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Doing Business In China: Standardization Versus Localization

Posted in China Business

Bill Dodson over at the This Is China blog did a post on what I see as a very common issue for companies doing business in China: the disconnect between China and the home office.  The post is entitled, “A GAP in Understanding China” and its focus is on the GAP company in China.

Before I start discussing Bill’s post, let me state right off the bat that I am always hesitant to criticize a company too early for what it is doing in China. I explained (in great detail) my thinking on this in the post, “The Apple Way To Succeed In China. They Did It My Way.“  In that post, I responded to a CNBC writer who had criticized Apple for 1) failing to “take into account local consumer preferences,” 2) “Failing to Choose the Right Partner,” 3) “Failing to Launch globally all at once” and to a blogger who described Apple as “having failed terribly” due to 1) the cost of its phone, 2) its marketing strategy, and 3) its competition:

But let me start out by stating as clearly as possible that I do NOT think Apple is failing in China. I do not know exactly how well or how poorly it is actually doing there, but the reason I am certain it is not failing there is because it has not been there nearly long enough for anyone to say it has failed, or even that it is failing. Apple is a big company and I am quite certain that it plans on being in China for the long haul and until the long haul is over, one cannot ascribe failure to it. Apple is still in the “getting its feet” wet stage in China and it is not fair to pass anything close to final judgment on it until it has gotten well past this stage. I again urge everyone to read the book, Chocolate Fortunes, to better understand how it can take a long time and a lot of money for a big company to establish a consumer foothold in China. Let’s just say Apple’s conduct in China has not caused me to even think about selling even one share of my stock.

I then explained how large companies that go into China invariably start out slow as they are gaining a lay of the land and went on to say that Apple was succeeding in China because it was doing what it had always done and not “bending” to China, as so many had called on it to do:

Here’s my own, more concise explanation. Apple stuck to its knitting.

Let me explain. Just about whenever I speak on China or am on a China panel, and am asked what it takes to succeed in business in China, I emphasize the need to stick to your business’s already established principles. To me the key explanations from Paul’s post are how Apple refused to go into China with its iPhone unless it would be free to make it a real iPhone in China, just like everywhere else and on how China waited until China’s consumers could afford its products, rather than giving them a cheap substitute in the meantime.

I am not saying companies should never create products just for China (because in many cases, they absolutely should), but I am saying that companies that bend so far as to lose sight of who they really are, are not likely to succeed.

In Dodson’s post, he talks of going to a GAP store in Shanghai and for the first time bought his Chinese wife a t-shirt, the coolness of which he would need to explain to his wife. Dodson then went on to discuss a fascinating and revealing conversation he had with an American buyer for the GAP at that store that day:

This is the first item I’ve ever bought from GAP for my (Chinese) wife: a loose-fitting berry-red T-shirt with a GAP in darker red printed on the front. I’ll have to explain to my wife, though, why she’ll have to consider the logo cool, which seemed to be a point not lost on the American buyer for GAP with whom I spoke that same day.

“Our greatest challenge right now is getting the local consumers to understand what GAP is all about,” the Buyer explained to me. We chatted on the shop floor of GAP’s Shanghai store. “And they [Chinese people] think we’re a little expensive.” I explained to the young lady that I had recently inhaled sharply at the price of a men’s sweater I had taken a fancy to. It was as expensive as any in a major American city.

She commented on how Chinese tastes also lean a bit more to complicated designs and and color schemes. I joked about the addition of rhinestones to some of the GAP designs. She acknowledged Chinese tastes could on occasion be a bit gaudy. Which, though, brought me to an important point about the degree to which GAP was localizing its offerings.

“At first we chased Japanese styling into China,” she explained to me. “We didn’t know the Chinese market, so we had a learning curve”.

I noted Uniqglo seems to be doing incredibly well in China. “The Uniqglo at Times Square in the second-tier city of Suzhou packed the customers in during its opening days, and continues to have customers when other shops in the outdoor mall area are empty – including the South Korean brands,” I said.

She acceded, “We see Uniqglo as our competition. They are doing extremely well in China. Interestingly, in New York, Americans claim their clothing is too little,” she laughed. Of course, we both agreed, Americans tend to feel constrained by East Asian sizes for clothing. “We admire the variety of colors Uniqglo has, for instance, for polo shirts. The Chinese will buy theirs, but don’t consider buying ours – even though ours are cheaper!” Still, I asserted, GAP had work to do to localize their products.

“You know,” I said slyly, “1969 was a bad year in China.” 1969 is the latest ad campaign for GAP jeans and shirts. The idea is to elicit the idea of the fun and freedom of the era in AMERICA. Some of the clothing even brandishes a 1969 logo next to the GAP trademark. In China, the Cultural Revolution was in full swing in 1969 and no one but Mao Zedong and the most righteous of the Red Guard were having fun.

She hesitated, rolled her eyes. “I know,” she said. “But GAP’s plan is to rationalize it’s offerings around the world so that a store in New York City will have the same as the store in San Francisco and in Shanghai.”

Though its children’s lines are a hit in China, it looks as though GAP will have to go full circle on the localization issue before they’ve figured out this latest historical misstep.

Dodson’s conversation beautifully illustrates what may be the two biggest tensions companies face when they go into China.  One is localization versus world-wide standardization.  The other (and very much related) is the relationship between the home office and the foreign office.  As a lawyer, I would never purport to know where on the spectrum a company should fall on these two issues but I do know enough to know that it will be different for every company and may even be different for every product.

Optimally balancing the scale between standardization/localization and home office rule/country rule is always going to take time and require constant calibration. GAP may still get there yet.

What do you think?

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  • Ethan

    This is pretty typical of American companies and to some degree, MNC in China (though the Europeans are somewhat better at this because they have gone international long ago due to smaller home market).  

    These MNC come to China and start their operations with all these great expectations.  But there are somethings you can infuse relatively easily, such as lean production, good logistics management and control, a good quality system.  But there are some functions that need to be very adapted to local conditions, sales/marketing, legal and regulatory considerations, and people management.  

    And in the case of the latter examples, you need to either learn Chinese and understand the local conditions, or trust someone who already knows.  So often, both of these are missing, and the company does not reach its potential.  

    Another big difference: those companies that come here for the low labor rates (your savings are being erased every single day), and those that come for the market share.  

  • William

    I noted that the latest Apple iOS and Mac OS announcements made special mention of improvements they have made for Chinese users. It’s definitely a market they care about and are investing in.

  • Markk

    Interesting post Dan – The idea that a global marketing strategy and message could be the same all over the world is simply foolish and will ultimately be unsuccessful.   What plays in San Francisco will surely not play in Shanghai and it’s naive to think anythign else.  

    BTW it’s Uniqlo.   

  • Aussie in China

    !n 2009 CLB posted a piece that Mattel was opening a Barbie doll store in Shanghai. At the time I commented that in my region I had never seen a Chinese child with a western doll.
    Mattel closed its store in 2011. 

    • http://wangbo.blogtown.co.nz/ Chris Waugh

       …and yet “洋娃娃”* are alive and well in China. They tend to be more the very formal craft dollmakers’ doll than Barbie, but there’s no shortage of them. There also seems to be a proliferation of Barbie-like dolls around and no shortage of genuine Barbies either.

      *“洋娃娃” is also a very irritating (to me, at least) term for a “Western” (i.e. White or White/Asian mix) baby.