Research paper on " Global Cultural Differences"

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China - Marketplace

Texas A&M-Commerce

In partial fulfillment of the requirements for MGT 380

Professor Lloyd M. Basham

April 22, 2018

Table of Contents

Abstract 3

Introduction 4

China’s Modern Consumers 5

International Business in China 6

Unsuccessful Marketing in China 7

Superstitions in China and Their Influence on Products and Marketing 8

Chinese Government Regulation 9

Counterfeit Products and Fraud in China 10

Foreign Investment in China 11

Chinese Calendar 13

E-Commerce in China 13

Conclusion 15

References 18

Appendices

Appendix A 22

Appendix B 23

Abstract

This paper discusses the Chinese marketplace, including: the demographic make-up of the consumer population in China, how international and domestic businesses choose to market to the Chinese consumer, international business in China, unsuccessful marketing campaigns in China, superstitious beliefs and their effect on certain products marketed in China, Chinese regulation and its affected on what is allowed to be marketed in China, the issue of fraudulent and counterfeit products in China, the decline of foreign investment in China and reasons why, the Chinese Calendar and how that affects sales, and finally e-commerce and mobile commerce in China. From this investigation of the Chinese market the paper seeks to provide a cursory knowledge of what a company or investor should know about Chinese markets before investing their money in China.

Introduction

The Chinese marketplace is a bit of a peculiar case for a number of reasons. Firstly, China is a vast country with many different dialects and cultural differences, and these different consumer groups have different behavior (“Chinese Consumer Behavior Overview”, 2017; “Understanding Chinese Consumers”, 2018). For several reasons, Chinese consumers have developed particular things they tend to look for over Western consumers. Because of a history of fraudulent products in China, for example, Chinese consumers desire secure platforms such as WeChat and Tmall with verified and safe products, and strong customer support. Chinese consumers have become more health conscious, and more focused on the quality and safety of products over price. Chinese consumers use the internet and in particular their phones to purchase products online moreso than in Western countries, and are doing so at an increasing rate. It is hard for international brands to compete with domestic ones in China on the topic of price, but international brands are certainly capable of competing with domestic Chinese brands when it comes to providing quality products that are also safe, which is more what the modern Chinese consumer wants. While China is a place of much opportunity for international businesses, the Chinese market is a highly competitive market, and beset with trademark squatters, fraudulent and counterfeit products, a government that has engaged in force tech transfers before allowing foreign companies access to their markets, a government which was found by a US investigation under the Trump administration to have instigated cybersecurity attacks on foreign companies for the purposes of stealing trade secrets and disrupting their operations, and pernicious government regulation. These reasons make it an easy market to fail in even though it is a market with huge potential and growth. These factors have contributed to falling foreign investment in China. While China has vowed to address these issues, many companies aren’t confident that China is serious about addressing these issues. By understanding these issues, and what exactly the modern Chinese consumer is looking for when purchasing a product, it will be easier to successfully market a product in the Chinese market.

China’s Modern Consumers

According to the Chinese Consumer Behavior Overview (2017) the average consumer in modern China is in their 20s and early 30s; they tend to buy things not only for themselves but also for their parents as well; they tend to spend more on entertainment than older generations and also are more likely to choose to shop online, with every 1.3 of 10 RMB being spent digitally. The article says that the majority of these consumers are in major cities such as Beijing; that Chinese consumers are increasingly more likely to pay more for what they perceive to be higher quality products ; the opinions of other consumers have increased in importance to Chinese consumers when choosing to purchase a product, as opposed to traditional advertisement. This group, in their 20s and early 30s, are projected to be the key consumer group in the next decade (“Understanding Chinese Consumers”, 2018). This group is expected to account for 35 percent of all consumer spending in China in the next five years (“The Chinese Consumer in 2017”, 2017). This is the generation under the now defunct “One-Child Policy”, so this generation of the Chinese population had more parental resources invested in them, and probably more money because of that as well. The Chinese consumer is becoming more health conscious, and more interested in sports and exercise (“The Chinese Consumer in 2017”, 2017). Newer generations are most accessible to advertisement through social media, and use the internet to influence their purchasing decisions.

Some more information about some of the changes in the consumer attitude of the Chinese civilian in the past couple of years can be seen from Appendix A.

International Business in China

Being an international company base outside of China can give some advantages in certain areas, sometimes for initially surprising reasons. Toys, for example, produced by non-domestic companies in China are more popular for parents to buy for their kids, because of perception that domestic toy products may be unsafe for their children (“Chinese Consumer Behavior Overview”, 2017). This distrust of at least lower-quality domestic products has impacted the food industry and other areas of the market, causing for example in the food industry an increased desire for healthier food and beverage choices in the market by the consumers (“Chinese Consumer Behavior Overview”, 2017).

Other benefits might be that it is easier for international companies to compete against local companies for middle-class, upper-class and luxury products because of Chinese consumers have becoming quality-conscience and less price-conscience in their buying decisions (“Chinese Consumer Behavior Overview”, 2017)., and in general Chinese consumers earn higher wages now, rising an average of 11 percent per year (Balding, C. 2017). China therefore has an increasing middle and upper class consumer base. An example of international company marketing to the middle and upper-class in China can be found in the automobile market, with the Toyota Camry and Toyota Corolla automobile products, both are which are in the top ten in the list of best-selling cars in China (Buckley, Peter & Horn, Sierk. 2009). Toyota’s luxury vehicle division, Lexus, is also performing quite well in China (Buckley, Peter & Horn, Sierk. 2009).

Another Japanese company, Shiseido, specializing in personal care and cosmetic products, also focused on the middle and upper class consumer market in China. It would obviously be difficult for most foreign companies to challenge the low prices of domestic products in China, so a better strategy is to develop higher end products marketed for the more well-off in China, an increasing demographic.

Unsuccessful Marketing in China

There are a number of reasons why an international brand might fail to market themselves well in China. Not only are the Chinese very different from the Western consumer, but international have tended to make quite a number of seemingly quite obvious faux pas with their marketing campaigns in China. Many prominent Western companies have used incorrectly translated Chinese, or used the Chinese language in a way that negatively affected their marketing campaigns. Pepsi, for example, had a slogan that was supposed to be “come alive with the Pepsi generation” but was actually translated to “Pepsi will bring your ancestors back to life” in Chinese (5 Marketing Translation Mistakes 2017). I found a surprising number of examples of this happening in China with Western companies. Companies should be careful to not misrepresent their message to the Chinese consumer. Another reason is that the purchasing habits of the Chinese consumer are changing in a way that might be detrimental to a large corporate conglomerate. Chinese consumers are becoming more concerned with expressing their individualism through niche-branding (Lam 2014). There is also fierce competition from domestic companies in China, which the Chinese government and private equity firms are very supportive of, meaning the localization of international brands is perhaps a good idea (Lam 2014). Companies should be wary of presenting their product in a traditional manner, and should potentially consider changing their approach in marketing. Perhaps some companies should consider a rebranding in the Chinese market. Adjustments to marketing strategies should be necessary in all cases.

Superstitions in China and Their Influence on Products and Marketing

Sometimes traditional superstitious beliefs in China have an effect on products on the market. An example might be the popular online video games League of Legends. In that game players play as “champions” which have their own look and abilities and so forth. One of the champions in the game, Karthus, an undead character, used to be appear somewhat as a clothed skeletal figure. Due to a Chinese superstition involving showing exposed bones and the remains of the dead, in the Chinese version of the game his face was censored in the artwork for the character. Later, when the art for the character was updated, all versions of the champion in China or otherwise depicted Karthus without any bones. Similar things have happened in other games with depictions of the undead, in particular skeletons, such as in the games World of Warcraft and Dota 2 (Custer, C. 2014). While a game can just change the models of certain characters, it would be much harder for something like the TV series The Walking Dead to deal with this sort of censorship.

Chinese Government Regulation

The Chinese population itself, or its customs, is however, not really to blame for the censorship of skeletons and other undead in media in China. Ghost Story is an example of a Chinese domestic title with depictions of skeletons, so such depictions themselves are evidently not strictly forbidden. Rather, the issue seems to stem from regulation for such products as provided by the Chinese Ministry of Culture, which forbids anything that “violates China’s policy or religion by promoting cults or superstitions”, and it seems that depictions of the undead seem to be interpreted as promoting superstitions (Custer, C. 2014). The censorship of skeletons in media in China could instead then be seen as more of a result of unreasonable censorship by the Chinese national government rather than the traditional superstitions themselves. Chinese regulation can cause a number of issues for companies marketing their products in China. Toyota, for example, was a company that was unable to get an early foot in the Chinese market due to the hindrance of Chinese regulation (Buckley, Peter & Horn, Sierk 2009). The company was still successfully able to market its products in China, but clearly Chinese regulation must be carefully observed before attempting to launch a product in China, as the regulation might be unexpectedly unreasonable and have devastating consequences for a smooth release in China.

Counterfeit Products and Fraud in China

It’s well known that China has a huge problem with counterfeit products, fraud, and a number of related other issues, such as trademark squatting, where people will register trademarks the force rightful owners to purchase back the trademarks from them, because China awards trademark rights to the party that files for them first (Plane, D., & Livingston, S. 2017). Companies might want to take that into account and secure the trademark for their product early in China to avoid this issue, even if the brand is not actively used in China. Xinhua news estimated in 2015 that over $45 billion in fraudulent or counterfeit products were available on Alibaba’s various website, including Tmall and Taobao (Plane, D., & Livingston, S. 2017). In fact, the same source says that, according to the China Consumers Association, in 2015, “only 37% of examined goods on Taobao were genuine”. Plane, D., & Livingston, S. (2017) suggest several preventive steps to combat these problems, including: choosing a suitable Chinese language mark, registering the trademark under as many sub-classes as possible- as in China you can have identical trademarks filed under different sub-classes, obtaining copyright registrations and careful monitoring of online databases and e-commerce to check for any products infringing on any company IP. We discussed earlier how this problem with counterfeit or fraudulent goods has caused some changes in Chinese consumer behavior where the authenticity and safety of a product has become increasingly important to Chinese consumers.

China’s issue with creating counterfeited products and stealing technology has even caused US President Trump to put a tariff on a variety of Chinese goods and services, stating that following an investigation it found that China helped “support and conduct cyberattacks on US companies to access trade secrets” (Clark, G., & Hagan, S. 2018). This would suggest that not only is China ignoring issues with IP and technology theft against foreign companies, but seemingly even actively encouraging it, or the one perpetrating it, which would suggest that China is probably not going to change its attitude very soon on these issues. If China feels that it is in a position to take advantage from this IP theft from international companies, it seems that it would be happy to do so. If a business were to setup a branch in China, it might do well to take extra security precautions, most specifically cybersecurity precautions, to make sure unwanted information about the company and its products is not stolen. Clark, G., & Hagan, S. (2018) from Bloomberg did however say that Chinese President Xi Jinping called for stricter enforcement against trademark and copyright infringement in 2017, and that Premier Li Keqiang promised to “protect the rights of foreigners investing in its economy”, so perhaps they’ll begin taking these issues more seriously, but the Chinese regime has had a history of saying a variety of things and doing a variety of other things. The CCP (Chinese Communist Party) is certainly not a very trustworthy source. This state of affairs makes doing business in China is very frustrating for companies as they will have to deal with competing fraudulent products in the market, and deal with a government which does not seem like it will address these issues any time soon.

Foreign Investment in China

Despite China being a country with huge economic potential now and in the future, foreign investment in China is on a decline. From the year 2008 to the year 2008 foreign direct invest grew at a rate of 10.8 percent per year, however since 2008 foreign investment has only increased at a rate of 4 percent per year (Balding, C. 2017). One of the reasons is definitely the state of affairs discussed above, where counterfeited products and intellectual property theft cost companies in China millions in potential profit. Another reason however is that the government of China has policies that are foreign unfriendly, and according to article published by Fortune in 2017, seemingly increasingly so. The article states that “80% of members of a US business lobby (in China)” agreed that “foreign companies are less welcome than in the past (in China)”, with most saying “they have little confidence in China’s vow to open its markets” (“Foreign Firms in China Say They Are Less Welcome Than in the Past”, 2017). The same article said however that companies would be willing to “significantly increase investment” if China fixed some of its discriminatory practices and foreign investment restrictions. China has made some steps in this direction. China reduced some of the market entry restrictions for foreign companies in 2017 in areas such as transport services and auditing and shortened the list of sectors foreign investors are not allowed to invest in (Wu, W. 2017). China also vowed to end forced tech transfer in 2018 in the manufacturing sector (Wu, W. 2018). Foreign companies were apparently forced by Chinese officials to reveal their some of their technology in order to gain access to Chinese markets (Wu, W. 2018), which is not something most companies would be willing to tolerate without the promise of substantial return. Foreign investment in China is, however, still on the decline. The Chinese government however is probably going to need to take more substantial action ameliorate the situation of falling foreign investment, if it truly wishes to address the issue. China clearly has a policy of putting domestic interests first, and while that’s certainly understandable, the country might need to be careful not to strain foreign relations in a way that is to counter-productive to that end. The country seems to have perhaps made the realization that some of these practices, such as forced tech transfer, is doing more damage to China’s economy than it is helping it.

Chinese Calendar

The Chinese Calendar is important to understand when it comes to business in China. Events such as the Spring Festival (Chinese New Year), Children’s Day, Autumn Moon Festival, Singles Day for e-commerce, and so forth play an impact on when Chinese consumers will spend money and what they are likely to spend it on. Valentine’s day for example is a day where products and services targeted at couples are likely to sell well, so marketing is done around that time of year to grab the attention of couples. China peculiarly has a Singles Day which is the direct opposite of Valentine’s and targets single men. It generated twice the revenue compared to Cyber Monday in the US in the last two years (“Understand the Chinese Consumer”, 2014). People are more likely to spend their money on certain products depending on the holiday, and after a holiday such as the Spring Festival, have more money in their pocket to spend because of a tradition associated with that holiday involving gifting money. When choosing when to market products and services, it would wise to keep these holidays in mind in order to achieve more effective marketing, along probably with other aspects of Chinese culture and tradition.

E-Commerce in China

In the US, recent companies like Amazon demonstrate the potential of e-commerce, being one of the top 10 fastest growing companies in the world (“100-fastest-growing-companies” 2018). As the world becomes more digitized, so will more money be spent online rather offline in traditional retail experiences. There are some very interesting aspects of the Chinese e-commerce markets that is very unlike the e-commerce markets in the Western world.

E-commerce is growing rapidly in China, and China has become the largest e-commerce market in the world (“eCommerce in China - the future is already here”, 2017). The same report said E-commerce totaled around 1.4 trillion yuan in the first quarter of 2017, up 32% from last year, and that mobile commerce was huge in China. In fact, Appendix B shows that around 64% of all e-commerce happened through a mobile device in China in Q4 2015. It’s interesting that mobile commerce is so big in China, but is less popular in the west. A reason for this is the use of WeChat Wallet. WeChat is the largest social network in China (“Why Mcommerce in China is the Future of Ecommerce”, 2018). The article says that companies can make a WeChat store linked to their offical account. and all interactions are handled through WeChat itself. The article also states the importance of QR codes in China, which are another reason mobile devices are the favored method of e-commerce in China. These QR codes will bring people to the WeChat store page on their mobile device, where they can purchase products using their WeChat wallet. These innovations in the Chinese market make it easy to understand how e-commerce and mobile commerce are so popular there. It is very easy for the Chinese consumer to see a product they would like to buy on a billboard or something, scan the QR code with their phone, be brought to a specialized WeChat store page provided by the company and easily make a purchase. A company wishing to do business in China would do well to have a WeChat account, with a specialized store page. In addition, the official Chinese webpage for a company should be easily accessible for mobile users and optimized for Chinese characters. It should look official, otherwise Chinese consumers, who have to deal with reality of counterfeit products and fraudulent businesses might feel unsafe and decide not to buy the product. In offline advertisements, companies should take advantage of the Chinese consumer’s proclivity for QR codes to help users easily access their content.

In China, T-Mall is the largest digital marketplace (“eCommerce in China - the future is already here”, 2017), and accounts for about half of all e-commerce sales, making it analogous to Amazon for its size here in the United States, although Amazon also operates in China, but is a much smaller player there than other domestic players. Unlike Amazon, Tmall has a similar system to the WeChat store pages discussed where companies can customize the user experience and offer other products to the user through their store page, in a similar sort of fashion to an actual mall. This suggests that it is more important that having engaging web design is more important for companies operating in China over companies operating in the West. In the West, the product might be listed on Amazon or wherever and web design in less important, but in China, providing an enticing and appropriate virtual experience seems to be of a much higher priority.

Conclusion

There are many aspect and challenges to consider when marketing in China. It is a marketplace that differs from typical Western markets for a variety of reasons, not only because of its location, culture, and consumer behaviors which is in contrast to that of Western markets, but a number of unique challenges and circumstances associated with the country: The country’s widespread and diverse demographics, its rapidly transforming and growing middle and upper-class consumer base, its oppressive government and its regulations, the same government’s disinterest in dealing with counterfeit, fraudulent products, and intellectual property theft, its unique set of holidays, and the countries interest in digital market experiences. With a growing middle and upper-class consumer base the Chinese market is a market with some great potential for international businesses, who should have an easier time competing for a consumer base that has more money, and who have a higher focus on quality and safety compared to previous generations. However, “discriminatory” practices against foreign companies by the Chinese government, such as forced technology transfers, along with the problem of intellectual property theft seem to be discouraging foreign investment in China, and foreign investment in China has been decreasing even though the Chinese market is a market with massive potential. While China has vowed to deal with these issues, many aren’t convinced. China seems to have done away with some of its more egregious practices, such as forced tech transfer, but it doesn’t seem to be fully willing to commit to giving up its total control. Companies should be prepared to not only adapt to China’s unique consumer behaviors, but to also deal with the challenges of regulation, poorly thought-out trademark laws, poorly thought-out laws in general, such as the law that has been used to prohibit foreign companies from displaying boned variations of the undead, a country that is willing to steal from and stifle foreign companies for the sake of what it perceives as Chinese interests, and a country rife with trademark and copyright infringers seeking to steal intellectual property and take away potential profit.

References

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http://fortune.com/100-fastest-growing-companies

Balding, C. (2017, August 30). China Realizes It Needs Foreign Companies. Bloomberg. Retrieved April 22, 2018, from bloomberg.com

Buckley, Peter & Horn, Sierk. (2009). Japanese Multinational Enterprises in China: Successful Adaptation of Marketing Strategies. Long Range Planning - LONG RANGE PLANN. 42. 495-517.

Chinese Consumer Behavior Overview. (2017, May 22). Retrieved April 18, 2018, from https://chozan.co/2017/04/18/chinese-consumer-behavior-overview/

Clark, G., & Hagan, S. (2018, March 22). What’s Intellectual Property and Does China Steal It? Bloomberg. Retrieved April 22, 2018, from bloomberg.com

Custer, C. (2014, July 1). China doesn’t censor skeletons. Retrieved April 19, 2018, from https://www.techinasia.com/china-doesnt-censor-skeletons-the-truth-about-game-censorship-in-the-middle-kingdom

eCommerce in China - the future is already here. (2017). Retrieved April 21, 2018, from https://www.pwccn.com/en/retail-and-consumer/publications/total-retail-2017-china/total-retail-survey-2017-china-cut.pdf

Lam, A. (2014, November 12). 7 reasons why big international brands fail in China. Retrieved April 20, 2018, from http://www.marketing-interactive.com/7-reasons-why-big-international-brands-fail-in-china/

Plane, D., & Livingston, S. (2017, May 18). Procedures and strategies for anti-counterfeiting: China. Retrieved April 21, 2018, from http://www.worldtrademarkreview.com/Intelligence/Anti-counterfeiting/2017/Country-chapters/China

Foreign Firms in China Say They Are Less Welcome Than in the Past. Fortune. (2017, January 18). Retrieved April 22, 2018, from fortune.com

The Chinese Consumer in 2017: The Lifestyle Upgrade. (2017, October 13). Retrieved April 22, 2018, from https://www.credit-suisse.com/corporate/en/articles/news-and-expertise/the-chinese-consumer-in-2017-the-lifestyle-upgrade-201710.html

Understanding Chinese Consumers. (2018, April 20). Retrieved April 18, 2018, from https://www.chinabusinessreview.com/understanding-chinese-consumers/

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http://go.channeladvisor.com/rs/485-FSD-368/images/us-ebook-understanding-chinese-consumer.pdf

Wu, W. (2018, March 21). China vows to end forced tech transfers in manufacturing sector. South China Morning Post. Retrieved April 22, 2018, from scmp.com

Wu, W. (2017, July 17). Foreign companies dissatisfied with China’s slow progress in opening up investment markets. South China Morning Post. Retrieved April 22, 2018, from scmp.com

Why Mcommerce in China is the Future of ECommerce. (2018, February 24). Retrieved April 21, 2018, from https://www.marketingtochina.com/mcommerce-china-future-ecommerce/

Appendices

Appendix A

image1.png Chinese Consumer Behavior Overview (2017)

Appendix B

image2.png