Mar 26, 2012 No Comments by esomar “One of the most remarkable transformations in human history”
John A. Quelch is distinguished professor of international management, vice president and dean at the China Europe International Business School. His research focus is on global marketing and branding in emerging and developed markets. He is the author, co-author or editor of twenty-five books; his latest, All Business is Local: Why Place Matters More Than Ever in the Global, Virtual World, was published by Portfolio in February 2012.
John Quelch has three abiding memories of his first visit to China in 1981: he couldn’t cope with the food; there was nothing to buy; and he was followed everywhere by “a very nice young man in a brown suit.” Reflecting on the changes since then, he talked to Seán Meehan about “one of the most remarkable transformations in human history,” and what it means for the practice of marketing in China.
How does Guanxi impact marketing?
Guanxi, which is loosely related to our concept of networking, is very well developed. People can have very effective guanxi at a personal level. They invest in and cultivate networks of relationships that support their activities and help them progress in society. Guanxi depends on interpersonal trust. Although someone with whom you have this personal guanxi would not rip you off, this doesn’t come into play much because you are dealing with such a vast and highly mobile population. The level of anonymity, combined with a loosely regulated environment, is conducive to short term commercialism, opportunism and destructive entrepreneurship. Alas, this is in abundance.
Recently, a prominent upmarket Shanghai furniture retailer, Da Vinci, was discredited. It was revealed on the internet that its merchandise, rather than being “Made in Italy” as its labelling and marketing purported, much of its furniture was in fact made in southern China, shipped to Italy, and then reimported to China. Consumers, upset they had been ripped-off, protested, and the company brand franchise was completely undermined.
What does this mean for brands?
Brands are very significant, and their role is well understood in China. In a loosely regulated environment, the consumer needs to trust the person from whom they buy, but often this isn’t practical. The level of risk of making a purchasing error is such that the need for trust is addressed by brands.
Due to the level of social mobility, brands in China are even more important symbolically than elsewhere. Accordingly, Chinese will spend proportionally more than a westerner on clothes and accessories that are visible outside the home. If I don’t know you, one of the few ways in which I can appraise you is according to the brands you are associated with. Brands are symbols of face-value credibility, which can then be tested in conversations or transactions.
The need for branding is, thus, well understood. As the huge investments in both the Bejing Olympics and the Shanghai Expo attest, even the government of China understands the need to develop its reputation, its brand, on the international stage. Less well understood, though, is the relentless and serious long-term commitment necessary to build a brand, as opposed to creating a short-term splash.
Do you think that truly global brands will emerge from China?
Already we can see the likes of Lenovo, Haier and Huawei having great success on the international stage. We’ll have to wait and see how these develop. I suspect we haven’t yet seen or heard of the first Chinese global brand. I’d encourage any Chinese company aiming to be ‘global’ to avoid overplaying their Chinese-ness, especially using this in their product, service or company name. To date, with rare exceptions, global brands don’t carry their country of origin in the brand name. Global, after all, is global. In truth, most Chinese companies, and even multinational companies operating here, still need to figure out how to achieve leading positions in their markets across all of China.
What’s the key to success across China, and who is leading the way?
We can’t forget or minimise the fact that China is vast. It isn’t helpful to think of it as one market. The extent of diversity is significant and, as the Chinese say, “The hills are high and the Emperor is far away.”
There are no national brands in China. Nothing is distributed nationwide. Probably the most widely known local brands are Wahaha (juice, Hangzhou) and Master Kong (noodles, Taiwan). They each have around 60 -70% of all commodity volume coverage in China. Of the international players, Coca-Cola, YUM brands (KFC), and AB InBev are all doing well. In all these cases, distribution is their critical success factor. A good sales-force management system for facilitating and motivating the sales force organisations of independent distributors is also key. An additional card some international companies have been able to play is to share expertise with government, national and local. For example, Nestle and others have been very active behind the scenes helping shape government policy on food safety. It is clear that the more one ventures west, and the more third- and fourth-tier cities come into play, the more one faces a frontier mentality and must pay close attention to local government relations.
How can market researchers best cope with this level of diversity and operational complexity?
As with many emerging economies, the extent and reliability of consumer data is less than we enjoy in the developed world. What that usually means for multinational companies is, first, a slight need to emphasise qualitative and focus-group research, so that the depth of insight into the cultural aspects of buying or using a product or service can be thoroughly explored. Secondly, it requires attention to the digital sources of research information, since China is very much online, particularly via mobile devices. Thirdly, the disparity in what passes for good practice between eastern China and what’s available in the west of the country is quite substantial. There could be an inherent bias in play because you feel you have more information in the east than in the west, and so you are more reluctant to invest in the west where arguably there are more opportunities.
I hear some people say that in China you don’t really have time to do market research, because by the time you finish the market has shifted. This is overstating the challenge, which is, again, coming to terms with the diversity and complexity at a granular level of such a vast country. Take the example of sales of sports equipment, tennis in particular. The ATP tournaments visit Bejing and Shanghai in very quick succession. These highly developed cities are a mere two hours apart by air. Yet, as the sporting brand Wilson discovered, the uptick in sales during and after the tournaments was dramatically different in each city, with Bejing leading the way. Executives attributed the difference to the locals in Bejing being more sports-active, and less self-conscious sweating and being seen to sweat, than their fashion-oriented Shanghai counterparts.
Finally, John, what has surprised you about China since taking up your role as dean of CEIBS?
As someone who is not unused to putting in the occasional long day, I am rather amazed at the relentless pace here. There are no weekends. I guess you don’t achieve annual GDP growth of 10% by working a 35 hour, 5 day week. A critical question is the degree to which the growth rate can be sustained from a human psychology point of view. Many Chinese work non-stop because this is a unique moment in history, and they don’t know how long it will last. They believe they must make the most of the opportunity while they have a chance. The reality is that economic forces will provide some level of counterbalance. The GDP growth rate this year will most likely slow, given conditions around the world and here. But it is a long-term issue. Will many Chinese who have done well want to live more and work less?
John A. Quelch is distinguished professor of international management, vice president and dean at the China Europe International Business School, China
Seán Meehan is Martin Hilti professor of marketing at IMD, Switzerland