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How Global Companies Take Aim at China
By DAVID BARBOZA
The forwarded article was taken from New York Times at http://economix.blogs.nytimes.com/2012/06/18/how-global-companies-take-aim-at-china/?ref=china
Everyone is welcome to comment the article under the main thread.
In the book “All Business Is Local: Why Place Matters More Than Ever in a Global, Virtual World,” John A. Quelch makes the case that the push for globalization is obscuring the significance of local tastes, preferences and ways of life.Every global sale, he insists, is completed with a local decision. And so Mr. Quelch and his co-author, Katherine E. Jocz, offer suggestions about how marketers can localize, adapt and tailor their marketing decisions to improve their chances of selling their goods and services.
And for global companies, nowhere has this become more significant than in China. Global brands are opening new retail stores and building factories here, not just to export but to crack the domestic market in the face of increasingly competent local competitors.
Mr. Quelch, a former Harvard Business School professor who is now dean of the China Europe International Business School in Shanghai, agreed to answer a few questions about his book and his experience in advising companies doing business in China.
Q.
There has been a great deal of talk lately about multinational corporations in China and consumer brands like Apple, Yum Brands, General Motors and Procter & Gamble making huge inroads here. Have global consumer brands really succeeded in China?
A.
The brands that are doing well in China now have almost all been in China for decades. China is a highly competitive and complex market, especially for mainstream marketers. Luxury brands have it relatively easy; they just have to skim the cream in the major cities.
Q.
Several executives working at American consumer brands have said their China operations are less profitable than the United States or European operations. Why is that? Is it that they don’t yet have scale in China or is there some other reason?
A.
There are two explanations: the price competition from local brands of increasingly better quality with lower cost structures than the global brands plus the need to develop brand presence in less prosperous regions that are more price-sensitive. It’s also good practice for them not to brag about their China profits. That may attract the attention of local rivals and their friends in government.
Q.
Can you name names? Who’s really doing well in China, and who’s not doing so well, when it comes to global consumer brands?
A.
“Doing well” can mean short-term profit or building market share for long-term profitability. On both dimensions, Coca-Cola is strong in beverages, VW and Buick in autos, Caterpillar in construction equipment.
Retailing is inherently more local than most sectors. Global retail brands, such as Best Buy and Home Depot, have tripped up in China. Ikea, with more international experience and just a few, well-selected store locations, is doing better.
Q.
Why hasn’t China been able to develop its own global brands? Is it just a matter of time before China has home-grown companies like Sony or Samsung?
A.
For many Chinese brands, the large domestic market offers a more obvious opportunity than cracking foreign markets. A few Chinese consumer brands, Lenovo and Haier, are gaining global stature. But, in the end, Chinese auto and consumer electronics brands will conquer the world, just as Japanese and Korean brands have done. The image of China depends on success in these categories.
It also takes time to develop a global brand. For example, it took Samsung 15 years to shift from being an O.E.M. (original equipment manufacturing) supplier of cheap televisions to become the leading brand worldwide in consumer electronics. It also required a shift in leadership style from a short-term emphasis on quick profits to a longer-term vision to build a global brand.
Q.
You’ve been advising global brands for some years. On a more philosophical level, is a world dominated by a few global brands, say three to five in most categories, healthy? Is that really preferable?
A.
Thanks to freer trade and the Internet, consumers worldwide have more choice than ever. They can either pay a price premium for one or other global brand or take a local brand at a lower price. In almost all categories, the bulk of sales are of local brands, except when the economics of development and production demand global scale.
Q.
In your book, are you encouraging global brands to learn to adapt and localize, and to abandon the idea of creating standardized formulas? To what extent should a brand localize? Should McDonald’s, when in Beijing, trade in the golden arches for Chinese designs and should Louis Vuitton be marketing Chinese traditional dress, like the qipao?
A.
What we argue is that all great global brands are also great local brands. McDonald’s, for example, adapts its menus and store designs, appoints local business people as franchisees, relies on local raw ingredients and talent, gives to local community organizations. In a large market like China, the upside profit potential of getting the formula right locally is very attractive relative to the extra costs of adaptation.
Q.
Couldn’t one argue that in many countries the standardized version — or the highest quality product — wins, perhaps because it is proven elsewhere, like with Apple’s iPhone and the Mercedes-Benz?
A.
Consumers pay a premium for global brands because they’re perceived to be on the cutting edge of innovation. Newly rich consumers in growth markets will often — sensibly — buy brands that are strong in sophisticated, developed markets. That’s especially true of aspirational, luxury brands.
Q.
What is the most common pitfall for global brands entering China?
A.
The toughest challenge in China is building nationwide brand presence in the face of fragmented distribution. To be within an arm’s reach of desire, Coca-Cola has to be in 10 million points-of-purchase. That’s an unprecedented supply chain challenge.
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