Retail Business in China

Retail Business in China

Doing Business in China:
The Chinese Retail Market - Understanding the Chinese Consumer and Culture

Kevin Skolits

MAR 6957/4956: China Retail Study Tour

David F. Miller Center for Retailing Education and Research

Warrington College of Business Administration

University of Florida

Summer, 2011

DoingBusiness in China: The Chinese Retail Market - Understanding the Chinese Consumer and Culture

To be successful entering any foreign market,there are many things to consider. Aspects such as the competitive landscape, distribution networks, advertising, and marketing are all very important. However, in this paper, Iam going tofocus specifically onthe influence of the Chinese culture and its effects on retail business in China.

“Too many people don’t realize the tremendous importance of making yourself familiar with a society’s culture before trying to penetrate it” (Marques,2001).An example that exemplifies this point is a marketing error that happened to Coca Cola. In 1928, Coca Cola first decided to reach out to the Chinese market. When they chose the characters for their brand, the actually meaning in Chinese meant ‘bite the wax tadpole’. This translation was an insult to the Chinese people and therefore the credibility ofCoca Cola products in China was hindered (Marques). It would have been helpful if someone explored the culture in advance before insulting an entire potential market.Beyond translation errors, one must be aware of the fact that a successful business model in one culture will not necessarily work in another, especially when that country is China. According toa Wal-Mart executive in China, whospoke with the students of the University of Floridaon their China Retail Abroad Tour,stated that “What works in the United States does not work in China.”

Just as language is acentral aspect of one’s culture, it is important to know that there is a sharp distinction between Western and Chinese culture in general.Historically, China has been different from most of the world because they maintained a state of isolation for a very long time. China was referred to as the ‘world of the East’ for very good reasons. For a long time, the Chinese people were not influenced by any outside society or culture, keeping their own culture very much intact and strong.While other nations were spreading their wings and trying new things, China had firmly developed their own unique style of doing things and was not interested in changing. For thousands of years, China managed quite well without other Western nations (Lamb & Johnson, 2001). Some speculate that because China wasso very happy with their current way of living, and also with a natural resistance to outer influences, their country actually “missed the industrial revolution”(van Zanden, 2011) According to Professor Steve P. Kirn, Ph. D. at the University of Florida Miller Retail Center, “To us Westerners, China is almost like a parallel dimension.” He further explained that they have developed their own ways of doing things, which may seem completely odd and peculiar to us, but it is all quite normal to them. Actually, it was not until the past few hundred years, that China opened its doors and made changes in order to participate in the global markets. Though they may have recently altered some of their business tactics, China is still very different and therefore doing business in China can be very challenging.

Reading and gathering knowledge on this interesting nation is a valiant effort towards cultural comprehension, but to truly understand, one needs to actually go to the country, observe the people, the retail shops, and businesses. When one enters the Chinese world, many differences in culture are apparent and unmistakable. For example, while in Shanghai, I woke up early one day and decided to walk around the park, what I found made me feel like I was on a different planet. As I walked, first I noticed very peculiar, yet beautiful plants, meticulously placed in an orderly fashion, along ten foot high monuments and/or statues placed in numbers equivalent to the park’s benches. I then began noticing people doing strange things. As I walked down the sidewalk, the park users were standingstill inprecariouspositions, evenly spaced, while moving very slowly. This activityengulfed thewhole park. Some were holding tennis- racket-like object, swaying them around, while listening to dissonant sounding music with Chinese lyrics. At a quick glance I might think some kind of special event was occurring in the park on that particular day, but there was not. At the same time, all their eyes focused on the strange looking foreigner (me) strolling through the park, yet without altering their bizarremovements. It made me think of the Sleestaks, who are the curiously slow-moving reptilian humanoid creatures from the 1970s T.V. series, Land of the Lost. After inquiring as to what was going on, I came to learn that this was a normal part of a morning routine, called Tai Chi (See appendix A).First, it is very unlikely to find a small group of people exercising before work in the U.S., let alone a dozen people. Secondly, if one did see a group of people exercising in the U.S., there would be a primary instructor leading the routine. In China, Tai Chi is not a class they are signed up to take at the park. It is a way of life and part of their culture. Observations such as these,reveal a lot about a culture, and thereby the Chinese consumer.

However, knowing general differences between our culture and the Chinese is not enough. A foreign retailer must understand the differences within the country.Thus, it is important to think of China in a similar way as we think of Europe overall, with many countries in one region. Like Europe, China was once divided into different kingdoms and later into different provinces. Each province being isolated from each other resultedin the creation of their own individualized cultures and way of living (Lamb & Johnson). For example, language varies across China finding completely unique dialects in different regions. Mandarin is considered the national language, but it is not spoken by everyone, with each region having their own dialect. It is actually very difficult for two Chinese people to communicate with each other if they are from different regions, unless they speak the common language of potungua, or Mandarin. Because the dialects are so different from each other, some sources consider them as different languages entirely. These provinces also have different foods and different tastes. The Szechuan area,which includesthe city Chengdu, has very spicy food, where Beijing’s food is milder. Therefore, a retailer needs to not only know what is appealing to the general consumer in China, but also to the consumer in each of the provinces and cities.

So, along with the fact that regions of China are different from each other, cities are also dissimilar from each other. And since retail tends to thrive in cities, understanding the Chinese tier systemis of vital importance to its marketing efforts.China cities are usually separated into and defined by tiers.There are 1st tier cities such as Shanghai, Beijing, and Guangzhou, 2nd tier cities such as Chengdu and Chonqing, 3rdtier cities such as Yingkou, and 4th and 5th tier cities which are more rural and at the county level.The level of tier represents their economic development, with 1st tiers cities being most developed. Currently, the government is pushing many investments to the 2nd and 3rd tier cities.This is practical because the 1st tier cities are already considered international megacities, which are already developed, and thus need little attention. Some business analysts believe that the 2nd, 3rd, and 4th tier cities are considered to be the greatest opportunities for business, because of the government’s support and as well as current economic growth trends. This was explained to our group by an executive of Lenovo Corporation in China. Because 1st and 2nd tier cities are so developed, the competition in retail is also great, and considered “tapped-out” by some (Waite, 2008). Therefore, it might be wise for foreign retailers tolook towards2nd, 3rd and 4th tier cities where the competition among the retailers may be lower and the government is more interested in the growth of the city.

Aside from thedifferences among the regions and cities, retail stores in China have had different approaches to selling from the United States, which reflect their long standing way of doing business. For example, in China discounts are listed by the price paid, not the amount saved. An item marked 70% at a retail outlet means that the customer pays 70% of the total amount (savings of 30%) (See appendix B). The Chinese also love to bargain, which does exist in the West, but not nearly to the same extent. For them, it is a fun game to win the very best price. In the U.S. we like to see the best price from the beginning,clearly marked on the shelf.However, it is important to note that as more Western retailers enter China, bargainingis becoming slightly less prevalent.

Another peculiar difference one would find in a retail store is that the Chinese like to see products separated by brand (See appendix C). For example, if you are in an electronics store, all of the Sony products (tv, computers, dvd players, etc) will be in one section and all of the HP products (computers, printers, scanners) will be in. In the West, we would find this inconvenient as we like to compare the same types of products right next to each other. According to an executive at Bestonn IT mall in China, “the Chinese like to shop this way because it has been this way for many centuries.” This has possiblyhad the effect of making the Chinese consumer very brand conscious, especially when it comes to luxury brands.This is certainly beneficial for U.S. companies who have strong, world-known brands.

Conducting retail business in China is not as simple as following the correct business procedures.Because China is a communist country, one must be aware of what that entails. A colloquial saying, “if the Chinese government wants you dead, you will be dead before sunrise” represents the fact that the government can control which industries and businesses flourish. They control most major areas of business in the country, including things such as distribution of information (internet, T.V., and newspaper), building projects, city designing, infrastructure and such. This makes the government’s role in culture very important. While in China, a member of our group decided to conduct his own experiment by doing a Google internet search on the words “Tibet uprising”. Withinminutes of his search, his page went blank. This shows the government’s power to influence access to information. A retailer needs to be wary of areas of sensitivity to the Chinese culture and their government. Because the government can make or break your business, according to the sales executive at Lenova, you need to “keep the government happy, without selling out.”

Finally, the values and norms, or social mores of the Chinese consumer aredifferent from the U.S.First, the Chinese act in very collectivist like ways. Whereas the U.S. is a very individualistic country, with each person striving to meet their own needs, and prosper as an individual. The Chinese, consider the group and not themselves as most important. They are mostly concerned with the well being of their family,company, or other large group they are a member of(Davis, Wang & Lindridge,2008). While I was in Beijing,I witnessed a grand opening ceremony for a new restaurant. This event included a food eating contest that awarded the winner a special prize to be used at the restaurant. The interesting thing was that the prize was actually a certificate for that individual to bring him and all his coworkers to come eat for free. In the Chinese culture the group is most important.

To wrap up, I would like to further emphasize that the only way to be successful in a country as diverse as China is to take the time to research the culture and physically explore the country. The Chinese hold on to their mores and values as reflected throughout their lifestyle. The differences among the regions and provinces in China can be as extreme as two different nations due to the existence of feudal kingdoms dating back thousands of years. China’s isolation from the world has made their culture seem complex and boggling to the Western world. However, if a retailer is interested in attempting to penetrate this unique world, then there is no other way than to venture out, move to China, and witness it for themselves. From sidewalks in the park, to the Great Wall of China, the richness in history and culture penetrates every inch of this country, and I deeply encourage anyone with an interest in this beautiful area, to see it with their own eyes.I would also like to note that the purpose of this paper was not to fully describe every difference between our two cultures, nor as an encompassing guide for a retailer or (any business for that matter) to be successful in China. Rather, it should be an awakening to all those who have never visited China, and puts into terms the peculiarities of the Chinese consumer in a way that iseasy to grasp.I would also like to mention that if it were not for programs like the one put on by the David F. Miller Center for Retailing and Research at the University of Florida, students like me would never havehad the opportunity to grasp the vital importance that culture plays on business in China. This was truly a valuable and unforgettable educational experience.

References

Davis, L., Wang S., Lindridge, A. (2008). Culture influences on emotional responses to

on-line store atmospheric cues. Journal of Business Research,61,806-812.

Retrieved June 18, 2011 from

Lamb, A. & Johnson, L. (2001) The Topic: Ancient China. Retrieved June 12, 2011 from

Marques, Joan (2001) The importance of recognizing culture in marketing. The

Copywriting Site. Retrieved June 12, 2011 from

.

van Zanden, Jan Luiten (2011,January 26) Before the great divergence: The modernity

of China at the onset of the industrial revolution. Retrieved June 18, 2011 from

Vox website:

Waite, Richard. (2008, September 11) Is the China boom over? Retrieved June 18,

2011 from The Architects Journal Web Site:

Appendix

Appendix A

Appendix B

Appendix C

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