The Market Research Industry in China

To many companies outside China, the idea of conducting or commissioning market research in China can seem a daunting concept to grasp. Frequently, the perceived barriers of researching a Chinese market are seen as insurmountable and no serious consideration of the potential benefits is even made. Too often, research agencies and potential clients alike are beaten before they begin.

The barriers to researching the Chinese market are substantial. In a country of this size and complexity it is difficult to even talk of ‘the Chinese market’ as one coherent entity. And then there is the ‘information’ issue: what are we allowed to ask, and how reliable will the information be?

Valid as these and other concerns are, the good news is that China is rapidly and inexorably evolving into a truly modern economy: for companies wishing to conduct or commission research, the opportunity in China is enormous. Here we have a huge, diverse, growing, increasingly affluent and innovative economy, which is eager to share its ideas with potential investors.

History and Development:

Prior to the mid-1980s, “market” research in China was limited to research managed by the State Statistical Bureau and conducted by government departments.  The research was largely limited to statistics on expenditure and production in state-controlled industries.  Indeed, there is still a highly statistical and quantitative bent to many of the agencies operating in China and to local research buyers.

In 1985 Procter & Gamble (the multinational provider of branded products ranging from snacks to washing powders) moved the sector forward by commissioning market information specific to the consumer markets in which it operated. This was the first non-governmental consumer research in China. The multinational’s increasing need for market information resulted in the establishment of China’s first research agency, in Guangzhou in 1988, the Guangzhou Market Research Company.

The insistence of Procter & Gamble on bespoke market information was the birth of the modern Chinese market research industry. The Guangzhou Market Research Company (no longer in existence) introduced a wide range of data collection and analysis techniques to the Chinese market. This resulted in a wave of highly competent Chinese researchers who would go on to form and direct some of the country’s leading market research agencies. Today, Chinese agencies such as URC (United Research China), Acorn China and Research International (China) are all directed by former researchers from Guangzhou Market Research Company.

Industry Size, growth and outlook:

Today, the value of market research commissioned in China is worth (approximately) US $500 million, with some estimates putting it as high as US$700 million. These figures make China the Word’s tenth largest research market, but bear in mind that in absolute terms this is still quite modest compared with developed economies. The market is however growing rapidly at around 20 per cent a year.

Estimates as to the proportion of Western market research markets accounted for by ‘business-to-business’ research usually put the figure at around 10 per cent. In China, however, the proportion is estimated to lie at around 25 to 30 per cent. It is this ‘b2b’ sector of the market that is expected to see most growth over the coming years, with Chinese companies increasingly open to the idea of obtaining the views of businesspeople, and Western companies ever more hungry for Chinese business opinion. This part of the market is growing by about one quarter a year.

In terms of business research, the level of work commissioned can be ranked as follows: automotive; petrochemical; IT; telecoms; pharmaceutical and medical; and financial services.

A high proportion of research projects (around three-fifths) are focused on market assessment studies, in which clients (often foreign companies) are asking for a comprehensive explanation of how markets are structured, who the key players are and what the market size is. Much of the research is about entering new markets, or indeed entering China itself.

Market Structure and Key Players:

The CMRA breaks the market down into seven ‘tiers’, according to their current turnover in China. Even the largest of these ‘tiers’ refers to companies turning over more than – in Western terms – a relatively modest Yn150m (around US$20 million). As of 2006, no company in the industry was turning over more than $30m in the Chinese Market, with AC Nielsen the closest to this figure. Its two closest competitors in terms of market share are CTR (a joint venture between the multinational TNS and CVSC, a state-owned research company) and CSM, itself is a subsidiary of CTR.

The CMRA’s second and third tiers feature many of the most famous names in research. Tier 2 includes those companies with annual revenues of Yn100-150m.  The Chinese company Sinotrust is accompanied here by Research International, Synovate and Ipsos China, all principally consumer researchers.

Tier 3. which includes companies turning over more than Yn50m, includes the likes of GfK China, Gallup China, TNS China and Millward Brown. Again, all of these are largely consumer researchers and polling experts, albeit with some business-to-business capability. Two Chinese companies are also notable: Sinomonitor is known for its continuous research, consumption research, media research and marketing consultation, and ACMR (All China Market Research) is seen as particularly strong in terms of business-to-business capability.

There then exists a list of around 30 companies that turn over between Yn10m and Yn50m.As with the rest of the market, most effort is devoted to consumer research. However PAMRI, one of the leading business-to-business agencies, also falls into this size category.

The companies turning over less than Yn5m include provincial agencies outside the leading cities of Beijing, Shanghai or Guangzhou, smaller niche agencies in the major cites and newly established offshoots of foreign agencies. These companies fall into two main categories:  (i) companies focused entirely on fieldwork, as opposed to full service fieldwork agencies that design and analyse research, and (ii) ‘one man bands’ who may offer a kind of full service. A third, less prominent group, is consultancies with a broad remit, of which occasional market research interviews are a small part.

There are at least 1,200 local fieldwork agencies and one-man bands. Essential as these companies are, and accepting that many are of good quality, it is unlikely that such agencies will be user-friendly in terms of dealing with foreign organisations. The ability to speak good English is extremely rare, and this part of the market should essentially be regarded as part of the agencies’ supplier base, rather than agencies that are likely to meet the needs of clients in business.

In common with other industries in China with relatively low barriers to entry, the research industry is characterized by high levels of market ‘entry and exit’. This is a relatively embryonic, fragmented market, characterised by high levels of business set-ups and closures. Over the coming years it seems inevitable both growth and a degree of consolidation will occur within the market. More agencies will be able to produce research with a high level of geographical granularity, knowledge and techniques will increasingly filter down through the industry, and some economies of scale will emerge.

Agency Capacity and Characteristics:

Looking at local agencies, our observations are that: no agency has in-house fieldwork coverage of the whole of China; most major agencies have two three offices (Beijing, Shanghai, and Guangzhou); and companies with a strong business-to-business focus tend to be headquartered in Beijing, reflecting the importance of speaking to government officials in such studies.

Offices are almost always equipped not only with a set of CATI [Computer Aided Telephone Interviewing] stations for computer-aided telephone interviewing, but also with an in-house focus group viewing room.

The ‘big city’ Chinese research agencies place an extraordinary emphasis on quality control.  Whereas UK market research standards decree that 5 per cent of all interviews conducted should be ‘listened in to’, it is not uncommon for Chinese agencies to listen to 50 per cent or more of telephone interviews as they take place, with recordings of the remaining interviews also listened to.

Agencies often read through every single completed questionnaire, insisting that respondents be re-contacted as appropriate. Full-time quality management teams often number up to seven people. Significantly, there is no secrecy law in China, meaning that interviews can be recorded without the knowledge of respondents. There is, however, an increasing tendency for respondents to be made aware if they are being recorded, as agencies recognise the importance of maintaining the trust of target markets (particularly in business-to-business research). Potential research buyers should be reassured about the high reliability of research produced by the national and international agencies in particular.

Considerations when conducting research in China:

Data collection in China has traditionally been distinct from that in Western countries, in that there has been a significant emphasis on face-to-face interviewing in consumer and business-to-business research alike.

The use of face-to-face interviewing is particularly prominent in relation to certain target respondent groups. In business-to-business research, the more senior the respondent, the more likely he or she is to require a meeting to discuss his or her views on the market. Middle- to senior-level managers and most government officials are the main respondent groups to fall into the face-to-face category. Often, a ‘thank you’ is presented to the respondent in the form of a small incentive, with gifts rather than cash being more appropriate for senior respondents.

The trend overall, however, is away from face-to-face interviews. A major reason for this is the increasing understanding and acceptance of market research amongst Chinese target respondents, who are willing to discuss business and other matters over the telephone. The cost and time implications of conducting face to face interviews is, perhaps, equally important, especially given the distances involved in traveling as more and more research is conducted outside the big three cities. This may be especially true in b2b markets where many of the target respondents are not always in the most “convenient” locations

Focus groups are used, but less so than in the West. Chinese respondents – particularly businesspeople – prefer to provide information on a one-to-one basis rather than in the company of their peers. When focus groups are conducted, they are commonly carried out in a ‘mini-group’ format of three or four people.

Whilst Chinese agencies are extremely techno-savvy, the only technological area in which they tend to lag behind their Western counterparts is in their use of online data collection techniques. This appears to be due to the relatively low Internet penetration in China, and in particular the lack of familiarity of the target audience with the very interactive sites that are necessary for data collection. Currently, online surveys are limited to certain groups such as IT managers and teenagers, and online focus groups are slowly being introduced to any audience.

Desk research is perceived to be difficult, but is not necessarily so. Industry statistics and regulations are readily available. The National Bureau of Statistics (www.stats.gov.cn/) provides economic information for free on a monthly basis. The National Development and Reform Commission puts in place regulations designed to develop different Chinese industries, and these regulations can be found on https://en.ndrc.gov.cn/. A whole host of Ministries and Administrations exist within the Chinese government, all of which are listed on www.china.org.cn.  Many of these will provide information on the industries and activities within their jurisdiction, either online or sometimes through direct contact.  Increasingly, information is provided in English and other European languages, so even the language barrier is coming down.

In addition to direct government departments, most industries within China have at least one association, which will be closely related to government. These associations are excellent sources of market information, and indeed of potential target companies within their industries.

Researchers operating within China steer clear of certain information areas, relating in particular to political and social policy. It is also difficult to obtain company financial data, such as profit and loss information.

Data analysis techniques have developed enormously in recent years, with techniques such as customer satisfaction and segmentation statistics commonplace. Agencies typically have inhouse data processing and quantitative analysis departments, often consisting of around half a dozen people. Some of these departments contain an advanced statistical analyst; others rely on outsourced labour for what is still a relatively rare requirement.

Agencies also have an increasing ability to provide strategic insights in their research projects. Indeed, the line between ‘consultancy’ and ‘market research’ is rather blurred, and many companies have business licences for both activities. To an extent the requirement for strategic conclusions has been driven by Western organisations.