By David DeChant
China continues to emerge on the world stage as an economic powerhouse, projected to be the world’s fourth largest economy within two years. U.S. companies, especially small to medium enterprises (SMEs), stand to benefit significantly from this growth, assuming that they are prepared to enter this highly competitive environment filled with considerable but manageable risks. Nearly 97 percent of all U.S. exports originate from SMEs—companies with fewer than 500 employees (International Trade Administration, 2006).
To enhance their chances of success, SME decision makers must understand Chinese cultures, business norms, and values, and be willing and able to adapt quickly to always-changing markets. This article should help you participate in the world’s fastest growing economy with its ever-increasing demands for premium quality goods and services. You will need to deal with the following questions:
• Can you conduct industry analysis, competitive insights, and cultural intelligence as China evolves, and as marketing communications information moves instantly to your customers via digital word of mouth?
• How will your analytics identify and measure qualitative insights? For example, why is a company like Starbucks successful in a country where everyone drinks gallons of tea and has for thousands of years? Starbucks’ China president says it has “the potential to become the biggest market…outside the U.S.,” noting that “the Starbucks experience” is creating a home away from home for those who have increasing disposable income and are looking for “more of a leisure lifestyle” (Doctoroff, 2005).
Chinese Market Challenges
One of the most critical issues facing U.S. companies in China is how to manage the shift into broader market segments beyond the cutthroat competitive affluent markets in the largest cities such as Beijing, Shanghai, and Guangdong. Rapidly rising demand is spreading to hundreds of second tier cities, as increasing numbers of consumers have Wharton School projected that more than half of affluent households will reside outside of the top 40 cities by the end of 2008 (Boston Consulting Group, 2006). Reaching them with extended marketing communications (marcom) activities, especially distribution, is the key to sustained growth. In several industries, distribution networks are considered intellectual property.
“China’s Untapped Second Cities” (Pohle, 2008) found that 300 cities with fewer than 6 million residents represent 53 percent of China’s urban population and 64 percent of gross domestic product, with the consumer market growing at 15 percent per year collectively. Nearly 60 percent of these second and third tier cities are conveniently located near coastal provinces with excellent transportation and communication systems.
The Chinese characters in figure 1 each represent the challenges within the Chinese market: identify sources, create knowledge, and analyze to provide the power to act in the market. After conducting comprehensive research and analysis, your China analytics toolkit must integrate crafting corporate strategies with cross-cultural awareness, and continually adapt your marketing mix as required in and across markets.
You need to train yourself and prepare C-level clients to deal with leadership and management styles and decision making processes where Chinese executives:
1. Believe that human relations, correct behavior, and social image are paramount.
2. Value humility and modesty.
3. Thrive in an authoritarian and Confucian culture.
You must reconcile these traditional norms with your own cultural perspective to develop a pragmatic culture of success that permeates your investigation. This also helps you understand the factual and interpretive knowledge and integrate it with the cultural awareness gained by China country desk officers in the U.S. Agriculture and Commerce Departments. The discipline of developing this process will challenge your cultural orientation and the underlying assumptions of your operations and marketing communications activities.
The diagrams in figure 2 define the known and unknown marketing elements and the elements that will require adaptation. Adaptation is the most critical concept, and your willingness to adapt your entire approach is a crucial attitude for sustainable growth. White-water rafting is an excellent analogy for strategic planning. Marketing communications activities and teamwork can be represented by the Chinese character Tao (a constant flow of information) and environs intelligence (surroundings + environment) to adjust to constantly and rapidly changing situations.
Your “Dragon” Analytics Toolkit defines and balances your immediate needs and helps you to acquire long-term competitive and cultural insights (see reference list). When integrating these and other ideas with the concepts of international marketing, be very aware of your reasoning processes, and consider how you will make judgments and reach conclusions. Enhance your skill sets to include cultural intelligence, marketing communications acumen, and strategic early warning to create a DEWS (Dragon Early Warning System).
Paying your DEWS (pun intended) will enhance your understanding of and ability to determine the success factors required to adjust and position your clients’ brand identity and Western approaches to marketing communication activities along the dynamic continuum between Chinese preferences and purchasing behaviors. The guiding principle for adaptation is integrating oneself into the new environs. We must constantly be aware of and correct our self reference criteria (SRC), the unconscious tendency to refer to one’s own cultural values and norms when observing and evaluating situations and activities in another cultural environ. (See Sidebar 1.)
Cultural Insights and International Marketing
From an international marketing perspective, here’s a working definition of culture:
Culture is the learned ways of group living, and the group’s and its members’ responses to various internal and external stimuli.
Your DEWS should identify which elements have the greatest influence on specific consumer attitudes and concomitant purchases.
The two types of cultural knowledge are factual and interpretive. Factual cultural knowledge is obvious and must be learned. Different meanings of color, tastes, and behaviors are facts that we can anticipate, analyze, and understand. Interpretive cultural knowledge is the ability to investigate, comprehend, and appreciate the unseen nuances of different norms, traits, beliefs, values, and patterns.
What’s critical to your investigation is to look below the waterline of the cultural iceberg to discover foundations and insights, such as the concept of self, how one survives and thrives, courtship, concepts of time, problem solving, work incentives, and communication patterns in social and business context, among others. Through this effort you are enhancing your competitive intelligence skill set and becoming a novice cultural anthropologist who observes behaviors without judgment.
Cultural imperatives and elements of cohesion are the Chinese bulwark against uncertainty. (See Sidebar 1.) They fuel a fiercely protective consumption that is future focused and stability minded, especially in the extended family household.
Clarity begins with answering insight questions like why is a man willing to spend a year’s income on a new car, and why do children love to learn school subjects on electronic devices rather than from standard books? Compelling Insights help resolve the conflicts of Chinese society – bold projection and anxious protection. Your deep understanding of these conflicts will help establish an empathetic bond with consumers, sowing the seeds to create and enhance long-term loyalty.
Another critical example, according to Tom Doctoroff, requires deep appreciation: modern Chinese women must balance three polarizing forces. Their culture mandates them to hold up half of the sky, nurture their family, and deal with a growing desire to be individualists (Doctoroff, 2005). How will you reach them as consumers?
Following up on the senior vice president’s comment about being “branded,” we are faced with a very challenging issue for analytics that address brand loyalty. This new behavioral concept competes directly with well-trained merchandisers offering less expensive brands. I recently posed these questions to a multibillion-dollar U.S. fruit trade association expanding in China:
• How has the erosion of branding preference and false labeling been addressed during lack of seasonal availability in the market?
• What are the success metrics of previous non-point of sale media campaigns, how were they achieved, and how were funds allocated to public relations and advertising?
• Are your brand vision and marketing communications campaign integrated, compelling, and consistent and relevant to consumers?
• Does its health component elegantly fuse the fruits’ differentiation and the buyers’ underlying needs?
• Does the message appeal to children, youth, and their mothers; and can it be heard above the noise of other campaigns?
• Is the campaign using digital/mobile communications?
There is tremendous confusion in the marketplace with the explosion of media genre, lifestyle choices, brand opportunities, and product selections. Your DEWS must address the confusion with brand strategies positioned accurately, presenting transparent integration of value-added propositions, selling points, and cultural insights to capture their mind share.
You will face numerous cross-cultural challenges, including the following:
• Building relationships and gaining trust
• Finding and keeping managerial and executive talent.
• Barbed-wire national and provincial bureaucracies.
• Lack of intellectual property rights protection.
• Cutthroat domestic and international competition.
• Dramatic and dynamic changes in the markets affecting your international strategic planning and marcom implementation.
China’s Information Structure
The consumer research industry is quickly developing in China as executives become willing to invest to obtain a better understanding of the numerous and highly differentiated markets. However, it is still fragmented, with a few large domestic players and a plethora of boutique operators. The value of premium-quality investigative market research is growing, especially as competition drastically intensifies. Chinese providers are becoming more systematic and professional—a trend that should continue.
Subtle cultural differences will most likely result in the interpretations of responses during interviews. For example, company representatives are more reluctant to speak negatively of their companies or positively of their competitors, and often make claims with no rational basis. Interviewers must have firsthand experience with primary research, be able to read between the cultural lines and geographical differences, ask questions that solicit concrete answers, and ystematically cross-check, validate, and triangulate. As Matt Fish wrote, “usually over 80% of credible data comes from primary research” (Fish, 2004).
Business-to-business research is well developed, with a wide range of very credible international and domestic providers who use well-established methods including focus groups, polling, and test-response. The performance of domestic companies is improving, and they are gaining a greater share of the market.
Digital Communications: The E-Dragon
China’s research and marketing communications environments are undergoing dramatic changes resulting from the mobile digital revolution, a dynamic force that connects the E-Dragon. Electronic or digital word-of-mouth is an incredibly powerful phenomenon and probably a disruptive innovation that the Western advertising industry is only beginning to understand in China.
Ogilvy’s China Digital Watch site covers a wide range of digital media: display advertising, search and keyword marketing, Internet video advertising, mobile Internet, music marketing, out-of-home display market, 2-D barcodes, online games, virtual worlds, gadgets, widgets, and just about anything else found incubating and growing at the convergence of marketing communications and technology.
In April, I searched on “competitive intelligence” in Baidu, Google’s top Chinese competitor, and received more than 75,000 hits, including most of SCIP’s books, tools, and research documents in the first hundred. As the Chinese continue to build and geographically expand this infrastructure, they will access instantly what the world offers.
Our First Steps on the Silk Road
As we take our first steps, we have been given an incredibly rare marketing gift: 10 to 12 million Chinese enter the ever-growing middle classes every year. Opportunities are vast for culturally sensitive marketers and competitive intelligence practitioners who discover qualitative insights about consumers’ desires. The Silk Road is open for those with courage, long-term investment, and respect for the cultural diversity of the Middle Kingdom. Be prepared to accept the China challenge!
David DeChant, Vision Quest Intelligence, LLC