Why is increasing sales force effectiveness difficult in China?

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As it has become increasingly difficult for multinationals in China to balance market expansion and profitability growth in the face of a slowing economy and intensifying local competition, successful sales force management serves as a critical tool for multinationals to drive commercial excellence and achieve profitable growth. However, geographical and demographic complexity, rising wages, and a highly competitive talent market have made effective sales force management a tough task in China.

Here are three key sales force management challenges with which multinationals are faced under China’s evolving market landscape:

  • Complex sales resource allocation: Lack of efficient territory allocation and effective sales role design in a vast market

When multinationals are covering wide geographical areas in China with various levels of market size and growth potential, they also need to localize product portfolios and adopt differentiated sales efforts in regional markets to account for local industry specializations and customer preferences, which leads to further complexity in expanding footprints in China. As multinationals access hub cities in China’s emerging city clusters or lower-tier cities in the three coastal super city clusters, many are still struggling with a sales territory allocation model that fails to consider local market dynamics and help maintain strategic alignment with sales people on the ground.

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Source: Frontier Strategy Group analysis

  • Declining sales force ROI: Lack of sales productivity growth as headcount is increased and labor cost rises

Most multinationals have felt bottom line pressure as labor costs continue to rise in China. Wages in tier-1 cities have been rising exponentially, and labor cost in lower-tier cities are also likely to gradually catch up with those in mega metropolitan areas as urbanization brings more business activity into previously less-developed hinterland provinces in the country. However, the need for broad and localized market coverage in China makes it difficult to bring sales productivity up to speed. As many multinationals lack effective, localized training programs to enhance sales productivity along with their market expansion strategies, they tend to see stagnant sales performance and declining ROI.

Sources: Frontier Strategy Group analysis; National Bureau of Statistics in China

  • High attrition rates: Lack of adequate sales talent and high turnover making it difficult to maintain a stable sales force

High sales force turnover and replacement costs create obstacles for multinationals to maintain stable sales teams and undermine commercial effectiveness in China. Sales talent, among other functional areas, has been identified as the biggest recruitment challenge for both local and foreign businesses in the Asia-Pacific region. Furthermore, China has one of the most competitive talent markets in APAC. As SOEs and private firms offer increasingly attractive employee benefit packages to poach existing sales personnel from multinationals, a critical theme for multinational executives in the Chinese market is to create buy-in and adjust sales compensation mechanisms to keep up with the country’s changing talent market dynamics.

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Sources: Frontier Strategy Group analysis; The Economist Asian Business Outlook Survey 2015

To address these sales force management challenges in China, FSG has developed a simple yet powerful strategic framework and several case studies to help our clients improve sales process efficiency, enhance sales capability development and drive sales motivation. FSG clients can click here to access this report. I will follow up with another blog post next week to share a few successful tactics.


 For an in-depth analysis of this topic, FSG clients can access the full report on the client portal. Not a client? Contact us to learn more.

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