The Chinese as Businesspeople
and Consumers
Dr. Stephane J. Grand
Business with the Chinese
• As Businesspeople:
– What is in their heads, how they see the world.
– How they see their commitments and yours.
• As Consumers:
– How they choose.
– What you need to know to market products to
them.
The Chinese as business people and consumers
Power relations in China
• Agrarian society, family based
• Extended family, power is concentrated but distributed
Traditional Chinese family
Roman family
Father
Paterfamilias
Power limited by law
Patria potestas & jus vitae necisque
Sons also have power over the younger
Only the father has the power
When marrying, the daughter leaves
her family and joins the one of her
husband
Children can found their own
independent families
Afterlife and pantheon based on same
premises
Ground for development of
monotheism, paterfamilias in the sky
Culture of shame
Culture of guilt
The Chinese as business people and consumers
Power Relations in China
• Power relations in Chinese society and government
breed:
– Collectivism, uniformity and lack of critical thinking
– Reciprocity, gifts and corruption. Or the triumph of
egoism on collectivism. Opposition between Kantian
system in the West, where a third party cannot be used
(“end not means”) to the Chinese system, where every
action is an entry in the “relational balance-sheet”
between two individuals or groups.
– Bao or the Ethical Particularism (ethical obligations apply
differently according to level of relationship)
– Positive freedoms – As a rule, everything is forbidden
– Societal rigidity and legal flexibility
The Chinese as business people and consumers
Power relations in the company
• Unlimited and undisputed power of the boss
• … at every level
• Unchecked use of company resources (both human and
material)
• Bosses of all levels create their networks : Nepotism
• Maintenance of networks: Feudalism and reciprocity
• Solidity of the networks: Racism and exclusion
• Not relations of authority>> relations of power –
remember this when mapping a Chinese counterpart
The Chinese as business people and consumers
The Inscrutable Chinese:
Abstractions and Truth in China
• What makes the Chinese inscrutable to the Westerner?
– Implicitness and lack of abstract thinking
• Agrarian civilization:
– Peasant thinking is centered on the immediate
(hence no development of epistemology).
– Life based on the cycle of seasons and sufficient
food supply.
– Development of the esthetic continuum, and loss
of demarcation between subject and object.
• Written language based on characters
– Link between image and a continuum of meaning.
– No semantic precision
– Development of science based on images and
“stories”, not on equations
• No abstract truth, but appropriateness of
statements: appearance is everything
The Chinese as business people and consumers
The Inscrutable Chinese:
Abstraction and Truth in the West
• How Westerners think
– Explicitness and articulated logic in the West
• Mercantile civilization based on the Greek CityState:
– Merchant thinking centered on figures.
– Life based on exchange (prices,
proportions).
– Development of thought around discrete
semantic units and combinations.
• Development of alphabetical languages, and
therefore of abstract thinking.
• Development of a concept of abstract truth
central to Western philosophies
The Chinese as business people and consumers
Abstraction and Truth:
Impact on your business
• Opposition between fuzzy logic in the Chinese world
and articulated logic in the West: The Chinese make
connections and find explanations beyond the visible
spectrum of Western logic.
• Impact:
– Westerners and Chinese do not talk about the same
things. Appearances are deceiving.
– The Westerner is confused and feels cheated.
– The Chinese does not understand the coldness and
“lack of human sentiment” of the foreigner.
– Agreements are made on the basis of this
misunderstanding.
– Social relations and fuzzy concepts supersede everything
Western business stands for. A Chinese will protect his
guanxi first.
The Chinese as business people and consumers
Guanxi and Contract
•
Who needs a contract?
Near
Far
Family
Contract is an
embarrassment
Informal agreement, without
contract
Stranger
Contract is normal
Contract is needed
•
Guanxi is stronger than contracts, and
more enforceable.
The Chinese as business people and consumers
Contracts in a Court of Law
• The state of the judiciary:
– Generally undertrained judges selected for their loyalty to
the system.
– Outside of outright bribery, local party pays taxes locally.
• Guanxi, equitable decisions and fuzzy reality:
– The judges usually make decisions they believe to be fair,
that is, to respect the prevalent equilibrium of the
relation.
– When in doubt a judge or arbiter will look for an
intermediate solution.
– Judges do not feel constrained by the private agreements
they have to decide upon, and requalify business
relations.
The Chinese as business people and consumers
Dealing with the Chinese
Businessman
• He is a social animal, more so than you. But you are not in
his society. Focus on realistic and controllable material
conditions for your transactions.
• He lives in a world of fuzzy reality, where things change
without remorse, and rules are here to be bent when needed.
Check often you are talking about the same thing.
• Contracts are seldom respected when inconvenient and rarely
enforceable in court. Focus on the power equilibrium in the
transaction. Think preemptive.
The Chinese as business people and consumers
CHINA’S CONSUMER
12
CHINA’S CONSUMER MARKET
VALUE FOR MONEY
BRAND
SHOPPING EFFICIENCY
TOP FACTORS
THAT DRIVE A
PURCHASE IN
CHINA
QUALITY
OTHERS
COST
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DISTRIBUTION PATTERNS

Department stores become less popular

New purchasing channel:
o
Internet
o
Convenience stores
o
Hypermarkets, shopping centers and warehousestyle supermarkets
14
CHINA’S CONSUMER MARKET
Highly
globalized
segment
 Consumers display a mix of
global and local preference.
Highly
localized
segment
Semi-global
market
segment
 Consumers maintain
their local preferences
and tastes.
 This segment may be
found in the most
remote rural areas of
central and western
China.
 Chinese consumers display similar
preferences and tastes with consumers
of highly developed countries.
 This segment is a collection
of “mega-cities” like Fuzhou,
Zibo, Quingdao, Hantou,
Dilian, and Huizhou.
THREE SEGMENTS OF
CHINESE CONSUMER
 This segment extends over three eastern
regions: The Pearl River Delta, which
includes Hong Kong, Guangzhou and
Shenzhen; the Yangtze River Delta, which
includes Shanghai and nearby cities; and
the Beijing-Tianjin region.
15
CHINA’S CONSUMER MARKET
REAL PROBLEM FOR OVERSEA’S MARKETER
IN THE CHINESE CONSUMER MARKET
 So far, overseas marketers have reached
for the easy target, the highly globalized
segment, which requires little localization
of the products sold in their home market.
 The trouble with the highly globalized
market segment is that it’s getting crowded
with both overseas and domestic players.
Yum! Brands (NYSE:YUM) has designed Pizza Hut and KFC
menus that include both a global and a local component.
McDonald’s has
maintained most
of its menu
intact
Pizzas catering to the Chinese market, for instance, are
made of a thin crust and are light on cheese, while pizzas
made for Western markets are made of thick crust and
plenty of cheese.
Coca-Cola has
substituted English
characters with Chinese
characters on its
traditional package.
16
The Chinese Consumer
THE THREE RULES OF SUCCESSFUL BRANDS

Products displayed or consumed in public command huge price premiums
compared to those used in private.
 The average middle-class Chinese spends USD 15,000 to fit out a
bare 100 sqm apartment worth USD 1 M
 The leading brands of mobile phone are foreign and expensive but
the leading household appliances are cheap and local

Benefit should be external as opposed to internal.
 Baby formula makes kids smart, not happy
 A car is a statement, not enjoyment

The products must navigate the crosscurrents of ambition and
regimentation, allowing to blend in, while standing out.
Tom Doctoroff, Wall Street Journal, May 18, 2012.
17
CHINA AND THE INTERNET
CHINESE SHOPPERS SET
TO BECOME WORLD
LEADERS ONLINE
A woman shops for wine online in China. Photo: AFP
18
CHINA AND THE INTERNET
THINGS TO KNOW ABOUT CHINA’S ECOMMERCE MARKET

“China is expected to become the world's largest consumer market in 2015.”China's Commerce Minister Chen Deming

China’s e-commerce market has grown at an average rate of 71 per cent from
2009 to 2012, versus 13 per cent in America, and its total size is expected to
reach 3.3 trillion RMB by 2015: A report from Bain and Company

Total spending by Chinese consumers on online shopping reached US$212.4
billion last year, compared to US$228.7 billion in the US: A report from Bain and
Company

“Whether you’re an online player or an offline player, you need to have a
meaningful, credible presence on the web.”

Online spending could account for half of all Chinese retail spending within a
decade. -Chinese e-commerce firm Alibaba Group.
19
CHINA AND THE INTERNET
THINGS TO KNOW ABOUT CHINA’S ECOMMERCE MARKET
Reasons for boom in ecommerce business:
- Expensive retail business
- High land cost
- Rising labor cost
Major obstacle:
- Infrastructure- Under developed logistics
20
CHINA AND THE INTERNET
3 HABITS THAT SET CHINESE ONLINE
SHOPPERS APART FROM WESTERNERS
Better price
Accessibility
Payment methods
21
CHINA AND THE INTERNET
3 HABITS THAT SET CHINESE ONLINE SHOPPERS APART FROM WESTERNERS
Primary reason for shopping online:
Better Price
Western consumers
Convenience
Vs.
Chinese consumer
Good value
According to a study from the Multimedia Research Group,
60% of Chinese online consumers list “better price” as the
number one reason to make purchases online.
22
CHINA AND THE INTERNET
3 HABITS THAT SET CHINESE ONLINE SHOPPERS APART FROM WESTERNERS
Accessibility
 Accessibility to more products
 High preference for
comprehensive, even
overwhelming, online
presentation style, while in
Western countries it is better
to keep the website clean and
simple
 Detailed photos with a multiangle display and informative
description of products is
extremely important for
Chinese online shoppers. This
can effectively mitigate their
concern about product quality
23
CHINA AND THE INTERNET
3 HABITS THAT SET CHINESE ONLINE SHOPPERS APART FROM WESTERNERS
GAP- Chinese store website
GAP- US store website
24
CHINA AND THE INTERNET
3 HABITS THAT SET CHINESE ONLINE SHOPPERS APART FROM WESTERNERS
PAYMENT METHOD
 In China, third-party
payment and cashon-delivery is
commonly adopted
while Westerners
use credit cards all
of the time.
 Cash-on-delivery
Offers effective
solution which lets
online consumers
feel more secure
and comfortable and
thus make their
purchase decision
easier and faster
25
CHINA AND THE INTERNET
3 HABITS THAT SET CHINESE ONLINE SHOPPERS APART FROM WESTERNERS
PAYMENT METHOD
Third-party payment services such as
Alipay provide a perfect solution for
online shopper safety given that poor
quality and fraud is the major concern
for Chinese consumers who shop
online.
The recently extremely popular “fast
pay” (快捷支付) function of third party
payment even allows users to fulfil
payment by simply having a cell phone
and a card number.
26
CHINA’S CONSUMER MARKET
SUMMARY
 E-commerce certainly is one of the biggest growth opportunities and it draws in well with
the evolution of consumer behaviour—“seeking good value for money and efficient
shopping.” It is also a cost-efficient way to roll out new products and concepts, especially
through an interactive platform.
 Identify and understand the three aspects (better price, accessibility and payment methods)
can provide basic guidance for shaping an excellent customer experience online in China.
 Western firms should take the time to identify a trusted partner who understands the
intricacies of the Chinese ecommerce landscape.
 For new brands entering China, don’t just assume that China has an immense consumer
base, so let’s take a simplified business approach. Offer new and variety of options to the
consumers and you may have a chance to succeed.
27
A
SUCCESS
STORY
IN
CHINA
HOW TO EXPAND AND BECOME PROFITABLE IN CHINA ?
28
Key periods
EARLY 1998 : IKEA starts a retail operation in
China by forming a Joint Venture.
LATE 1998 : Opening of the first store in
Shanghai which mainly conducts all kinds of
furniture
1999 : Opening of the second store in
Beijing
BY 2015 : IKEA aims to have 17 stores in
China
IKEA currently became the LARGEST FOREIGN COMMERCIAL LANDOWNER IN
CHINA, with 12 stores covering a total of 640,000 square meters. It saw more
than 15 million visitors.
29
Key points
? What strategy key points explain IKEA’s success
IKEA focused on good understanding of the market
• By visiting hundred of Chinese homes to LEARN PEOPLE’S HABITS and
analyse needs.
• By being more locally relevant to people, the company prepare
DIFFERENT LAYOUT IN STORES to present its 9000 articles indeed.
IKEA oriented its pricing strategy
• By aiming at providing relevant and AFFORDABLE SOLUTIONS with
quality products at lower prices (Prices fallen 50% in the past decade)
• By building number of factories in China to RESOLVE THE PROBLEM OF
HIGH IMPORT TAXES and rax mateial costs (cutting prices by more than
60%).
30
Key points
 IKEA categorized its target market and controlled its brand image
• By targeting young MIDDLE-CLASS POPULATION with higher incomes.
• By handling the Chinese shopping behavior in their stores (making
themselves at home etc.), IKEA invest for a long-term strategy.
 The company analyzed peripheries before settling in
• By considering CONVENIENT TRANSPORTATION as a major factor in
selecting new sites to attract people easier and lower the goods
transportation costs
• By implanting their stores with concern about PERIPHERAL FACILITIES
such as parking spaces, large shopping areas and entertainment
nearby
31
How IKEA strategies differ in Europe and China
STORES IN EUROPE
32
How IKEA strategies differ in Europe and China
STORES IN CHINA
33
How IKEA strategies differ in Europe and China
EUROPE
Value
proposition
Value
network
CHINA
Good quality, furniture
stylished and prices very low,
for all kind of population
Good quality, western-styled
aspirational brand which is for
middle-class population
PRODUCT : stylish and
functional products
PRODUCT : changes to suit
local market
STORE : stores next to
highways, access by car
STORE : next to public
transport
PRICE : low-cost
PRICE : affordable prices
PROMOTION : IKEA
catalogue is the main
marketing tool
PROMOTION : ads on
Chinese social media and
blogs
LOGISTICS : products made
in developing nations
LOGISTICS : products are
sourced locally
34
IKEA vs Home Depot
“Shopping in China is far more about the experience itself than it is in the West”
Tom Doctoroff, expert on Chinese consumer psychology
Home Depot entered the market in 2006 and closed 5 stores since.
?
Why Home Depot is struggling when IKEA is thriving in China
35
IKEA vs Home Depot
What Home Depot didn’t understand and IKEA did :
• « Do it yourself » culture does not exist in China
NO UNDERSTANDING OF
THE LOCAL MARKET
NO WESTERN-STYLE IMAGE
NO ROLE MODEL
• Labor costs are low and homeowners prefer hiring
someone to do the work than do it themselves
• HOME DEPOT brand image is not westernevocative. IKEA does
• HOME DEPOT didn’t give a way to Chinese
consumers on how to furnish their new family
rooms. IKEA did
• Chinese consumers need to be educated and are
eager to learn but they need guidance. HOME
DEPOT didn’t give them models to follow. IKEA did
36
The Chinese as Businesspeople
and Consumers
Q&A
Dr. Stephane J. Grand