Marketing in China

Think Local Act Local

When more than 300 people attired in red and blue jackets with the words "I Love China" emblazoned over them lined up for the raising of the national flag at the world famous Tian An Men Square in several winter mornings of 1996, one would expect their faces would be all be Chinese. Their whole-hearted explosive singing of the Chinese National Anthem with the raising of the flag each morning made them sound like a squad from the local cadet academy. Yet many in this group were foreigners - including Americans. The early morning choristers were on training in Beijing for more than 10 days as part of their company's corporate culture development program. They were from a joint venture company between an American pharmaceutical firm and its Chinese partner in Xi'an, Shannxi Province. If you do not call this "Think local, act local" what would you call it? The American partner is Johnson and Johnson. You could hardly identify the foreign partner from the company's name - Xi'an Yansen. Their reward was nearly 1 billion yuan in annual sales.

The Eagle, Wild Goose, Confucius, and Mao-Tze-Tung

At Xi'an Yanshen, corporate culture is defined at 4 levels:


1. At the individual level, there is an Eagle Culture: "Eagle Training" is provided to the individual to instill courage, devotion, tolerance and fighting spirits.

2. At the team level, there is a Wild Goose Culture: To overcome the eagles' weaknesses of individualism and individual heroism, Yanshen wanted its employees to adhere to the Wild Goose formation - that despite their individuality, when flying together wild geese always form highly coordinated patterns in the sky. The Wild Goose Culture is intended to promote mutual respects, cooperation and teamwork.

3. At the corporate level, a Confucian Culture is promoted: Borrowing from a quotation from the grand old supreme teacher of China, Confucius, the corporate goal was continuous devotion to reach for the best in bringing health to the people. It urged the staff to never be satisfied with the current situation and level of achievement and to continue to strive for a better in order to turn the company from being a successful company into a great company.

4. The Corporate Citizenship Culture - Mission to society and social responsibility: The company frequently introduces training programs and public service programs following the example of the late Chairman Mao Tse-tung of the Chinese Communist Party. These remind employees of the comradehood with the Chinese people of all walks of life, especially the rural Chinese.
 
The Dum Birds Fly First - KFC Got 5 Years Lead In China
 
The old Chinese adage, "Ben Niao Xian Fei", is usually translated to mean that those ones with less intelligence and simpler minds tend to take for the sky before the smarter ones. Yet it can also be interpreted to refer to the willingness of some to accept the risks by taking action while others are still waiting for more complete information of the situations
 
Kentucky Fried Chicken - or as it is known throughout Asia - KFC had more than 510 outlets in China as of October 2001 compared to less than 400 outlets for McDonalds. What's more important is that market surveys by AC Nielson consistently confirm Chinese consumers' general preference for KFC outlets and products over McDonalds'. One KFC outlet in Shanghai even claimed the highest one- day sales volume ever of any KFC outlet in the world. KFC opened their first outlet in Beijing on November 12 1987 as a joint venture - a full 5 full years ahead of McDonald's entry into China. Subsequently it opened a wholly-owned outlet in Shanghai in 1989. Responding to the question in a TV interview, McDonalds China's president emphasized McDonalds' command of the China market in the medium and long term. Certainly, he will have a lot of catching up to do. Afterall, long before KFC and McDonalds came on the scene, chicken has had a greater appeal to Chinese consumers than beef as chicken is usually more expensive and are served only on festive or special occasions in Chinese homes.
 
Other Leading 'Dum Birds'


Kang-si-fu is a small flour supplier from Taiwan who became the market leader for instant noodles in China early on. Despite more than 10 years of playing catching up, the Taiwanese Top Food Conglomerate, President Food still finds the road to catching up Kang-si-fu in China too rugged. Kan-si-fu with more than 70 high speed production lines in China still maintains a big lead in the market despite being chased by President Food, Nissin, and other smaller local brands. Kang-si-fu took its winning money from China to Taiwan two years ago to buy up the controlling shares in the third largest food company in Taiwan.


The C.P. Group from Thailand entered one of the first joint ventures in the reformed China when establishing a feedmill in Shengzhen in 1979. It proceeded to invest in more than 100 feedmills in China claiming more than 5% of China's animal feed market of 30 million tons a year. The investment in animal feed in China has placed C.P. Group among the world's top 5 animal feed manufacturers. From their traditional Chinese market stronghold in animal feed, the group proceed to invest in motorcycle production retailing and real estate development. It will open one of China's largest shopping malls in Shanghai Pudong (East bank of Shanghai), around July this year.

Old Faithful Friends Rewarded: How VW came to dominate the Chinese car market

Volkswagon entered a joint venture with Shanghai Automobile Company in October 1984 to produce 30,000 cars each year. It surpassed 100,000 cars in 1993. It also entered another joint venture with the First Automobile Company in 1987 to produce the more luxurious Audi. Nearly 100% of automobiles used by Chinese central and local governments are maunfactured by Volkswagen. The two joint ventures between Volkswagon and these Chinese firms today account for more than 50% of the market share for cars and automobiles in China.. In comparision, the 1980's US market was an era of revival for Chrysler and Lee Iococca did not pay much attention to this sleeping dragon market. Toyota and Mercedes Benz literally laughed off the invitation for them to invest in China in the late 70's. It should come to no surprise that establishing their presence in China now will not be easy. Honda took advantage of the managerial and investment disappointment of Peugeot to grab a 50,000 vehicle a year plant in Guangzhou.



The latest entry into the Chinese automobile market was General Motors in 1997 with the first Buick rolling out of the production line 23 months later. Quite tactfully, Buick's CEO declared the Shanghai General Motor Company to be a Chinese company - not an American company in China. To catch up with the market, GM has been actively acquiring shares in other automobile firms such as the Isuza's joint venture in Jiangxi and Sichuan, Daewoo's joint venture in Shandong, Daihatsu's joint venture in mini van manufacturing in Chongqing, and a few more local automobile manufacturers. Already, Shanghai General Motor shows a profit of 600 million RMB in its first year of Buick sales.

The Chinese Cola War

Coca Cola presented the governments of Beijing and Guangzhou with complete bottling production lines as free gifts in 1981. The string attached was that the machinery must be used for the production for Coke's brand of soft drinks only. As of the end of 2001, Coca Cola operated 30 bottling plants in China with a total investment of 1.1 billion US dollars. Sales in 2000 was slightly over 20 billion yuan (2.5billion USD) - a long way ahead of its arch rival Pepsi Cola which entered China 2 years later and was operateing only 15 bottling plants in China as of 2000.

Wahaha grew from a school-operated factory producing milk into the No. 1 Chinese beverage company in an explosive manner. It was easily the biggest marketer of bottled drinking water in China in addition to being the biggest manufacturer of yogurt. Since the end of 1999, it started challenged the Cola giants with it's own brand of local cola called, "Fei Chang Cola". Advertising appealed for support to the local heritage industry featured traditional Chinese folk themes. Little noticed by outsiders was that the "Chinese Cola" manufacturer Wahaha is 92% owned by the French food giant Danone.


The Daring Danone

Relatively quietly, Danone began buying its way into China's food and beverage market by acquiring established and well managed Chinese firms since 1991. By 2000, it owned majority shares in the top two Chinese bottled drinking water companies as well as two top yogurt companies. It has also made in-roads into the packaged milk market in China with the acquisition of a small share of Shanghai Guang Ming Milk Company, the largest packaged milk company in China.


Unlike other foreign investors which drove hard bargains before their joint venture or acquisition of shares in Chinese firms, Danone has been known to be willing to pay much higher prices, eschewing price bargaining. At least more than once, Danone grabbed the 'prey' that was already in front of the mouths of other MNC's such as Nestlé. It also accepted tough conditions set forth by the local side with relative ease and grace.

These 'attached strings' included retention of the entire existing local management team and employees, complete responsibility for the welfare of retirees of the acquired company, and retention of the local firm's existing brands. Since Danone typically opted to acquire relatively well managed firms, there was less need for Danone to increase costs by importing herds of expat executives. Thus far, Danone's localized management strategies appear to have paid off as the acquired firms continue to thrive and reinforce market appeals with a local color.


Parting Comment: How To Catch a Dragon

It is very clear that those firms that exhibit their acceptance of the host - China - early have been generously rewarded with business opportunities. Among these are Coke, AIA, C.P. Group, Motorola, Nokia, Volkswagon, and IBM. Lou Gersner visited China no less than 12 times prior to becoming IBM's CEO. Bill Gates and Jack Welch are also frequent visitors to China. IBM donated at least 20 million dollars worth of advanced computers to Chinese government and universities. Motorola made very clear and explicit efforts to help China gain PNTR in the U.S. Congress and WTO membership. Obviously, Chinese are no different from Westerners. They appreciate friendship and sincerity, especially in their times of need. Western firms and executives must take off their own shoes before stepping into Chinese shoes if they wish to succeed in business in China.