Rules of the Road: Entering China
There was once a time when “Made in China” was not part of the U.S. experience, but that changed in the 1980s. No longer was our Chinese connection limited to fortune cookies and take-out.
During my first trip to Beijing in 1985 as a major Multi-national company representative, I hosted a banquet. A senior government official attended. He arrived on a bicycle.
Then, things changed; they really changed.
Today’s China reminds me of two very different movies: “The Princess Bride” and “Butch Cassidy and the Sundance Kid.” Hear me out (read: self-declared spoiler alert).
In the “Princess Bride,” Wesley chases after Buttercup with an unwavering focus. As Wesley repeatedly overcomes staggering obstacles, the evil Vizzini exclaims “IMPOSSIBLE!” Butch and Sundance are doggedly pursued and resignedly complain, “Who are these guys?”
We now know who “these guys” are. There’s no parallel scene of “you killed my father (read U.S. manufacturing base), prepare to die” nor will the United States be able to jump off a conveniently placed getaway cliff ala Butch and Sundance. “IMPOSSIBLE” has happened and among other growth stories, China’s consumer healthcare market will soon surpass the United States.
Ignore the soon-to-be-largest OTC market? China demands attention. Local infrastructure, cultural savvy and a long-term vision aren’t optional. American companies can succeed — and are succeeding — but there are rules of the road:
1) China is not one homogeneous country. By some measures, there are now 350 million people that make up the middle class. Typically segmented in four tiers: Tier One includes three huge metro-area markets (Shanghai, Beijing and Guangzhou), followed by the bigger and smaller tiers two and three “secondary” cities and then “all other.” North and south feel more different than their U.S. counterparts. Knowing what portion of the population can afford your product must be clear. Hong Kong’s “show room” role, annually hosting more than 50 million mainland visitors, serves as a gateway; the popularity of e-commerce; and a vibrant domestic retail trade all shape a complex landscape.
2) China has a huge Traditional Chinese Medicine (TCM) category that lives side by side with Western OTCs. Your product may straddle the Traditional Chinese Medicine world if you are hard-to-clearly-define “natural.”
3) Continuous high growth has created a bipolar mindset. Chinese cultural DNA includes long-term vision — think: ceding Hong Kong for 150 years — but today’s stunning “here and now” attitude reflects business reality. Nothing is standing still.
4) The economy is slowing, but that’s relative as 6.9% growth is still enviable. The slowdown almost will certainly reset consumer behavior, but to what depth isn’t clear. It’s not atypical to have both parents working; grandparents have stepped in as childcare. Your marketing and targeting must take this into account.
5) China is younger and the legacy of the one child policy drives both consumer and employee behavior. The “Little Emperor/Empress” family magnifies the kids market. Local hires bring a different and arguably less-developed personal socialization legacy to the workplace. Today’s Chinese employee didn’t have the good fortune of tormenting a younger sibling, although my brother fortunately did survive.
6) Domestic production is not universally trusted. Tragic quality issues — milk, pet food — have caused Chinese consumers to skew more loyal to foreign brands and non-Chinese production. “Made in___” is searched. The longevity of this dynamic is unpredictable but my guess is at least five to 10 more years. Meanwhile, imported products command larger than “normal” price premiums, but with strict limits. Elasticity research has hammered the lesson that exceeding a certain RSP is deadly.
7) The Government looms larger. The Currency (de-) valuation policy, higher duties/taxes and the Hong Kong gateway role have no U.S. equivalent. The CFDA Regulatory system adds slow approvals and animal testing.
8) Trade channels and marketing have come of age. It’s no longer the Wild West (or “East?”). E-commerce sites like Taobao or chains like Nepstar or Watson’s are on par with Amazon and Walgreens. The rise of private hospitals and the OTCs available there are important. P&G concedes that domestic competitors have great marketing.
Today, nobody arrives to meetings in China on bicycles. Business dinners do not conclude with fortune cookies, but fortunes can be made. The road is unlike any other.
Ed Rowland, founder/owner of Rowland Global LLC is providing DSN a series of 2016 blogs focusing on non-U.S markets. Rowland Global assists companies in their global growth strategies, tactics and execution. The author thanks business school classmate and long-time Booz Allen consultant Joni Bessler for suggestions. She and her family have lived in Shanghai for the last seven years, where she recently founded RaiZ Business Consulting Services.