A Report on

Final Report
Course Name: Management
Submitted by: Syed Hasnain Alam Kazmi
Submitted to: Professor Geng Wei
Student Id: 11052016
Submitted by: Syed Hasnain Alam Kazmi
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Student Id: 11052016

Date: 2011/12/20

LETTER OF ACKNOWLEDGEMENT
PROFESSOR: GENG WEI
DATE: 2011/12/20

RESPECTED TEACHER,

I AM VERY GRATEFUL FOR THE OPPORTUNITY GIVEN TO ME TO PREPARE THIS REPORT ON

NEW CHINESE CONSUMERS, IN OUR MANAGEMENT COURSE. I WOULD LIKE TO
ACKNOWLEDGE THE CONTRIBUTION OF PROFESSOR GENG WEI IN THE PREPARATION OF
THIS REPORT, AND WITH HIS VAST KNOWLEDGE AND EXPERIENCE WE ALL HAVE LEARNED
A LOT.

THANKING YOU.

YOURS SINCERELY;
SYED HASNAIN ALAM KAZMI

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TABLE OF CONTENTS
Cover Page........
..
..
i
Letter of Acknowledgement.
..
1
Abstract

...
3
Introduction .....

Transforming how we view Asian consumer

psychology

Selling to the Affluent

.
9
Straddling the Fence
..

11
The Dilemma between the Universal and the Particular
...
11
Advertisements and Commercials in China..
..
12
Customer Orientation in China and the US
.

13

Chinese luxury shoppers

15
Why Multinational Corporations Fail In China
..

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15

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Mass Market Behavioral Characteristics

..

17

Conclusion

..
19
Reference

..
20
Annexure
..
21

ABSTRACT
Chinese consumer consumption values and behavior tend to vary significantly
based on regions, cohorts, and social class due to the rapid economic growth in
China over the past 25 years (Xiao, 2005). Meanwhile, they also have very
different consumption values compared to their Western counterparts (Keegan &
Green, 2008). It is analyzed the assumption that there were significant
differences in social-cultural values between Chinese and Western consumer
consumption values resulting in different brand perceptions and preferences
toward global brands and Chinese local brands. Considering that about 30 percent
of the Chinese population are upper and middle-class (or 390 million people) out
of 1.3 billion Chinese consumers (Xiao, 2005), those young professionals and
those who are new middle-class consumers wish to exhibit quickly their
achievements and social status to their circles through buying and using foreign
luxury fashion goods.
By doing so, those Chinese consumers will receive immediate favorable social
acceptance and face (or mianzi) up to the level of the social status they wish to
achieve. Unfortunately, such consumer behavior for those who are new middleclass consumers may reach almost pathological levels of consumption in foreign
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luxury fashion goods (Peter & Olson, 2008). Consequently, they desperately
purchase global-branded luxury-fashion goods seeking to acquire cultural
meanings to construct a satisfactory self-concept (or mianzi). In other words,
many Chinese consumers purchase global brand and or imported products to
enhance and symbolize their higher social status, prestige, fashion, and product
reliability compared to the local brand product counterparts (Wang & Chen, 2004).
Despite its apparent importance, a review of previous research on global brands
in Chinese market identified several deficiencies in taking into account of culturalsocial value systems (e.g., Chinese Confucian face culture, Schutte's Maslow's
hierarchy of needs: The Asian equivalent, Hofstede's power distance and
collectivism). Therefore, it seems clear that additional research in this area is
needed and imperative. This study provided further insights to multinational
corporations (MNCs), Chinese domestic firms, and Chinese consumers
themselves. Furthermore, this study developed a better understanding of how
Chinese consumers' perception of global and local brands that may significantly
affect their consumption values, perception, preference, behaviors, and attitude
when purchasing luxury fashion products.

INTRODUCTION
All sciences, including psychology, tend to neglect this paramount fact of
individuality. In daily life, on the other hand, we are in no danger of forgetting that
individuality is the supreme mark of human nature. All during our waking life, and
even in our dreams, we recognize and deal with people as separate, distinct, and
unique individuals. (Allport, 1961)
One billion, three hundred million customers: It's a number that has captured the
attention of every company in the world that wants to do business in China,
hoping to market everything from toothpaste to financial services to luxury cars.
But once multinational companies get past the excitement of imagining the
opportunities offered by the world's largest consumer market -- growing richer and
more status conscious with each passing year -- there is the sobering thought of
figuring out how to go about unlocking the secrets to selling to all of these people.
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Who are they? How much money do they have? What do they want to buy? What
motivates their purchases? What are the peculiarities of the Chinese consumer?
Experts at Wharton, the Boston Consulting Group and elsewhere say China's
consumers are at a crossroads. They are embracing new economic ideas and
habits, and devouring goods that have long been unavailable, unaffordable or
forbidden. At the same time, they are part of a consumer culture and an economic
system that remain quite different from those of developed countries. In broad
terms, there are multiple Chinas -- the old and the new, the urban and rural, dirtpoor peasants and multimillionaires, a land of freedom and authoritarianism
whose world outlook and savings and buying preferences reflect the traditions of
both East and West.

A Country of Extremes
China is rapidly urbanizing but it is still a "country of extremes," says Hong Kongbased Hubert Hsu, vice president and leader of BCG's consumer goods and retail
practice for the Asia Pacific region. China is home to 1.3 billion people, but only
about 400 million are in urban areas. In urban areas, incomes have been growing
at the same rate as GDP -- about 10% annually, adjusted for inflation -- in recent
years, while incomes of rural people rise only 1% a year. Says Hsu: "It's a land of
haves and have-nots."
Wharton marketing professor Z. John Zhang agrees. "The distribution of income is
very uneven," he says. "There still is a tremendous difference in wealth between
people in the city and the countryside. Even within cities you find huge disparities
in income. This is a phenomenon you can't lose sight of if you're selling consumer
goods. You have a billion customers, but they're not all the same."
"It's difficult to generalize overall about Chinese consumers," says Joseph Wan,
director and vice president of BCG in Hong Kong. "Companies are only beginning
to realize the differences among consumers. In terms of geographical
segmentation, most companies are pretty good at understanding that consumers
in the western versus eastern parts of China are different. But there are so many
intricate nuances that it's almost impossible to generalize -- and things can
change so rapidly."
At the same time, a strong middle class is emerging. BCG estimates that there are
25 million to 30 million middle-class households in China, compared with 8 million
affluent homes. "More people are moving into the middle class every year than
into the affluent class," according to Hsu. "In general, the growth in middle-class
incomes has been one of the key drivers behind the growth in a lot of consumer
categories: color TVs, beer, mobile phones, personal computers. These are
categories that enjoy high penetration in China."

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A BCG report published in December 2005 -- titled "Wealth Markets in China:

Exciting Times Ahead" -- shows that wealth in China is highly concentrated. Less
than one half of 1% of Chinese households holds more than 60% of the nation's
personal wealth. Among these rich households, about 70% of the wealth is held by
households with more than $500,000 in assets under management.
In all, 1.59 million households have $500,000 or more in assets under
management, according to the report, prepared by BCG consultants Tjun Tang,
Thomas Klotz and Thomas Achhorner. Some 250 million households have
$100,000 to $500,000 in assets under management, and 527 million "nonwealthy" homes have less than $100,000 in assets under management.
In recent years, the richest Chinese have gotten richer -- a trend that shows no
sign of abating. "There is a polarization of wealth taking place," says Tjun. "The
Chinese say, 'the two poles are separating.'"
But, significantly, the report also notes that the non-wealthy households are not
getting poorer. Since 1999, households with assets under management of more
than $5 million have grown from a 14.3% share to a 16.6% share of China's
personal wealth. During that same period, non-wealthy households have
accounted for a steady 36.6% of all wealth.
"China is going through an economic boom period and that's driving a lot of
consumer behavior changes," says Hsu. "And this boom has been going on for 25
years now."
Since 1980, Chinese GDP has been growing 10% a year, on average, after
adjusting for inflation. Per capita income in China has grown by a factor of seven
during this period, a pace greater than that enjoyed by Japan in the quarter
century following World War II. Still, it is important to note that most Chinese are
very poor, and even many working couples strain to make ends meet, according
to Wharton management professor Marshall Meyer.
"At the top, there's a lot of wealth," says Meyer. "Folks engaged in entrepreneurial
ventures, particularly ventures where they connect MNCs (multinational
corporations) with the large state enterprises, have been able to make money. But
the average family probably feels like the average family in the U.S. -- less well off
today than a few years ago. Now, people are optimistic in China, but there's a
tremendous squeeze on family budgets, and the squeeze is due to medical and
education costs and the skyrocketing cost of housing. Combine these with the
need for families to save for retirement. Under the one-child policy, you've got an
inverted pyramid with one child supporting four grandparents, in principle. People
have to sock away a lot of money for retirement. And returns on savings are
extremely low in China, so people have to sock away more."

Middle-Class Growth
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Nonetheless, the growth of the middle class is good news for companies selling in
China. The Chinese middle class numbers 25 million to 30 million households,
according to BCG. BCG defines the "middle class" as those households with an
annual income of $4,300 to $8,700. "Mass affluent" households are those with
incomes of $8,700 to $11,600. "Affluent" households earn at least $11,600 a year.
Middle-class Chinese are both savers and spenders. Since China's financialservices sector remains relatively primitive, and consumer credit is still virtually
non-existent, consumers squirrel away money for long periods of time so that they
will have enough to purchase the highest quality products and services they can
afford.
Noting that the personal savings rate in China represents a whopping 50% of GDP,
BCG's Hsu calls China "a culture of extremely frugal people. They've gone through
hard times, starting with the Cultural Revolution [under Mao Zedong] in just the
last generation. Most never went to university."
On the whole, Chinese have more money than ever before. But because the days
of harsh poverty are not that far behind them, many middle-class consumers
insist that products be practical in nature and function well, according to Hsu.
At the same time, however, people are beginning to look beyond the functionality
of goods. Middle-class and affluent consumers spend much of their discretionary
income on items that will help them rise in stature compared to their neighbors.
"Incomes have increased so much that some people have already taken care of
their basic needs," according to Wharton's Zhang. "Their aspirational level is much
higher now. They're looking to consume things that are not entirely necessary. Yet
the Chinese are also frugal and will reject products they see as impractical or of
low quality."
Some of the most popular products among the middle class and affluent are color
televisions, mobile phones and personal computers, according to BCG consultants.
Providing schooling for children is also vital. "Education is always a priority, since
Chinese couples can only have one child [by government decree]," Zhang notes.
"Parents are always concerned that they don't spend enough to give their kids a
head start."
People with the means to do so also tend to spend a lot on real estate, an
outgrowth of the importance that the Chinese, in what is still a largely agricultural
nation, have always placed on land. It is not unusual for wealthier city dwellers to
have multiple apartments or houses, Zhang says. Affluent Chinese also enjoy
traveling in Asia and around the world. China has become one of the largest
tourist-originating countries in the world, adds Zhang.

Eye-Opening Behavior
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Hsu says a visit to a middle-class Chinese home can be an eye opener into the
idiosyncratic behavior of consumers. "You see amazingly insightful things -- where
consumers trade up and trade down. Actually, they do both at the same time
because there are not enough dollars to go around. A couple with a child will
spend a lot on that child. If you go into homes without kids, you see that people
spend their money on products that make them feel and look good or give them
social status. It can be clothes, mobile phones, fragrances or skin-care products.
They don't spend money on products their friends and neighbors can't see. They
may not be willing to pay premium prices for brands like Windex window cleaner
or Kiwi shoe polish.
"It's important for companies to segment consumers and understand where
they're willing to trade up and trade down," Hsu says. "Chinese consumers are
experimental. They will pay a premium price for a new brand to try it. But if it's
not better, they won't buy it again."
Instead, the buyer will go back to using his or her local brand of laundry soap or
dish detergent. Brands like Safeguard soap and Tide detergent are national
brands, and they are so popular now that they dominate their share of the market.
But many local brands exist in China, especially in less cosmopolitan regions
where many of today's city dwellers grew up. In local or regional markets these
homegrown products offer consumers choices that can compete strongly with
global brands.
Companies must also pay attention to how the Chinese shop. "For some items
they go to the store more often but spend less, and vice versa," says BCG's Wan.
"It's a very complicated picture. The rate at which they adopt certain products will
also change by demographics, and they have different behaviors across price
points and brands."
By way of further explanation, Wan echoes Hsu's comments about the
unpredictable, ever-changing way in which Chinese consumers trade up and trade
down. This is one key difference, by and large, between Chinese and American
consumers and it is the kind of behavior that can make life challenging for
corporate marketers. Says Wan: "A Chinese consumer may say, 'I can trade down
on my car.' He may decide that a car is no longer important, even if he is making
more money than he ever has before. If he has additional savings or income, he
might decide to buy better kinds of wine [to impress other people] and spend less
on a car. He is balancing his portfolio, so to speak. This happens all the time,
across demographics and incomes."

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Transforming how we view Asian consumer psychology

The Western conception of a person as a bounded, unique, more or less
integrated, motivational and cognitive universe, a dynamic center of awareness,
emotions, judgment and action, organized in a distinctive whole is, however
incorrigible it may seem, a rather peculiar idea, within the context of worlds
cultures.
Most of the consumer behavior models that are used in Asian boardrooms today
were developed in a handful of Western countries. Marketers still do not know very
well how marketing techniques and theories can be applied to non-Western
contexts. Many models that are used by companies today are based on the
assumption that, as the well-known anthropologist Clifford Geertz puts it, the
person is a bounded, unique, more or less integrated, motivational and cognitive
universe. Most marketing and management theories rely on what we can call a
Western perspective of the individual as an independent, autonomous identity,
free to make decisions based on purely personal desires and affiliations, living life
in accordance with Maslows hierarchy: food, shelter and clothing are the most
basic needs, after which might come haute cuisine, decoration and fashion.
Mankind universally, it would seem, operates just as rationally. Marketing
textbooks still use this model to show how consumers move from the satisfaction
of basic needs to higher order goals such as self actualization. This model,
however, fails to consider cultural differences. The widespread practice of dowry
in India, although illegal, highlights the plight of parents who are forced to save
money and forego its benefits to buy enough jewelry for their daughters
weddings. In some emerging countries, people may deprive themselves of food to
buy a refrigerator to enhance their social class.40 clearly; the hierarchy of
priorities is different in an Asian context, where interpersonal relationships and
social interactions are more valued, on average, than self-actualization needs. As
is evident in Figure 3.1, the Western need for self-actualization is replaced in the
Asian context by social needs of status, admiration and affiliation. Autonomy and
independence are not as important or at least do not have the same connotations
as in the West.

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Selling to the Affluent

Some MNCs, such as Procter & Gamble, General Motors and Carrefour, have had
success in penetrating China's mass market. But makers of luxury goods have yet
to fully exploit China's growing affluent class.
"There is no way that luxury companies are paving the way in China in terms of
penetration," according to Hsu. "Because luxury-goods companies are not doing a
very good job of presenting their products in China, customers go to London or
New York to spend money. In China, a lot of these companies give what I call a
'constrained offer.' If you go into a store, the amount of merchandise is a third of
what you see in same store in New York or Hong Kong. Of course, luxury-goods
companies are glad people are spending money in New York, but they can't target
them and get information on them or send them brochures and so forth. They're
missing opportunities."
Hsu estimates that there are at least one million Chinese with access to $1 million
in cash. He adds that Bentley sold more cars in China than any other country in
2004.
Even though practicality still reigns when it comes to product choice among
Chinese consumers, the emotional and social benefits derived from shopping, so
well known to Western consumers, are growing in importance, says Singh, the
strategic planning director for China for BBDO. The growth of the economy is
changing "the way people look at buying brands and the way they look at
themselves as people with money," he says. Even in the years immediately
following the economic liberalization begun by Deng Xiaoping in 1978, people
viewed money exclusively as a means of security and a "protector," giving little
thought to luxury. In recent years, however, Chinese have come to see that money
can be an "enabler" and that economic freedom means, in part, the "freedom to
be wooed by brands."
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Many Chinese citizens, especially the affluent, "have become extremely

aggressive, demanding, high-maintenance consumers," explain Singh. "Instead of
controlled consumption restraint and denial, there is much more affluence. There's
this need to seek some form of expression by buying brands and wearing them as
a badge."
But Singh puts a different twist on the need by affluent Chinese to buy brands.
Brands are important -- not necessarily because people need the esteem and
want to stand out, but because they actually want to fit in with everyone else who
buys brand-name goods. This has led to a form of anxiety heretofore unknown in
China. "It's been called 'consumptive anxiety,'" says Singh, who defines the term
as the need for people to buy products so as "not to be left behind."
Citing the work of Helmut Schutte, professor of international management at
INSEAD in France, Singh notes that the "hierarchy of acceptance and belonging" is
inverted in China when contrasted with the West. "The higher-order needs in
China are still collective rather than individualistic. Everyone in China wants to
conform to standards in a way that gives them social acceptance. Therefore,
symbols become important. People want to subscribe to success. For brands to
make a dent over here, it's no longer a game about creating esteem, it's a game
about creating popularity."
According to Singh, some of the most popular luxury brands in China -- not only in
the largest, so-called "tier one" cities like Shanghai and Beijing, but also in tier two
cities in the interior of the country -- are BMW, Giorgio Armani, Rolex and Louis
Vuitton. "Vuitton is trying to open a least three stores a year in China," says Singh.
"The number-one brand of clothing is Armani, and not just in the tier one cities."
De Beers is another popular brand. Its diamond engagement rings are big sellers,
even though the concept of Western-style engagement prior to marriage does not
exist in China. A De Beers ring is not a gift from a man to his fiance; it is a
symbol of love and commitment. "People understand that wearing those
engagement rings gives them 'face' outside [the relationship] -- acceptance and
validation."
Another well-known brand with an unusual image in China is Procter & Gamble's
Oil of Olay. Oil of Olay, the top advertiser in China, is an inspirational brand, not a
common drug-store brand as in the United States. "In the West, Oil of Olay is
about telling women to love their skin," Singh notes. "Here, the ads say, 'Oil of
Olay will get you a handsome husband.'"
What makes China a complex challenge for marketers is the need to position
products so that they are accepted by the largest number of consumers yet are
still differentiated, according to Singh. Oil of Olay does just that. "The number-one
challenge in this market is to achieve consistency of brand communication, yet
permit sufficient flexibility to meet specific needs of individual markets within the
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bigger China market. For different targets there are different products and for
different products there are different tasks."
Beginning in December 2006, foreign financial services companies will enjoy some
of the most exceptional business opportunities in China, and Chinese institutions
will be pressed to respond to the competitive pressure. That is when the Chinese
banking industry will be fully liberalized, allowing foreign institutions to serve
individual customers in businesses using the renminbi.
In the report "Wealth Markets in China," the BCG authors say China represents the
second largest wealth market in Asia (after Japan), with $1.44 trillion in assets
being managed for wealthy people. BCG projects annual asset growth among the
wealthy of 13% over the next several years, with assets under management
reaching $2.63 trillion by 2009. "BCG expects foreign banks to create some tough
competition in the wealth-management market, as they enter the retail market
and attempt to cherry pick the most attractive customers," the report states.
"Unless Chinese banks can respond, there is a real and significant threat that
many wealthy customers will be lured away by the highly evolved products and
services that foreign bank can offer."

Straddling the Fence

As China's economy continues to grow, consumerism will become more prevalent.
But it will not be a smooth transition from communism to capitalism. Wharton's
Zhang, who was raised in poverty in China, lived much of his life under an
authoritarian regime and says those days are far from completely gone. Chinese
citizens today straddle a fence dividing the old times from the new, and are never
certain where freedom begins and ends.
Says Zhang: "When I was a boy, [China] was a totally different world. Everybody
grew up wearing exactly the same clothes and doing the same things. Now there
is more wealth in the country and aspiration is high."
"The country is moving very fast," he adds. "Never in my dreams could I imagine
that a country this big with this many people could move so fast. It's astonishing
to me, and probably astonishing to most people in the world."

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THE DILEMMA BETWEEN THE UNIVERSAL AND THE PARTICULAR

Universalist cultures tend to feel that general rules and obligations are a strong
source of moral reference. People from these cultures tend to follow the rules and
look for a single best way of dealing fairly with all cases. They assume that the
standards they hold dear are the right ones and attempt to change the attitudes
of others accordingly. Particularity societies are those where particular
circumstances are much more important than any rules. Bonds of relationships
(family, friends) are stronger than any abstract rules and responses may change
according to circumstances and the people involved.
Thus some products for universalistic markets may need to begin by being
homogenous and generic, but this does mean that the consumer will buy from any
supplier as there is no difference between sources. Buying gasoline is an examplewho you buy from matters little. At the other extreme, over particularizing means
small, highly differentiated markets with highly specialized products addressing
each small segment-and with associated higher costs.
When a company has developed packaging and presentation of a brand to the
point where it is instantly recognized, they are faced with the dilemma between
keeping it the same (universal image) and having different versions
(particularism) for different markets and over time. Packaging can look out of date
very quickly as colors, logos, and fonts come in and out of fashion.

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A consumer's capacity to detect or observe such differences is relative and the

issue of when and how a difference is observed is relevant to many marketing
situations. The stronger the original imagery, the greater the change required in
order for that change to be noticed. Thus companies often update their packaging
with small, incremental changes over time-so they stay fresh and modern, but
don't lose the identity of the product through making noticeable changes or when
the consumer is traveling overseas. Because consumers are subject to saturation
of stimuli nowadays, with advertisements on every street corner, every web page,
every radio or TV program, every page of every newspaper, organizations also
need to consider how they can get their product or promotion noticed without
irritating the consumer by overexposure and excessive bombardment.

Advertisements and Commercials in China

The impact of the communitarian values of Chinese culture on the marketing of
consumer goods is rather straightforward. Most goods are best positioned in a
family or family-like collective environment. Family-like collectives frequently used
in advertisements are colleagues, members of a sports team, or classmates at
school. Within the collectives, the leading people are often given some special
attention or a special role.

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Customer Orientation in China and the US

In a cultural environment where a lot of attention is given to outside forces,
companies are very interested in finding out what customers want. Manufacturers
do their best to make or develop products that fulfill consumer needs. With the
recent economic reforms, Chinese companies have been made responsible for
their own profit or loss, and this has made them even more consumer oriented.
For example, many Chinese manufacturers now conduct R&D activities in close
cooperation with customers. Western manufacturers who wish to sell on the
Chinese market will also need to be attentive to the needs of consumers and be
willing to adapt their products and services to the Chinese market.
The strong Chinese belief in stories plays a significant role in marketing. In China,
the company that is the first to introduce a certain product is usually the most
successful. One of the main reasons behind this is that such a company can
literally construct the market by creating stories or rumors beneficial to its
products. These stories are as readily believed by Chinese consumers as facts,
especially when the stories have an academic element to them, and they will be
used as benchmarks to compare other products. Companies entering the Chinese
market later, even with better products, will find it extremely difficult to counter
these stories.
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The usual practice in America is deviance-correcting feedback. You have an innerdirected purpose. You start to implement it. You get feedback that you are not
quite on target. You take corrective action and persevere in your chosen direction.
The outer-directed Japanese proceed differently. They produce a variety of outputs
in the expectation that some will be more acceptable than others; hence all
deviate from each other. The customers tell you which deviation they prefer and
the result is deviance-amplifying feedback, or what Maruyama called "the Second
Cybernetic Revolution" (Maruyama, 1963). It is as if you were sailing for America,
but chanced on Bermuda and decided to live there instead. Deviance amplification
puts emphasis on luck, serendipity, and happenstance.

One of the famous spots in Bejing used to be Xiushui or Silk Street. Ranking in the
top three of Beijings attractions, the narrow and crowded street would attract
thousands of foreigners every year to buy cheap counterfeit versions of global
luxury brand names like Ralph Lauren, Louis Vuitton, Prada and many others. It
was recently closed down by the Chinese authorities for renovation. Instead, stall
holders would have an option to take up a stall at the nearby Xiushui shopping
center, where a trading corner of less than 5 square meters will auction for as
much as US$400,000.

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Chinese luxury shoppers

A 2004 report from Goldman Sachs notes that the Chinese customer base
represents the third largest for the luxury goods industry. The Chinese accounted
for an estimated 12 percent of global luxury goods sales in 2004, with 2 percent
derived from local spending in China and 10 percent from overseas Chinese
travelers including Hong Kong. By 2010, Chinese luxury consumers could account
for 23 percent of industry sales, and by 2015, with an estimated 29 percent of
sales, they could become as important as their Japanese counterparts. The
Japanese currently account for approximately 41 percent of global sales. Many
global luxury goods firms are attracted by the rapidly expanding Chinese
customer base and are investing significantly in opening multiple stores and
spending heavily on marketing in China.
For example, Giorgio Armani plans to open 2030 new stores in China by 2008.

WHY MULTINATIONAL CORPORATIONS FAIL IN CHINA

The strategic insight in the world is useless if multinational corporations (MNCs)
fail to understand the operational realities and business potential in China. So,
when we assess the viability of long-term partnerships with MNCs, we force
ourselves to ask five questions

HAS THE CHINA VOLUME POTENTIAL BEEN OVERSTATED?

The glittering panorama of the Bund, a riverfront avenue boasting colonial
Shanghais finest architecture, is seductively impressive. But, behind the faade,
things get gritty. Penetration levels are low; for example, only 34 percent of
babies wear disposable diapers. And limited disposable income places an iron lid
on household consumption. The Shanghai Carrefour at Wuning Lu once boasted
the worlds largest footfalland the smallest per-person sales. Although China
now has over 300 million mobile phone subscribers, the average revenue per user
is less than $15, compared with $80 in Japan. The only way to overcome a lowSubmitted by: Syed Hasnain Alam Kazmi
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volume ceiling is by standing in front i.e., grabbing the category benefit and
effectively owning a fundamental motivator to get a big slice of a small pie.

IS A GOLD RUSH CORRUPTING DECISIONS?

Competition is pervasive and ruthless. The PRC, awash with overcapacity, is
plagued by supply-driven mobilization and falling prices. The annual demand for
TVs in China is 35 million sets while the capacity is 50 million. Most consumer
durables have low utilizatione.g., refrigerators (51 percent), washing machines
(44 percent), or air conditioners (34 percent). FCMG goods are often trapped in
the same vicious cycle. In 2001, there were 278 shampoo brands. By 2005, that
number had been culled to 201. To establish a profitable oothold, MNCs can adopt
one of three strategies:
(1) acquire local business to build scale/distribution rather than investing in new
capacity, (2) form strategic alliances, or (3) step up imports or outsourcing.

ARE PRICE POINTS TOO HIGH?

Multinational companies often fail to recognize that a majority of the population is
poor. For example, in most countries, Pantene is priced at market average; in
China, its up to 40 percent above. Ariel detergent foists a premium of 100 percent
on a penny-pinched public; its share is under 5 percent. In the face of cutthroat
prices, MNCs are launching second tier brands as volume generators. P&G
carries both mass market Tide (global name but cheaper cost of goods [COGS]) as
well as premium Ariel. Within Nestls culinary portfolio, Maggie (190 price index
and 6 percent share) skims the surface while Taitaile (88 price index and 43
percent share) its out the major chunk. Similarly, Colgate Palmolive has
leveraged a powerful brand by extending the equity of Colgate Total to embrace
no-frills Colgate Strong and Colgate Herbal (combined share of more than 25
percent).

IS A PRODUCT COMPATIBLE WITH CONSUMER DEMAND?

In a land of instant noodles and health tonics, too many global giants impose
Western tastes on a Chinese public. Cheese, ice cream, chocolate, and breakfast
cereal are simply not natural fits with local preferences. Instead of pushing water
uphill, MNCs are moving into local product categories either through acquisition
(e.g., Danone and Wahaha AD calcium drink) or introduction of familiar concepts
under global brand names (e.g., Heinz Babao congee, Knorr MSG).
IS ABOVE-THE-LINE COSTS UNAFFORDABLE?
Due to high media rates, heavy clutter, and difficulty in reaching discrete targets
(i.e., unavoidable media wastage or over delivery), building equity is
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Student Id: 11052016
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expensive. Advertising-to-sales ratios in China are high. Regrettably, this is a fact

of life and must be confronted with deep pockets or a (realistic) tactical approach
ncompassing below-the-line, gradual distribution expansion, or brand extensions.

MASS MARKET BEHAVIORAL CHARACTERISTICS

Contemporary Urban Acquiescence
The masses mindset has not changed, even in cities. The masses are conditioned
to accept abuse of power by the powerful, hence, the prevalence of their striking
passivity in the face of corruption and yawning income isparities. There is no sign
of public dissatisfaction coalescing into the kind of nationwide movement inspired
by the Tiananmen Square demonstrations. When confronted with a hopeless
situation, urbanites instinctively lapse into passivity. Mei you ban fa (literally, no
way to handle) is one of the first phrases any foreigner learns, usually from
disgruntled taxi drivers complaining about wages or from sales clerks explaining
stock shortages. Despite the widespread awareness of the partys iron-fisted
control of media, the masses dont bother to challenge blatant propaganda. It is
white noise, instantly tuned out. Demonstrations against the arbitrary and illegal
fees imposed by crooked local leaders are only sporadic (but spreading).
Tormented passengers on Chinas delay-ravaged, no communicative, cancellationprone, noncompetitive airlines are docile lambs led to slaughter. Corruption is as
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inevitable as sunset. While often grumbled about (and occasionally rebelled

against), its pervasiveness is largely met with a collective and resigned shrug.

This Nestl wafer ad, hugely successful, refers to chocolate chompability at only
1RMB
($.12). It savvily dramatizes taste satisfaction, not low price.

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CONCLUSION
China is a vast and multifaceted country whose cultural heritage has more than
five millennia (Lowe & Worsley, 2004). Its population has more than 1.3 billion
people that accounts for about one quarter of the world population (Hill, 2007;
Lowe & Worsley, 2004; Xiao, 2005) and still remains one of the last great
untapped regions of the world for new marketing opportunities (Xu, 1990 as cited
in Lowe & Worsley, 2004; Xiao, 2005). Over the past two decades, China has
become the biggest market for luxury and prestige brands from the West (Keegan
& Green, 2008). Luxury sales of global brands have rapidly increased in China
(Keegan & Green, 2008). China has become the world third largest consumer of
luxury goods with 12 percent of world total market share in 2006 (Xinghua, 2007).
It is expected that China will become the world's largest consumer of luxury
goods in 10 years (Datamonitor, 2007; Xinghua, 2007).
As the marketing world is moving forward towards globalization, and as new
untapped markets open up and develop due to globalization, it is critical for
leaders and marketers to understand the cultures and consumer behavior in new
global marketplaces. China is an attractive marketplace for numerous MNCs due
to its rapid economic growth in recent years and its huge potential consumer
market for the world. According to the interview findings, it was notable that
middle-class Chinese consumers economically were much more able to afford and
consume fashion luxuries than years ago, and also they stressed high quality
products and brand reputation both from global brands and local brands to assure
their consumption selection and decision on fashion luxuries.
It is believed that this study will provide further insights of changing Chinese
consumer behavior in recent years. Eventually, this study will benefit
multinational and local leaders and marketers to develop marketing and business
strategies to cater for China's vast market effectively, efficiently, legally, ethically,
and profitably. Meanwhile, this study will also benefit Chinese consumer living
standards through the increased availability of a wider choice of product and or
service assortments to meet Chinese consumer consumption values, preferences,
and expectations accordingly. The psychology of the new middle class is marked
by contradictions.
Chinas history, its unity of spirit, and a missionary zeal to elevate the nations
role in the world are all net ositives that will create a great modern nation.
However, Chinas millennia-old dynastic and Confucian culture creates apparent
conflicts that need to be carefully managed by marketers. The mindset of the
newly affluent paradoxically blends an aggressive hunger for social and financial
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advancement with a rigid, hierarchical social structure that rewards conservatism.

As a result, the Chinese psyche has always been torn between the polarities of
ambition and caution. (Japanese, on the hand, is unadulterated safety seekers.
Western countries, fueled by individualism, pretty much go for it.) Denizens of
the Middle Kingdom are pulled by a desire to both project individual status and
protect family welfare. They are motivated by both a dynamic and impulsive
now orientation versus a stable and balanced future focus. The ambivalence
between conspicuous consumption and conformist conservation has historically
divided the hearts of Chinese. An explosion of lifestyle and economic
opportunities, combined with the other reality of low incomes, rusted iron rice
bowls, and expensive housing, exacerbates this tension. And smart marketers
must help consumers resolve it.

REFERENCE

Wharton Business School - http://knowledge.wharton.upenn.edu/article

Name: Journal of International Business and Economics
Publisher: International Academy of Business and Economics
Audience: Academic Format: Magazine/Journal
Subject: Business, international; Computers
Copyright: COPYRIGHT 2010 International Academy of Business and Econom
ics ISSN: 1544-8037Issue:Date: May, 2010 Source Volume: 10 Source
Issue: 2
Probert, Jocelyn and Hellmut Schtte (1999), De Beers: Diamonds are for
Asia,
INSEAD Euro-Asia Centre, Case 599-011-1, p. 12.
Talk with Den Fujita, Twenty Year History of McDonalds Japan, Tokyo:
McDonalds, 1991, 82.
See Wee, C.J. W.-L. (2004), Staging the Asian modern: Cultural fragments,
the Singaporean eunuch, and the Asian Lear, Critical Inquiry, 30(4), 781.
How Asia Advertises: The Most Successful Campaigns in Asia-Pacific and the
Marketing Strategies Behind Them, Jim Aitchison, John Wiley & Sons Asia,
2002.
http://www.asiamarketresearch.com (accessed 17 April 2005).
Woman sues SK-II over skin damage, Straits Times, 9 March, 2005.
See Appadurai, Arjun (1996), Modernity at Large: Cultural Dimensions of
Modernity. London and Minneapolis: University of Minnesota Press.
Saris and bhangra rhythms: ads in Asia go Bollywood, Asian Wall Street
Journal, December 1719 2004, A5A7.
Iwabuchi, Koichi (2002), Recentering Globalization: Popular Culture and
Japanese Transnationalism. Durham, NC: Duke University Press.

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See Iwabuchi, Koichi (1992), Feeling Asian Modernities: Transnational

Consumption of Japanese TV Dramas, Hong Kong: Hong Kong University
Press.
Korean wave to be promoted in new regions, Korea Times, 17 March,
2005.
17 See Mazzarella W. (2003), Shoveling Smoke: Advertising and
Globalization in
Contemporary India. Durham, NC: Duke University Press.
18 In Parks L. and Kumar S. (eds) (2003), Planet TV: A Global Television
Reader.

ANNEXURE
Fig. 1. Even for the most expensive productsi.e., those targeted to the most self-actualized
and successful menits important to reinforce ones social position. Lincolns Navigator has
been branded the President, the same noun used to describe the U.S.A.s Commander-in-Chief.
Advertising should never be internal.

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Fig. 2. Nokia knows that, for 3,000 years, Chinese culture has stressed the importance of
understanding the world around you as the fundamental adaptive trait. In todays ever-changing.

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