China in the Modern Day
For corporations with global ambitions, succeeding in the Chinese economy plays a critical role in their success. The Chinese economy is the second largest economy in the world and is on pace to become the largest in the world by 2028. China has over 1.4 billion people, and is home to the biggest economic expansion in history (lifting 100 million people out of poverty). As the economy continues to develop, the purchasing power of its large population will continue to grow, making it a lucrative location for corporate expansion.
However, for corporations to succeed in China, they will need to have a marketing strategy that attracts these consumers and a brand identity that separates itself from local brands. To accomplish this, marketing managers should understand the history, culture, and economic reality of the Chinese people. Companies who simply adopt marketing strategies from their operations in other countries could potentially limit their brand’s market share in China permanently and even increase risk of failure.
A Bit of Background on China
In 1978, Deng Xiaoping implemented his four economic innovations: legitimizing economic development, setting effective long-run economic objectives, initiating economic reform, and supporting diplomatic relationships with Western countries. This period was the beginning of China’s transition to a more free-market economy.
Once the economy opened, the benefits of capitalism were more apparent. As the Chinese currency had a low relative exchange rate, China had a comparative advantage for manufacturing and exporting goods. Many developed countries began shifting their manufacturing centers to China to benefit from this economic advantage.
By 1980, the Chinese government introduced economic reforms that removed some government control over businesses and landownership. These reforms accelerated growth and led to many multinationals entering the Chinese economy (KFC in 1987, and McDonalds in 1991).
In 2001, China was admitted to the World Trade Organization (WTO) and won the bid for the 2008 Olympics. By this time, the Chinese people had experienced the greatest economic expansion in history. As a result, China is home to a large, diverse culture that synthesizes traditional Chinese culture with modern practices.
Modern China is fundamentally different from developed Western countries. Many grandparents in China are old enough to remember challenges experienced in the past, while their grandkids may grow up within walking distance from luxury brands and have food and goods delivered to their door 24/7.
This juxtaposition creates a unique culture that presents many challenges for multinational companies. But these challenges represent great economic promise for companies that are willing to research and understand the Chinese people and economy.
The Rise and Influence of Chinese Consumers
Chinese consumer’s spending power has been on the rise since China began its opening up process in 1978, with PPP per capita reaching over $17,000 in 2020. This increase in PPP per capita was a direct result of the rapid economic expansion in China that has lasted past several decades. What this means in pragmatic terms is that Chinese consumer’s disposable income has increased, and they have been able to attract more international companies’ marketing attention (as you can see with the luxury goods market in China).
Although Chinese consumers enjoy many of the same goods and services as Western consumers, there are particular cultural nuances that impact their purchasing decisions and ultimately the marketing strategies of businesses. Some of the fastest growing industries in China include cinemas, department stores and shopping malls, hotels, online shopping, and online games.
These growing industries highlight the development of the Chinese economy and how its quickly modernizing and implementing high-tech services in the country. As a country that has relatively recently entered into a capitalistic economy, many legacy infrastructures do not exist, allowing industries to quickly adapt to modern technology (i.e., high-speed railways, 5G, etc).
As the economy matures, China’s demographics are changing. Younger generations are moving to modern developed cities, people are living longer, the One Child Policy has been removed, and education has improved dramatically. The economic development in China is fast, and it presents business opportunities at a scale that is not comparable in any other developing nation. But, for corporations to succeed in China, they must have a marketing strategy that understands the local culture, while simultaneously differentiating itself from local brands.
4 Tips for Marketing Successfully in China
Traditionally Chinese consumers have had a preference for Western made goods. However, these preferences are changing as the country rebuilds its economy and confidence, while reestablishing its place on the world stage. Local companies are using the expertise of talented individuals, who have studied abroad and brought this knowledge back to China, to establish a brand identity that attracts Chinese consumers using skills taught in Western institutions.
Understand cultural nuances
Not only will international companies need to establish a strong brand identity to separate themselves from local brands in mainland China, but they will also have to understand the differences of culture within the Chinese mainland itself. With a population over 1.4 billion, China is home to dozens of local cultures and languages. These local cultures have their own preferences and consumption habits that could lead companies towards establishing several marketing branches within China itself.
Your product or service offering cannot be the same or marketed the same as it is in other countries. You need to pay attention to localizing it to suit the type, style and flavor local consumers are used to.
Start catering to specific consumers
Another challenge present in China is that traditional Chinese consumption behaviors relied on undifferentiated mass consumption that succeeded due to the large-scale appeal of a particular brand. Companies presented the same value proposition, framing their products around their functional benefits, to all consumers and stretched products across price tiers and categories to leverage large scale production for greater market share.
Over the next decade, the Chinese economy will continue to develop, but development will be splintered into several categories of consumers. The traditional marketing strategy of creating mass appeal for a single product will give way to more differentiated segments with separate styles and consumption preferences.
Research, test and adjust
As previously mentioned, copying, and pasting a business model used in a different country often does not work when it comes to China. It is important for companies to conduct research and look at how other players in the industry or a similar industry have done. Analyze why certain companies have succeeded and why others have failed.
When implementing strategies in China, do not just dive in headfirst. Use a portion of your budget to run tests and pilots and adjust your strategy where you need to. This sort of preparation could end up saving your business a lot of frustration, time, and money.
Tell a Story
With the growing spending power Chinese consumers have, they hold the real power to whether you will be a success or not. Young Chinese consumers do not just want to buy products or services for the sake of buying. They want to buy products with a rich history or a cool new age story.
Brands now have an obligation to provide a backdrop to who they are, what they do, and why consumers should trust them. This makes the landscape of the Chinese marketplace even more challenging and newly entering companies must respect this or face risk of failure.
(For more marketing lessons in China take a look at our case study on how some western brands got it wrong).
eBay in China: Misunderstanding Cultural Differences
Companies researching market entry into China will be well served to first analyze companies that have failed. These failures create great opportunities to learn for free. A useful example of a company’s failure to succeed in China is eBay.
In 2002, eBay entered the Chinese market by making an acquisition of a local Chinese e-commerce site, EachNet, for $150 million. In 2003, Alibaba Group would enter the market with Taobao. The local competitor’s understanding of Chinese consumers would prove to be what led to eBay’s failure to capture controlling market share in China.
While eBay was charging users to post online, Taobao entered the market by allowing users to post to their site for free. eBay responded by starting an aggressive advertising campaign, signing exclusive rights with Sina, Sohu, and Netease, with the intention of preventing advertisements from Taobao, injecting over $100 million into these efforts.
Although these strategies had proved beneficial in other countries, in China they were not as effective. Jack Ma, the co-founder, and famous former CEO of Alibaba, understood that local business owners much preferred watching TV than going online and therefore invested heavily in advertisements on local TV channels.
As a local Chinese consumer and entrepreneur, Ma had a deep understanding of Chinese culture. This understanding was reflected in Taobao’s marketing strategy. Taobao executives understood that Chinese people were much more knowledgeable and familiar with phones instead of computers, and therefore focused their operations accordingly.
Taobao built functions like voicemail that could be accessed by mobile phones over the internet, and introduced the ability to build “swift guanxi” through communicating with an in-app instant messaging system that built confidence between buyers and sellers.
Ma and Alibaba possessed a powerful tool in naturally understanding the local Chinese culture which proved to be more effective than overseas business strategies. By implementing this strategy effectively, Ma was able to capitalize on the advantages it presented. By 2010, Taobao had captured over 80% of the market and eBay had shifted its business focus towards attracting sellers for overseas consumers.
How to Market in China: Summary
Corporations intending to enter the Chinese market should take a diligent approach to research. In addition to understanding important aspects of international business operations, like tax codes and legal requirements, executives should delegate resources to their marketing departments for understanding the local culture to develop an appropriate marketing strategy.
Companies who overlook the particularities of the Chinese economy could create unprofitable brand identities or fail to differentiate themselves from local brands. Marketing departments should understand how the history of China has influenced the economy and its shift towards more open-market regulations has brought traditional culture into modern China, creating a unique cultural identity.
The Chinese market is ripe with opportunities. Corporations should consider how their international image will be received in China, and how to create a brand identity that separates themselves from other brands, while still appealing to the Chinese consumer. Companies that are effective in this regard can take advantage of the opportunities in the Chinese economy to increase profitability and extend market share in ways that other countries cannot offer.
Finding a Way into China
For companies looking to enter the Chinese market and begin operations it may seem like a monumental task. However, business expansion into China has never been easier and with a partner like INS Global you can operate your business in China in as little as 3 days. We have helped more than 600 companies worldwide with their business expansion and HR needs. Whether you are looking to start a business in China or hire top talent, we have the expertise you need. Get started with us today and get your business in China off the ground today.