HOW TO FAIL IN CHINA

A blast from the past.

I rediscovered this piece the other day. It was written in 1998, for a Conference in Hong Kong I’d been asked to speak at. The brief was to outline some ‘strategies for success in China' but instead I decided to take a contrarian viewpoint.

It was never delivered as I got caught up in a new business pitch for Saatchi & Saatchi in China. (Which we won, thanks for asking).

Reading it again after so many years, I was surprised how much of it is still relevant. 

I’ve made a few small changes, and added a postscript.  But the sad truth is that some very big international companies are still making these same errors in China.

Maybe you’ve seen them too?   

HOW TO FAIL IN CHINA

There are lots of ways to succeed in China. Too many to list, or even talk about.

But there are equally many ways to fail.  And that’s what I’d like to talk about.

Why? Because we learn a lot by getting things wrong. 

So here’s an opportunity to learn from the mistakes others have made before you …

1. “Who wants to go to China?”

Getting the right result in China largely depends on the calibre of the people you send to run your operations there.

And all too often they’re not the best you’ve got - they’re just the best you can get to go there.

OK, it’s not always seen as a plum posting. And it’s not all roses living there (but not as bad as it might seem when viewed from Westchester County). 

Maybe that’s your problem. If you’re serious about China, it should be the most important posting in your company. (It’s the one that could make heroes of you all).

To fail, on the other hand, here’s what you do:

Firstly, send people with little or no practical experience of developing markets - so they have no idea of how to get things done from scratch, or how to improvise.

Secondly, send people who can only think in terms of the home market, and “this is how we do things back home” (Who cares? You're not in Kansas any more, Toto).

Finally, send people who are uncomfortable in strange environments, who don’t like trying new foods, or even meeting new people. (That’s not as uncommon as you might think – I met quite a few like this).

To have any chance of success at all, you need to plan your ‘invasion’ of China like D-Day. Who do you want to hit the beach with?  A division of crack assault-trained troops led by General Patton, or a platoon of cooks and clerks grumbling about everything?

2. “China is a sleeping giant” (Napoleon Bonaparte)

One point three billion consumers and counting. Huge growth over the past thirty years.

Like a deer caught in the headlamps, it’s all too easy to be mesmerised by China. The size. The infinite possibilities. Riches beyond dreams, there for the taking. 

That’s both right and wrong.

So you establish a foothold in Shanghai and start to expand. Then you start to strike problems: Getting distribution isn’t so easy - the chain gets weaker as it gets longer. The product suffers from too many handlings. And the taste that they loved in Suzhou doesn’t seem so popular in Chengdu. A parallel import problem in Guangzhou is pissing off your major distributor down South (if it isn’t actually him doing the importing).

Welcome to the real China - there isn’t one, there are many. 

It’s not just the economic gap between city and country that divides China, there is huge diversity between North and South, East and West in terms of climate, culture, language, cuisine & taste preferences, and some long-time regional rivalries.

Don’t think ‘China’, think ‘Europe times five’. It’s that complex. Compare your structure and marketing plan for China against your set-up for Europe, and see the difference. Maybe you need a re-think.

3. “History is bunk” (Henry Ford)

One point three billion people hungry for anything new. Right? Yes - up to a point. 

Take a look at the market and you can see something missing... a product you already make. You can be first in, and make a killing! It’ll be huge! 

Well, you could be right. But do you ever stop to wonder why it’s not there already?

Here’s an example: Aluminium Foil. 

There wasn't any. So a large American aluminum company launched it (in 1997). It didn’t sell. (As far as I can tell, the missing 'i' had nothing to do with it).

So why didn't it sell? Well, in part for the same reasons it doesn’t sell as well as it used to anywhere in the world - microwave ovens and cling film have met the ‘freeze & reheat’ need with a new generation of products.

But in part, also for uniquely Chinese reasons - Chinese don’t grill, bake or roast much at home. Most kitchens don't have ovens, but they do have microwaves. (Even though the Chinese love fireworks, you shouldn't put foil into a microwave). And they don’t BBQ at home, or eat baked potatoes! So there's really no use for it.

My point here is that the most basic kind of research would have revealed this before going to the expense of a full launch. In the end, their biggest market was the kitchens of large, 'western' hotel chains. Not quite what they were aiming for …

Henry Ford was wrong - a look at the history of the category everywhere, and a comparison with local culture (and home technology) could have predicted this, regardless of whatever optimistic numbers the launch plan came up with.

Sometimes the only thing missing from the market is common sense.

4. ‘Back home we’re world famous …’

It’s nice to sit around a boardroom table in, say, Des Moines and fantasise about becoming big in China. Self-delusion about the fame and strength of your company is all too common a failing.

So your company is ‘world famous’ back in Iowa. So what? Nobody in China has ever heard of it, or you. And they don’t miss you. Levi Jeans had a brand awareness of 2%* - and the Chinese buy a lot of jeans!

*(Remarkably, this was true in 1998).

It’s deceptively easy to get things back to front. Your company has power because you have a successful brand, not the other way round. 

The marketers who are successful in China are the ones who know they are starting again from the very beginning, having to build their brand from the ground up in a totally new market. No short cuts and no free rides.  

You can’t rely on ‘reputation’ because you don’t have one. You can’t reproduce a hundred years of history overnight.  You can’t replicate the effect of several generations growing up knowing and using your brand.

The secret is to remember how you made your brand famous in the first place, and to duplicate that.  Look back to your origins to find your way forward in China. 

5. Only sell in supermarkets.

In some ways, China is like time travel. You have to think back to see the way forward. 

Or maybe you can’t, because in America the car and the fridge became universal too long ago …

But try - think back to a time when your mother (or grandmother) shopped every day for food, and shopped only for the next meal. That’s still to a great extent the situation in China now.

This pattern is partly cultural - especially in Southern China where the freshness of foods is a vital element in the cuisine, so shopping for fresh food is a daily habit.

But the pattern is also entirely practical. She, (it still falls mainly to the woman) shops daily because:

• She doesn’t have a choice: she doesn’t have a refrigerator*
• If she does, it isn’t large enough to store foods for more than a meal or two ... she doesn’t have room at home for a big one - there’s usually a small galley kitchen, and the fridge may be in the living room**
• She shops in small quantities at local markets because she can only buy what she can carry home.

*Again, largely true in 1998. While pretty much everyone has a fridge now, shopping patterns are still skewed to more frequent, smaller purchases, many still from ‘wet markets’ and small local shops, not supermarkets – and still hand carried.

**Based on actual observation in 1998 – the insight that won us the Electrolux fridge business.

Getting distribution in supermarkets is easy - getting beyond that not so easy. But if you’re selling an everyday food item, and you’re only in supermarkets - even if you’re in every one - you’re in maybe twenty percent of ‘true’ distribution. You’re missing eight out of ten purchases. Sure, it’s changing, but how long have you got? And where are your competitors. (Especially the locals?)

6. Pick the wrong partner …

The majority of international companies operating in China are joint ventures. And that is by far the most common source of problems. 

It’s very easy to find a partner, not so easy to find the right partner. Of course, you and your partner have a common interest - money! But that’s not enough. You also need a broader common understanding of what it is you’re trying to achieve beyond simple profit. A shared vision of the future you are jointly creating. Some shared culture - what your company believes in, the way it goes about things.

How does your culture fit with your partner’s?

For example: a US multi-national, one that historically hasn’t been a big marketing spender, coupled with a Taiwanese partner who doesn’t believe in advertising agencies (they prefer to do it themselves). And they’re about to enter a large, fiercely competitive, heavily advertising-driven category (snack foods). You don’t have to look far to see problems ahead …

 7. Then fight among yourselves ...

Even if things get off to a rosy start, there will be a problem or two along the way. And that’s often when basic incompatibility reveals itself. One side - or worse still, both - look to Head Office for answers. They are looking to import a solution, or to impose one from outside.

Often the view from Head Office bears no relation to the reality on the ground in China - and so their recommended ‘fixes’ have more to do with Head Office agendas and corporate dogma than with the real problem.

Or the imported market & brand models aren’t allowed to be adapted enough to work locally.

An example: There a flattening of sales in a very successful confectionery market leader. What’s the problem? No-one’s quite sure. So let’s see what the owners think.

The company is a joint Spanish-Singaporean concern. The calls go in to Madrid and Singapore. What have they got in common? Nothing. Spain sends a detailed recommendation. Singapore doesn’t agree. So the problem doesn’t get solved, it gets shelved. For a full year. Meanwhile sales aren’t just flat, they’re actually going backwards. “Think Global” is fine. Just don’t forget the other half: “Act local”

Of course, it's a far more common situation to have one international company with a local Chinese partner. But problems of divergent cultures can still be enormous.

8. Ignore the locals

It must be wonderful to be smart. To be successful. To know everything. To breeze in and show everyone ‘how to do it right’. I wish,

Certainly there are unique skills and knowledge you bring with you. But if that’s all you’re relying on, you’re already in deep trouble. 

The locals may lack some of the sophistication you think you have, but they have a culture you can’t even begin to comprehend. One that’s five thousand years old. Put another way, China’s had twenty five Bicentennials to America’s one!

There are (at least) two sorts of locals that you ignore at your peril:

•  the people who work for you
•  those who work for your competitors

The people who work for you can bring a very acute sense of what works and what doesn’t - but you need to be open - to listen and learn. If they feel you’re just going to press on regardless, they’ll let you.  After all, it’s not their responsibility to stop you fouling up, is it? You’re the boss. You’re the one who knows everything!

Your competitors can also teach you a lot. Chinese companies are learning fast and improving their game. They’re learning from you, and adapting that to fit the local market. Shouldn’t you be doing the same? Or are you just so much smarter than they are?

9. Save your way to success

It is safe to say that China is very big.

It is also safe to say that media ‘cost per thousands’ are relatively low. However, when you combine these two facts you reach an uncomfortable conclusion: advertising in China is not cheap. It is good value, but it’s not cheap.

Many categories also tend to be quite competitive, so maintaining a reasonable share of voice requires a reasonable budget.  

Marketing takes time and it takes money. Time to grow and become an established part of people’s lives; money to pay the rent on the space you want to occupy in their minds. To build a brand requires a consistent presence over an extended period.

Brand building is a front-loaded expenditure game.  The only way to become a serious player is to have a long-term investment plan.

It’s probably safe to think in terms of a five year plan. But how many of you still have a five year plan? How many think beyond the next quarter?

Too many marketers think in terms of budgets that are geared to mature brands in mature categories. Maintenance weights don’t build brands.  You can’t get a jumbo jet off the ground with the throttles set on 'idle'.

10. “If at first you don’t succeed”

Many of the companies who come into China start out with one product - one they’ve selected out of the many that they may market in other countries. Things may go well for them, they may not. 

The most common response, if things start to bog down with the launch project is not (as you might expect) to sort out the problems and get it going again. Rather, the response is to launch another product.  Effectively to admit the first one is in the ‘too hard basket’ and it’s better to start all over again.

Wrong.  All that does is divide your attention.  And give you two problems to juggle instead of one.

And it doesn’t necessarily even fix things for the company - there are then two products floating around the trade, neither of which may be the ‘category killer’ you promised them. Each undermines the other in the trade’s eyes, so your reputation suffers accordingly.

Nothing kills your credibility faster than a series of semi-failures and a lack of commitment to finishing what you set out to achieve.

So if at first you don’t succeed, fix it - don’t just start over. Your reputation is riding on it.

In summary.

Much of what I’ve said here may seem like common sense. That’s because it is. 

But the depressing thing is how often companies coming into China seem to imagine that that common sense doesn’t apply in China. All the examples are real - from my experience in one advertising agency.

China may be new to you, but it isn’t new.

China may be opening up, but it isn’t open season.

China may well be a big part of the future for your company, but you can’t forget the past and everything you’ve ever learned.

Not unless you're absolutely determined to fail.

POSTSCRIPT: 2016

After a little while in China I came to a realisation that made everything far simpler to understand. I'll share it here as it may help you too ...

In China, business is all about politics. And politics is all about business.

Business is politics?

Just ask Zuckerberg, or the guys at Google. The internet is a highly sensitive strategic space for the Party, so they were never going to allow more than a foothold to outsiders - especially those with such dangerous ideas about freedom of expression. As the Chairman unequivocally put it: “The media is the mouthpiece of the Party’. 

Anyway, once your original idea has been copied and localised - Baidu, WeChat, Tudou, Whatsapp, etc, etc. - there's no point any more. (Learning Chinese won't help either, Mark).

Likewise with banking, finance, insurance - even retail. At best, you get controlled access and carefully limited growth opportunities. While your local competitors observe, learn, adapt and improve.

It hasn't always been successful. They tried the same thing with the car companies - joint ventures and technology transfer until the local brands could 'catch up' and take over. But it hasn't worked because most people want the international brand, not the local version built on 'last-generation' platforms and engines. So the 'Chinese brand' share is going down year by year, despite frantic instructions from Beijing to launch even more brands and models. Oh well, you can't win 'em all ...

Politics is business?

Just look at the way the Chinese Government uses its State Owned Enterprises (SOEs), and the overseas expansion of selected Chinese entities. 

Sure, they are businesses, but they're also under the full control of the Party. And they serve the Party's strategic ends. Especially those in infrastructure development. ‘One Road, One Belt, One Dream’, all under the watchful eye of one Party.

So what’s in it for you?

Does this mean that private enterprise in China is always going to be destined to fail? And foreign ventures, too?

Of course not, but you’re only ever going to able to operate in those areas the party deems 'non-strategic'. 

You won't see a private business – even a Chinese one - challenging any of the key State monopolies in banking, insurance or telecoms any time soon. This is neither good nor bad, it's just how it is.

Overseas businesses (and governments too, come to that) need to be aware of just what they're dealing with. The playing field in China is never going to be truly level. 

Shan Gao, Huangdi Yuan

That’s an old proverb in China (a real one): ‘The mountains are high, and the Emperor is far away’.  

Meaning that if you keep a low profile, there’s a lot you can do (or get away with), despite the fact that it might not necessarily get official approval.

That may have been true once, but these days it is far easier for the ‘Emperor’ to keep an eye on what you’re up to. And to slow you down if they think you’re becoming too much of a threat to local competitors. (Ask Bellamy’s about how the product approval regulations for their best-selling infant formula suddenly changed). 

Or, if they don’t like the business you’re in, close you down completely. (Ask Jamie Packer).

What’s your experience been?

Have I missed any others? Tell me in the comments ...