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Doing Business in China: How to Win

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The Chinese consumer is becoming modern and international, but not Western. In my book, What Chinese Want, I outline a few "golden rules" successful businessmen must adopt in order to penetrate China, the world's most dynamic market.

This interview was originally posted in the China Observer, a great blog on Chinese business and marketing.

What are the main differences between your recently released book, What Chinese Want and your earlier work Billions: Selling to the New Chinese Consumer?

My first book, was more of a "how to" guide on marketing in China. Sequentially, I addressed several consumer segments -- the middle class, the mass market, men, women and youth -- and analyzed their buying instincts based on insights particularly to those segments.

I think What Chinese Want is a broader book, perhaps a more ambitious one. I start with a fairly long chapter on the Chinese "worldview" ("Old Pipes, New Palace") as a framing device for the entire book. I argue that Chinese society has always been and will continue to be characterized by a unifying "Confucian conflict" between ambition and regimentation, standing out and fitting in, projection of status and protection of economic interests. In this chapter I outline "timeless" characteristics of Chinese culture as well as enduring strengths and weaknesses. In subsequent chapters, I interpret these characteristics across four "domains" of contemporary culture that include business, consumerism, social structures and engagement with the world. At the same time, I hope to reconcile the most modern and dynamic elements in China, from digital behavior to luxury fixation to the PRC's relationship with America, with enduring cultural imperatives. I believe Chinese society is becoming modern and internationalized but not Western. Much of What Chinese Want focuses on how Western influences -- for example, Christmas and diamond engagement rings -- are transformed into vessels of Chinese culture as status projectors in a society in which self-driven individualism remains a tempting but dangerous aspiration and individuals do not define themselves independent of their responsibilities and obligations to others.

Billions was generally well received but some felt I presented Chinese consumers as too traditional rather than constantly evolving. This time around, I endeavored to paint a picture of a modern Middle Kingdom, not stuck in the past but still very much engaged with foreign institutions as a means of strengthening their own domestic circumstances.

What are your thought on the relationship between product positioning and individualism in China?

On the multinational client front, both Starbucks and Haagen Dazs have reconfigured their business model to conform to Chinese business imperatives. In China, the "golden rule" of marketing is: maximizing public consumption can increase price premiums and profit margins. The Chinese will invest in anything that provides "face" -- that is, external endorsement that leads to professional or personal advancement. This is not just a question of relevant insight or positioning. Starbucks will soon operate 1,500 outlets on the mainland. The company has established its stores as gathering spots for groups of aspiring professionals. It has reconfigured design, broadened menu options, developed an extensive array of "badged accessories," and leveraged social media -- all this in a "tea culture" country.

Haagen Dazs also maximizes public consumption. Consumers will not eat expensive ice cream at home. Like Starbucks, its business model focuses on driving traffic through stores, parlors that sport a romantic vibe and new generation cool. P&G brands are impressive for consistent ownership of the category benefits. Additionally, General Motors has leveraged skill portfolio management across vehicles, particularly Buick, as men progress on a "journey of success."

Local companies have also made progress, although none are actively preferred relative to MNC brands. More maintain consistent positioning. Anta, a sports shoes and apparel manufacturer, defines mass market sporting spirit. VANCL, a fashion brand, fuses digital self-expression with e-commerce innovation. But Chinese and international brands still have fundamentally different strengths and weaknesses. Mainland companies know how to "manage scale" across immense swathes of time and space. They are "frugal innovators." Their products are available to hundreds of millions of Chinese, right down to the rural fringe. In this respect, Lenovo, China Mobile, China Unicom, Haier (appliances), Yili (dairy) and Qingdao (beer) have been impressive.

As Chinese consumers become wealthier, they become more modern and international. But, digital liberation notwithstanding, they are not becoming Western. The Chinese worldview remains anti-individualistic, if we define "individualism" as societal encouragement of individuals to define themselves independent of external expectations. China remains a Confucian society driven by a complex code of obligations, centered on twin pillars of family and nation. At its core, Chinese society is characterized by tension between ambition and regimentation, the urge to advance while conforming to imperatives imposed by the "system." Egos are huge -- success is impossible without "face"-- but outright rebellion is forbidden.

The motivations that fuel the most dynamic categories remain profoundly Chinese. And brands are always tools of advancement and benefits are always externalized. Sports cars will always be niche because their benefits -- "zoom, zoom," the thrill of motion -- are largely "internalized." "Power" must morph into status projection because autos, like practically all brands, are weapons of professional advancement on the business battlefield. Chinese tourists are more interested in purchasing luxury goods or "collecting" destinations for show off purposes back home than experiencing other cultures. Of course, as consumers become more sophisticated, positioning strategies must become more artful, less one-dimensional. The man on top demonstrates mastery or connoisseurship, not his bank account. But, young or old, rich or poor, all benefits are a means to an end -- that is, climbing a hierarchy of success. Brands should, directly or indirectly, enhance social standing. Budweiser's "What's Up" campaign, a celebration of male bonding, would never work. In China, premium beer lubricates trust between guys who want to make money.

As JWT's CEO of Greater China, you have seen the full range of best and worst practices as Western multinationals attempt to entice Chinese consumers into weaving their foreign products into the fabric of their everyday buying behavior. What is one example where a Western company seriously missed the mark? On the other hand, what is the best campaign you have observed or have been a part of during your nearly 20 years working in advertising in Asia?

The most egregious campaign I can recall was a Toyota print ad - I think for trucks - that reinforced the power of the vehicle by having traditional Chinese lions bowing in front of the truck. Chinese are fiercely nationalistic and also very sensitive regarding Japanese lack of "sincere" apologies for their aggression during the 30s and 40s. This ad was shockingly insensitive.

The best campaign? I am most proud of the work we did for DeBeers, transforming "foreign" diamonds into a Chinese cultural imperative. In America, De Beers' slogan, "A Diamond is Forever," glorifies eternal romance. In China, the same tagline connotes obligation, a familial covenant -- rock solid, like the stone itself. In the PRC, where the clan, not the individual, is the basic building block of society, marriage is less a union of two souls than two extended families. It is not truly consummated until a new generation is produced. Romantic love, desired and even useful as a bonding agent, is a secondary concern, a means to an end. Men demonstrate worthiness via proof of commitment. Marriage is a protective union, a bulwark against the vicissitudes of a world in which individual rights do not exist, self-expression is often viewed as a threat to the established order, and institutions designed to protect individual interests are rare.

What are the top three pieces of advice you would give to marketing professionals getting started in the Chinese market?

I've already discussed two "golden rules" -- that is, generating higher margins by maximizing public consumption and externalizing benefits so brands become "tools of advancement - so I'll tick off three more.

First, to generate both margin and scale, brands should be stretched "out and down." Margin isn't enough. Given the trust Chinese consumers have in "big brands," the link between category and brand is relatively weak in China. That means one brand can stretch across more than multiple categories, assuming credibility in related categories. Johnson & Johnson, for example, could launch an infant formula and consumers would accept it despite lack of experience in this category.

Relatedly, the only way to target a broad swath of price-sensitive consumers is to extend premium-priced brands downward across lower price tiers, always by reducing costs and simplifying benefit structures. At the same time, great care must be taken to avoid degraded quality perceptions, usually by advertising the most premium variants. Colgate toothpaste was an early innovator on the mass-market front. Colgate Total Oral Care premium toothpaste, composed largely of imported ingredients, cost approximately 200 percent more than local brands and maintained a 3 percent share. Colgate Herbal and Colgate Strong, however, used local ingredients, had a lower cost of goods, and were priced slightly higher than or at parity with local brands. The combined Colgate franchise controls a phenomenal 20-plus percent of the toothpaste market, one with hundreds of regional and national competitors. In recent years, Nestlé and some Procter & Gamble brands--notably Crest--have adopted a similar strategy. So, too, have higher-involvement categories such as mobile phones.

Second, Chinese, irrespective of income or geography, are overwhelmed--yet excited--by the explosion of brands, both local and international. Twenty years ago, the public phone was the only way to make a telephone call; today, there are over three hundred brands of mobile devices, ranging from U.S.$30 basic models to state-of-the-art smartphones. Making matters worse, China's media landscape is extremely cluttered. The average Shanghai resident is exposed to three times as many ads in one day as U.K. consumers. In Beijing, television screens, mostly owned by Focus Media, are ubiquitous--in taxis, elevators, restaurants, building exteriors, locker rooms, and bathroom stalls.

Complicated messages, therefore, are not easily digested, even amongst the most brand-literate subsets of the population. Consistent messages must be conveyed directly, requiring as little cognitive processing as possible. Advertising must be ruthlessly single minded about the visualization of key benefits, leveraging demos as creative ideas, slice-of-life formats that dramatize product performances in extreme circumstances and so on. Celebrities must be carefully selected so that their star attributes reinforce a core brand proposition.

Third, never -- ever -- underestimate the importance of trust lubrication. The dramas of Enron and financial crises notwithstanding, western business people assume that the playing field is basically fair. Impartial commercial courts protect us. Stock markets are relatively transparent. Credit is broadly available, assuming adequate risk-return calculations. Chinese institutions exist to reinforce the ruling power of the Communist Party and, therefore, are much less developed and will likely remain so for decades.

Trust must be lubricated one-on-one, in the CEO's office or in private dining rooms at round tables. Unfamiliar people or new ideas elicit anxiety, so informal pre-meetings must be set up between trusted third parties. Email contact gets you nowhere, since executives are uncomfortable with "mechanical" communication (although, these days, many issue one-way tweets). Common business objectives must be established at dinner, but only after the ice has melted.