Don’t panic! The Chinese academic budget is cut by 30% with immediate effect!

2020-05-08

On May.1st which is a public holiday both in China and Germany, my phone was exploded by calls from our business partners in China, all telling me the same thing:

they have just received the urgent notice from their end users at Institutions and Universities that the Ministry of Finance of the PRC just announced a budget cut of 30% with immediate effect, this applied to all approved projects with the money already sitting on the bank account. As a result, many projects are cancelled and postponed, some published tenders are now withdrawn.

This is of course not good news for most of my clients who have good business in China, however, I would like to call the situation as “new normal” and I think the budget restrictions and reductions will not only apply to the Chinese market but also globally very soon because this is simply the consequence of the huge spend we made globally to fight against the covid-19 outbreak.

To cope with the difficult yet changing global business environment, I would like to share the following advises with some measures you can put in place immediately:

  1. Manage your distribution efficiency. Chinese market is a typical example that you still have multiple layers/channels when distributing your products, a typical tender can involve end user, package dealer, regional distributor, national distributor and the supplier, the end user price can easily be 50-100% higher compare to the net transfer price from the supplier. What you can do?
    1. Try to understand the price your product is sold to the end user and understand how the margin is split between all parties involved, when a budget cut is taking place, you can at least squeeze the bubbles out and still manage your cost base.
    2. Evaluate your current distributor network and ensure that they can provide good coverage to the geographic market and different market segments; if not, try to work on the improvement immediately.
    3. Evaluate the capability of your distributor, they need to be capable (of course with your support) to work as independently as possible. If not, working on a training program to bring them up to speed or consider making a change.
  1. Improve your supporting structure to ensure that you can provide state-of-art support to your global business network from remote. By doing this well, you can bring down your operational cost dramatically while not sacrificing your overall business performance, things to consider:
    1. Working on your supporting documentations such as installation protocol, operation manual, service manual etc., to make them as detail and as interactive as possible so your local business partners and end users can work independently on your product.
    2. Adapt the modern ways of digital marketing, use tools such as webinar, virtual workshop, online congress, social media etc., to communicate with your business partners, users and potential customers, the key to success for your digital marketing activities is to provide excellent content to your audience and make the user experience as smooth as possible.
    3. Be flexible with your working hours, preparing yourself and your team to work on early mornings and late evenings in order to provide the best in-time support to your global network. By doing this, you will definitely win more opportunities against your competitors who is not able to offer the same level of support.
  1. Last but not least, to mitigate the risk of market instability, you should consider improving your global footprint, because to focus on a single market only might not be sufficient for your survival needs. If your business is still very Europe centric, please consider the expansion to the rest part of the world and work on a plan immediately.

 

Overall, I think for start-ups and SMEs, if we manage the crisis well and react fast, our chance of survival is far better than larger organizations which are less flexible and more expensive to operate.  So, keep the faith and work on the improvement plan ASAP. Should you need some help or advice on your global expansion needs, don’t hesitant to contact us.

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