2B market research in China
It is best to use mainland Chinese interviewers for business research in China, as their sensitivity to cultural nuances enables them to communicate more effectively and to read between the lines.
Most B2B market research in China is conducted through systematic, primary research (as opposed to anecdotal or unsystematic primary research). Such research requires a certain level of technical knowledge. Interviewers need not be experts, but it is difficult to have involved discussions with chemical purchasers, for example, without some idea of the items being purchased or how they are used. Research design requires a feel for the market, and interviewers must be able to communicate competently with purchasing personnel or others responsible for purchase decisions. Sampling requires in-depth knowledge to cover the major, medium-size, and startup players. Useful B2B market research in China still might not equal a theoretical exercise performed in a university, but primary research does provide a view of market realities that the other four research methods cannot assess. And after completing, for example, a 30-minute interview in which the interviewee has felt comfortable, an invitation for open comment may elicit anecdotes of high value that are not accidental but by the interviewer's design. Performed correctly, a systematic, primary research program may offer dozens of anecdotal insights including specifics on, for example, who will make major purchases next.
Keys to good B2B research in China are strong project design, proper interviewing methods with an optimal interviewer team, and solid analysis of the information that draws accurate conclusions.
Project design
Appropriate project scope and good sampling are two important elements of project design. In contrast to more developed economies, it is important in China to conduct field interviews and to interview all levels of the market, not just suppliers, as is often done in the West. Researchers must also decide if they want conclusive or indicative results, as the samples required can vary greatly. It is wise to limit project scope as much as possible and to confirm that expectations can be met. For example, one cannot draw many conclusions on the market for CT scanners based on 10 hospital interviews, and it is unreasonable to expect to get detailed sales margin information of top competitors in any market since companies are unlikely to provide the information.
Interview methods and team
First, it is best to use mainland Chinese interviewers for business research in China, as their sensitivity to cultural nuances enables them to communicate more effectively and to read between the lines. Second, it is important to prioritize questions and conduct in-person interviews because, in China, it is difficult to obtain phone interviews and to elicit useful answers from them. Third, Chinese translations of English terminology must be accurate to avoid serious misunderstandings--if the interviewee thinks the product price includes installation and service, but the interviewer does not, the results will be wrong.
Analysis and conclusions
In contrast to much consumer research, B2B research always produces incomplete information because the process is less controlled and there are too many variables. It is therefore important to judge the reliability of the information gathered in the context of China's economy and the particular industry under study. This analysis cannot be done in a vacuum or compared to another country because China has such specific conditions.
Simply asking the same question two ways at different points in the interview can signal the value of information being given.
One difference between China and more developed markets is that, in China, cross-checking and triangulation are essential in designing the research agenda. Simply asking the same question two ways at different points in the interview can signal the value of information being given. Relying purely on one perspective--no matter how many like-minded people say the same thing--can result in significant biases, so getting different stakeholders to comment on an issue can help pin down any hidden information.
The Dos and Don'ts of Conducting Research in China
Companies that plan to conduct market research in China should remember a few key points.
Do
- Understand the source of your information--including whether it is from a primary or secondary source--and know how it was produced.
- Use mainland Chinese to interview mainland Chinese. The importance of cultural nuances cannot be emphasized enough.
- Search for partners systematically. Whether for agents or investment targets, doing a haphazard search means that many qualified targets go undiscovered and that prejudices of the search party may intervene.
- Get information from the field--either alone or with another party.
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Don't
- Make a major decision based on scant or unreliable China market information.
- Evaluate samples that are too small. For example, doing two or three interviews per subsegment will yield little value.
- Think that connections and relationships (guanxi) alone are sufficient sources of information. They are not and rarely result in reliable market information.
- Assume there is a market for your product in China. Many Western products are priced out of this market.
— Charles Oliver and John E. Coulter
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The research environment improves
At present, China's research environment is undergoing significant changes. The value of research--to both foreign-invested and domestic companies--is growing, and more domestic companies are willing to pay for quality research. Though the B2B research market is still fragmented and holds few large domestic players, the performance of domestic consumer research companies is improving, and they are gaining a greater share of the market. Market research is becoming more systematic and its quality is improving--a trend that should continue.
Charles Oliver is a partner at GCiS in Shanghai, China.
John E. Coulter, PhD, is an independent researcher based in Beijing, China.
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