Flying blind?

Understanding China’s Economic Indicators, by Tom Orlik, The Wall Street Journal’s China correspondent, raises the question: How reliable are China’s economic statistics? China may be the world’s second largest economy, but it is ranked 80^th in terms of transparency and corruption by Transparency International.

Photo: Martin Puddy

As was widely reported, the stock analyst group Muddy Waters’ exposure of the major discrepancies between what’s reported and the true picture on the ground for some publicly-traded companies in China, suggest multinationals and foreign investors are still flying blind in China. Too many investment strategies or market development reports are being constructed with sub-par information and analysis.

So, how do foreign companies obtain real information about market size, price points, customers, partners and competitors? How do they benchmark their operations when many China-based personnel are not trained to do so or have a vested interest in not providing accurate information?

To overcome information deficits, many larger companies have developed sophisticated data models that use internal data, as well as public domain data, to create a framework for analysis. The goal is to create a process for objective market analysis.

Key assumptions can be benchmarked against industry association, government or academic reports. In-depth sector reports can either be purchased online or contracted out to consulting firms. It is important to delegate external research to an independent team not subject to influence at the operational level.

Most companies are also remiss in debriefing their sales and marketing teams and suppliers. A formal debriefing process may reveal that many market issues, product and sector trends, even competitors’ practices and strategies are known by their staff but not formally recorded, analyzed and presented up the chain of command.  This is an area where the private sector can learn from the military.

Another tactic is to read the prospectus and market research of international companies in your sector. These can usually be found online and reveal very detailed market analysis and price points. However, while internal research and product knowledge make a good base of intelligence, there is no substitute for proprietary market research that involves comprehensive interviews across a sector or product line.

China’s muddy information environment is a liability, but it also creates an opportunity for smart companies: Those that design and implement internal and external procedures to shed some light on the opaqueness will stay ahead of the competition.

John Gruetzner is the Vice-Chairman of Intercedent, an advisory firm with offices in Beijing, Hong Kong, Singapore and Toronto. He is also an Executive-in-Residence at the University of Manchester Business School.