First of all: please excuse us for not updating the site recently. We decided it needed a make-over but we got stuck in trying to make up our mind about what to do. To make a long story short: we look forward to picking things up soon! In the meantime Klaus-Dieter Hanke came up with an excellent service for those who are looking for Professional Help Importing China Products, and he asked us if we wanted to share it with our visitors. Because we believe exchanging information between our two target audiences might spell success, we sincerely hope you will benefit from this affiliate style plug. Take a minute to read the pitch, and be sure to let us know what you think of the Member Community if you decide to join!

If you want to import products from China and are facing one or more of the following problems:

- You want to import brand name products (often fakes) that you are not allowed to import
- You already have an existing business and want to import your products by yourself to cut out the middleman but don’t know how to find the right suppliers
- You know search engines like Alibaba , Global Sources etc., but may not trust their selection and get stuck
- You don’t know how to approach suppliers efficiently and how to ask the right questions to get results
- You don’t want to invest your money in expensive Far East Business Trips but need somebody of your confidence to do your job in China instead
- You know that you may be in trouble if you don’t have a quality control system in place, but don’t know how to solve that problem
- You really want to make money from your importing, but lack the knowledge to do it successfully and don’t know whom to ask for help
- You need assistance during your first import activities but are all alone by yourself
- Since you are lacking the knowledge, you may be too naive in your dealings with experienced Chinese companies and may be ripped off without even knowing it

Then you should move over to WebMediaBiz and see how they can help you. They have just launched their new Membership Site For Importers Of China Products and if you join them you will get access to following resources that will help to solve most of the before mentioned problems:

- Receive all of their seven eBooks about Importing from China free of charge. Value US$ 136.50
- Receive two weeks of free consulting services as indicated below. Value at least US$ 560.00
- Import strategies assessment for individual customers
- Help with finding and selecting profitable products
- Help with finding suitable and reliable suppliers in China
- Help with negotiating prices and terms
- Help with establishing direct communications between customers and suppliers in China
- Help with setting up a reliable quality control management
- Receive instant advice using their secure live-chat box for private communication with members
- Engage with other members, asking questions, sharing ideas, and building on everybody else’s experience and expertise in their WebMediaBiz Forum
- Access to fixed fee inspection services (w/o any extra travel or accommodation charges) covering whole China. Controlled by experienced European management. Service can be booked online from anywhere in the world.
- Access to low-priced 3D Container Load Program that will continuously help you to reduce freight charges
- Access to real-time, low-priced Landed Cost Calculator that allows you easy, instant cost calculations for your imports from China.
- Receive extensive information about the advantages of Drop-Shipping. Special videos and links to the world leaders in the USA and China are included.
- Receive constant up-dated information about events in China that are essential for importers.

All their other services, that we did not mention here, as for instance help with factory claims, factory audits etc. are also available to you upon request. Please contact them for further details. Their membership fee of US$ 199.00 for a full year period sounds like a bargain for what they are offering to their members. But don’t take our word for it, decide for yourself on: http://www.webmediabiz.com/members/go/ChinaSuccessStories

COFIDIS, is a leader in the European consumer finance industry. It was founded in France in 1982 and operates in 10 countries. COFIDIS is one of the most profitable actors in the consumer finance industry with an average Return On Equity above 20% for the past 5 years and holds a portfolio of 8 billion € in consumer loans. COFIDIS operates via a unique business model of selling and managing consumer finance products from distance. COFIDIS has a recognised expertise in consumer credit risk management.

COFIDIS has charged Pascal Nouvellon, Deputy Chief Representative for China, to lead a team that manages the strategic direction for COFIDIS, including product development and marketing programs to drive growth in China. Before joining COFIDIS, Mr. Nouvellon spent 6 years at Michelin in management and business development positions both in Europe and China.

CMR recently sat down with Mr. Nouvellon to gain insight into how he views the consumer finance sector in China, COFIDIS’ plans going forward, and the specific challenges and opportunities it expects to meet along the way.

CMR: Chinese are famous for their high savings rates of around 40%. But a closer analysis shows that for urban Chinese under 30 years old – the group driving China’s consumption growth today – savings rates are effectively zero. Accordingly we have seen the number of credit cards grow from 13 million at the end of 2005 to 130 million in 2008. Do you expect similar growth going forward?

PN: 2008 saw extraordinary growth for the credit card market in China, adding over 50 million new credit cards on the back of very strong consumption. This came to a point of exuberance, and we do not think it is sustainable in 2009.

We think the market will become more rational in 2009. We predict the market to add 15 to 20 million new credit cards, putting the total market in the range of 145 – 150 million credit cards as a combination of 2 factors:

1) usage rates are already pretty high in key cities such as Shanghai and Beijing and most customers in the 25-40 years old group already has more than one credit card

2) the strong growth in 2008 has been marked by a big push by domestic Chinese banks like ICBC, China Construction Bank and Bank of China to regain a leading position in this credit card market. They have spent considerably in infrastructure and marketing. Many larger banks have focused on the race to get more volume but 2008 growth has been mostly done at the expense of profitability. With more difficult financial times ahead, most players will decrease their marketing investments and focus more on growing profitable segments in the credit card sector.

That being said, 15 to 20 million new credit cards is very solid growth and a lot to work on!

CMR: What effects will the global financial crisis have on consumer finance in China?

PN: The Chinese Banking sector has been somewhat immune from the global financial crisis as it is still very China-centric. This being said, the slowing down of China economy, resulting from both the global crisis and the impact of a tightening of China monetary policy in 2007-2008 , will eat into the profits of Chinese banks.  Most analysts see profits of Chinese banks slowing down to single digit-growth in 2009, a drop from double or triple digit in 2007 and 2008.

There will likely be an overall contraction in the lending business on the consumer side. As of 2008, 70% of consumer loans were driven by real-estate mortgages and auto loans made to affluent Chinese consumers in their 30s and 40s. Those are the consumers that will likely pare back spending and increasing their savings in 2009. They are the traditional Chinese consumers, born before 1980. They are much more conservative spenders than younger Chinese, and they will rather stop buying than going into debt during uncertain times.

On the other hand, we predict that credit card loans should increase dramatically in 2009, driven by younger Chinese in their 20s who are not afraid of buying.

CMR: Unlike in more developed markets in the US and Europe, you have an opportunity here to attract many first time credit card users. How do you attract their interest? Is consumer education a major initiative for you?

PN: There will be 15 to 20 million new credit cards issued in 2009 in China, among which 10 million should come from first-time users, mostly young white-collars entering the professional world. Yet, this is not a major target for most Chinese banks that prefer to target less risky consumer groups i.e. well-to-do Chinese and equip them with Gold and Platinum cards.

This represents a great opportunity for the Sino-foreign credit card players such as GE Money and COFIDIS, as those players benefit from great expertise from outside China markets and can manage the higher-risk inherent to that population. The winners will be those who will be able to deliver value to those young Chinese consumers and bring them what they want i.e. products that are easy to apply for and to use online.

As to the sophistication of the Chinese consumers when it comes to financial products, we have been very surprised: most Chinese consumers are knowledgeable about finance. Even the younger age groups are much more sophisticated in comparison to other developing markets we are operating in. There is not much to educate on and this makes China market particularly challenging as it is a developing market with sophisticated users, yet another sign that China is very unique.

Shaun Rein
 
This originally appeared in the CMR Business Quarterly, www.cmrconsulting.com.cn. CMR Analyst Charlotte MacAusland helped conduct this interview.

This the first part of “China’s Credit Card Market: Interview with Pascal Nouvellon, Cofidis” next week we will publish the second part.

Insight

Trade exchange between different cultures and countries has long yielded rich rewards for those who recognize the potential. After all, as far back as the 1st century BC, merchants and caravans followed the Silk Road – the overland trade route from northern China to the Western World – and brought precious silks, tea and other resources from China to the rest of the world. Not only did linking different countries and cultures prove profitable, but new and greater products and ideas flowed between the countries.

The Silk Road of the 21st century is technology driven. This trade exchange, built on fiber-optic cable, sprang from the Telecommunications Act of 1996. Now, it is the R&D departments of companies from the United States and other countries that benefit from the resources and opportunity found in China.

Today’s China, the fastest growing country in the world, offers the:
• Biggest engineering talent pool
• Biggest emerging market
• World’s number one manufacturing industry

Strengthening ties, country-to-country, people-to-people, has shown time and time again that remarkable achievements, that otherwise would have been impossible, can come to fruition.

Long Circle urges you to explore the opportunities that exist in China today, especially if your business focus is embedded systems technologies for software and hardware. 

With our global reach, we could see the importance of China, and we have grown significantly in the past five years in this critical market. Today, we have $5 billion in revenues and 12,000 employees.
GE 2005 Annual Report/Letter to Stakeholders

Biggest Engineering Resource Pool

The last few years have convinced Fortune 100 companies and start-ups alike that China, home of the fastest growing economy in the world, is key to achieving their strategic plans, as well as the business objectives of their R&D departments. GE, Microsoft, Motorola, Intel, Nokia, Oracle, and SAP are just a few of the multinational companies with R&D operations in China, and for some important business drivers:
o Lower costs
o Lower wages
o Expanded productivity
o Reduced time-to-market
o Strengthened R&D embedded technology engineering resources

Wages are lower offshore, there’s no question about it, but the experience the workforce has must be in product research and development, not IT. With China’s deep pool of engineering talent, especially R&D embedded technology engineers, companies can expand and strengthen their R&D resources.

For example, the Microsoft Research (MSR) Asia lab has engineers working on a wide range of advanced technologies – from spoken-language technologies such as automatic speech recognition to face detection and tracking, face modeling and recognition, cartoon generation, image and video retrieval for MSN, and Xbox camera-based game interfaces. According to Forbes, Microsoft’s investment in all China-related R&D activities is approximately $100 million US dollars annually. In addition, with currently more than 800 employees in China, Microsoft is predicted to grow that number substantially over the next three to five years.

Biggest engineering talent pool; most engineering graduates each year

*Source: A study released in December, 2005 by Duke University (and also widely quoted in the media, including The Christian Science Monitor) citing the number of engineering graduates in each country yearly.
* Note: Statistics widely quoted, from Fortune Magazine to Senator Ted Kennedy’s speeches. However according to the Wall Street Journal online, these figures are misleading and no one can track down a concrete and reliable original source.

Biggest Emerging Market

How could any organization that wants to be successful in the global arena ignore China today?

China is the world’s most populous country – 1,313,973,713 (2006 est.) – and organizations like the Finnish mobile telecommunications giant Nokia expect China to be a key growth driver for their global operations. Nokia provides equipment, solutions and services for network operators and corporations’ mobile phones and network equipment.

According to Infoworld’s online Web site:

 “China has 400 million mobile users and its 3G (third generation) networks are not yet switched on, providing a future avenue for further growth. “ According to a study done by Norson (Hong Kong) Information Technology , “. . . after three years of 3G availability, more than 84 million Chinese will use 3G services.”

Consequently, construction is underway on Nokia’s new and expanded China headquarters, scheduled to open in 2007, that will host over 1500 of Nokia’s R&D, sales and marketing operations, pre-production, logistics, sourcing and manufacturing operations.

During China’s President Hu Jintao’s recent visit to the United States, he attended a dinner at the home of Microsoft’s Bill Gates and called for broadening the relationship between the United States and China.

“Today, many cargo ships are very busy crossing the Pacific Ocean, laden with the rich fruit of our strong trade ties and friendship between our two peoples,” Hu said. “I am sure that with the further deepening of China’s reform and opening up, we are going to see an even broader prospect for the economic cooperation and trade between China and Washington State and China and the United States as a whole.” Source: Reuters

According to the US-China Business Council:
• China’s economy grew 10.2 % in the first quarter of 2006.
• The government’s new focus on balanced growth and its attempt to shift from an investment- and export-driven economy to a consumption-driven one will mean more policies to promote consumption.
• GDP (purchasing power parity): $8.158 trillion (2005 est.)
• GDP – per capita: purchasing power parity – $6,200 (2005 est.)
• GDP – real growth rate: 9.2% (official data) (2005 est.)
• GDP – composition by sector:
Agriculture: 14.4%
Industry and construction: 53.1%
Services: 32.5% (2005 est.) Source: [www.uschina.org]

World’s #1 Manufacturing Industry

China is “the world’s factory” and produces $60 billion worth of consumer electronic goods a year. The “Made in China” label is found everywhere.

When China became a member of the World Trade Organization (WTO), it agreed to abide by WTO standards and regulations, along with the rest of the WTO countries. And this opened up one of the world’s largest economies to the rest of the world. Forward-thinking organizations did not hesitate to capitalize on the unprecedented opportunity.

For example, GE has long regarded China as an essential piece in the company’s strategic plan. According to Jeff Immelt., “We have been there for 15 – 20 years, so we know how to do business. We have been on the ground. We have 12,000 employees. And I think at the end of the day, China is trending towards being a great global competitor and following the rules. And that is important to us and it’s a way that we can be successful as well.”

Today, companies doing business in China find tax incentives, excellent civic infrastructure, government support, a political environment that encourages foreign business, rapid economic growth, a deep pool of engineering talent and college graduates, and improving legal, banking and financial systems.

China Strategy: Choose the Right Road to China

There are basically three paths an organization’s R&D department can follow to successfully gain entry into China. Take time to consider the best route for your company, especially if your focus is in R&D embedded technology.

Single, Independent Project

Beginning by outsourcing a single, independent project is an excellent way to start on the path to China. Typically, these projects involve software and hardware development, testing, maintenance, or product enhancement. This transaction type outsourcing is turn-key, straightforward, and has a quick ramp up time. An R&D department can:
o Capture an opportunity within a short time frame.
o Boost bandwidth to meet short-term demand.
o Outsource clearly defined short-term projects.
Companies going this route find cost savings through transaction-type outsourcing and capitalize on short-term cost savings.

Partner Program

A long term, relationship-based service program is another excellent way to leverage China’s technology resources. A dedicated team within the China outsourcing vendor’s R&D department can be created, trained, hosted, and managed exclusively for your embedded systems R&D technology projects. Clients take advantage of lower wages, while benefiting from a team educated on the Client’s corporate values and culture, providing a true business level alignment. A China R&D department can:
o Offload non-core functions.
o Fill in needed skills.
o Increase engineering efficiency.
o Increase return on R&D.

Offshore R&D Center

Many companies find they benefit most from a one-of-a-kind incubation center that is an extension of their R&D department back home. Building a R&D facility from the beginning and introducing best practices provides the optimal solution to meet your company’s strategic goals.

Your company takes advantage of China’s low cost workforce, manufacturing capacity, and emerging markets and there are no intermediaries or third party costs.

A China R&D Center can:
• Provide confidence and security to handle sensitive data and intellectual property inhouse offshore.
• Train talent according to your company’s unique standards and values.
• Increase talent retention by providing attractive culture and a sense of belonging.
• Share services with other functions of the company.
• Engage in long term innovation-driven research that does not usually generate immediate profits.
• Access the China labor market directly.

Turn to China

Throughout history, new products, new ideas, and new opportunities have come about by crossing borders. The global exchange of trade, expertise, and capabilities means exciting ideas and innovations which benefit everyone.

China today is a country with unlimited opportunity. However, personal connections and relationships are essential to any successful business in China. Would your company like to expand into China, but is unsure about potential roadblocks such as regulations, recruiting, and setup? The right vendor can smooth your way.

In addition to entry into China, a potential vendor’s technology expertise must not be overlooked. For example, does the potential vendor focus on embedded technology? Do they have experience with manufacturers, original equipment manufacturers (OEMs), original design manufacturers (ODMs), independent software vendors (ISVs), system integrators (SI), and value added service providers (VASPs) who rely on embedded hardware and software technologies?

Intellectual property is a concern everywhere, but especially in a new environment. What are a potential vendor’s procedures for protecting your intellectual property?

Remember, when searching for the best route to leverage China’s vast resources and opportunities, it pays to make certain you have the best vendor as your guide.

A journey of a thousand miles
Begins with a single step.
Lao-tzu (604 BC – 531 BC)
Chinese philosopher

About the Author

Hayden Hong, the founder and CEO of Long Circle, has over a decade of outsourcing and consulting experience. Prior to founding Long Circle, Hong was the president and founder of MacaoDude, a consulting firm that counts among its clients Motorola, Nortel, and various high technology companies in the Boston 128 area.  In 2005, Hong merged the two companies to provide U.S. companies with low-risk, convenient access to China’s engineering talent, manufacturing industry, and emerging markets. His background includes managing U.S.–China offshore R&D projects for GE, as well as management positions at Broad Reach Communications, a GE partner. Hong received a MSEE degree from Purdue University and a BSEE degree from Northeastern University, graduated magna cum laude. To learn more about Long Circle, visit http://www.longcircle.com.

The entire contents of this document are copyrighted by Long Circle, all rights reserved. This document may be freely distributed for non-profit purposes, and the whole parts should be distributed together. Redistribution of this document for profit without express prior permission is not allowed.

At 9AM I walked into the meeting room with yesterday’s dirty jeans and sneakers full of reddish mud, and still feeling very tired. Not really the image I wanted to convey. Old J however had already explained the situation and most of the people in the room by now knew me pretty well from past meetings. As expected, the discussion went back and forth between technical explanations and price. Like the experts they were, the import-export people, headed by Mr. Zhang, made junk out of the price structure I tried to maintain. I gave way too fast for nothing in return. I hadn’t really learned my lesson. At the same time we were discussing an English-Chinese contract with many paragraphs written in lawyer’s lingo that gave me dreadful headaches. Although Jan had given me the authorization to sign, he had to agree to each and every line before he’d give me the go ahead. Here I was, the wannabe China businessman, sometimes lost on the commercial terms of the contract but having to keep up appearances. The negotiations had been pretty intimidating and I felt as if I couldn’t really keep up. Luckily Jan was a good and patient man – he had to be, so near to closing the deal. By noon we finalized that day’s discussions and I was told that I’d be contacted again the following day. As I left the building the Americans passed by, all in their smart Wall Street striped suits, ready for the kill. The HK guys accompanying them sneered at my muddy shoes and dirty pants. I couldn’t care less, although in my mind it was now 2–2 with the psychological advantage to the visitors.

The contract was faxed to Jan who would review it and give me his comments during the night, and the following day I would have to defend his sometimes-cryptic ideas. Old J was not really of any help either, as the only thing he wanted from me was a lower price, and furthermore was not at all concerned with the contract’s contents. As the days crawled by, at least six versions of the contract went under review, a kaleidoscope of possible payment terms were proposed and rejected by both parties, quantities of glass per container shrank and grew, delivery terms were stretched or squeezed as was seen fit, and damages on faulty payments, non-timely delivery or bad product quality took on psychedelic proportions. When Jan realized that no shipping company in Europe was willing to insure the goods to this ‘unknown’ inland destination of Chongqing, even the port of delivery changed several times, moving from Chongqing to Shanghai, Guangzhou, Ningbo and back again. Not to mention the fact that I had to navigate my way through paragraphs of Chinese that also changed on a daily basis, trying to match the English version. At that time the Internet was unknown, a laptop a rich man’s gadget, and a PC word processor an archaic unfriendly creature. All this resulted in contract proposals that were literally cut and glued together with strips of fax paper, slivers of typewriter printouts and handwritten sections. A real work of art that each afternoon was duly retyped by a pretty secretary on the import-export company’s two mechanical typing machines: One for the Chinese text and one for the English version.

As the import-export people kept us on edge about their choice of partner for the glass deal, the Americans were becoming restless, nervous and fed up. They threatened to leave Chongqing by Saturday if no decision had been made. As if to call their bluff on this artificial deadline, Saturday went by without any meeting. On Sunday, when asked to come over for final discussions, I saw the American team still present, obviously backtracking on their threat to leave beautiful Chongqing. Apparently it was not that easy to walk away from a million-dollar contract.

In the meantime, eight thousand kilometers away, Jan was also getting a bi t edgy, having to work over the weekend and unaccustomed to such lengthy and – in his words – miserable discussions. Myself, I stopped keeping track of my mental score of the home team versus the visitors. It might well have been 15–19 for all I knew. That Sunday, we still couldn’t close the gap that was separating Jan’s idea of the contract’s contents and those of the import-export company. Pricewise, we were already twelve percent below the initial price Jan had given me.

Mr. Zhang & Co. undeniably knew how to play hardball, and it was certainly not the first time they had squeezed the last drop out of a price negotiation. They were pros, working all the levers at their disposal. We just had to dance along to their daily melody while invisible strings pulled us to the beat. I had to be back in Beijing on Monday evening, but could always feign a stomach ache to stretch my time. Jackson meanwhile informed me that the bank director, vice-mayor, and import-export people had been invited by the HK-US team to one of the top restaurants in town. All this followed by a super deluxe karaoke bash and more… All three services rendered for the sake of building a better society. I couldn’t compete with such extravagance; I’d have to work another year in Tsinghua to cover the expense.

Time quietly ticked by. The only activity that could be detected in the daily discussions was the emptying of overloaded ashtrays; nothing indicated any preferential leaning towards either group. Jackson, meanwhile, was working behind the scenes and already had arranged several private dinners with key individuals. For obvious reasons I was persona non grata at the dining table. Then on Thursday morning, thirteen days after arriving in the Pearl of Sichuan, Old J took me aside and gave me clear instructions to give way on the following points: In case of discrepancies in the contract the Chinese version prevails, and the L/C [Letter of Credit] would be opened with twenty percent down payment, fifty-five percent against shipping documents and twenty-five percent on arrival of goods. We would also need to have a bank guarantee valid for one year for a value of twenty percent of the goods, and we had to give another five percent discount.

‘No problem. I think this is acceptable’, I said, faking it. Entering the meeting room, everyone seemed to be gearing up for the final sprint, the cigarettes all lit, the teacups chock-full of chrysanthemum flowers – this meeting had another aura to it, it was somehow different.

‘Jieke, we think we can trust you, I hope you won’t disappoint us. We need you to agree on the following and the contract is yours,’ and up came all of Old J’s points.

My speech in response could be distilled into the following: ‘We’ve gone a long way, we’ve been talking about this glass for over a year and honestly speaking I’d love to give you what you want, but I simply can’t. You’ve dragged the price to the bottom of the Yangtze River; you’ve requested so many concessions and Jan has gone (hesitantly) along, I’m worn out working the fax at night and waking up early to prepare for the meetings, I can’t give you anything more but a lunch.’ Silence in the meeting room, you could almost hear the tea ooze from the tealeaves and the smoke rising from the cigarettes; the bank director stared at Mr. Yu and Mr. Zhang, basically saying: ‘It’s your call , I’m fed up too, I have other things that need tending to.’

Mr. Zhang finally spoke up. ‘Well if that’s the case, let’s go and have lunch, there’s nothing more we can accomplishing this meeting room. ’ During the meal, the room filled with rocket-fuel fumes, everyone remembered the good times they’d had in Europe, and no business issues were brought up until the very end, when I initiated a final push: ‘We can deliver the goods you want, but you’re asking for the impossible. We’ve become close friends, it’s a pity we couldn’t ink this into a contract’.

At this, the bank director hinted to Mr. Zhang that he should speak a few words. ‘Yes we are old friends, but you have to know that China is very poor, we need to be very careful how we spend our country’s money. We can’t just go with every proposal that might suck money out of the motherland.’

‘I understand, but I believe that none of us want to cheat the Chinese government. If that were the case I wouldn’t be able to sleep at night.’ ‘Jieke, you know the devaluation has forced us to be more careful with the hard currency that is allocated to us, we need to make sure we comply with the government’s regulations on how the resources are used.’ On this final note, we decided that there was still some room for discussion and moved back to the meeting room, filling the afternoon with smoke and jugs of tea.

Finally, after four more hours of discussions touching on almost everything in the contract, we came to the following conclusion: ‘The L/C would be opened with twenty percent down payment and eighty percent against shipping documents. A bank guarantee for a value of ten percent of the contract remaining valid for three months after shipment and a two percent discount on the price’. From the import-export company offices I called Jan to ask him if this would be acceptable.

Crackling in from the other side of the line came: ‘I’m tired of this haggling, we’re selling glass here, not camels. They can have the glass on those payment terms, but no more discounts. Don’t call me unless you’ve signed the contract!’ Off I went to the meeting room, to tell them that Jan was about to call off the deal , and conveyed to Mr. Zhang that basically all contract points could be agreed upon, but a further discount would be impossible.

At that Jackson asked me to leave the room for ten minutes for some internal discussions. An hour later, a beaming Jackson came out: ‘Mr. Zhang is ready to sign the contract!’

Later I understood that Jackson purchased the glass with the help of the Bank of China, which loaned him the money. Jackson then made a handsome profit selling it to the Hong Kong construction company, whose overall profit margin was seriously dented in the process. This transaction helped many people live a more comfortable life.

Jack LeBlanc, author of Business Republic of China, Tales from the front line of China’s new revolution.

This is the ninth and final part of “The great glass curtain walls of China”. Here you can find Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8.

The 10 best read articles of last year, together with the 10 most commented on articles. Here we go!

10 Most Read Articles 2008

1. Luxury Brands in China
Nick Debnam & George Svinos

2. Starting a Business in China
The Worldbank Group

3. The impact of cultural difference when entering the Chinese market
Mona Chung

4. Olympicop
China Success Stories

5. Guide to Employment Law in China – 2008 (Part I)
Gregory Sy

6. 5 Chinese Negotiating Styles
Andrew Hupert

7. Luxury Brands in China: Part III
Nick Debnam & George Svinos

8. Luxury Brands in China, Part II
Nick Debnam & George Svinos

9. 4 Reasons Sourcing from China will be More Expensive in 2008
Marshall Taplits

10. Chinese trade secrets according to Caldeira
Tony Caldeira

10 Most Commented Articles 2008

1. Guide to Employment Law in China – 2008 (Part II)
Gregory Sy

2. What does your Chinese translation say about your company? You may be surprised…
Jocelyn Eikenburg

3. A taxi business in Shanghai, China?
Robert Scoble

4. Sourcing in China for the US Market
Terri Morgan

5. China: The difference between recession or depression
Craig Russell

6. Halfpats: the New Expatriate
Richard Brubaker

7. A Disturbing Trend in Asian HR
Mike Threatt

8. Cheap or value added
Richard Kaye

9. Chinese Chops – the Ultimate Business Tool
Maarten Roos

10. No Free Lunch in China
Patrick O. Courtois

China Business Success Stories

Jan’s standing orders were not to talk price under any circumstances, but to make sure that the visit in Europe would be light on formal meetings and heavy on visits to exotic locales. It was best that he not join the group, but give Smile one week’s travel money and let them enjoy the experience in their own way.

It was better this way because although Jan insisted on meeting the group, he quickly realized that they were out of his league. He arranged a memorable dinner in an expensive Japanese restaurant, probably thinking that the whole delegation would enjoy a hearty home-style meal away from home. Afterwards I got an ear-full about one of the delegates trying to sit on the tatami in a nicely decorated private room, losing his balance and accidentally smashing through the rice paper wall, disturbing a Japanese party in the adjacent room. Not to mention the countless jugs of expensive sake that were consumed in a noisy Sichuan drinking contest where two participants challenged each other in a word and hand-sign game. The losing party had to ganbei a glass, while the next participant readied for another bet. I could imagine Jan’s unease and helplessness as the noisy celebrations un- folded in ever-louder screams and shouts. Thankfully Smile, as usual, acted as the perfect Chongqing ambassador, smoothing any bumps along the road.

On their return to Beijing, their Sichuan batteries were fully recharged at a well-known Sichuan filling station: the Sichuanese restaurant that was occasionally visited by Deng Xiaoping.

Hearing Smile’s US story was a real relief. None of the HK company’s employees had met them in the States and the Americans seemed to have treated them as any other customer. Apparently the group was shown an endless string of glass factories and glass towers, and fed on bleeding steak, hamburgers and mashed potatoes. Present score: 2–1
in favor of the home team!

Reporting back on the phone with Jackson I could hear he was more than satisfied with the present state of affairs. He would further stage-manage the situation on the return of the delegation to Chongqing. Meanwhile, in November, as thunder rumbled through a sunshiny day, the Renminbi was devalued again. The last revaluation I remembered was December ’89 when the USD/RMB rate plummeted overnight by over twenty percent. At that time the consequences of such change didn’t filter through to daily life, as China tended to insulate you from the outside world. Now, however the outcome struck home at the speed of light: thanks to the new exchange rate of 5.2 RMB to the dollar, the prices of our glass in the local currency were bloated by ten percent. This was definitely a bad omen, as I had noticed during discussions all prices were mentally converted to Renminbi. The gradual devaluations had been enacted to encourage more exports and earn the country foreign exchange. But for this ugly little capitalist it was a new situation to manage, and I feared that our prices would have to be devalued correspondingly.

As Beijing got colder and the daytime temperatures dipped below zero, I was asked to fly to Chongqing for final discussions with the import-export company. Apparently a large proportion of the various contracts had already been awarded to several suppliers, and one of the undecided parts was the purchase of the glass. Although the bidding documents could not be changed, Old J didn’t disappoint. Memories of the delegation’s cold reception in the US were still reverberating in the corridors of the Chongqing karaoke bars. As quickly as boiling water softens instant noodles he mollified the import-export company and Mr. Yu’s team from the Building Design and Research Institute. Although officially the bidding documents would have to be followed, the European glass could be accepted under the condition that the price would be more attractive than that of any other party. A road towards ‘price devaluation’ was slowly opening. Luckily for me the Tsinghua students were performing a military training session and I was able to free myself for a whole week. Heading for Chongqing was akin to returning to my Chinese roots. On approach to the airport, through the thick clouds, the rice fields suddenly popped up like contour lines on a topographic map. I was back home.

Though it wasn’t raining, the humidity made itself known by drawing streaks of moisture on the airplane’s windows. On the ground, at fourteen degrees Celsius, the cold damp air tackled my body head on. If not properly dressed for nature’s persistent bite, one would get an eerie sensation as if one’s bones were slowly cooling down inside the body. A far cry from the dry cold I was accustomed to in Beijing.

Jackson and Smile were at the airport, waiting for me in a rusty Russian Volga car on loan from Chongqing University. As the night settled in, we were on our way to my old alma mater. The road from the airport to the city wasn’t yet the present-day three-lane highway, but a twisting road along a mountainous terrain of rice fields, rocks and the odd village. In the darkness, the car drove slowly through a reddish-brown landscape carved up by the headlights, until one of the front tires suddenly gave out. Here we were in the middle of nowhere on a pitch-black cold damp night. Unprepared for the event, we had to feel our way into the back of the car for the spare tire and carjack. The spare tire seemed worn out but OK; the jack however called in absent. A spare, no jack, pitch dark, cold, we were quickly running out of options and the occasional car passing through refused to stop for a bunch of castaways. Desperate, Jackson walked up the road to see if he could discern anything on the other side of the hill. Not soon afterwards he returned back shouting that he had seen a dim light in the distance. The only problem that remained was deciding who would venture into the complete darkness through the fields to that place, avoid the hungry dogs that probably protected the property, knock on the door and face the wrath of the farmer who might think a thief was sneaking in to take away his belongings. Definitely not a mission for the faint-hearted. In the end we settled on the driver – as an ex-military man he would be able to deal with the situation.

Indeed, roughly two hours later, we heard the heavy ‘tacketack tacketack tacketack’ of a small farm vehicle coming our way. Sitting behind the farmer, our driver was waving triumphantly. We had been lucky, the tractor-owning farmer turned out to be a trader who collected rice from the surrounding villages. After roughly an hour, a hundred RMB, and thousands of thank yous, we were back on the road… I went to sleep at 3AM in the morning – the following day would be the big one.

Jack LeBlanc, author of Business Republic of China, Tales from the front line of China’s new revolution.

This is the eighth part of “The great glass curtain walls of China”, next week we will publish the ninth part. Here you can find Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7.

China is still a growing market and capable of providing you quality suppliers. There are many ways to minimize your risk, and I shall share some of the more fundamental ones below.

My first trip to China wasn’t on business, but as a tourist. I was apprehensive due to the many preconceived notions I carried, fed by media reports of the physical and social conditions there. I half-expected stomach upsets from badly cooked food and guarding against robberies at every turn. Most of my fears were unfounded, and you can find products and services of international standard.

Many buyers are guarded about buying from China – understandably so with recent unfavorable news coverage of the country, its products, and its business practices. However, China is still the third largest exporter in the world – proof that there are plenty of serious and high quality suppliers.

Visiting China is a good starting point for doing business there.  If not, there are many online and print sources to help you find quality products and suppliers, which I’ll mention within this article.

These risks can be minimized by understanding all the costs involved in your import arrangement. Some may be completely hidden, and others not overtly expressed. Many costs don’t come in numbers, but will nonetheless lead to bottom line losses if ignored.

Understanding the market

Before deciding on what to import, look at your local market to make sure that the product is in demand. Then find as much information as possible about the export market for that product in China. Be vigilant and ask every detail you need to know. If you cannot obtain first-hand opinions, sourcing publications are a good place to start.

Sourcing publications include those that give general trend overviews like Global Sources Magazines, and those that provide detailed studies on specific industries, like China Sourcing Reports.

Finding a trustworthy supplier

This is perhaps the most important step in your import business. A serious and dependable supplier minimizes any concerns on quality, trust and disputes.

There are a number of sourcing sites where you can find suppliers from massive directories. To find the right one can be a laborious task, but your work can be made easier by going to sites that screen suppliers before they are listed – like Global Sources Online. Under their “verified suppliers” system, suppliers need to have their company information and contact person verified and are visited 3 times in-person before being authenticated as a “verified supplier”. This also means if you pick a “verified supplier”, you can be sure the contact person is a legitimate representative and the company is registered and export-ready.

A good sourcing portal should allow you to easily contact prospective suppliers. They should display clear contact names, phone numbers and e-mails. The listings on Global Sources Online, for example, let you easily send direct inquiries to suppliers so you can ask further questions on their products such as price and minimum order quantity.

Once you’re in contact with prospective suppliers, address all your quality concerns with the right questions. State your requirements to suppliers clearly – like product warranty, key specifications and order terms. Alternatively, some suppliers will provide product samples if you ask, so you can first test them yourself. If you’re happy with the quality of this sample shipment, you can order in bulk.  If possible, try and attend a sourcing fair to test samples free of charge. Most sourcing fairs are organized around themes like “Clothing & Garments” or “Electronics”, so buyers like you can meet all the specialized sellers of the products you want.

Factory visits and inspections

China’s business environment is changing rapidly, and you’d be surprised how much factories can develop in a year.  Visiting a factory is easier than you think – many suppliers arrange the transport for you and may even take you to competitors’ factories. At the China Sourcing Fairs, for instance, exhibitors arrange for transport right to their factories from the fair grounds.

There are a few reasons why you’d want a factory visit:

1. To meet the management and see if the company is competent
2. To gauge the factory’s level of technical sophistication
3. To check if the factory complies with regulations and labour laws
4. To see who else has placed orders with that factory
5. To determine if the factory’s production capacity is as claimed
6. To see if the factory is subcontracting production to other factories

If this is too much trouble for you, consider appointing a local agent or third-party quality (3PQ) firm to inspect the factory on your behalf. Get someone who speaks the language and knows local business conditions enough to make a good judgment. Most agents usually charge by commission from the amount of goods you import, and also inspect the output before it gets shipped.

Before the goods are shipped

Product quality can be found satisfactory during your factory visit, but issues can arise once they are to be shipped. Some problems include: wrong count, wrong mix of product types, SKUs, improper handling during loading, inadequate dunnage, or damage to the container. All may leave you with unusable products on arrival and a long delay to replace them.

You have three options:

1. Rely on the factory or trading agent’s assurances. This carries the highest risk since many suppliers and agents are highly motivated to get the shipment out. Even honest businessmen may not have time to witness the loading and inspect the goods. You can afford this if your product isn’t high unit cost, high warranty or recall risk, or time sensitive.
2. Observe the loading yourself. May not be practical considering the many shipments, suppliers and enormous amount of time it will take.
3. Have an employee or agent inspect the goods and observe the container through the whole loading process.  In fact, the loading report is often used to obtain the letter of credit (L/C) payment.

Compliance issues

You need to understand the relevant import compliance regulations before even placing your order. Different regulating bodies in your country may be involved, depending on what you import. Go to their websites to understand, register or download the required forms. Compliance issues can be very complicated for some products, and you might need a good customs house broker.

Even with the help of a customs house broker, track the process and provide assistance such as providing additional products information and endorsing bill of landing. You may need to issue a power of attorney to your broker and purchase customs bonds – guarantees that you will abide by all laws and pay additional fees incurred.

Neglecting compliance can be costly, in the form of unexpected customs duties or clearance delays. Common subjects for stricter inspection include contraband, potentially dangerous items, and organic items.

Landing costs

Get a good estimate of the landing cost before you make your order. Landing cost is the sum of: cost of the goods up to loading on the transport, transport costs by forwarder, import duties (if any), local transport costs, and cost of service providers (inspections, agents, etc.).

Note that import fees vary depending on what you import, the country of origin, and destination. Experienced exporters should know how much it really costs to ship to you, but do your homework nonetheless. You assign HS (Harmonized System) codes to shipments based on this, and a wrong code delays custom clearance.

There may be many hidden costs in getting your product from the China factory to your warehouse. You may consult an import management company. Another way is making a small order first to collect all costs involved and predict these costs for your intended order quantity.

Delivery from the port of entry to your final destination is sometimes an overlooked landing cost. To resolve this, contact the many “last mile” service providers in your home country. They deliver from your local port of entry to your company grounds.

List of common shipping Terms

Pro-forma invoice (PFI) – A quote from a seller to a buyer. Shows you what the invoice will look like and sets out the seller’s terms. Often used to obtain financing for large quantity orders.

Purchase order (PO) – Document to purchase goods or services from a supplier. Contains the name and description of the goods you are buying, quantity, price, payment, and delivery terms.

Commercial invoice (CI) – Bill for goods delivered or about to be delivered. Specifies exactly the product, quantity, value, and a list of any special charges such as handling, packing, one-time set-up fees, etc.

Free on board (FOB) – The price that includes all costs up to the shipment stage. This excludes the costs of shipping your goods through international borders, import duties, etc.

Letter of credit (LOC or L/C) – An agreement between your bank and your supplier’s bank to release payment only on certain delivery conditions, like successfully clearing customs or successful loading. Usually used for large transactions.

Minimum opening order (MOO) – Some suppliers expect your first order to be of a certain minimum before allowing future orders in smaller amounts. A future order under this term is termed RO (reorder).

Force majeure – A French legal term translated as “greater force”. This contract clause removes liability for natural and unexpected events that affect the transaction, like natural disasters, transport mishaps, or union strikes. Many buyers get insurance for such situations. The main types of insurance are marine cargo insurance, freight forwarding insurance and cargo insurance.

Johnny Tay, Global Sources

DuPont Titanium Technologies [DTT] is the world’s largest manufacturer of Titanium Dioxide (TiO2), a key ingredient in products from plastics to paper to coatings and paints. DTT has been in business serving these core markets with their branded product, Ti-Pure*, for over 80 years.

Over a decade ago, DTT anticipated the shift in market focus from North America to emerging markets, specifically China, and was quick to invest accordingly. DTT has since established a world class presence in China, from its management teams to distribution networks, sales channels and facilities. Over the next five years, nearly half of total global growth in this market will come from China; DTT’s early move has not only given it a significant competitive edge, but will further solidify its position as industry leader worldwide.

DuPont has charged Peter O’Sullivan, Global Marketing Leader, to lead a team that manages the strategic direction for DTT offerings worldwide, including product development and marketing programs to drive international growth. A 24-year veteran of DuPont, Mr. O’Sullivan and his team are focused on growing DTT’s current position of strength both globally and within China.

CMR recently sat down with Mr. O’Sullivan to gain insight into how DTT has achieved its significant success in China, its plans going forward, and the specific challenges and opportunities it expects to meet along the way.

CMR: As China’s economy continues to boom in spite of the global slowdown, what are the major opportunities DTT and DuPont face going forward in China?

POS: From automobiles to mobile phones to coatings for the home, the Chinese people are seeking better quality goods than ever before as their standard of living improves. For DTT, this is a great opportunity because entire value chains need better quality TiO2 in order to ensure the quality expectations of finished goods are met. As we consider opportunities to grow, a key metric we focus on is the per capita consumption of TiO2 in the context of expectations of growth in per capita wealth. Mature western economies like the U.S. and Germany typically have consumption > 4/kg per person per year. Today China is consuming about 1/8th that amount per capita. For obvious reasons China is an exciting long term growth market for us that requires investments in many forms, from physical assets like manufacturing facilities and customer support labs to investments in organizational size and capability. China is now DuPont’s second largest country market after the United States and will become the largest in the next few years. We are now planning to build a world class TiO2 manufacturing plant in China to meet the need for consistent, high quality products DuPont has produced with its rutile chloride manufacturing process for decades.

CMR: What challenges do you face in China that are different from the US and other BRIC (Brazil, Russia, India and China) countries?

POS: We learned early on that we had to localize our management teams so that we are best able to manage within the unique culture and business norms here. What works in the U.S. or Russia does not necessarily work in China. While the same sort of exciting rapid growth opportunities exist in Russia specifically, and Eastern Europe, in general, as in China, it is clear that the unique cultural capabilities that only a localized leadership team can deliver is every bit as essential in Russia as in China.

Like other companies, human resources is one of our biggest challenges as there is more turnover in China than some of our other markets and a lack of deep DuPont local management experience at certain levels consistent with a region of the world where our business is relatively new and growing quite quickly. The solutions we have chosen include world class training programs, providing exciting career paths and filling senior management positions with local employees.

An outstanding example of this is Charlie Huang, our Sales Manager for greater China. Charlie has been given responsibility for driving DuPont TiO2 sales in the region. His entire staff is comprised of local, talented individuals with strong ties to the community.

CMR: In light of rising labor and real estate costs, inflation and the weakening of the US dollar, are you looking to produce in other countries such as Vietnam where costs are lower, or do the needs of your supply chains demand you be in China?

POS: We are clearly focused on acquiring all the necessary licenses to build our plant in Dong Ying. China is where our major growth in the pacific rim is happening. At the end of the day, locating our TiO2 business where we are experiencing the most growth is always going to be in DuPont’s best interest.

CMR: Over the last decade, Chinese companies such as home appliance manufacturer Haier or computer company Lenovo have made great strides at becoming global players. How do you view the emergence of domestic Chinese TiO2 competitors in your sector?

POS: For us, generally Chinese producers have a reasonable offering for specific markets but most still lack the quality and reliability that DTT has. For the most part, Chinese producers manufacture TiO2 utilizing the sulfate process. Titanium dioxide produced using this process inherently lack some key quality characteristics that are important to customers. We see the local producers moving toward high quality products at some point, which is where DuPont is positioned right now. This will be necessary in order for customers to produce high quality consumer products.

CMR: The Government’s push to transform China from manufacturing-based to service-oriented has resulted in rapidly changing policies and levels of policy enforcement. How have these changes, such as increased concern over pollution and water use, affected your strategy going forward?

POS: Our strategy is consistent with the environmental objectives you highlight. Our processing technology produces less pollution than our competitors. DuPont has publicly stated sustainability goals consistent with the policy direction you highlight, e.g. reducing targeted pollutants and reducing our water use. As a specific illustration, our Dong Ying site has been designed for lower water use than comparable facilities currently operating. We already operate our facilities to high environmental standards that in some cases go beyond the requirements of the law. But in order to ensure a level playing field for the benefit of consumers, we support the uniform and equitable enforcement of environmental regulations.

Shaun Rein is the founder and managing director of the China Market Research Group (CMR), a market intelligence firm that helps companies make smarter decisions in China.

This interview first appeared as part of CMR’s interview series of thought leaders and senior executives in China in the CMR Business Quarterly. http://www.researchcmr.com/default.aspx

Travelling around China for two years is not as easy as it sounds. In January this year, for example, much of the country was paralysed by freezing winds, snow and ice – millions and millions of people stranded without transport as they desperately tried to get home for Chinese New Year; almost one million of them camped outside Guangzhou Railway Station alone.

Trucks and private cars were stuck on icy, gridlocked roads for days on end, their drivers and passengers forced to make the choice between freezing to death inside the vehicle or start walking and risk getting lost … and freezing to death. Trains, stuffed with so many passengers there wasn’t even standing room left, stood rooted on the tracks without electricity. Even journeys of 24 hours or less turned into four- and five-day nightmares without food or water, with the toilets the only place where passengers could draw fresh air.

Considering this took place in the most developed, populous provinces of China where people are used to everything running smoothly, one can imagine how getting around Tibet, Xinjiang or Inner Mongolia – where the distances are unfathomable and people and resources scarce – can be fraught with danger. The road from Lhasa to Kunming, for example, is called a “national highway” on the road map. It is actually a dirt track hardly able to accommodate the width of one car, let alone the buses and military trucks picking their way through rocks fallen from thousands of meters above, trying to avoid the sheer 2000-meter drops on either side.

And that’s under normal circumstances. Now imagine a snow storm, temperatures below minus 20 and equipment perhaps not up to standard, and travelling in China can seem quite daunting. But that didn’t stop American photographer Tom Carter from undertaking a full two-year stint of constant travel through the 33 provinces of China, taking thousands of photos along the way with his “ancient” digital camera.

Carter never thought it would be smooth sailing. With his limited Mandarin and even more limited budget, he was forced to take any means of transportation that came his way, frequently having to sit up for days on buses carrying peasants and their livestock.

One time he was taking a stroll on the frozen wastes of Changbai (‘Eternal Whiteness’) Mountain, on the border between Jilin province and North Korea, when he inexplicably found himself staring down the barrel of a North Korean machine gun, having wandered several kilometers into the territory of that forbidding nation.

Only the kindness, or perhaps the lack of experience in dealing with stray foreigners of the North Korean soldiers, saved him from getting into serious trouble – they sensibly solved the problem by chasing him back to the safety of the Chinese border.

Sitting up for days on the infamous hard seats of long-distance trains or roughing it with peasants on buses, catching lifts with truck drivers or friendly families with cars, Carter never lost sight of his goal: to chronicle the people of today’s China in their daily lives.

Criss-crossing the vast plains of Inner Mongolia and Xinjiang, being thrown about in four-wheel drives on the rock-strewn dirt tracks of Tibet or zipping down the mostly empty, brand new, ruler-straight six-lane motorways by which each province judges the standard of its infrastructure, Carter went everywhere and did everything in terms of transportation.

He sailed up the Yangtse and chronicled the result of the Three Gorges Dam project – total destruction of old culture and architecture, ecological disaster and untold human suffering. He slept on the floor of bus stations and in hotels which could be classified as minus three stars. Accompanied by his Chinese girlfriend Hong Mei during his second year of traveling across China, something of a buffer between him and the intransigent officials and obstacle-makers of various persuasions that travelers off the beaten track in China inevitably run into, he lived like ordinary Chinese, the Chinese way: with difficulty. 

The slowest means of transport ever has to be the one by which devout Tibetan Buddhists travel from all over Tibet to the Potala Palace in Lhasa: laying down flat on the road once for each step. Many of them spend up to three years getting around like this, living off alms and the kindness of others.

Any traveler in Tibet unfamiliar with this kind of pilgrimage will do a double-take the first time they see somebody moving along the road like a caterpillar: one step, kneel, full prostration, get up, one more step, kneel, lie down… But after seeing the tenth or so pilgrim, the western tourist will get used to it, perhaps just idly reflecting: “I could never do that…”  

Like many foreigners before him, Carter first came to China to teach English. Not satisfied with seeing a small corner of China from the inside of the classroom in Shandong province where he was working, he saved up his teaching salary so that he could eventually venture into the interior, photographing everything he saw.

He quickly came to realise how vast China is and how little of the ‘real’ China tourists who only travel to Beijing and the larger cities with a few terracotta warriors thrown in, can experience.

Each time he returned to teaching he felt the road beckoning, and after two years of exploration he came to realise his by then overwhelming wish: To travel to every corner of this huge, in many ways forbidding land, chronicling today’s China – warts and all – with his camera and turning the result into a book: CHINA: Portrait of a People.

Cecilie Gamst Berg

Are you interested in seeing more pictures or in purchasing CHINA: Portrait of a People? Please visit this website.

LG Electronics is known throughout the world for its innovative and stylish premium consumer electronic products.  In China, LG has become popular among premium consumers, seeking high-end refrigerators, flat-screen TVs, air conditioners, and washing machines as they move to larger homes.

In 2007, LG charged KK Ko to leads its marketing efforts in China.  Known as one of the top marketing minds in China, KK joined LG from Coke, where he ran Coke’s iMarketing Division for Asia and China.

CMR recently sat down with KK to hear his opinions and insights on how Chinese consumers are evolving and how LG plans to continue to build upon its success in China and what challenges exist in the marketplace.
 
CMR: LG has been gaining market share in China against competitors like Sony (SNE) and Samsung, now selling over $10 billion USD of products annually into China. Chinese consumers are moving towards premium products and increasingly prioritize comfort and style in their product choice. How has LG shifted its market positioning and product lines in the digital display/ digital appliance space to meet these needs?

KK: Chinese customers are loyal to us largely because of our styling. Our product development team has focused on creating stylish and innovative products that attract Chinese consumers – the result is that our products like the Prada phone or Scarlett TV simply look stunning. 

We have found that younger Chinese consumers especially are shifting towards premium digital products as they get wealthier and demand a more leisurely and comfortable lifestyle. Our major product focuses in China are all premium, from our digital TVs to washing machines to mobile phones. We have found that for electronic products, Chinese consumers are willing to pay more and are no longer price sensitive.

For mobile phones, for example, our recent TV commercials featuring Audrey Hepburn and smart technology help promote the stylish Black Label series as our flagship offering.
 
CMR: Rising incomes in China have led to demand for a more comfortable life and larger house sizes. What does this mean for LG and the home appliance industry? 

KK: House sizes are getting larger, so consumers are looking to buy the best of breed home appliances but not necessarily larger appliances like air conditioners. LG is working to emphasize the importance of beauty and comfort in home living. Actually, there is a movement in the industry as a whole towards appliances as art pieces, and here in LG we are proud to be one of the pioneers.

CMR: We have written previously http://seekingalpha.com/article/25080-investing-in-china-s-wedding-fever about the growing importance of expensive weddings to Chinese today and the large portion of their savings families will spend on the ceremony and in readying a new apartment for the newlyweds. What are the implications of China’s wedding fever on consumer electronics companies like LG? What is LG doing to cater to this key consumer group?

KK: LG is hard-core about newly-weds. We want all newly-weds to know that LG loves them, and will cater to all their needs.  And actually, this is our main communication concept for our 2008 National Day promotion series.
LG has found the life stage of getting married and setting up a family even more influential than house size on purchasing of home electronics and appliances. Usually getting married involves buying a house, and with that, everything that goes in the house: Side-by-Side refrigerator, 47 inch LCD TV, family-size washing machine with steam function, and in the coming months, we’ll see robot vacuum cleaners. 
 
CMR: Despite a global economic downturn, retail sales in China are still booming at a 22% growth clip this year.  Do you see the consumer market staying strong in China or do you see a slowdown here too like it has with the export sector with a strong RMB and inflation?

KK: The soft stock and housing markets have definitely influenced consumer demand in China, but we are positive about China’s economy and the Chinese government’s policies. On top of that, we are expecting huge expansion in the digital TV market. There are 159 million TV households in China, and they all must switch their analog TVs to digital by 2015, when the analog signal will be turned off. That is tremendous opportunity for LG and other digital TV manufacturers.
 
CMR: There has been talk of increasing nationalism among Chinese consumers as Chinese companies like Haier improve their quality.  Do you see this affecting your business?

KK: Especially after the earthquake & the Beijing Olympics, Chinese nationalism is riding high. And the confidence of Chinese companies like Haier is growing. As their products are distributed globally, the whole world will have to deal with this increased competition.

LG in China prefers to see the glass as half full. Being in one of the most competitive markets in the world keeps us in good shape, and strong. One of the tenets of our marketing is building bonds with the Chinese consumer. If they have an emotional bond with your brand, foreign-ness is not as bad as some people may think. To build these bonds, LG has the Go China! Program, and various charity works, community programs and our TVCs that appeal emotionally. 

CMR: For many retail products, the fight for market share has moved from first tier cities to second and third tier cities and beyond as CMR has written in BusinessWeek in “Beyond Beijing: Selling Across China” . How do you expect growth to take place regionally for LG?

KK: Second and third tier cities are certainly key focus areas for LG, and we understand that success in these markets in the future requires commitment and long-term investment today. LG in China already has 5 branch offices and 29 sales offices all across the country, so we are well placed to tap into regional growth. We are empowering our branch offices even more at the regional level to take advantage of local growth opportunities.  


CMR: Companies are using a wide range of media, and increasingly digital marketing, online advertising, and mobile marketing to reach their target consumer groups. Before joining LG, you ran Coke’s (KO) digital marketing division in China and Asia. Can you explain the role and importance of digital marketing in China? Are these media effective? Who do they target most effectively?

KK: Generally, Chinese marketers are addicted to GRPs. This is despite that China has 250M internet users, and is the world’s No.1 internet market by population. And when in comes to youth and professionals, almost all of them are online users. But the situation is slowly changing.

In China, most consumers are likely to consult other opinion leaders before making a big purchase, such as a new home appliance. Study after study shows that many of these people will do a net search before visiting the stores, visiting company websites or reading other previous consumer feedback on bbs or blogs. Often these consumers will know what they want before going to the store, many know as much as the promoters in the shops. So the next battleground is influencing consumers and opinion leaders online, but in a sincere way with no manipulation. 

We don’t think banner ads and microsites are the most effective way to go. We aim to converse with opinion leaders in a way that elicits a response for the general buying public. That is a challenge because what you do must have genuine value, as opposed to just eye balls and click-throughs. Going forward, we aim to put more than half of our marketing investment in interactive media.
 
CMR: What marketing communications strategies has LG found work best for reaching premium consumers? 

KK: Generally speaking, premium consumers are not a one group of people but several sub-groups depending on age and product group. Whoever buys a LG or Nokia (NOK) mobile phone might be different than one who buys an LG or Siemens (SI) refrigerator.  The thing that unites all of them is that they are time poor as China’s business sector gets more harried. So they, more than any other consumer group, they know how to filter out advertising aimed at them. The way to reach premium consumers is to do something of intrinsic value, so that they come to you. This is not the cheapest solution, but it is by far the most cost-effective solution.
 
CMR: Motorola has faced trouble in China after failing to produce a follow up to the successful Razr phone. What opportunities does the decline of Motorola (MOT) present for LG’s mobile phone divisions in China? 

KK: While Moto’s troubles are real, we don’t think the decline will be sustained, given Moto’s strength worldwide. So what LG has now is more like a window of opportunity in China to grab some market share for premium users. Again, LG is optimistic, as we have the structure and the capability to leverage on this opportunity.

Shaun Rein is the founder and managing director of the China Market Research Group (CMR), a market intelligence firm that helps companies make smarter decisions in China.

This interview first appeared as part of CMR’s interview series of thought leaders and senior executives in China in the CMR Business Quarterly. http://www.researchcmr.com/default.aspx