China is a market full of opportunities and new possibilities for the Spanish fruit and vegetable companies. However, the companies interested in succeeding in this market must overcome many difficulties.
Six out of every ten companies that try to enter the Chinese market without preparation or support, looking for alternatives to the sluggishness of the domestic market, fail because of flaws in the internationalization process. While the possibilities are increasing, the companies that produce their food in China are concerned about about their future there, and about entering other markets, as they've had an increase in wage costs of nearly 15%.
Experts and export companies say that "internationalization won't save us from the crisis immediately. It's not an escape from the economic situation at home, or in the Russian and European markets. In the medium and long term, however, it is the only possibility.
A report from a consultant, who knows the major exporters, states that 65% of the small and medium enterprises that undertook internationalization actions have failed in their attempt.
This is not a failure in the making. They are disappointed that they didn't meet their sales expectations as fast as they wanted.
Many companies have left China due to the abuses of power, administrative barriers, and investment needs, at a time of uncertainty and volatility for business.
The study took into account more than a hundred companies from different productive sectors. Six out of ten companies did not achieve their goals abroad despite having the support of public bodies, such as the Institute for Foreign Trade (ICEX).
The Spanish companies have to double the number of years it will take them to recoup their investment, compared to what it takes them in Europe. "Normally, the companies do not allocate enough resources." However, the benefits after the Break-Even-Point are much higher than in Europe.
In addition, the companies often fail to make accurate forecasts regarding the required investments, the investment flow and the returns schedules. And they simply do not understand the idiosyncrasies of the Chinese consumer.
Internationalization is not just about money. If your company is in crisis, forget about going abroad, because this process, which includes having an international culture and vision, also needs an investment of time, which a company that is losing 30% or 40% of its sales on the domestic market doesn't have. This happens to many companies.
The only companies that been successful in recent years have been the ones that already had international experience, or that were well advised by experts on developing businesses abroad, which has also helped them offset a fall in sales in the domestic market.
"China's strong competitive advantage period has been exhausted, now comes the time of Chinese consumption." Business opportunities are changing as the Chinese workers' salaries have increased and there is a growth of purchasing power. Now it's better to sell our products and not to produce them in this country as production there isn't as cheap as it used to be.
There is no doubt that right now, the first thing that the entrepreneurial firms have to do "is overcome the internal crisis and then start exporting, and they have to get ready to do that."
Internationalization is not only exporting. The process begins by getting prepared, it continues with exporting, but that is not the only objective. The second phase of this process is the implementation of direct sales offices in the country of sale, and finally, the installation of a productive infrastructure in the country where the product sells well.
Failure is due to several factors. The first issue is the lack of preparation on arrival from the company that does not analyze if their product is exportable. A company should know the regulations applicable to their product, as well as the markets, trade, cultural and social situations.
Another factor is the lack of a strategy to identify priority markets and a knowledge of our businesses when compared to the international competition there is. There is also a need for consultants or qualified personnel to address these projects, people who know the language and customs procedures, among other things, that increase costs to the company.
There is also the need for greater investment than in the domestic market. Returns will be higher but slower, which in many cases is demotivating. We must persevere because there are many advantages, but this is a process that takes time to implement.
The success or failure of an international venture is based on having a valid business model in the country of origin, allocating key people, having an organizational structure that is ready and well informed, an export business model, knowledge about the international client, allocating economic resources, and adapting to another cultural framework.
China's consumption growth will remain robust, and market access and rules will improve.
Internationalization requires entrepreneurs to be active. In this regard, there still is a long way to go. However, entrepreneurs shouldn't desist at the first problem.
By Oliver Huesmann, CEO of Fruitconsulting Hong Kong.