8us|ness |n Ch|na

MARKETING IN CHINA: Management Lessons

Chlna ls one of Lhe fasLesL growlng economles ln Lhe world Loday wlLh a conslsLenL Cu growLh of
more Lhan 8 annually for Lhe pasL 10 years And every day you read Lhe news abouL how Lhe
markeL ln Chlna ls boomlng 1he masslve growLh ls lnsplrlng and many companles worldwlde are
looklng forward Lo Lake advanLage of Lhls opporLunlLy Puge sums of money are lnvesLed lnLo
varlous buslnesses and managers are faced wlLh Lhe Lask of Laklng declslons each day Lo make Lhese
lnvesLmenLs proflLable
1he reason for Lhe hlgh lnflux of lnvesLmenLs ls because Chlna currenLly ls an lmmaLure markeL lL ls
ln Lhe growlng sLage wlLh a fasL movlng economy whlch has hlsLorlcally been domlnaLed by Lhe
manufacLurlng lndusLry 1here ls vasL dlverslflcaLlon ln varlous markeL segmenLs and lnLervenLlon of
governmenL pollcles ls wldely prevalenL 1he dlsLrlbuLlon neLwork ls conLrolled by Lhe local
companles and consumer sophlsLlcaLlon varles beLween Lhe clLles
1he proflLablllLy of any buslness ln Chlna would depend on varlous dynamlcs such as undersLandlng
of governmenL pollcles relaLlonshlp wlLh local parLners producLs prlclng and compeLlLlon Lo name a
few 8uL as a manager l would llke Lo focus on 2 very lmporLanL aspecLs of markeLlng whlch would
be lnsLrumenLal ln maklng lnvesLmenL declslons whlle dolng buslness ln Chlna
1 Loca||zat|on of Company and roducts
2 Segmentat|on and kesearch of the 1arget Market
Iarlous companles have lncurred losses and have falled Lo caplLallze on Lhe opporLunlLles presenLed
Lo Lhem ln Lhe Chlnese consumer markeL And more ofLen Lhan noL Lhese fallures have been elLher
due Lo followlng a global markeLlng approach or noL undersLandlng Lhe markeL segmenL by Lhe
forelgn company 8uL before we delve deeper lnLo Lhe deLalls of Lhese Lwo aspecLs leL us flrsL look aL
a common facLor whlch mlghL connecL Lhese reasons
Cu|ture 1he consumer buylng process ls conslsLenL across culLures 1he level of consumer
lnvolvemenL wlLhln Lhe Chlnese are seen as havlng a low level of lnvolvemenL when purchases are
for prlvaLe consumpLlon buL a hlgh level of lnvolvemenL when Lhey are buylng producLs for Lhelr
soclal or symbollc value Slnce Lhe Chlnese greaLly value soclal harmony and smooLhness of
relaLlonshlps wlLhln Lhe exLended famlly Lhe soclal slgnlflcance of producLs are hlghly lmporLanL be
lL Lo express sLaLus graLlLude approval or even dlsapproval
8us|ness |n Ch|na

AnoLher aspecL whlch ls Lyplcal Lo Chlnese consumers ls LhaL Lhey do noL wanL Lo be amongsL Lhe
flrsL Lo Lry a new producL 1hey are relucLanL Lo be ploneers especlally for an expenslve
unrecognlsed (ln Lerms of brand) forelgn producL 1hus culLure noL only lmpacLs on how we behave
as consumers buL on Lhe whole declslonmaklng process adverLlsers and markeLlng managers need
Lo examlne how Lhey can explolL such nuances ln bulldlng Lhelr global brands
now LhaL we have brlefly analyzed Lhe effecL of culLure leL us now look aL Lhe Lwo lmporLanL
aspecLs for successful managlng buslness wlLhln Lhe deeply rooLed Chlnese culLure
Loca||zat|on of Company and roducts
1he adapLablllLy of Lhe company and lLs producLs Lo meeL Lhe demands of Lhe local consumers ls
Lermed as locallzaLlon A forelgn company who foresees developlng lLs operaLlons ln Chlna would
need Lo answer Lhe followlng quesLlons before enLerlng Lhe markeL 1o whaL exLenL should Lhe
locallzaLlon be done wlLhouL loslng lLs global lmage? WhaL paLh should be Laken Lo reach Lhe
requlred level of locallzaLlon? WhaL sLraLegy should be employed Lo locallze?
1here have been many lnsLances of large mulLlnaLlonal companles falllng Lo answer Lhese quesLlons
before enLerlng lnLo Chlna 1he consequence of Lhls fallure was noL surprlslng Lhese companles losL
Lhelr markeL share elLher Lo local or anoLher forelgn company and were unable Lo susLaln conslsLenL
growLh ln Lhe Chlnese markeL LeL us undersLand Lhe lmporLance of Lhese quesLlons and lLs
consequences by looklng aL some examples of MnCs operaLlons ln Chlna
Amway Corporat|on an Amerlcan lMCC company wlLh worldwlde operaLlons enLered Lhe Chlnese
consumer markeL wlLh lLs global approach and producLs wlLhouL undersLandlng Lhe needs of Lhe
local Chlnese consumers Cne of Lhe ma[or reasons for Amway's fallure ln Chlna could be aLLrlbuLed
Lo lLs unwllllngness Lo adapL and updaLe producLs Lo local Chlnese needs le LocallzaLlon Amway ls
producer of sLandard producLs Lo meeL consumer needs ln !apan hlllpplnes 1alwan Slngapore and
oLher parLs of Asla buL Lhelr producL range may noL be approprlaLe for Chlna AnoLher drawback was
LhaL Lhe producLs offered by Lhe company dld noL provlde any value add Lo Lhe local cusLomer
1he consequence of Amway's sLraLegy shows LhaL Lhe probablllLy of success would have been more
lf Amway would have Lrled Lo cusLomlze lLs producLs accordlng Lo Lhe local needs and followed
cerLaln local culLures raLher Lhan lmposlng lLs own global culLure on Lhe consumers A slmllar
locallzed approach has been lnsLrumenLal ln Lhe success of lLs dlrecL compeLlLor Avon ln Lhe dlrecL
markeLlng lndusLry
8us|ness |n Ch|na

Amway ls a case where Lhe MnC dld noL have any sorL of locallzaLlon buL Lhere are some very large
MNCs wh|ch have shown |oca||zat|on to the|r brand as we|| as the|r products to a great extent Cne
such example ls Lhe cola glanL Coco Co|a 1he company presenLed Lhe governmenLs of 8el[lng and
Cuangzhou wlLh compleLe boLLllng producLlon llnes as free glfLs ln 1981 1he condlLlon for such an
acL was LhaL Lhe machlnery musL be used for Lhe producLlon for Cokes brand of sofL drlnks only
CLher Lhlngs Coca Cola dld Lo brand lLself as a locallzed company was uslng LradlLlonal Chlnese
characLers and local spokespersons for lLs adverLlslng and brandlng acLlvlLles 1he exLenL Lo whlch
Coca Cola locallzed lLs brand was such LhaL Coca Cola as lnLernaLlonal brand dld lose lLs global
lmage
8uL companles such as |erre Card|n wenL ahead wlLh a very hlgh degree of locallzaLlon for Lhe
Chlnese markeL 1hls lncluded dlverslfylng lLs producL llne Lo caLer Lo local needs and loslng lLs
ldenLlLy as an lnLernaLlonal cloLhlng glanL from lrance Pence lL ls lmporLanL Lo undersLand LhaL
locallzaLlon ls lmporLanL Lo Lhe degree Llll whlch Lhe global company can ldenLlfy wlLh Lhe local
consumers wlLhouL loslng lnLernaLlonal brand lmage
1he nexL lmporLanL quesLlon was What path shou|d be taken for |oca||zat|on? ulfferenL companles
have employed dlfferenL approaches such as L'orea| and Un||ever L'oreal boughL over Lhe local
companles Lo sLarL markeLlng Lhelr producLs Lhrough Lhem whlle unllever conLracLed wlLh Lhe
already esLabllshed local companles for markeLlng unllever's producLs 1here ls a very lmporLanL
reason why each of Lhese MnCs employed such an approach
Chlna ls a markeL where Lhe dlsLrlbuLlon neLwork ls hlghly conLrolled by Lhe local companles and Lhls
ls due Lo Lhe governmenL pollcles and undersLandlng of Lhe local operaLlons by Lhese companles
Pence ln order Lo be successful ln markeLlng and adverLlslng lLs producLs MnCs musL leverage Lhe
capablllLles and ouLreach of Lhe already esLabllshed local companles
1he lasL quesLlon Lhe MnC needs Lo answer ls What tact|cs shou|d be emp|oyed for |oca||zat|on?
ulfferenL culLures and counLrles have dlfferenL requlremenLs and a company Lrylng Lo esLabllsh lLself
ln Lhe local markeL musL undersLand LhaL ln Lhe prevlous case Amway's pollcy Lo noL cusLomlze lLs
global producLs Lo caLer Lo Lhe Chlna markeL proved deLrlmenLal Lo Amway 8uL Lhere are varlous
oLher MnCs whlch have successfully locallzed Lhelr producLs mlx as per Lhe LasLe of Lhe local Chlnese
markeL
kentucky Ir|ed Ch|cken(kIC) had more Lhan 310 ouLleLs ln Chlna as of CcLober 2001 compared Lo
less Lhan 400 ouLleLs for McDona|ds WhaLs more lmporLanL ls LhaL markeL surveys by AC nlelson
conslsLenLly conflrm Chlnese consumers general preference for klC ouLleLs and producLs over
8us|ness |n Ch|na

Mcuonalds 1he reason for Lhe consumer behavlour can be aLLrlbuLed Lo klC successfully addlng
preserved egg and mlnced pork congee" rlce wlLh meaL and vegeLables on Lop" and many oLher
Chlnese sLyle producLs Lo Lhe Chlna ouLleLs 1hese producLs are noL parL of Lhelr sLandardlzed global
menu buL are speclflcally deslgned for Lhe Chlna markeL 1he sLraLegy employed by klC Lo cusLomlze
lLs producLs Lo caLer Lo local needs noL only help lL esLabllsh lLself ln Lhe Chlna markeL buL also have
a compeLlLlve edge over lLs buslness rlval
1he cases menLloned above show LhaL as manager of a company looklng aL buslness opporLunlLles ln
Chlna musL carefully answer Lhe 3 locallzaLlon quesLlons 1he declslons based on Lhese answers
would deeply lmpacL Lhe proflLablllLy and susLalnablllLy of Lhe buslness ln operaLlons ln Chlna
Segmentat|on and kesearch of the 1arget Market
Chlna ls a dual economy wlLh a wealLhy urban professlonal and a poor counLry people 1he gap
beLween rlch and poor has grown almosL as fasL as overall lncome le lnequallLy ls lncreaslng nearly
wlLh Lhe counLry's developmenL 1he per caplLa lncome as well as Lhe demands of each of Lhese
segmenLs ls vasLly dlfferenL 1he 2 segmenLs can be consldered as hlghly lndependenL and lndlvldual
markeLs 1he dlverse consumer behavlour and level of sophlsLlcaLlon ln each of Lhese markeLs are
due Lo Lhe dlscrepancy ln lncomes beLween Lhe varlous soclal groups and reglons
ln Chlna consumers are loyal Lo Lhe producLs whlch Lhey use and are noL really brand consclous
especlally ln Lhe rural reglons 1he consumers are noL really used Lo cross producL comparlsons
excepL Lhe urban consumers who have a wlde recognlLlon of forelgn brand names Cverall Chlnese
consumers prefer Lo buy domesLlcally manufacLured producLs raLher Lhan comparable forelgnmade
goods 8uL consumers ln blg clLles are less llkely Lo favour domesLlc producLs Lhan are consumers
naLlonally
Any company whlch ls Lrylng Lo lnvesL ln Chlna musL analyze lLs producLs as per whlch of Lhese 2
markeL segmenL Lhelr producL can caLer Lo Companles someLlmes enLer Lhe markeL whlle LargeLlng
[usL a cerLaln segmenL aL one Llme and conLlnuously read[usL Lhelr sLraLegy Lo enLer newer markeLs
and expand Lhelr buslness 1hls approach has been recenLly employed by Lwo of Lhe largesL global
sporLswear manufacLures Lo Lhelr operaLlons ln Chlna
N|ke Inc Lhe besLselllng global sporLs brand whlch ls expecLlng record sales growLh ln Chlna Lhls
year ls launchlng a range of lowprlced producLs across Lhe counLry raLher Lhan [usL focuslng on
hlghend buyers A slmllar drlve ls also belng underLaken by Ad|das AG anoLher ma[or overseas
8us|ness |n Ch|na

sporLswear brand ln Chlna 1he Lwo companles are read[usLlng Lhe markeLlng sLraLegles of Lhelr
brands ln Chlna by movlng lnLo lowerLler clLles ln order Lo be more compeLlLlve
As a manager lL ls really lmporLanL Lo undersLand Lhe segmenLaLlon of Lhe markeLs ln Chlna 1hen
analyze and research on Lhese markeLs before enLerlng Lhem 1he fallure Lo undersLand Lhe
segmenLaLlon and consumer behavlour ln Lhe largely dlverslfled Chlna markeL could prove
deLrlmenLal Lo Lhe company's operaLlons ln Chlna