Do you think you know the Chinese market?

The following is a resume about an article published by The Brand Union - China (Up Close & Personal, March 2012).
This article discusses five conventional assumptions that marketers and brand owners often make when planning their entry to the Chinese market, and the reality shifts that are happening on-the-ground.


Assumption 1:
The emerging Chinese middle class represents the most attractive consumer segment for goods and services.

The growth of the middle class in China has been dramatic in recent years, with McKinsey
estimating that 75 million urban households will enter the middle class between 2008 and 2015. Yet, long-term success will not be delivered by targeting this one consumer segment alone.
Companies need to compete in the lower-end of the spectrum, in the same aggressive way as it does in the higher one. Courting the working class, which comprises the bulk of the Chinese population, is paramount.

Not only is the current working class the future middle class, but they also share the same aspirations for using products and services and good quality. It is a myth that the working class only cares for the cheapest and most practical solution. Their need for beauty and comfort is of paramount importance.
Companies must intimately understand how these poor consumers live, in order to identify their needs, and develop innovative products and services that meet those needs.

Assumption 2:
Location, location, location. Beijing and Shanghai are the key cities in China to set up operations.

The Chinese market is no longer limited to Beijing and Shanghai,or even the provincial cities of Hangzhou,
Dalian and Shenyang. Whilst these cities have the most advanced and wealthiest economies and are home to the most ‘sophisticated’ consumers, they are also among the most expensive and most competitive cities to operate in. For both international and Chinese brands alike, these cities offer mature opportunities for growth. Unfortunately if you are not a first-mover, then you are almost too late to reap any rewards.

The real growth lies in reaching China’s next 600 cities, from Harbin in the north to Fuzhou in the south, Wuhan in the center to Urumqiin the west. This is where the appetite for brands and consumer spending are on the rise. However, consumer tastes can vary widely across these 600 cities. Culture, dialect, cuisine and climate all influence how consumers respond to marketing, their product preference, their sensitivity to price and quality, and even their shopping habits.

Assumption 3:
The young generation, aged 18-35, are the prime consumer target for products and services.

China’s senior citizens are emerging as a highly attractive, stable and profitable consumer group. Yet they
are often overlooked. In 2009, China had 169 million people aged over 60, which represented 12% of the population. That number will swell to 250 million by 2025. And what of their spending power? Chinese seniors account for 300 billion to 400 billion yuan in annual disposable income. Over the next three decades, this figure will rise to 5 trillion yuan.

Chinese seniors are the main grocery shoppers in the family. They tend to be loyal to products and services they know and like. They have wide social networks. They have time on their hands, and are eager to share their opinion when asked.

But they also adapt to the changing times. Chinese seniors are technology-savvy, keeping in touch with friends and family via email, shopping on taobao.com, and even trading stocks online. These senior citizens spend more on telecommunications than on medical bills on a monthly basis. In Shanghai, over 200,000 seniors hit the web every day.


Assumption 4:
Innovation and New Product Development are best done at headquarters, and adapted to the Chinese market.

Companies serious about attracting the Chinese consumer are investing billions of dollars on local
research and development efforts to generate home-grown innovation. And why shouldn’t they? Consumers demand products that are tailored to their needs, tastes and income levels. Chinese universities are producing high-caliber (and low cost!) talented individuals in research, innovation, engineering and design, add to that the thousands of foreigneducated.

Chinese professionals coming back to China to apply their knowledge and experience.
This highly skilled workforce coupled with willingness of Chinese regulators to endorse local innovation is a sterling combination.


Assumption 5:
China´s manufacturing sector is a keysource of its global competitive advantage.

Traditionally known as the ‘the workshop of the world’, Chinese companies are moving up the value chain,
transforming themselves from OEM (original equipment manufacturer) to ODM (original design manufacturer). YLDis a privately owned Chinese sportswear manufacturer based in Quanzhou, in China’s Fujian province. After perfecting the technology to make shoes and apparel for domestic sports brands, as well as supporting its own ‘YLD’ brand, the company decided to transform its own YLD brand with a new fashion lifestyle proposition. Enter ZipZap, a new apparel brand that offers premium fast-fashion at an affordable price.

The Brand Union mobilized its global network to create the brand’s positioning, name, tagline and visual identity for the new brand. ZipZap’s strategy and competitive advantage comes in its retail footprint; focusing on not opening stores in the crowded retail capitals of Beijing and Shanghai.

Long-term success is inevitable for those brands that can continuously nurture creativity and innovation. Local brands, in particular, that strive to relinquish their copycat, ‘me-too’ reputation will be the winners.
The next hurdle remains the delivery of a holistic brand experience with regards to all touch-points, both physical and emotional.

Part of The Brand Union’s ‘Up Close & Personal, March 2012’

Grupo Bimbo China expansion

Since establishing operations in China in 2006, Grupo Bimbo now employs 1,500 associates, operates two plants near Beijing, and maintains a presence in 17 cities in northern China. The company sells Grupo Bimbo-branded baking products, including bread and even tortillas, a new product the company wants to try to sell in the Chinese bakery market.

In 2006, Mexico City-based Bimbo entered the Chinese market by purchasing the Beijing-based operations of Spanish baker Panrico SAU for about $11 million. The investment, though small in scale, was a major milestone for the company that Servitje's father, Lorenzo, co-founded in 1945.

Grupo Bimbo’s operations in China contribute just 2 percent of Bimbo's total annual revenue, in contrast to the United States and Europe, where the company operates on a larger scale. But the Chinese bakery market is expected to grow by a compounded annual growth rate of 7 percent between 2011 and 2016 and gain $7.9 billion in absolute retail value.

 Mr. Daniel Servitje - Bimbo Ceo says about China experience:

"What we hope to achieve in China by 2015 is to have a larger coverage (of consumers) in the coastal area".
"As for the opportunities for our industry and all the players in the industry, it is important to be connected to the customers and consumers in China".
"The China market is very positive. It is very dynamic and it is a market that demands a lot of flexibility. It also changes rapidly. We need to adapt our views more to the reality of the Chinese market".
 "From my perspective, if you want to be in any business today, you have to be close to what's happening in China. If we have global aspirations, we have to be in China",

Attached you can find a TV Spot, China Bimbo campaign:

Optimising integrated campaigns in Asia Pacific

View more presentations from Millward Brown

Televisa has the potential to reach a market of more than 2 billion people

A good case of success in China with one of the leaders TV Groups of Lamat; a well known brand, Televisa. Nowadays, this Mexican company is one of the world´s largest creator of Spanish-language content, and has made further inroads into the growing Chinese market.

Televisa's first foray into China was the local version of "Ugly Betty" (Chou Nv Wu Di).  In that case, the web sold rights to the script to one of the country's largest broadcasters, Hunan TV. Televisa also brought in advertisers for a split and served as consultant and script supervisor on the project.

The debut episode was watched by 73 million viewers. The show is sponsored by Unilever's Dove brand, which is woven into the plot as Wudi works on a Dove advertising campaign. The show has also been used as a way to launch Dove's Campaign for Real Beauty in China.

Four seasons of Chounu Wudi have been aired in China. The 4th season started on 20 February 2010. It was named as the final season of Chounu Wudi. 

Ugly Betty in China (youtube.com)

  

With the second show, "Las tontas no van al cielo" (Dumb Girls Don't Go to Heaven), Televisa teamed with King Vision and sold the adaptation directly to China's largest entertainment concern, the Shanghai Media Group. Like Betty, the Mandarin-language version of Dumb Girls is not a single long-running drama series in the vein of the Mexican original, but is being envisioned as several seasons.

The third experience was Palabra de mujer (Shui Jie Nv Ren Xim), including in the 30 episodes advertising by product placement (Ex.: brands like Apple and Nissan).  Product placement plays a big part in Televisa's business plan in China.

At the end of the 2012, the China TV audience will enjoy the fourth Televisa project, in association with the producer company, Daye Transmedia. This version will include 30 chapters and the history will be adapted to the local reality, but keeping the base of the original serie.

With 4 succesful experience in China market, nowadays Televisa is one the most important players in this country.

Establishing luxury brands in China

Despite the term’s overuse, some Western brands are genuinely ‘iconic’ – the graphics and structures they use to represent themselves act as symbols for deeper brand values that over time we have come to understand. In the west we see Tiffany teal blue and we think Audrey Hepburn with a croissant and coffee. We see a red chevron and a thousand images of cowboys pop up in our heads.

So it’s interesting to see how much value certain brands have when stripped of these cultural associations as they introduce themselves to China, which with less recognition of western references, lacks the cultural shorthand usually utilised to imbue these designs with further ‘meaning’. In a recent article exploring the sale of high-end fashion to a culture that experienced the Cultural Revolution, the editor of Vogue China told The Guardian “You need to explain swinging London, Mary Quant, The Beatles, and why these people made a difference. If you don’t explain, they’re just clothes”.

In the same piece, The Guardian quoted a forecast that more than 44% of the world’s luxury goods will be sold in China by 2020. Many of our own clients believe that if they can win a comparatively small fraction of China’s brand share it will put their domestic sales figures into a cocked hat. Still, these are early days, right now only 2% of the population buys top end brands.


Should these predicted figures prove to be even close to correct this would create not only an opportunity but also a paradox of sorts. Here is a relatively un-jaded, economically flourishing market but a market which, owing to the same forces it owes its very existence, may require a whole new marketing approach.

So here’s my question: do brands simply transfer their global campaigns to this new market and assume that the new market will pick up the plot mid-story? If so, it will show that ‘icons’ can exist free of meanings and nuances that often took decades to build, that the status conveyed by a head spinningly high price tag and a western provenance is enough. And I guess most brands are betting on this. But it will be interesting to see if any of the superbrands take things back to basics and invest time in explaining what it is that makes them special and what their iconography is representing in terms of product quality, ethos, and heritage. All of this is doubly challenging as Beijing has banned billboard luxury goods advertising for the time being.

 

My guess is that without investment in building meaning, the brands will quickly become interchangeable (if high-end) commodities. In which case, their popularity will be short lived and much like the carriage clocks gifted by European ambassadors to the Emperor’s court a couple of centuries ago, the brands mechanics will be stripped down, understood and rebuilt along alternative Chinese lines in short order.

Currently, Chinese Vogue is experiencing incredibly high demand for advertising space and if these pages of beautiful yet undeniably interchangeable photographs of handbags with prominent logos cut it long term, then that will be illuminating. However, if the caché of being an established Western brand proves ineffective in creating enduring success, it may turn out that throwing media spend at the opportunity was not enough. Perhaps investing in establishing a deeper meaning in these early days might be a vital part of winning the race to be a long-term leading brand to a culture seeing you with fresh eyes.

 A recent piece in the Financial Times notes that Burberry is making great ground in China by branding itself as both the quintessential ‘and only’ Luxury British brand, with fashion shows importing UK cultural talent to support this impression. Here, I guess, is a brand defining its point for a new market, rather than simply rolling out the established iconography to a new market.

Source:  http://www.jkrglobal.com/design-gazette/establishing-luxury-brands-in-china-2/
Design Gazette / Mr. Silas Amos

Latin America Leads as the Most Socially-Engaged Global Region with Users Spending 7.5 Hours on Social Networking Sites in April - comScore, Inc

Latin America Leads as the Most Socially-Engaged Global Region with Users Spending 7.5 Hours on Social Networking Sites in April - comScore, Inc

Why Latin American Companies Can't Thrive In China

 Guatemala's Pollo Campero, a fried chicken chain, had to shutter the four restaurants it opened in Shanghai (above)

China is an eager customer when it comes to Latin America’s raw materials. But it has proven to be far more finicky when it comes to the region’s value-added goods. Even Pollo Campero, Guatemala’s far-reaching fried chicken chain, failed to gain a foothold in China.
The Chinese city of Harbin, whose grand boulevards and orthodox churches are a testament to the many Russians who made the city home after the revolution in 1917, has some selling points. Its Siberian climate, however, is not one of them – particularly for seven visiting employees from the Brazilian airplane producer Embraer. The dreary weather adds insult to injury for the company officials, whose Harbin factory has basically been inactive since last April.

Embraer’s difficulties in China are hardly an exception. Although the eastern giant has become one of Latin America’s largest trading partners, with annual trade reaching $200 billion, many Latin American companies have tried – but struggled mightily – to gain a foothold there.

Some, like Argentina’s IMPSA, have given up altogether. IMPSA, a producer of the large cranes used to load and unload shipping containers, opened offices in Hong Kong and Beijing in the 1980s. But it soon ran into trouble with its Chinese subcontractor, which launched a separate company, Shanghai Zhenhua Port Machinery (SZPM), and began competing with IMPSA.

“They had large government subsidies. The Chinese government gave them a port, 10 boats and cheap money. It was practically impossible for us and the rest of the world to compete,” recalls Sofía Pescarmona, IMPSA’s vice president. Today, SZPM controls 70% of the global crane market, and sells a number of products in Latin America.

“Asia is still an interesting market, but now we serve it from Malaysia,” says Pescarmona. “We are no longer interested in the internal Chinese market.”

For Osvaldo Rosales, director of foreign trade at the UN’s Economic Commission for Latin America and the Caribbean (ECLAC), the shift in economic relations presents a huge challenge for Latin American governments and companies. “One possible strategy is to be passive. Let China drag us along, which is what we are doing,” says Rosales. “The other possibility is to participate in the Asian value chain, which is structured around China.”

Putting that theory into practice is harder than it seems. Even the auspiciously named Brazilian bus manufacturer Marcopolo has failed, in China, to repeat the success it enjoyed in South Africa, Egypt and India. “Our plant in China is the only one that doesn’t produce buses. It only produces parts,” says Rubens de la Rosa, CEO of Marcopolo. “Why don’t we have the same authorizations as the local manufacturers? Volume is a major competitive advantage and China, when it comes to volume, doesn’t share.”

‘Guanxi’ is not ‘networking’

Part of the problem is that China and Latin America have pursued very different industrialization models. Embraer’s case is a clear example. “Embrear is a large company thanks to its strategy of buying the best systems and components for its planes,” says Richard Abulafia, vice-president of Teal Group, a consulting firm specializing in the aerospace and defense industries. “China, on the other hand, buys components and systems from whoever is willing to give up the technology, just like the Soviet Union did.”

IMPSA’s Pescarmona makes a similar argument. “China wouldn’t let us produce in their country unless we gave up the knowhow that we had painstakingly gathered over the course of more than 100 years. We preferred not to do that,” she says.

People familiar with China say that cultural differences are another stumbling block for Latin American companies. The nuances of Chinese culture, needless to say, are not easy to master. “In Latin America, people say not to mix friendship with business. But in Asia it’s totally different,” says Julie Kim, director of the Asia-Pacific Center at Chile’s Diego Portales University. “That is a crucial difference that you have to understand in order to do business there.”

In China, business depends on a tradition known as Guanxi, a network of connections and favors. The system precedes the Communist Party and bureaucracy, starting with family relationships. It grows as an individual goes to school and gains connections. Guanxi isn’t networking as Latin Americans understand it, but rather an exchange of rights and obligations, a chain of favors.

A few Latin American firms have had success in China despite the cultural barriers to entry. Chile’s Compañia Sudamericana de Vapores, whose former president managed to establish a relationship with the late Communist Party leader Deng Xiao Ping, managed to get a foot in the door in China. Another example is the Mexican bread company Bimbo, which bought a Spanish bread company that already had operations in China.

Those few companies that have had success in China tend to produce products there that will ultimately be sold in Latin America. To enter the market with manufactured products and services, on the other hand, has proven far more difficult.

Embraer is an interesting example. The Brazilian firm has lost ground in China to a rival Canadian company called Bombardier, which recently closed a deal with the Commercial Aircraft Corp. of China to provide planes of 100 to 149 seats. Embraer was barred from producing similar planes. Why? The answer may very well have to do with guanxi.

Embraer’s head of operations in China, Guan Dongyuan, has some guanxi. An engineer who studied at University of Sao Paolo and the China Europe International Business School, he previously represented the mining company Vale. But his counterpart with Bombardier, Jianwei Zhang, has even more. An engineer who graduated from the University of Tianjin, Zhang was a public administrator from 1975 to 1982. He then completed an MBA and a doctorate in administration at the University of Montreal before joining Bombardier.

“Relationships are crucial in China,” says Bombardier’s CEO, Pierre Beaudoin, in a corporate video. “For long term success, one has to be patient.” And they have been patient: Bombardier has been doing business with China since the 1950s.

Visibility is another problem. Outside of Latin America, people don’t know much about the region or its companies. According to Michael David, a senior consultant with the Boston Consulting Group in Beijing, “the region would benefit from increased student and academic exchange with China, and more cultural products, like fashion and cuisine, in the country.”

But that hasn’t turned out to be easy either. Guatemala’s Pollo Campero, the most international of Latin America’s fast food joints, failed in its attempt to break into China. In 2007 the fried chicken chain opened its first store in Shanghai. It planned to open 500 more restaurants in China within five years. Pollo Campero had reason to be optimistic based on its success in expanding throughout Latin America, into the United States and even in Indonesia and India. But after just two years, the company closed its original four Shanghai locations. Today, it doesn’t have a single restaurant in China.

That’s bad news for Latin American industry as a whole. Unless the region’s firms can change strategies and become more patient, the Latino model for trade with China will continue to be one that consists solely of commodity exports.

Source:  ©Worldcrunch - in partnership with America Economia (http://m.worldcrunch.com)

Photo - cornfed1975