Editor's note: Negotiating business in China has never been more crucial for N.C. businesses. Over the next several weeks, we'll look at successful China strategies and 10 N.C. businesses that have made the leap. This week: Formulating an entry strategy.
After Burt's Bees was bought by Clorox in 2007, its focus turned to international expansion.
It hired a global management consulting firm to assess the Durham company's natural beauty products in 30 countries to determine where to focus its resources.
China soon became the obvious choice.
The country is the No. 3 beauty care market in the world and is expected to soon be No. 1. But while most companies enter China because of the size of the potential market, Burt's Bees was interested because "natural" and "product safety" are priorities for China consumers. In addition, many Chinese make their own products at home and believe in the power of natural ingredients. So Burt's Bees wouldn't have to invest in convincing consumers. It also had the opportunity to create a market in China as lip care there is virtually nonexistent.
"There were lots of reasons to be excited," said Jim Geikie, vice president of global marketing for Burt's Bees.
But before the company could move in, it needed a comprehensive strategy for entering the market and dealing with China's government.
Foreign companies that want to enter China can pursue various methods: test markets, partnerships, joint ventures, alliances or as a wholly foreign-owned enterprise.
Each has its challenges, and each company that tries to enter the China market has its own unique circumstances.
Burt's Bees had to deal with an issue that went straight to one of its core values: animal testing. The company doesn't do it, but the Chinese government requires animal testing on imported products.
The company researched various strategies including acquiring a local brand, making co-packing and distribution alliances and setting up its own shop including manufacturing and running its own stores. Each was quite complicated with different sets of pros and cons.
Executives finally chose a partner with local manufacturing and established go-to market channels and, most importantly, one that shared Burt's Bees core fundamental values.
To make sure they understood the regulatory issue thoroughly, executives talked to 18 agencies at the federal and provincial levels. It took two years to figure it out.
Geikie said working with the Chinese government was "totally important" during the assessment stage. The global consulting firm they engaged had their own government relations arm and Burt's also worked with a local Chinese law firm. When they got contradictory points of view, they kept digging deeper until they heard consistent answers. With China's strict five-year plan, they wanted to make sure they were basing their decision on the right data. They now have additional government relations help from Clorox as well as the partner they ended up choosing, so Geikie is comfortable they have good resources to work with the Chinese government effectively.
At ground level
Other Triangle companies accessed the Chinese market through different routes.
In 2004, Matthew Szulik, past CEO of Red Hat, hired Michael Chen, a native of China with U.S. graduate degrees, to be general manager of Red Hat China. The company decided to build from the ground up and Chen was given the power to develop product and pricing specifically for the Chinese market.
Cree, a Durham-based LED innovator, has always been a global business, but it took a long time for its business in China to grow. A key factor was the commercial - and then personal - relationship its executives built with a company called COTCO Luminant Devices, and its owner, Paul Lo. The founders of Cree were big on trust, which fit with building " guanxi," critical in Chinese business relationships. Top Cree executives got to know Lo well and in turn learned about China.
In March 2007, Cree acquired COTCO Luminant Device Ltd., one of Lo's holding companies. Owning COTCO gave Cree low-cost manufacturing and access to the important and fast growing solid-state lighting market in China. While the deep science work remains in Research Triangle Park, Cree now has manufacturing and business development functions in China.
Quintiles, headquartered in Durham and best known for its global management of clinical trials for biopharmaceutical products, has had a presence in China since 1997. In recent years, China has become more of a priority for the company, which employs 20,000 people worldwide. As a result, at the beginning of this year, it sent nearly 100 of its worldwide leaders to Shanghai for a Quintiles Global Leadership Meeting to be exposed first hand to China's healthcare system.
Thomas Wollman, senior vice president of Global Central Laboratories and Cardiac Safety for Quintiles, is responsible for all global lab operations and lab project management. He said in 2003, the company worked through contacts in China to identify 19 potential partners from which they chose their final partner.