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Bloomberg News is reporting that KFC is defeating all other fast food brands for dominance in China. By getting in early, tailoring its menu to local tastes (hamburgers are foreign, while fried chicken is well accepted), and hiring local decision makers, KFC stores in China contribute 36% of parent company Yum’s global operating profit.
Bloomberg even reports that “Colonel Harland Sanders’s image is a far more common sight in many Chinese cities than that of Mao.”
Nothing breeds imitators like success—especially in China. When I last visited China, many cities boasted a local look-alike contender. One wag has suggested this fake Chinese Col. Sanders might just be the famous General Tsao. . .
(Note: I know that KFC has updated their Col. Sanders logo, however, the Chinese copy is of the old logo, so I use the old one here for side-by-side comparison.)
ZD Net is reporting today that China has censored some 60 thousand Websites (really thought it would be more) and over 350 million pages and is “proud of it”. MerriamAssociates.com is honored to be one of them.
The head of the State Council Information Office, Wang Chen says there is no stopping its campaign against offensive material (was it a tasteless picture or two, the nude Twitter followers post, or the frank commentary about branding and China on this site that got it banned?) Chen claims to have gone through 1.79 million websites, deleting 350 million pages and to have rounded up 4,965 people in China, “1,332 of whom received ‘criminal punishment’ with 58 jailed for five years or more.” They can’t get to me here in the US, thankfully, even though I posted two Bimboarticles.
Chinese officials are foolish to be proud of this achievement in censorship, not because it is counter to our own particular American values (which are not relevant in China), but because they hobble China’s long-term capacity as an economic and political power. In a Web 3.0 world where “information wants to be free” and where viral communication, social media, open source sharing, crowd-sourcing and community-powered technology and process improvements are driving innovation and growth, censorship is a dead weight for China. China’s huge production engine will stay subservient to the world’s innovator brands as long as the Chinese government prevents the free flow of information that could empower brilliant Chinese minds and make future leaders.
Three years ago, Christmas shoppers were rocked by recalls of some of kids’ most beloved toys from most trusted brands. We talked to consumers back then, but wondered, What is the long-term impact of those recalls on consumer opinion, brands, and “made in China?” Merriam Associates went out Christmas Eve to put that question to shoppers:
Antifreeze in toothpaste, poisoned pet food, lead in millions of Fisher-Price toys, and now melamine in babys’ milk–the list of potentially harmful products from China is growing. And that means certain harm to some of America’s leading brands.
The Fisher-Price recall is expected to cost many millions in administration alone. That is only the tip of the iceberg. The long-term damage to the brand is incalculable as mothers nationwide root out all toys with the “Made in China” label. You can bet people will think twice when buying toys for Christmas. It is one thing when no-name widgets from The Dollar Store get recalled. It is quite another when they come from an icon of the toy industry. Who can you trust if you cannot trust Fisher-Price?
Fisher-Price and parent Mattel have no one to blame but themselves. China, despite tremendous modernization, still struggles with integration into the global business community, particularly when it comes to standards and practices. Far too much emphasis on profit (by both Chinese manufacturers and American brand marketers) combines with China’s rather different take on ethics.
The business environment in China is nothing like that of the U.S. The impartial rule of law does not really exist. Standards, as we know them, are weak to non-existent. The pressure to cut corners is as tempting as it is easy. Chinese feel a sense of urgency to make money now while they can. They know from experience that the window of opportunity could slam shut in an instant. Furthermore, Chinese suppliers also know that they hold the power over American brand importers. Often, they get paid before the goods leave the factory. By the time brand owners know they have a problem, it is too late. They have no financial leverage, no legal recourse. Suppliers can go out of business and reopen under a new name in an instant. Finding a new supplier is risky and time-consuming.
And then there are the vastly different cultural norms. In the West, your word is your bond. Brand reputation and long-term business relationships are highly valued and depend on trust. In China, yes does not always mean yes. A contract isn’t the final word–signing it means now negotiations can start. The trust requisite to American business (Enron-like scandals, notwithstanding) is less straightforward in a culture that values “face” over “truth”. What westerners see as dishonest, Chinese see as avoiding embarrassment or disappointment. For them, trust is earned over time and can’t be built with looking someone straight in their eyes and shaking their hands.
These business and cultural differences are tragically illustrated in the Fisher-Price case. Chinese manufacturer Lee Der used defective paint in the manufacturing of the toys. When Associated Press reporters tried to contact the company, they first met denial. They were told that the company only made boxes, not toys. In another call, were told company had gone bankrupt several years ago. The company then shifted the blame to a “black hearted” paint supplier. When the scandal was too big for these “face saving” measures, the owner of Lee Der hung himself in his own factory. What is most sad is that Mattel did not treat Lee Der as a partner. When trouble started, Mattel did not stand by Lee Der and own the problem–instead, Mattel pointed the blame. My subsequent interviews with American consumers have them pointing the blame straight at Mattel.
Ultimately, none of this matters. Not the business pressures, the cultural differences or the accusations. The buck needs to stop with American brand marketers. Unilever (Hills and Science Diet pet food), Procter & Gamble (Iams pet food), Walmart (Old Roy dog food), Best Buy (Insignia DVD players), Target (Triax bikes), Disney (Baby Einstein sleepwear), and Sears (Craftsman saws) are all major global brands that have sold recalled Chinese-made products. Pointing the finger at Chinese profiteering or deceit does not relieve American brands of their fundamental responsibility to the people who buy their products. The almost irresistible appeal of cheap manufacturing in China comes at a price.
When American companies put their name on a product, no matter who makes it or how, they are asking consumers to trust. China will not change fast enough to end the potential to manufacture and export substandard goods. It falls thus to the American brand marketers to ensure safety and quality. To merely give a specification to a manufacturer and hope it will be met is to abdicate the responsibility inherent in trust.
Brands that duck this basic responsibility do so at their own peril. Expensive recalls will be the least of their problems. Ultimately American consumers will police and punish these brands. Trusted American brands and China as a manufacturing center will both lose. Mattel and Fisher-Price are getting hit hard today. They are surely not alone. With 80% of U.S. toys made in China, it is extremely likely that other brands are going to take a fall, too. Even homey sounding brands like Vermont Teddy Bear are not safe if the buttons of their eyes are sourced from China. Time will tell if a brand with a “Made in China” label pretty much just says “Don’t Buy”.
Originally published exclusively By Lisa Merriam in Apparel Magazine December, 2006
If there is one thing that Western apparel companies should know about China, it is this: Brand sells.
Understanding the role brands play in China is important for anyone doing business there, and it is especially crucial for companies trying to satisfy the enormous appetite there for Western apparel.
To mainland Chinese consumers, brands are about much more than mere commercial communication. They are a political and economic phenomenon symbolizing China’s rising prosperity. For the average Chinese consumer, owning a Western brand means owning a piece of their country’s growing affluence.
Brands, particularly those from the West, are closely linked to national pride. The Chinese see the country’s economic boom as allowing their country to take its rightful place of power and prestige in the world. Nothing is more emblematic of that pride and success than brands.
The free market system is still very new in China. Even young consumers can remember a time when there were no brands or imports and shelves were mostly empty. Clothing choices were limited to Mao suits, the unisex blue tunics of the proletariat, or shapeless and dreary garments from the state department store.
Today, the growing middle class can access a dizzying array of choices and a level of quality once only dreamed of. Even the very poor can at least see these goods and aspire to own them.
Western brands once were known only through furtive looks at smuggled magazines or glimpses of the elite few who had traveled to the West. They still have tremendous cachet. They symbolize the wealth that formerly was out of reach, and they represent the rewards that now can be attained. To wear a Western brand today is to tell everyone you are prosperous and worthy of respect. You have arrived.
But the political and economic aspects of brands are only part of their power. Brands play into a powerful and longstanding cultural dynamic in China, where reputation is everything. The good things in life traditionally come from connections.
Business is built through knowing people and being recommended by them. Presentations to prospective clients include a long list of companies you’ve worked for or are associated with. An earnest young man gets a good job through the introduction by his uncle’s friend. Your reputation and the recommendation of a trusted source is what opens doors.
In the Chinese marketplace, brand plays that role. Brand is a symbol and proxy of reputation. It is the stamp of approval that opens the door. It is often the most important influence on apparel-buying decisions.
Of course, in Western markets, too, people consider brand when making apparel-buying decisions. But at the same time, they consider need, fit, styling and other specifications. They won’t buy a Polo shirt if they don’t need one – particularly if they don’t need an orange one. In China, it doesn’t matter. They’ll buy the shirt, irrespective of color, if it has the “right” brand.
A friend recently took me clothes shopping in China. Through her knowledge of the market, she kept abreast of a constantly changing array of temporary shops (actually stalls) selling brand-name merchandise. During our visit, I found an assortment of shops with no theme, just racks and racks of random merchandise. There was clothing for all seasons, all styles – men’s mixed with women’s and children’s. Evening gowns were next to parkas and running shorts. About the only constant was that they all featured prominent Western brands: Ferragamo here, Nautica there, with a little Gymboree thrown in. There was no sense of color or style – just ‘brand, brand, brand,’ the more prominent the better.
Even faux brands sell. One Chinese businessman cited the practice of registering Western-sounding names in European countries and sewing those names into apparel under the pretense that it was “from Paris.” You can see such “brands” on the tables of street vendors – clothing with names like Bellvilles and Jack & Jones. The Western identity gives them cachet.
For apparel companies, China’s love of Western brands is a huge leg up. But it won’t always be so. As the Chinese become more sophisticated, so too will their estimation of brands. Cultural dynamics will always make brand important, but it will eventually have to stand for real and relevant values.
Savvy marketers will begin telling their story in China now, while the market is paying attention. Start differentiating now to be in a position to retain market share and margin in the future.
China Business News interview with Lisa Merriam, originally published October, 2006
Question: What do the developing countries get from globalization in the economic and social way?
Answer: Trade can be short-term disruptive for the societies of both sides, in this case both the developed nations that multinationals call home and for developing nations. It encourages specialization, drives improvements in quality, and forces maximum efficiency in costs and prices. But, at the same time, there are benefits for both sides. For developing nations, globalization (global trade and commerce) brings in new ideas, new capital, new jobs, and over time, an increased standard of living.
Question:What kind of problems do those multinational corporations meet frequently?
Answer: Multinationals do run into problems if they are not aware of “brand” in its larger sense.. Most companies believe they are doing their job if they make great products and have strong brands. For multinationals, that is no longer enough. A number of multinationals are now bigger in terms of revenue than the GDP of entire nations. Multinational brands thus have a bigger role beyond product and beyond company, extending to social, political, and economic considerations. The mistake they make is not thinking about these issues until a crisis forces them to do so. By that time, the damage is done.
Question: Could those problems be avoided or solved exactly?
Answer: Yes, these problems can be avoided or minimized—and also solved. First, though, companies need to realize where they could run into trouble. Then, they need to put plans into place and act on those plans. Considering social, political and economic impacts is indeed an expansion on the concept of brand. Making the mistake of thinking of a brand in terms of a product, a name, a logo, and maybe some advertising is is to misunderstand the very nature of brand. Brand is really reputation. Product/name/logo/advertising certainly play a role in reputation, but so too does how companies source raw materials, how they treat their employees, how they behave in markets, etc. Multinationals that do best (both in terms of generating sales and profit, and in serving society), are led by people who understand brand is reputation. They manage that reputation deliberately and actively at the very top. “Job one” of a good CEO is manage brand through every other function and corporate activity.”
Question: Recently, some countries started to suspect the developing of multinational corporations and funds in their own land — some even started an anti-globalization movement. Could this situation become worse? Why?
Answer: Anti-globalization forces have been active in recent years—most visibly since the 1999 riots in Seattle. Most of these activists have other agendas and are using globalization as the vehicle to protest for any number of causes. Books, blogs, television shows and other media have been produced to decry globalization. While it is certainly possible to find cases of companies behaving badly, on the whole, globalization has benefited people. Looking at countries that prosper the most, you will see that they all actively engage in and encourage global commerce. The history of economic development is a story of how standards of living and national wealth have increased across the board. Look at the world’s poorest nations and you will find nations that don’t engage in free and widespread trade. The anti-globalization movement has already lost steam since 1999. The “protester” population segment has largely moved on to other issues such as protesting the war in Iraq. Companies once the target of anti-globalization forces have changed policies, behaviors and communications to address many of the complaints. And the disruptions that accompany any large-scale change in trading are already being absorbed by the many of the economies and societies in question.
Ms. Merriam adds:
I would like to contribute an additional thought. The idea of tying economics to nations may eventually become obsolete. Nations are political entities and economics transcends nations. As humans travel more, communicate more and trade more, the concept of nation economic concept may become irrelevant. Consider an industry where globalization has been under way for decades. It used to be that a Volkswagen was a ‘German car.’ No more. It may be designed in Germany—but with significant input from the U.K. Parts might be made of Chinese steel tooled in Canada and finished in Chicago. The whole thing might be shipped via a Greek company to be assembled in India and sold by a dealer network in Mexico. So is it really a ‘German car?’ Is Germany the economic beneficiary—or are dozens of nations economic beneficiaries? The automotive industry exemplifies both the initial disruptions and end game benefits of globalization. Are there fewer steel jobs in Youngstown, Ohio? Yes. Are fewer cars made in Detroit? Yes. But there are more cars made and better cars made, and, in constant dollars, cheaper cars made. More car jobs have been created around the world. Now one town and one country doesn’t corner all the benefits—those benefits are spread around the globe. As globalization continues, and it may be an unstoppable force, products, companies and profits may no longer be things of nations, making the developing nation vs. multinational issue moot or, at the very least, the wrong way to frame the debate.
Originally published By Lisa Merriam in Sporting Goods Business magazine
The opportunity for marketing sporting goods in China is formidable—in both senses of the word. Yes, the market is awesome in size, but it is also intimidating in its challenges. Companies that bring American attitudes towards sports marketing in China will resoundingly fail.
The Chinese have dramatically different values, expectations and understanding. A few points illustrate how easy it is to run off course.
1. The Chinese don’t want to “be like Mike”—or even to be like Yao Ming. Sports play almost no role in Chinese culture. Newspapers don’t have sports sections. Kids don’t clamor to play sports in school or idolize the faces on Wheaties boxes. There is no caste of athletic millionaires. The Chinese have nothing like the NFL, the NBA, or MLB. Sport is for the “dumb kids” as it takes away from education. Education and hard work are the honorable ways to success. True, China produces fine athletes and dominates many Olympic sports, but that success does not translate into the kind of sports-centric culture we experience in the U.S.
2. Concepts like the “thrill of victory” or the “joy of healthy competition” fall flat in China. Even before Communism, the stature of the individual was subordinate to the group, usually the family. Standing out, winning, besting others, is seen as lacking in humility and vainglorious. Competition is not something that is sought. China is a highly competitive and many people feel vulnerable. Chinese history, even very recent history, has taught many Chinese that life is full of risk and that prosperity can disappear in an instant. Security and stability are valued over standing out.
3. The importance of humility can’t be overestimated. Bragging is a cultural no-no. Superlatives are to be avoided unless you want to appear untrustworthy, arrogant and presumptuous—particularly if you are a foreign brand. A restaurant in Shanghai claims “very good” food, not “the best”. What earns points are straightforward, humble, locally and personally relevant messages and promises.
4. The Olympic Games are a minefield. In China, sport is a secondary or tertiary consideration. To most Chinese the games are about demonstrating Chinese capabilities to the world and boosting the economy. You’ll find a significant amount of “Olympic fatigue”. The anticipation has been long and people just want to get on with it already. Tying marketing to the Games, with partners, sponsors, suppliers and licensees at the international, host city, national, and team level means hundreds of companies can claim some Olympics connection. Clutter is inevitable. Beware of trying guerrilla tactics in China. The Beijing Organizing Committee and the government will not be lenient if they perceive you claiming false connection to the event.
5. Image ads and conceptual ads don’t work. The Chinese are relatively new consumers and thus have a different level of sophistication in their expectations and understanding of commercial messages. Be mindful that you don’t disorient or confuse your audience. Government regulation can be a minefield, too. What seems like a neat concept to you might be deemed deceptive by the government. This is a country that banned the movie Babe because it infers incorrectly that pigs can talk.
6. You are going to run up against stiff Chinese competition. In 2004, the government launched a Brands Promotion Committee to help companies move toward the goal of building internationally valued brands. It is official government policy that Chinese companies create brands. Branding is not well understood in China, but it is only a matter of time before Chinese marketers “get it”. Meanwhile, you’ll still have to battle their bargain basement prices, inside edge in distribution, and their local knowledge of how to work the ropes of business.
7. The truth of each of the above points varies dramatically across China. The young, Westernized strivers in Shanghai are a completely different breed from middle aged peasants in the countryside. Mass marketing in China is impossible due to affect demographic differences such as age, economic status, and geographical location on attitudes and behavior.
All obstacles aside, China still represents a huge opportunity for Western sports brands, an opportunity that can’t be ignored. With 1.3 billion people, many of whom are rapidly achieving middle class status with discretionary cash to spend for the first time, it dwarfs the United States and Europe together.
But you can’t walk in with your tried and true Western marketing strategies and messages and hope to succeed in Beijing, Shanghai or Urumqi. You’ll need reliable, local mainland Chinese marketing partners. A Hong Kong or Taipei ad agency will do you about as much good as a Greek one. Test your brand messages rigorously with all relevant demographic groups. What sounds and looks amazing to you is just as likely to fall flat before Chinese consumers. Maybe you’ll be lucky and find your brand translates well. Coca-Cola means “makes mouth happy”. And then again, maybe you won’t. In Chinese, Google sounds like “old dog”.