Redressing Western Brands’ Successes and Failures in China
Since Deng Xiaoping’s 1979 Reform and Opening Up Policy began, Western brands have faced headwinds entering the Chinese market. Some have succeeded, but there have been many more failures. We’ll take a longer, historically informed view to think about what separates the winners and losers of Western brands trying to make it in the Middle Kingdom.
Written by TCG contributor, Lee Moore.
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Most fashion companies look to the runway as the jumping-off point for next season’s fashion, but one company stands out as one of the most spectacular crashes in the history of Western clothiers in China. In late 2015, the luxury brand Dolce and Gabbana featured what it claimed was a salute to the Chinese tourist but what many Chinese critics panned as a mildly racist caricature. This fashionista faux-pas began a multi-year long series of missteps that led to charges of racism against the brand.
Bain, a top consulting agency, suggests that Chinese consumers make up one third of all buyers for luxury products. One might think that understanding the Chinese consumer and treating them respectfully would constitute a successful business strategy, but Dolce and Gabbana chose a different route. One notorious ad in 2018 poked fun at Chinese consumers by showing an ignorant Chinese tourist being instructed in Mandarin how to eat pizza and cannoli with chopsticks, suggesting that Chinese consumers are unsophisticated parvenus.
Not surprisingly, Chinese consumers were upset with the ad, and many of them boycotted the brand, stunting Dolce and Gabbana’s growth worldwide. What is surprising is that this company continued to completely misunderstand one of their most important client bases. These two cases suggest that the company was clueless towards Chinese consumers.
Missteps of Other Western Brands
Although D&G may seem like an anomaly, ignorance of the Chinese market by Western brands is more common than brands that enter China seriously thinking about how they will adapt to the market. After looking at the growth of home ownership in the country, Home Depot moved into China doing little to tailor its stores or products to the Chinese consumer. It suffered from lackluster growth and eventually had to pull out once it realized that there was minimal DIY culture in China, and that homeowners were mostly apartment dwellers who lacked garages where they could store equipment. Local home improvement markets, like Zhuangxiu Shichang, were flourishing even as Home Depot was floundering. These local sellers adapted the model of the Chinese market, congregating numerous small-scale sellers of specialized products, such as bathroom tiles or cabinets, all being sold in the same space.
The list of Western brands that have disregarded local conditions is endless. Mattel imported Barbies into China without adapting them to the Chinese market, selling the busty, white blonde and promoting them in Shanghai toy stores through an advertising campaign mostly done in English. Not surprisingly, Chinese parents were turned off by Barbie and refused to give the doll to their children.
The Long History of Western China Failures
This problem of Western brands entering China without in-depth research on what the Chinese consumer wants dates back more than a century. During the Qing dynasty, as Western companies entered markets around the globe, it became clear that the Chinese bought much less per capita from Westerners than did other emerging markets, such as India and Japan.
Scholars have struggled to establish a reason for this. Gary Hamilton, the author of an article on the subject, suggested that one explanation is that in other countries, elites used Western manufactures such as clothiers to demonstrate their elite status. However, Chinese elites already had a well-developed economy with stratified products, so they did not need Western products to make such a statement. Others have suggested that the Chinese market may also skew too xenophobic to take products from outside of China seriously.
But these explanations put the blame squarely on Chinese consumers. A stronger explanation, offered when a group of British clothiers got together to address the issue, is that Western companies simply did not pay attention to Chinese consumers’ needs. The 1897 Blackburn Commission, a report on this topic, said that British manufacturers were too focused on the technology of the cloth, and not attuned to the aspects of clothing that were important to Chinese consumers but seemed relatively unimportant to Western entrepreneurs. As the Commission inaptly put it, “unless our manufacturers of cotton brocades pay attention to such minute [cultural details], they cannot hope to maintain their interest in these markets…It is no use attempting to give a Chinaman a three-toed dragon instead of one with five.” Once you get past the smug sense of imperial superiority embedded in the statement, it is clear that the Commission is saying exactly what companies like Home Depot and Dolce and Gabbana needed to hear: Western companies that enter the Chinese market without putting the needs and desires of their consumers first are liable to fail.
Western Brands’ Patient Success
There have been numerous Western brands who took a while to learn this lesson, but once they did, succeeded. Having done little research, Kraft was initially met with lackluster sales when it introduced Oreos and Ritz to the Chinese market in 1996. But after reflection, the company retrenched, making the decision to do better to understand the Chinese consumer. They reduced the number of cookies in a package and lowered the price in order to make it easier for hesitant consumers to try their offerings. A decade and a half after entering the market, Kraft made their Oreos less sweet and created new flavors that Chinese consumers loved: Green tea Oreos and beef stew-flavored Ritz crackers.
Pampers is another example of a brand that a Western company tried to introduce first without any understanding of the Chinese market. It was only after understanding what Chinese consumers wanted that the brand succeeded. In the mid-1990’s, Procter and Gamble tried to introduce Pampers to the Chinese market, but flopped. When they launched, Procter and Gamble did not really understand the kaidangku (开裆裤) culture in China, where toddlers wear open-crotch pants and parents potty train by running to the nearest toilet, trashcan or tree when the child signals that they need to go. The company assumed that price point was the issue, so, in 1997, the company, without sufficient research, introduced a cheaper diaper. Chinese parents found the cheaper diaper to have a plastic-y feel that they worried would irritate their little emperors, so they dropped Pampers faster than a dirty diaper.
It was not until 2006, when Procter and Gamble reintroduced Pampers, that they hit their stride. Just after the reintroduction, the company launched an ad campaign called the Golden Sleep Campaign, promoting research that showed that better sleep led to improved cognitive development and that diapers were better at allowing children to get better sleep.
Upon entry into the market, Pampers did not understand that they were promoting a product that solved a problem that Chinese parents did not really have. It was not until Pampers understood the needs of Chinese parents and tapped into their deep feelings of ubiquitous insecurity, that is, the need to see their little emperors succeed in China’s uber-competitive examination system, that the brand found success. Or, in the language used by the Blackburn Commission, they gave the Chinese consumer the five-toed dragon that they wanted.
Rising Chinese Nationalism and Western Brands
Today, Western brands seeking to enter China face not only their own ignorance but also the headwinds of xenophobia. China is becoming increasingly nationalistic as more frequent clashes between China and Western nations stir up resentment. These both add impediments to any Western company now trying to enter China.
But again, history offers examples of how Western companies can succeed in the face of Chinese nationalism. The 1930’s was a period of intense Chinese xenophobia. Many foreign governments controlled slices of Chinese territory, and Japan was in the process of invading China from the north. Western companies faced a “National Products Movement,” which encouraged Chinese consumers to buy Chinese products. Chinese brands got into the act by advertising their Chinese identity. Datong Tobacco laced its cigarettes with nationalism, printing messages like “Chinese people should smoke Chinese cigarettes” on its packaging.
But one Western brand, the British Westminster Tobacco Company, responded by outflanking Chinese nationalists on their home turf. They took their Commander brand cigarettes and printed pictures of General Yue Fei on them. Yue Fei is the famous 12th Century nationalistic military figure who fought against the barbarians from the north (the same area that, in the 20th century the Japanese were threatening China from). Implicit in this packaging was that, by smoking Commanders, you too could be as nationalistic as Yue Fei, battling northern barbarians with every toke. In this way, Westminster neutralized the nationalistic line of attack leveled at many other foreign brands during the National Products Movement.
The Future of Western Brands in China
Localization and understanding the Chinese market is key to success if you want to enter China. Companies that do not pay attention to these details are punished while those that do adapt to China can thrive, achieving greater success than Chinese competitors — just as KFC has been able to dominate the fast-food market even in the face of Chinese copycat restaurants.
So, what is the future for Western brands? Perhaps Kraft could increase its profits by coming out with a beef-stew flavored Oreo? Maybe Mattel can sinocize its products better…is there any room for a Confucian Ritual Barbie (includes Barbie’s parents for Barbie to show proper obeisance to). And if Dolce and Gabbana really want to get back into the good will of Chinese consumers, perhaps the best idea would be to launch a nationalistic, Yue Fei-inspired line of clothing for the next season. It is certainly a better idea than poking fun of Chinese customers’ dining culture.
Originally published at https://thechinaguys.com on September 10, 2020.