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Joel Backaler is a Director at Frontier Strategy Group, a contributing columnist for Forbes, and a member of the National Committee on United States-China Relations. His book, China Goes West, is the go-to guide for anyone looking to better understand why and how Chinese companies expand... More
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China Goes West
  • The Past, Present & Future of Consumerism in China - Part II of Interview with Karl Gerth 0 comments
    Aug 9, 2010 7:07 AM | about stocks: BGM, GE, LVMUY, MCD, PDRDF, SBUX, VOLVY, WMT, YUM
    The following is the second part of a two part interview with Oxford University professor Karl Gerth. To read the first article, please click on The Past, Present & Future of Consumerism in China:

    Joel Backaler: In your previous book, China Made: Consumer Culture and the Creation of the Nation, you argue that Chinese consumerism and economic nationalism developed simultaneously.  What are the implications for contemporary China?  Many western multinational companies operating in China have begun to express frustration due to increasing protectionist measures. General Electric’s CEO Jeffrey Immelt recently made a public statement of the sorts. Do you feel that this protectionist sentiment is primarily at the government level, or do you believe that Chinese consumers are also looking to buy China-made products? How do you think this type of favorable policy will impact western multinational consumer packaged goods and retail companies in China?

     

    Karl Gerth: It’s complicated.  Before considering China, contemplate how these same issues relate to America or most other countries.  As in other countries, the Chinese government sees itself as in the business of promoting Chinese business.  A hundred years ago, China struggled to catch up as a global manufacturing superpower.  Mission accomplished.  Now the Chinese recognize that in the post-industrial reign of service economies, their country needs to become a branding superpower.  Chinese government and business leaders view domestic ownership of global brands and intellectual property as symbolic of national wealth and power, the economic equivalent of hosting the Olympics but much more permanent.  These efforts to promote Chinese businesses and brands are even more pronounced when done on behalf of massive state-owned enterprises like China Mobile, which has the world’s most mobile phone subscribers.

     

    And it’s not just government policy to promote Chinese products.  Chinese consumers often want to “buy Chinese.”  For over a hundred years, they have periodically had radical equivalents of the Buy American campaigns we sometimes see in the U.S. (you may recall that in the mid-1990s even Wal-Mart launched such a campaign).  So, yes, that sentiment exists in China, too.  But the same consumers who support Buy Chinese campaigns don’t necessarily buy Chinese themselves, especially when imports are seen as safer, less expensive, or more fashionable.  A few years ago during one of the periodic anti-Japanese protests, it was easy to spot protesters armed with Japanese brand phones and cameras.  Navigating these obvious but subtle policy and consumer contradictions may be the toughest aspect of marketing in China. 

     

     

    Joel Backaler: What do you feel western consumer packaged goods companies selling to China’s mass market should consider in their branding? Should they try to localize their brand perception in the Chinese marketplace or stay “western” in their messaging?

     

    Karl Gerth: Both.  They should localize and stay “western.”  Depending on the constantly changing circumstances, each has its advantages. 

     

    Of course, they need to localize while continuing to play to their strengths, especially around issues of quality, safety, and leading technology.  But such positive associations with “western” and Japanese products are not fixed.  Indeed, I think the government-efforts to promote Chinese brands have had some success in weaning Chinese consumers from an automatic preference for international brands.  This can be seen in the growing popular indignation of Chinese consumers toward foreign companies.  China’s aspiring and middle-class consumers increasingly declare that multinationals selling in China take market access for granted, cut corners on safety and quality, ignore Chinese laws, and dump their low-end products there.  A sentiment popularly held about Japanese companies, for instance, is that they sell their highest-quality products in European and American markets, their second-best domestically, and their lowest-grade in developing markets such as China.  One woman I interviewed, for instance, insisted that Japan sends China mobile phones that couldn’t make it in Japan.

     

    It’s worth noting that the reverse occurs, too.  Chinese brands want both to appear modern/western/cosmopolitan and Chinese/traditional/patriotic, depending on circumstances.  Chinese companies want to convince consumers they are buying the best but also that they are doing the right thing for China.  This is especially the case during upsurges in patriotic sentiment, say, surrounding the Olympics or following a perceived international insult.  Perhaps the best strategy is to keep an eye on Chinese competitors and to triangulate accordingly.

     

    Joel Backaler: Looking ahead at the next 30 years, what are your predictions for the top three changes in the consumer preferences of China’s mass market?

     

    Karl Gerth: The major influences to consumer preferences will depend on how China handles three critical issues: climate change, an aging population, and intellectual property rights. 

     

    It’s easy to imagine green products and services becoming more popular either directly as a consequence of growing environmental awareness or indirectly as a consequence of government policies such as tougher fuel efficiency standards, tax rebates for energy-efficient appliances, and so on.  Similarly, we’ll see a reverse of the “little emperor” situation of the past three decades, where four grandparents and two parents spoiled one child.  Now those same children will struggle to support their parents and grandparents.  But I think the most interesting issue to watch will be whether China can and does do more to protect intellectual property rights, which are not only the foundation of corporate research and development but also of brand stability.  After all, why bother building brands if someone’s just going to sell much less expensive knockoffs? 

     



    Disclosure: No positions
    Stocks: BGM, GE, LVMUY, MCD, PDRDF, SBUX, VOLVY, WMT, YUM
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