Contextual Intelligence to master the Chinese market
Understanding your business context is essential, but far from easy – especially in China
Whether simply exporting products to China, building up a local presence to be closer to Chinese customers, producing for a global audience or sourcing components in China: what matters for acompany’s business success in China is “contextual intelligence”.
Khanna pointedly raised this issue in his HBR article Contextual Intelligence, arguing that “trying to apply management practices uniformly across geographies is a fool’s errand, much as we’d like to think otherwise.” This statement claims that managers often overestimate their conviction how to succeed in other markets. According to Khanna, this applies especially to business leaders from WEIRD (Western, Educated, Industrialized, Rich, Democratic) countries. Very often, they are driven by mental models that work well in established markets, but fail in new business contexts such as China. In order to succeed in foreign markets, both properly understanding one’s own business success factors as well as a thorough understanding of the conditions in the newly to be tapped market is required. By contextual intelligence, Khanna means “the ability to understand the limits of our knowledge and to adapt that knowledge to an environment different from the one in which it was developed”.
One of the solutions to overcome the limits of our knowledge is accepting that business models need to change in new markets according to the different framework conditions or market needs. To that end, companies can no longer rely on pre-fabricated reports and generalized data sets, but must instead closely observe their target audience and develop customized models and frameworks that, however imperfect, will help the company develop an agile and learning mind-set.
While Swiss SMEs have increasingly been driven to internationalize owing to a variety of reasons such as a strong Swiss franc or a saturated domestic market, international performance so far has shown to be less than satisfactory. Very often expectations in market share, sales volume or overall performance could not be met. High prices and costs as well as insufficient market research represent the most important weaknesses that companies see in their internationalization projects. Particularly in geographically and culturally more distant markets, learning effects are less easy to capitalize on and coordination and transaction costs rise disproportionally. Almost half the Swiss SMEs trace their unsuccessful international ventures back to lacking intelligence on the foreign market peculiarities. While these findings reveal that a gap in experience and market intelligence is a major hindrance from successfully tapping distant markets, the survey also finds that companies very seldom consult external experts (only 14.1% found help with consulting services) for assistance.
In the Chinese context, it is becoming increasingly clear that the once expected convergence after the country’s entry into the WTO in 2001 will not materialize, and that the country instead aims to keep its domestic peculiarities. This means that institutions, communication channels and business practices remain distinctly Chinese, and a copying of an even successful business model in other places will most likely fail here. What is needed is reliable and relevant information on the industry, market and target audience to shape the domestic business model accordingly.
 Khanna, T. (2014). Contextual Intelligence. Harvard Business Review, 3, 59 – 68.
 Baldegger, R. (2013). Swiss International Entrepreneurship Survey. Postfinance and Bisnode, D&B Schweiz AG
 Suter, C. (2009). Das grösste Exportrisiko ist hausgemacht, Wirtschaftsmagazin, 36-37, (http://www.wirtschaftsmagazin.ch/docs/Wirtschaftsmagazin/Wirtschaftsmagazin_13.pdf)
Creating actionable market insights is the key for business success in China
A well-known Swiss brand for high-quality female cosmetics wanted to expand its product-lines to the Chinese market. Like any company following a business rationale, it first conducts the necessary market research. By simply scanning Google, a plethora of business reports rather comfortably reveals that market sales of cosmetic products reached over 220bn RMB in 2016, skincare was the fastest growing sector in the Chinese cosmetic market, anti-aging products were to become increasingly popular, high-end cosmetic products demand more and more by Chinese females, the post-80s and post-90s generations are the main consumer group for make-up products, or that domestic Chinese brands are gaining rapidly in market share.
This information provides the Swiss company with a valuable overview about the Chinese cosmetic market; however the research data is still on the level of market information. What the Swiss company needs for a successful market entry are customized and actionable market insights. The difference between market information and market insights is what is meant by the above described concept of contextual intelligence. No matter how profound and detailed researched secondary data is, very seldom does it fit the company’s specific requirements to establish its brand in a foreign market, and this is even more true in China with very diverse and quickly evolving customer behaviors. In the case of the Swiss cosmetic company, what it really needed are actual market insights on how Chinese consumers in their target group behave and apply cosmetic products in their daily use. The problem is how to get those market insights.
What the Swiss company did was to cooperate with a group of Swiss and Chinese female students to uncover the Chinese female customer behavior of cosmetic products. Together with the company, the student team set up a research design to focus on all the relevant market data necessary to introduce and place a high-end Swiss product in the Chinese market. In order to gather the data, the students literally followed Chinese females into their bathroom to study how they use and apply cosmetic products. The collection of this primary data turned out to be of great value for the Swiss company to define the appropriate market entry strategy into the Chinese cosmetic market, as well as adapting its products lines to the specific preferences of Chinese females, specially also for its bio cosmetic line.
The research done by an intercultural team of Swiss and Chinese students made it possible to turn ordinary market information into actionable market insights which guaranteed the Swiss company a successful market entry and product positioning in the Chinese market.
Obtaining reliable and business-relevant market intelligence is a challenge in China
Ways to obtain such contextual and essential market intelligence are manifold, such as hiring local talents, working together with local companies, or simply taking the time to understand the local variations. In China – like in many developing economies – the problem however is that relevant and reliable data about a specific market or detailed customer behaviors is often lacking, so companies need to develop their own data sources. The above described research approach is surely not standard as many companies have not yet recognized that a cooperation with universities to gather market data can be highly effective. Other approaches to gain market insight include focus groups to profit from particular market knowledge, pooling with companies of the same or a similar industry to exchange market expertise or crowdsourcing data collection to make use of the specific potential of Chinese open innovation. The latter becomes more and more relevant for companies considering the large size of the Chinese market with mobile-savvy customers willing to provide valuable feedback to a firm’s products or services and thus generating relevant, up-to-date market insights.
To close the circle: if we want to be successful in such a dynamic and rapidly changing market environment like China, we do need a very high degree of contextual intelligence: “Business leaders who exercise contextual intelligence think and act quickly when the circumstances and events surrounding their context change. They are multitasking thinkers who routinely go outside of their existing context to acquire useful information about the world in which they live and integrate that information into their decision making” (Matthew R. Kutz, 2008).