Posted on Harvard Business Review: September 17, 2010 9:31 AM
Foreign companies are finally wooing Chinese consumers either by designing products for them or by unveiling global brands first in the country. In September 2010, France's Hermes will open its first Shang Xia — which translates roughly as "from top to bottom" — store in Shanghai to mark the launch of a line of ready-to-wear clothing and crafts inspired by traditional Chinese motifs. Last month, America's Levi Strauss launched, with much fanfare, a global jeans brand, dENiZEN, in the same city. Earlier in the summer, General Motors and SAIC announced their plans to introduce a new automobile, Bao Jun ("prized horse"), for about RMB 50,000 ($7,400), which is lower than the price at which the Chevrolet sells in China.
Although welcome, the trend has started when confusion among Chinese consumers about brand origins is at its peak. On the one hand, Chinese companies have created the impression that they are foreign. For instance, 90% of respondents believe that Metersbonwe, a Chinese fast fashion company, is foreign, according to our most recent consumer survey. On the other hand, multinational companies have marketed brands cleverly so they can pass as Chinese. Seventy percent of consumers think that Danone is a local company, we found.
The value that Chinese consumers place on foreign brands depends on incomes as well as the nature of products. Affluent Chinese consumers prefer foreign brands. Fifty-two percent of consumers whose annual income exceeds RMB 250,000 ($36,765) told us they trust foreign brands more than Chinese ones while just 37% said they prefer the latter. Mainstream consumers used to prefer local brands; 57% of them told us in 2007 that they would buy local brands that matched the quality and price of foreign ones. However, by 2010, the figure had dropped to 45%. That's partly because Chinese consumers have developed more favorable attitudes to foreign brands when buying big-ticket items such as automobiles and consumer appliances.
Despite China's growing appetite for foreign brands, most multinational companies find it tough to develop and market products tailored to the needs of consumers there. The center of gravity for critical decisions remains outside the country even in the case of companies that have operated in China for a long time. Those who wield responsibility for brand stewardship and product development are not Chinese; have had limited exposure to the market; and maintain a strong bias towards their primary markets in the US and Europe.
Launching a China brand, which could later be sold in other emerging markets, will require giving executives in China a mandate that encompasses local research and development as well as localized marketing approaches. It will also require a deeper level of customization than most Western executives are either comfortable with or capable of. For example, China's best-selling luxury sedans, the Audi A6 and BMW 5-series, have tweaked their designs considerably to appeal to affluent Chinese customers who are driven by chauffeurs. The amenities include a longer wheelbase for extra legroom, back-seat entertainment systems, and extendable tray tables.
Many executives don't reailze that developing local products and brands lets newcomers bypass the long and cumbersome process of introducing existing products from home markets and then, incrementally tailoring them to the needs of Chinese consumers. It also has a positive rub-off on a foreign brand, signaling to the Chinese the multinational company's commitment to serving their needs. Indeed, that's what localization must be if foreign companies are to succeed in China.
Would you agree?