When working with sales professionals in China, I’m often asked: “What’s the point of doing financial analysis with inaccurate financial statements?”
This is not a hypothetical question. Many issues go unreported by Chinese companies, and numbers that do get reported are often suspect.
For sales organizations targeting China and other emerging markets, the ability to read between the lines to identify an account’s business needs is critical.
The land of wonderful news
Financials in China – and many other developing regions of the world - leave a lot to be desired in terms of transparency and accuracy.
In 2011, Bill Mann at Motley Fool made a classic conclusion about the lack of transparency in Chinese reporting in ““I don't know" isn't an investment thesis -- it's a gamble." Two years later, the problem remains rampant.
As an investor, you can choose to invest elsewhere. But as a sales professional, you don’t have this luxury. Not only are you assigned accounts, but you likely would encounter the same problem if you switched one account for another.
Is financial analysis even useful in China?
I believe that it’s not only useful, it’s required. Understanding your customer’s financials is essential if you expect to engage in effective business conversation.
If you’re not talking about financial performance, then you’re not talking about the business. The good news is that while the lack of easily accessible data makes the problem harder, it also makes your opportunity larger.
3 techniques for gaining competitive advantage using Chinese financials
1. Improve your financial acumen
Too often ‘Lack of accurate data’ is the excuse given for not researching an account’s business. You need to be comfortable analyzing financial trends, developing strong business insight and discussing how operational changes will impact your account’s financial model.
Connecting the dots between these three areas is what makes a business conversation interesting and relevant to CEOs, CFOs and other decision-makers.
As with private companies, when there is a lack of publicly available data, a higher level of business fluency is required to initiate and maintain financial conversations. Since the numbers will be softer, it’s more important than ever that you’re able to discern the financial influences and trends.
• Knowing the difference between ‘cost of sales’ and ‘sales expense’ triggers two very different conversations.
• Knowing how to relate core financial data to historical operational performance invariably produces valuable account insights.
• Understanding your account’s business model is what enables you to effectively position the business change your solutions deliver.
2. Use Existing Financials to Guide Business Conversations
I tell sales leaders, avoid relying on financial analysis alone, instead identify the financial trends that mirror your customer’s business activity. Use that insight to then open customer conversations about that area of their business.
• Your account’s financial statements show a 100% growth in sales. What sales strategy should you pursue?
First, if a company is experiencing that rate of growth, then their operations should show corresponding growth in channels, manufacturing, employees, locations, logistics, assets, etc. Initiate business conversations about growth using their reported numbers, and then seed sales opportunities around the pressure that puts on an organization.
Even if the report is off by 50%, this still signals an important area of the business to discuss with decision-makers. In fact, the exaggeration may even indicate that the issue is of even higher importance.
• An employee mentions an inventory issue to you, but it’s not mentioned in your account’s reporting. What sales strategy should you pursue?
What’s left out of a report may be as important as what’s included. If information isn’t included in a report, chances are that management may not want to discuss it, let alone budget for future capital expense.
In such cases, engage around a different problem, one the customer may be more willing to discuss and solve. At a minimum, you know to be sensitive raising the issue.
3. Compare Similar Companies Within an Industry
Building credibility and trust often starts with demonstrating your knowledge of the norms and issues within an industry. Further, industries use specific metrics to measure performance. Including industry specific metrics early in a conversation shows that you’re an insider, or at least not an outsider.
It’s important to recognize that external factors within an industry are often the same across accounts. Every industry has specific benchmarks and bellwethers. Learn the performance metrics and identify the trends. Analyze the changes.
What’s causing these trends? Which company has the best performance in the industry? Who has the worst performance? What are the differences in business models, strategy or implementation? How is the benchmark or trend different in China?
Examples of industry trends and performance in China:
• In 2011, many companies reported growth of over 100%. In 2013, growth exceeding 30% is rare.
• Chinese banks are growing at about 20% a year.
• Smartphone sales in China are predicted at 50% of worldwide totals.
• Smartphones will outnumber traditional phones on Chinese mobile networks this year.
• Retail sales slowed in 2012 to 10.8% from 20% among the top hundred chain stores.
Securing your competitive advantage in China
Yes it’s true that financial reports in China are often inaccurate and/or misleading. Chinese companies still hide much of their financial information from prying eyes.
Although there is pressure on these companies to be more open, progress is slow. Since customer financial reporting is not going to magically improve, it’s up to you to step up your game and seize the opportunity.
Sales professionals who improve their financial acumen and industry knowledge give themselves a powerful competitive advantage in China.
Caixin Online – News and Analysis on China’s Markets
How to find the Right Industry Specific Metrics
Online Resource Library for Conducting Business in China
China Real Time Report – Economy and Business reports on China
China Daily – Business News from China
About the Author
Mr. Scott Karren is currently a consulting executive for Executive Conversation. A recognized expert in business development and operations, Mr. Karren has managed groundbreaking projects that have launched scores of channels, products, divisions and companies. Mr. Karren has written for numerous channel and industry publications and spoken at Comdex and other industry events. He has written channel-marketing publications on the VAR/Systems Integrator channel, the Distributor channel, the ISV Channel, the ISP/SP channel and the Retail channel.
Review Scott Karren's full bio here
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