YUM, CHINA

 

When Yum choose to enter into Chinese market following immediate success of Mcdonald’s in China, they executed multi-domestic strategies to adapt themselves to local market in each section of China.

YUM’s intensive investment in expanding and marketing in China came from the following reasons. Firstly, China has a large population up to 1.3 billion with growing middle class and economic prosperity. Secondly, more people are appealed by the western idea and life style as the globalization trend. Thirdly, there are fewer competitions in Chinese market. Even though there are local restaurants and venders, they are targeting at totally different market segments and consumer groups. Also, the government is offering favorable policies for foreign investments in China which means cheaper investment within shorter time. In comparison with two years cyclical period in American, there are only six months to recover the investing. At last, Chinese government has less regulation on food related industry than U.S. All those factors provide opportunities for YUM to enter Chinese market.

However, YUM could never success in putting American business model into Chinese market. In the United States, they offer exactly the same menu and taste all over the country. The situation in China is totally different. The consumers even have various spicy preferences in each province. Thus YUM did more research on relative issues. The primary ones are listed as below:

Firstly, culture differences require the company to pay much more attention to the decoration and environment inside of the restaurants. Even KFCs should be authentic restaurants for families and friends to enjoy rather than fast food for Chinese. People spend more time in the stores, therefore, bigger size stores with more comfortable decorations are launched in China.

Secondly, taste differences are always taken into considerations. According to the preference, YUM offer products with minus modification in different regions to meet or even surpass the consumers’ expectations.

To better market YUM itself, the company offers menu with various choices to the Chinese customers. The reason is that Chinese people prefer more choices on the menu. Food is part of their culture which means they spend more time on cooking, eating and tasting. It is like an art for them.

YUM also build long-term and trustful relationship with their employees to decrease employee turnovers in China even though labors are way much cheaper in China. They are implanting the company culture into the employee groups to enhance YUM’s corporative power in China.

At the end, I’d like to mention BRICs in the global market. Even though YUM is expanding rapidly, they can’t use the same business model in other countries such as India as it is in China. To do that, the company has to assume exactly the same internal and external environment in the other countries. Diversification is a important factor .

Corruption in China on the effect of entering into Chinese market

For individuals and big companies whoever tried to or are currently in China now, “Guanxi” could be an extremely familiar concept for them. Actually it means corruption for many foreigners.  The following link indicates the global integrity report in 2011, thus we can tell from the reported chart that China’s corruption level is at a higher level comparing to other countries.

http://www.globalintegrity.org/report

When a global company is trying to enter or market in a country like China, it is commonly believed that the company must establish good and close relationship with the government which has much more power over business companies or organizations all over the country. Bottom line, if a company wants to execute its marketing and expanding strategies smoothly in a new oversea market, they have to make sure that the local government paves the way for them instead of setting up obstacles.  Consequently bribery would follow with the expectation of building good relationships through “Guanxi” which means some personal networking who might works in the government at a powerful position. Even though it sounds unbelievable, that is exactly what happened for years.  Looking over the current situation in China, it seems like the Communist Party is trying to improve serious corruption issues.

Recently, China’s Communist Party leader Hu Jintao spoke at the start of a congress that will culminate in the appointment of a new generation of leaders. His presumed successor, Xi Jinping who will take the reins as President next March, acknowledged the problematic issues facing the party, especially corruption. Both of Hu Jintao and Xi Jinping call for sterner measures to combat corruption. As a company, it can’t be too positive from this announcement without actual plans. With the robust economic growth in China, the country becomes a highly attractive market for many multinational companies with a 1.3 billion population and growing consumption power and growing middle classes all over the countries. However, corruption becomes another prominent factor companies have to consider except for culture differences.

Corruption would cause uncertainty risk and extra expenditures with respect to building good relationships with government and related personnel underneath the surface. None of the companies can put those expenditures into their financial forms. However if a company could control the relationship well enough, they would be capable of transferring corruption as a benefiting tool for their business. All in all, it depends on your tactic to communicate and negotiate. Do not ever try to use American style to stand out and prevail in the communication. Apparently companies need to learn to “be a Chinese”. Do in Rome as Rome does.

Big Wave in Anti-Japanese Protests in China

 

For the last few weeks, the worst anti-Japanese protests in decades happened in China. Specifically the protestors have vandalized many Japanese businesses including stores which sell Japanese goods, car dealership and some personal owned Japanese property. Many people choose to hide their Japanese cars at home in case that their cars would be destroyed by the extreme protestors. All the protests mainly resulted from Japanese occupation of China’s Diaoyu Islands. For years, many Chinese still have a deep sense of anger against the Japanese for Atrocities during World War Π. The dispute of Diaoyu Islands brought up many issues with respect to the importing and exporting between China and Japan. The bilateral trade between the two countries amounts to $300 billion a year, therefore the anti-Japanese protests could have seriously negative effects to both of China and Japan. Accordingly, Japanese car industry is suffering the worst time for years and the business representatives are negotiating with the Japanese government to find feasible and effective solutions.

Japanese car brands including Toyota, Honda and Nissan, get hurt to a large extent. Also, this big wave of anti-Japanese protests will cause permanent damage to their brand images and reputation. On the other hand, some other German and American car brand such as Volkswagen, Audi, General Motors, Ford and so forth may benefit from this big wave. Customers refuse to purchase Japanese cars which many of them choose to buy German or American cars. This could be a profound momentum for the two- digit sales growth rate of Volkswagen and Audi.

Generally speaking, the big wave happened in China now has tight connection with political issues and social environment. For many multinational companies, expanding and penetrating into another country’s market will require considerable preparations including culture and historical issues. Any problem ignored today will cause more troubles to the oversea business in the future. Even though it sounds funny, it happened frequently and it will result in severe damages without proper solutions.

Ironically I am using a SONY computer and driving a Toyota here in the United States. I have no idea what would happen to my stuffs if I were in China now. The only reason for me to buy a Japanese car is to sell my car easily after I complete my studying here. Personally I prefer German cars better, especially Volkswagen and Audi with better quality. That’s also why all the cars in my family are German cars.

CMF-“Crazy” $ 1 million commercial investment of Jay Chow in China!

Colgate launched its Colgate Max Fresh toothpastes in China in 2005. To roll out the first launching of its new products, Colgate invested a huge amount of capital in a localized commercial to appeal more desirable customers in China.  Within the company’s budget, Colgate spent $1 million to invite a celebrity-Jay Chow-a rocker star in China to express CMF’s concept to its targeted consumers which are young people aged from 18 to 34 and purse a cool lifestyle.

Apparently this investment brought up disputes in class when we talked about this. Also, Colgate was operating its CMF at a loss of 51% for the first year and 6% for the second year after the launching of CMF China in 2005. The corresponding financial performance made it even more doubtful of the necessity to pay Jay Chow $1 million for the latest commercial in China. Some comments of this profound investment were even ironical. However I always agreed with Colgate’s global group’s decision with respect to this “crazy” commercial investment.

From the attached exhibits in the case, you can see there are so many brand choices for customers ranging from extremely low price to over 30RMB in the market. At the same time, CMF were targeting at a premium price (approximately 15 to 20RMB). Accordingly, Colgate has to find effective and efficient marketing and advertising to increase the product recognition among rivals. The local group did know Chinese culture better according to the decision of Jay Chow. In China, prime time advertising and celebrity effects have great impact on the consuming behavior of the customer groups.

For the most of time, customers don’t have the ability to tell the difference and distinctiveness among product categories in China.  Celebrities are more convincible and easy for emotional followers. Even though the commercial looks stupid for Americans, it did work in China which indicated companies who want to do international business have to respect local culture and customers’ consuming behavior. Do in Rome as Rome does.  If not, the company would have to pay for the shortsighted decisions. On the other hand, if you revise your mind from the other culture’s standpoint, it will be easier to understand it. Some humorous American commercials would make no sense in China or some other countries, but we have to do our business in American way once we are here. Therefore, it is the same theory.

Culture differences play an extremely important role in impacting on consuming behaviors. Some people suggested that inviting a global celebrity and making a standardized commercial for all the countries which Colgate were planning to launching CMF would lower the advertising and marketing costs. However what about the “real impact” on consuming behaviors of the “standardized” commercial? Could anyone remember a global celebrity from China or Mexico that will have the same influential power over you as the American celebrity? I am afraid not. AND VICE VERSA! It probably won’t work in other countries.

As we can see that international business and international marketing become extremely complex connecting to culture difference.  Respect and Localization is prominently necessary with the local working groups!

 

Soaring Sales of cars in China

 

In recent years, per capita income had increased to around $1300 in 2011.  More and more families are able to afford their first cars and they are also desired to purchase cars for the last few years. Therefore, overall sales for cars were generally increasing in 2011.

Volkswagen announced a 10% sale increase in 2011; Sale of Audi luxury vehicles increased by 24% in China in 2011;

However there are more details to be concerned about car sales with respect to the consumers’ purchasing behaviors.  

First and foremost, the purchasing quantity should have been cut down according to relevant policies and regulations. The government announced series of policies of issuing limited license plate numbers to control the amount of cars which are drove on the road each day. The purpose of those policies is to relieve serious traffic problems to certain extent in first-tier cities. In some cities, the government even restricts specific cars with specific numbers on the road in turns each week. Let’s say my plate number is “BZ631”. If “6” is not allowed on Monday, I will have to leave my car at home on Mondays. However the truth is that people tend to buy more cars in a fear of inability to get a license plate number when they need it. In other words, it even promotes the sales surprisingly. Similarly, the crazy I-phone sale in China reveals the same consumer behavior in China:

Once the consumers have the consciousness that they probably don’t have chance to get the specific products in future, they will buy the products even if they don’t need it temporarily.

Secondly, the demand of cars is still profound in China even though China has a relatively advanced public transportation system. As we all know, China has a population of over 1.3 billion, thus the government has invested a large amount of money into building a better transportation infrastructure all over the country. Not everybody is benefiting from this amazing public transportation because car owners tend to drive their own cars. From some of their perspective, owning cars, especially a luxury car is a status symbol. As the development of the economy, more and more car owners regard driving cars as a convenient trip model. However traffic jams become the most frustrating issues in their lives.

For sure, those problems will impact on their consuming habits within certain years. All the international companies such as Toyota, Honda, Volkswagen, Audi, Ford and so forth have to pay much more attention to the changing of Chinese consuming behavior closely. In that way, they will have faster and better actions to tackle with corresponding demand changes and marketing issues in the future.