21 September 2016

Getting Real in China

Read the business paper headlines and it might seem that China is a country of nearly 1.4bn people all keen to buy British goods. While there are definitely opportunities, what’s it really like to export to China? Jan van der Velde of Kit for Kids and Jim Cain of Lyons Instant Coffee talk through the possibilities and pitfalls.

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Jan van der Velde, an electronic engineer turned chartered accountant, gave up his city job when his daughter gave him the inspiration to start his own company. That company - Kit for Kids - has been exporting to China since December 2015. The first foray was a container of products worth just GBP70,000, and now turnover for this market is expected to hit more than GBP400,000 by the end of 2016.

Export is a growing area for the business, and China - with more than 16.5m births in 20151 has major potential. Van der Velde sees Chinese attitudes to child development and a trust in British brands as key to their success.

"We have highly specialised mattresses and believe that a cot mattress is integral to the future development of the child," he says. "The Chinese really like to know about the science and, of course, children are such an important part of their lives. With that goes the integrity of the British brand."

The Chinese really like to know about the science and, of course, children are such an important part of their lives. With that goes the integrity of the British brand.

Van der Velde

It's all about the culture

Despite these two major advantages for Kit for Kids products, there have been challenges.

"Language is an issue, of course, and the cultural norms are different to those of the UK, which has an impact on how you present the product and packaging. You also need to understand the thought process that goes into buying your product," explains Van der Velde.

"For us, it could be that it's the grandparents buying the mattress as a `gift of life'. This steers how we position our products. We've had to adapt our mattresses too - making them firmer - but it's important never to accommodate so far that you lose sight of your brand and your quality."

Kit for Kids is now working with a major retail company that has more than 200 outlets across China, but also has a local distributor and an online store.

Van der Velde was one of the entrepreneurs who took part in an HSBC sponsored Enterprise Nation Go Global mission to Shanghai in 2015. It was an empowering experience, he says.

"I came back and rewrote my business plan," he says. "It's made a big difference to my life and to the direction of the company. We were trying to do everything, looking for business everywhere. It's a danger for many SMEs. I was able to stand back and really focus on what was important to us. I rearranged the company and handed over the reins a little so that I could concentrate on strategy."

His advice for other would-be exporters is never to underestimate the preparation needed to get into an overseas market.

"Inexperienced exporters see a foreign market and forget that there's the same amount of competition out there as in the domestic market. The difference is that, on top of the competition, you have a culture and preferences that you have to get to grips with," he says.

"No battle plan survives contact with the enemy. You've got to understand your own strategy, but you've also got to understand what your competitors are going to do once you enter that market."

The power of British

Jim Cain bought Lyons Instant Coffee in 2012 with his business partners, determined to bring it out from under a jumble of disparate Lyons products

"The brand was well-known but buried," says Cain. "We electric-shocked it back to life and took turnover from zero to around GBP3 million in just four years. At the same time as launching with mainstream UK retailers, we started thinking about the overseas markets. Why? Because we found, especially in China, that great British brands had a particular resonance."

It's this message that the company is pressing home in China, but their starting point was shaky.

"By the time we went on the Shanghai Go Global mission, we'd made a wrong move in appointing an agent who didn't prove to be suitable for us," explains Cain. "We persevered for too long before realising it wasn't going to work."

Cain had been in touch with UKTI and read all the reports on the Chinese market, but it wasn't until he touched down in the country that things started to make sense.

"I don't think you can understand how enormous that country is until you experience it," he says. You also get a feel for the type of consumer and what they do and don't like."

While many of the early lessons can be about what challenges lie ahead, there were very positive discoveries in store for Cain's company. The market for the product was more open, so the company had a chance of establishing the brand fairly quickly and for less money.

Trading online

Cain recommends online selling to most businesses making a debut in China. Younger people and the rising middle class are online and expect to do their shopping on the internet, he argues. The downside, he adds, is the cost.

The company planned to appear on the showcase site of China's leading e-commerce platform Alibaba, but would have taken a risk on the money needed to move up the visibility rankings. Instead, they worked with local agents and set up on the Alibaba 1688 business-to-business site.

"It gives us relatively quick growth with small businesses," says Cain. "Some of the villages work as collectives, buy products in bulk and then sell on to smaller villages and families locally. It's a good way of reaching customers initially and then we can think about moving up the scale a bit."

Cain offers a word of caution about the cost of physically getting products to China and ensuring that customs paperwork and labelling are all meticulously organised.

"The Chinese government is determined to make a success of import/export, but the reality is that they're still very bureaucratic and there are plenty of pitfalls. I'd really recommend sending over trial orders to iron out any potential problems - not least that the Chinese don't like to say `no' or give you bad news. That's not too helpful when you need to know that your product is stuck in port."

To find out more click on Enterprise Nation Go Global Missions, sponsored by HSBC.


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