Quo Vadis, Chinese OEMs in Europe?

This is the third and final article in our short series that?focuses on the performance of Chinese OEMs (old and new) in Europe. Following the previous?article, we take a hard look at the ecosystem around market entrants from China?and what needs to be put in place for a successful rollout.

In our previous article, we listed the difficulties for Chinese OEMs to enter the Western European market. We also pointed out market entry strategy directions in terms of short-term, mid-term, and long-term planning.?

Within this article, we would like to talk about how to take the first steps into the mature European market. How to conduct the entry comprehensively and agile plus the various key aspects that need to be in place to ensure success in setting up the business and sales model.

The hard truth: Compelling cars don’t sell themselves

The European market is a tough environment, extremely clustered and, it is dominated by local brands that have already gained customers’ trust and loyalty. Competitive new entrants, like Tesla, and Lucid are further big threats. As such, Chinese OEMs must find the appropriate spot – the right business model to enter this market. At the core this means playing to their full strength which is “customer-centricity”. However, without setting up the ecosystem around their customers, this strength will not help gaining sales traction. And as we mentioned in our last article, not even maturing and compelling products will sell on their own. For instance, how do customers get to test drive a Chinese car without a partner that provides facilities and personnel to organize them? But let us discuss this step by step. In fact, let's jump into the driver seat and live the path of the European customer on how to purchase/own a car?

A new customer segment for Chinese OEMs

First, customers in Europe, in general, are different from those in China but moreover the respective grouping of customers. The number of corporate customers (B2B) is significantly higher than that of individual customers (B2C), and the proportion of corporate can reach up to 70%.?For these users, leasing instead of purchasing (with or without credit) is the preferred choice.

Individual customers have more options. They can purchase a car directly from the dealer with full payment; they can use credit to buy a car; they can lease a car; they can use subscription mode for their mobility needs, etc. Unlike Chinese customers’ purchasing behavior, direct purchase has a lesser significance for them.?

Between a rock and a hard place of Sales models

To satisfy the different demands of European customers, there are various sales model setups that can be observed in Europe:?

• the traditional wholesale and dealer setup,?...
• ... and, often mixed with agent model - the preferred option for transformation towards more customer-centricity

From a market entrant perspective, the traditional wholesale with dealers is the easiest way to set up the business model as it can be quickly deployed. But there are still some historical challenges to face with this traditional approach, such as:?

1. in-transparent pricing
2. loss of customer data
3. uncontrollable customer experience?

As a result, most new players (especially the tech-industry-rooted ones) choose to enter the new markets with agent models.?

Thus, pure own retail seems to be the ideal model for new players to obtain maximum control. However, it requires a large amount of capital investment, a long lead time and it cannot be applied to all Chinese OEMs.

To define the right business and sales model, OEMs need to evaluate all influencing factors carefully and comprehensively, including internal targets but most importantly external factors which cover, for instance market structure, competitors and not to forget customer segments (at the very least B2B vs. B2C).

One partner alone will not do the trick

Based on the challenges of the different business and sales models alone, it’s obvious that a market entry cannot be done successfully without partnerships.

From our perspective, to cover the high variety of customers, there are at least four partner types a Chinese OEM needs to consider:

1. The?Market Intelligence partner, is the key partner to understanding the core challenges and patterns of the European market?
2. The?Distribution partner?(e.g., automotive dealers), as the sales executive, plays an important role in the physical customer interface
3. The?Financial Service partner, the important influencing factor for the various purchase transaction types
4. The?New Sales Model partners?in particular, Subscription Service Providers

As we described in our previous articles, understanding the European Markets is the key to unlocking the success story of the respective market entrants. For that the right?Market Intelligence partners?are required. It is of utmost importance to acquire critical knowledge in the decisive market factors, such as:

• Creating awareness of all legal and macro influence factors
• Aligning with key trends
• Understanding the customers and their needs
• Creating transparency on market players

Based on this holistic understanding only, the right strategy and guard rails can be set for success.

While the?Distribution partner?topic seems to be obvious, it’s important for Chinese OEMs to find reliable and large dealers who are willing to invest (e.g., retail marketing). Considering the ongoing shift towards agent models by Western OEMs, dealers are squeezing their respective profit margins of their current business. Hence, we believe that most retailers are eager to cooperate with Chinese players.?

As a matter of fact, we strongly recommend Chinese OEMs to set up a dealer partnership. This should be the first step when entering such a complex market as the European one. It enables physical showroom construction which provide the space for the decisive product experience and most significantly, customer experience services like test drives and consultation.

Besides traditional dealerships, Chinese OEMs ought to consider opening experience points, such as Brand Experience Centers, Flagship stores, or Pop-up stores, just to create market presence and touchpoints with customers.

Physical presence with respective customer experience (within the entire Customer Journey) is the door opener to the European markets. And an experienced dealer partner can significantly accelerate the penetration in terms of physical presence.

Financial Services partners?are also of utmost importance due to the described B2B/B2C market segments. Customers are attracted by products presented online and in physical outlets, the conversion to a real sale requires offering the right financial solution. Customers, for instance in the Southern European markets, mostly will only acquire their new car if the right financing product is offered. Without these financial services, B2B sales and a substantial portion of the B2C business won’t be possible. European customers will expect the same availability of various financial options compared to the offering of Western OEMs’ (i.e., flexible leasing, combinations of leasing and financing, etc.)

In addition, we recommend?New Sales Model partners?such as subscription expert companies aligning to the new market trend of short-term ownership. Committing to a product from an unknown brand for ten thousand of Euros is certainly not an easy decision, but a short-term subscription (let’s say: 1-3 months) with adequate monthly fees can provide the first step into experiencing these new products on the market.

Lost in translation – what “doing business” and “partnership” mean

As these issues all rely on partners, Chinese entrants need to start their partnering exceedingly early on. They need to find committed partners with a strategic fit to the core values of their respective brands to be successful.

Key questions may arise for acquiring the most suitable partners:?

• What is the most suitable corporation mode?
• How to find trustworthy partners?
• How to gain trust from the desirable partner??
• How to negotiate a roadmap with them towards the final goal??
• Who is responsible for which criteria of the partnership??
• How to set up KPIs? How to answer their questions??
• How to prioritize the process??

These are real-life problems confronted by Chinese OEMs currently. Furthermore, there are crucial aspects that can empower a swift partnership or hinder it. Some Asian entrants, for instance, required many years to set up their first strategic partnerships without a clear path on what to be achieved in the coming years. One of these core challenges is the difference in cultural understanding of “how to do business” and what “partnership” means.

While the European approach is rather streamlined and all aspects of negotiations are based on a clear vision, strategy, and milestones, the Chinese way is based more on an iterative process with nothing being carved in stone – sometimes meaning that even contracts sought to be renegotiated. This leads to obvious frustration on both sides.?

To proactively prevent such frustration, the following aspects are required to launch a partnership successfully:?

• Clear?market understanding?on all influencing factors
• Described?business scope?and model
• Defined?strategy?and?clear targets?with KPIs for the coming years (e.g., revenue, retail points, price strategy, customer touchpoints)?
• Roles and responsibilities?(internally and with partners)??
• Proper?blueprint?and?toolkit?preparation
• Intercultural?and?communication training

At Berylls, we have deep international experience in solution findings about the “Go-to-Market” topic and we think ecosystem/partnership management is one of the most crucial success factors. We are interlinked with widespread relationships with many automotive participants in Europe. As such, we can provide you a name list of partners altogether with detailed Berylls inputs. We join our clients in the selection process of the most suitable potential partners and accompany the whole negotiation process.

Besides, our dedicated “Berylls partnership management guidebook” will address most of the key questions concerned by partners and give clear guidance for all references. Also, our diverse and international team has a significant understanding of cultural and communication challenges, as we are passionate and compassionate to help our clients in their success.

With this part, we conclude our short series on?Chinese OEMs’ performance in Europe. Missed the other parts? Find the complete series here and stay tuned for further insights from the China team.