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Neelima Mahajan-Bansal
Neelima Mahajan-Bansal
Intrepid explorer. Currently focused on China, the world's laboratory.
Li Ning

Li Ning, Chairman of Li Ning Company, a Chinese sports goods company (Photo: Bobby Yip/Reuters)

Those of you who saw the 2008 Beijing Olympics would recall the stunning visual of a gymnast suspended in the air and simulating a run along the rim of the Bird’s Nest Stadium, Olympic torch in hand. It looked real, very real.

The gymnast is Li Ning. Li Ning is every bit a star sportsman in China. He won six medals in the 1984 Summer Olympics, and is called the ‘Prince of Gymnastics’. He is the first Chinese inductee in the ‘international Olympics Hall of Fame’.

Gymnastics aside, I find Li Ning interesting for a different reason. In 1990 Li Ning set up his own sports apparel company. Li-Ning Company Limited has grown to become a major sports apparel company in China. Li Ning stores, both owned as well as franchised, are ubiquitous in Chinese cities. The brand has instant recall. Think of Li Ning as the Nike or Adidas of China. (Incidentally, Li Ning’s logo looked very similar to Nike’s swoosh till it underwent a makeover.)

And so in 2010 the Nike of China went and planted a flag in Nike’s territory – it set up a design center as well as retail store in Portland, Oregon, the city where Nike is headquartered.

Li Ning did other things too to build a global brand, among them signing a joint venture agreement with AIGLE, a French sports apparel company, to distribute their products in China, and dabble in sports marketing. It had sponsorship deals with stars like Shaquille O’Neal and Damon Jones.

These efforts paid off in helping Li Ning build a strong brand in China’s interiors. As this article on SportsPro points out, “Traditionally, Li Ning’s core market had been the middle-income consumers living in rural areas and provincial cities. These were the people who couldn’t afford the latest US$170 Nike Air Jordans but would settle for the US$50 Li Ning equivalent.”

A Lin Ning store

A woman walks past a Li Ning sportswear store in Huaibei (photo: CDIC/Reuters)

Li Ning has all the right ingredients to script the successful global-Chinese brand story but things haven’t worked out well so far.

The company recently quietly shuttered its Portland store. Hit by the slowdown, it’s share price took on a downward spiral and in July last year the CEO was replaced.

Recently I met Kunal Sinha, a Shanghai-based Indian, and the Chief Knowledge Officer and Regional Cultural Insights Director at Ogilvy & Mather. Sinha is quite an expert on consumer markets in China and the author of several such studies. His most recent research study is on lower tier markets in China, a huge opportunity (200 million households or 650 million people with higher disposable incomes). Among the many things we discussed, Sinha let me in on an interesting observation: while multinational brands like Nike and Adidas are starting to trickle into lower tier cities in China, Chinese brands like Li Ning are making a conscious effort to trade up, or de-emphasize the lower tier cities in their strategy. Li Ning is, apparently, trying to portray itself as a big-city (and global) brand.

“Li Ning is an example of many Chinese brands which want to become more international and start appealing to fashion-consciousness and some of those values, than pure performance or pure value-for-money,” Sinha told me. “What happens when you do that is you might lose out on a customer base, and that’s a strategic choice that the brand makes, that the firm makes – ‘I’ve now decided to refocus the brand to a segment which I think is going to be the future’. It’s really how successfully they’re able to execute the strategy that will determine the fate of the brand.”

In the short term, this is creating intense competition in the market because both the MNC brands as well as the Chinese brands are seeing a future growth opportunity in each other’s strongholds.

Let’s come back to Li Ning. To my mind, the company is making a fatal mistake. It would be foolish to ignore the opportunity in your own backyard, loosen your grip on your strongholds and go head to head with the giants on their home turf. The US debacle has shown that it is premature for Li Ning to do that. The brand has much equity in China, and that is something it should capitalize on first before it goes global in a big way.

Django Unchained was being publicized heavily in China – video trailers were playing on giant screens at subway stations and there were Quentin Tarantino interviews in expat-centric magazines (Jason Lee / Reuters)

Django Unchained was being publicized heavily in China – video trailers were playing on giant screens at subway stations and there were Quentin Tarantino interviews in expat-centric magazines (Jason Lee / Reuters)

Last month, we got off early from work one day and rushed straight to Sanlitun, a hip shopping-cum-entertainment complex in Beijing, to watch a movie. We didn’t know if there were any English movies playing, but we decided to take a chance anyway. Finally, on the list of movies playing we found an English movie – it said, ‘A Good Day to Die Hard’ and within brackets was the magic word: ‘English’. That sealed it. We promptly bought tickets and shuffled into the hall.

We found ourselves in the front rows of the packed hall, nibbling on popcorn, waiting to be mesmerized. Soon enough, Bruce Willis came on the screen and mumbled something. Somewhere along the line, we lost the plot. As people who have viewed the movie would know, a quarter of the movie is in Russian. And sure enough, there were subtitles for those bits – but in Chinese.

And so we sat through two agonizing hours, trying to guess what’s being said and then trying to connect the dots.

In the last year or so in China, we have been through much worse than A Good Day to Die Hard. We have watched practically every English movie – good or bad – that has released here, which has included some utter disasters, names of which I can’t even remember.

Here’s the thing: for expats like us, English entertainment options in Beijing are few and far between. There is nothing to watch on TV unless you subscribe to an English package, which we have by the way and it gives us four English channels. Between CNN, Cinemax, HBO and National Geographic, frankly there isn’t something to watch at all times.

Besides China has a painful quota on the number of Hollywood movies that can be released here. That quota incidentally went up marginally last year: up from 20 a year to 34, hence I shouldn’t complain. But still…

And so I was looking forward to the release of Django Unchained in China. I even had the date 11th April earmarked in my calendar. The movie was being publicized heavily in China – video trailers were playing on giant screens at subway stations and there were Quentin Tarantino interviews in expat-centric magazines.

This is Tarantino’s first movie to be released in China, and it is said that he was himself taking special care to suitably ‘adapt’ parts of the movie for the Chinese market.

As Zhang Miao of the Chinese branch of distributor Sony reportedly told the Southern Metropolis Daily newspaper: “What we call bloodshed and violence is just a means of serving the purpose of the film, and these slight adjustments will not affect the basic quality of the film – such as tuning the blood to a darker color, or lowering the height of the splatter of blood. Quentin knew how to adjust that, and it’s necessary that he is the one to do it. You can give him suggestions, but it must be him who does [the tuning].”

Adapting – or should I say snipping – movies for China is not uncommon. As I wrote earlier, the latest James Bond flick Skyfall went through the censors and emerged without a whole scene. Cloud Atlas, another movie that was marketed heavily in China, was played in the theaters with a full 38 minutes missing.

There are enough reasons why the producers of Skyfall, Cloud Atlas or Django Unchained would agree to these edits. With $2.7 billion in sales, China is the world’s second-largest market for Hollywood movies, and chances are it could soon become number one. With ticket sales in the US market suffering, Hollywood producers are now pegging their hopes on China.

Tarantino was probably thinking on the same lines when he snipped out bits of blood and gore from Django so that it would be more palatable for China. But that wasn’t enough apparently. And so on 11th April, the movie premiered in Sanlitun as planned, and after about a minute or so, the screening was abruptly cut short. Movie goers were told that the Chinese censors had stepped in at the last minute and asked them to stop screening the movie. No further explanation was given. (And I counted myself lucky for not having gone to watch the first show.)

Now, many theories abound for why Django Unchained was pulled off theaters in China. And I am not quite sure if it will make it back to the theaters after further snipping.

And there is no way Tarantino could have foreseen this. However, he could have done something to easily stall the possibility of such a thing happening. He could have co-produced Django with a Chinese company.

Increasingly, Hollywood producers are looking for such partnerships as it helps them circumvent the quota for Hollywood movies, and take back more from the Chinese box office revenues (currently if they are not co-produced, they can take 25% of the box office revenues, up from 13% in previous years). Iron Man 3, Transformers 4 and the Expendables sequel will be Chinese co-productions.

Apparently James Cameron is also toying with the idea of a Chinese co-production for the sequel of Avatar. “Within five years, China could easily be as big a gross-revenue market for film as North America, and there are very specific economic incentives for having both Chinese content and Chinese co-production. We are already funded on Avatar 2 and 3, but if we qualify as a co-production, there might be some incentives in the percentage of revenue we can take out of China. We are running the numbers to see if that makes sense,” Cameron, who shot most of Avatar in China’s stunning Zhangjiajie mountains, said to The Hollywood Reporter. (As an aside, in order to boost tourism, China has even renamed the mountain in question as Avatar Hallelujah Mountain.)

What is even more interesting is the extent to which the co-productions will go to appease Chinese viewers. Iron Man 3, apparently will have a Chinese version, different from the global version. “The Chinese version of the film will also feature a special appearance of China’s top actress, Fan Bingbing, and will offer specially prepared bonus footage made exclusively for the Chinese audience,” a story in The Diplomat says. Apparently, parts of it will also be shot in Beijing. Avatar 2, if it is finally a Chinese co-production, will have Chinese characters.

I am all for such co-productions – as long as I get to watch the movies I want.

A Yemeni man in traditional gear browses the inter

For starters, Baidu went to Japan (and burnt its fingers there for various reasons). Today Baidu is expanding into Egypt, Vietnam, Thailand and Brazil

Last time I wrote about the parallel internet universe behind the Great Firewall in China. One of the companies I talked about was Tencent, a Chinese social media ‘conglomerate’, if there is such a thing as that. One of the things I find most interesting thing about this Shenzhen-based company is how it is starting to go global. Most of Tencent’s products are in Chinese, with the exception of stray examples such as WeChat and QQ chat for Facebook users. But that doesn’t mean that Tencent CEO Pony Ma is going to restrain his global ambitions.

Using WeChat as a springboard, Tencent has already gone ahead and planted its flags across Asia, Europe, South America and is now eyeing the US. WeChat which already has a user base of 300 million people, has generally done well in South-east Asia (even breaching the one million users’ mark in Malaysia), is taking baby steps in India and has started to take off in Spain, Mexico and Argentina.  Next up, it is set to get aggressive in the US and is even setting up a “customer relations office for WeChat” there. (For a map of Tencent’s global users, please click here.)

At first glance, that is a very curious set of countries for a Chinese company to suddenly decide to expand in – a motley bunch, it has obvious choices like Hong Kong and Taiwan (no-brainers due to geographical proximity and cultural similarities), South-east Asian countries like Indonesia and Malaysia, Latin American countries like Mexico and Argentina, South Africa, India and the US. At first glance, it doesn’t make any sense.

Is there a method in the madness?

I am sure there is. I can’t speak for Tencent as I haven’t had a chance to speak to anyone in the company yet, but I have seen other Chinese companies do similar things.

During my early days in China, I strayed on to the international website of Vancl, a clothing e-tailer, with decidedly global ambitions. They had recently gone global and had debuted a slick-looking English website. What caught my eye, however, was that the site gave you the option to browse in Russian, Spanish and Portugese as well, so very obviously it was targeting customers who spoke those languages as well.

Or take Baidu. Baidu is the dominant search engine in China – we all, of course, know how Google had to leave China in a huff, and Yahoo! Search and Bing are not very popular here (it’s a different matter that Baidu was already the dominant player here right even before things went downhill for Google). Today Baidu commands roughly 85% of the search market in China.

Some years back, Baidu CEO Robin Li stated that he wanted Baidu to become a household name in 50% of the world’s markets. That is not a small ambition, and Baidu has gone about a rather interesting path while trying to achieve this goal. Some months back, I met Baidu’s charismatic CFO Jennifer Li, who is often heralded as the Sheryl Sandberg of China. (You can find the interview here.)

One of the many things we talked about was Baidu’s globalization strategy. For starters, Baidu went to Japan (and burnt its fingers there for various reasons). Today Baidu is expanding into Egypt, Vietnam, Thailand and Brazil. In each of these countries, it is trying out small experiments with different products and services first – to understand the lay of the land before they go all out.

Now, I understand why Baidu would like to go to Japan – similarities in culture, language, geographical proximity. I even understand Vietnam. And Thailand. But Brazil? Or Egypt which has been in the middle of a serious political turmoil?

As Li and Baidu’s Director of International Communications Kaiser Kuo told me, the logic is simple. One, they are looking for ‘underserved’ markets, markets where globally dominant search engines like Google or Yahoo! haven’t made much of a dent. Two, at this point, they will not go to a market where English is the dominant language.

And so Baidu is in Egypt right now with Baidu Knows, a product based on user-generated knowledge. The idea is that through this product, Baidu will start developing proficiency in Arabic – the kind that is spoken in Egypt, parts of North Africa and Iraq. Mastery over this will help Baidu roll out more products later and also expand into these areas. As Kuo told me: “Egyptian Arabic has now become sort of standard from the Maghreb all the way through to Iraq, and Egypt is the culturally dominant country in the Middle East. It has the highest output of literature, film and so forth. There’s a huge group of very well trained engineers in Egypt. It makes the most sense from a lot of perspectives.”

Similarly, their presence in different countries will help them develop capabilities in Japanese, Portugese, Thai and Vietnamese.

As Jennifer Li said, “At the end of the day it is an internet service and the internet is borderless. If we feel the market has a need that is not filled and the market has great potential that can become a very meaningful place, the population is there, it’s those kind of factors that make us think we can try these markets.”

As for Robin Li’s ambition to make Baidu a household name in 50% of the world’s markets, I suddenly feel that it is not merely a pipe-dream. Baidu can get there soon enough, if it picks the right markets with the right products. It seems to have done a good job so far. According to comScore, Baidu is already the second-most popular search engine worldwide after Google. This is largely a function of being the most dominant search engine in the world’s most populous country.

Now envision a scenario in which Baidu develops capabilities in other languages as well and expands into countries not on Google’s radar. It may not happen in the next three, four or five years, but maybe over the next one or two decades. And when that happens, will Google still be the most popular search engine in the world? I am not so sure, and frankly, that scenario doesn’t surprise me.

Chinese companies like Tencent, Baidu and Vancl are looking at globalization strategically. And yes, there is a method in the madness.

“What is QQ?” my husband asked his colleague. This happened about a year back when we had just come to China and everything was unfamiliar. We constantly heard about QQ and were curious to know what it was.

“You don’t know QQ?!” his colleague asked rather incredulously.

“No. I have only heard of QQ here in China,” my husband replied.

His colleague was even more stunned. “There is no QQ outside China?!

Indeed there isn’t. But in China most people are surprised to know that.

Tencent Chairman and CEO Pony Ma poses at headquarters in Shenzhen

Pony Ma, founder and CEO of Tencent, has created a formidable internet empire in less than 15 years

 

QQ, for the uninitiated, stands for Tencent QQ, a hugely popular instant messaging service in China. If you are not on QQ, you are not part of the ‘in’ crowd, and my husband and I fall in this hopeless lot.

QQ’s website incidentally is the eighth-most trafficked in the world according to Alexa. That means several things – QQ, a site you had probably never heard of before today, gets more hits than Amazon and Twitter (at least as of now). In fact, if you look closely at Alexa’s list of top 25 sites, you see three Chinese sites up there – search giant Baidu at No. 5, QQ at No 8 and Alibaba-owned e-commerce giant Taobao at No. 11.

QQ is part of the Shenzhen-headquartered Tencent’s massive internet empire. Tencent, China’s largest internet service company, was started by Ma Huateng (also known as Pony Ma) in 1998. In just a little over 15 years, it has grown to become one of the world’s largest internet companies. Tencent’s social media portfolio includes, among other things, QQ, microblogging service Tencent Weibo, social networking site QZone, the more recent group messaging app Weixin (the English version is called WeChat), and products spanning gaming, music and shopping.

Though relatively new, Weixin has been creating waves in China. In a little more than a year of launch, Weixin touched the 100 million users’ mark. Today Weixin stands at 300 million users. (Check out the graphic here to see its growth trajectory.)

wechat

Though relatively new, Weixin has been creating waves in China. In a little more than a year of launch, Weixin touched the 100 million users’ mark

What’s more Weixin, in its English avatar WeChat, has gone global. The app apparently already has 10 million overseas users. Outside of the Mainland, it is available in South-east Asia, Russia, Turkey, India (it is available in India via a deal with Ibibo, which incidentally Tencent owns 20% of), the Middle East and the US (apart from Chinese and English, it is available in Russian, Spanish, Indonesian, Portuguese, Thai and Vietnamese!). Tencent is now betting big on the US market.

And so just for a lark and to finally dip my toes in the Chinese social media universe, I finally signed up for WeChat some weeks back. I was there not to network, but to see for myself what all the hype was about. Weixin is, in short, several things packed into one nifty app – text messaging, voice chat, and photo and video sharing. And then there are innovative things like the ‘shake’ function – if I ‘shake’ my phone, I will be able to connect with other WeChat users in the vicinity who are shaking their phones at the same time. If I am lonesome and I am looking for someone to chat with, I can use the ‘drift bottle’ function. My phone will find me someone to talk to.

It was no surprise then that Tencent (and not Facebook or Twitter) topped the list of Fast Company magazine’s ranking of the most innovative social media companies 2013. And in the magazine’s list of the most innovative companies in the world, Tencent came in at a cool No. 16.

And here’s the point that I am getting at. When you come into China, you kiss Facebook, Twitter and Youtube goodbye. What you don’t realize at that point is that there exists a parallel universe behind the Great Firewall. For Google, there’s Baidu. For Youtube, there’s Youku. For Facebook and Twitter there are numerous social networking and messaging sites.

Some of them may have begun as copycats, but over time, internet companies like Tencent have honed innovation capabilities of their own. Their home ground – with its large internet savvy (and increasingly demanding) user base – has given them ample opportunity to experiment and evolve innovative offerings.

Over time, China’s internet companies have begun to rival Western companies in size and might. It’s only a matter of time before we see truly global Chinese-origin internet brands, and who knows, companies like Tencent and Baidu will lead the way.

Jack Ma, the founder of China’s largest e-commerce company Alibaba

Jack Ma, the founder of China’s largest e-commerce company Alibaba (Photo courtesy: Chip East / Reuters)

Coming May, Jack Ma, the founder of China’s largest e-commerce company Alibaba, will step down as CEO and take over the role of executive chairman. His announcement came as a surprise for various reasons. One, Alibaba is doing well – the Hangzhou-headquartered company recently upstaged eBay and Amazon to become the world’s largest e-commerce company.

It is unusual for CEOs – in China and outside – to step down from a company at the height of it’s success. Two, Ma has had a stellar run at the company – a former English teacher (and some say a tour guide as well), Ma founded Alibaba in 1999 and made it a formidable giant in a space of 14 years.

I have been in China for a year now, and I have observed a few things about the CEOs I have come across here. One, most CEOs are authoritarian in their style of working, and are far less participative than their Western counterparts. The unspoken rule is the boss is always right and no one has the right to question him.

Two, CEOs (usually founder CEOs) tend to hold on to power longer than they ought to – it is not odd to find an octogenarian in the corner room. And three, founders particularly tend to pass on the baton to someone in the family and not an outsider (true of India too).

And so I was rather surprised to hear of Jack Ma’s decision to step down from the e-commerce powerhouse he founded. What surprised me even more was why Ma decided to step down and his plans for the future.

In an internal email he circulated announcing his decision, he said, “As a founder CEO, stepping down… is a difficult decision. It’s not because I wanted to take things easy (though the job of Alibaba CEO is no easy task), it’s because I see that Alibaba’s young people have better, more brilliant, dreams than mine, and they are more capable of building a future that belongs to them.”Ma plans to focus on mentoring now, and enforcing a more democratic style of working at Alibaba. The younger folk, he believes, will hold the key to further innovation at the company, and he is all set to help them get into the groove.There’s Ma. And then there’s Ren Zhengfei, the legendary founder and long-time CEO of telecom major Huawei.

Ren Zhengfei, founder and long-time CEO of telecom major Huawei (Photo courtesy: Sergei Karpukhin / Reuters)

Early last year, Ren announced a plan to instill a “rotating CEOs” system at Huawei. His idea was simple: telecom is a fast-changing industry – and in a scenario where the sands are constantly shifting, multiple heads are better than one.

“Due to technological dynamics and market fluctuations, Huawei has adopted a rotating CEO system in which a small group of executives take turns to fulfill CEO duties. Compared to one single CEO who is expected to handle multiple affairs each day, have in-depth insights, and set the right direction, a group of rotating and acting CEOs should be more effective,” Ren said in his ‘letter from the CEO‘.

Regarding how it would work, here’s what Ren had to say: “Under conventional shareholder capitalism, the Board of Directors (BOD) represents the strength of capital and aims to continuously and effectively increase the value of capital. In consideration of the rights and responsibilities derived from capital as well as the long-term stability of the capital structure, BODs are inclined to be conservative when making decisions as part of corporate governance. The CEO accountability system under the leadership of the BOD is universally applicable. CEOs are a group of moving professional executives who have profound knowledge, a global view, and an open mind while staying abreast of the latest changes to technologies and business. It might be practical for an enterprise that has resources and privileges to select one CEO from among the exceptional individuals to run the company for a long time….

“The rotating and acting CEOs take turns leading the company for six months. After the rotational period is over, the non-acting rotating CEOs are still part of the company’s decision-making nucleus. They have considerable authority in making business decisions and in deploying managers and experts. The rotating CEO system is an organizational arrangement of positional rights and obligations, not a rotation of the mission and responsibilities of the rotating CEOs in the company. When they are not acting, the rotating CEOs do not shift their mission or responsibilities. On the contrary, they participate in collective decision making and get even better prepared for their next terms as rotating and acting CEOs.”

A system of rotating CEOs has its challenges as well – and Ren isn’t oblivious to them. But he feels that the survival in a challenging industry outweighs the associated risks of this new system.

“Today, tides rise and surge; companies are springing up all over the place while others are quickly being swept away. Huawei hasn’t found a way to adapt well to a rapidly changing society. Time will tell if the rotating CEO system is the right move or not,” he wrote.

Ren’s approach is interesting – it does away with some of the ills associated with power. If executed in the right earnest, it limits the power of the CEO, breeds accountability, instills customer focus, and also keeps a ready bench of CEOs-in-waiting. It also helps hold on to senior-level talent. But it has its fair share of challenges as well – as he himself admits, “Solidarity may be more of a challenge though.”

Lenovo CEO Yang Yuangqing Photo courtesy: Nacho Doce / Reuters

And then there is Lenovo CEO Yang Yuangqing. Even as American CEOs laugh their way to the bank with multi-million dollar bonuses, last July, Yang gave away $3 million of his bonus to 10,000 front-line employees including receptionists, production-line workers and assistants. Small change, one would say, for someone who make a lot of money anyway. I would argue that it still takes heart to give it away. Writing it TechinAsia, C. Custer, founder and editor of ChinaGeeks.org, said: “The reason I’m so enamored with Yang’s generosity is that China specifically (and more generally the world) needs displays like this to remind people that success is a team sport. It is easy, I think, to get to the top and then convince oneself retroactively that you got there without help. But you didn’t.”All these examples point to a new kind of humility coming into the C-suite – a realization that “I am not the be-all and end-all of the company – others are important too”.

Yang Yuangqing’s generosity made more waves (and garnered more media coverage) globally than in China. Most of the coverage on Jack Ma’s announcement in China hinged on the business aspects of Alibaba.

But the fact remains that Jack Ma, Ren Zhengfei and Yang Yuangqing are the aberration, rather than the rule in China – the majority of Chinese CEOs still belong to the old school. They would rather cling on to power and money than give it away.

Much as these three are marquee names in China, I believe that it will take a lot more to change the thinking of others.

Skyfall crossed the RMB 100 million mark within four days of its release in China

I haven’t seen the new Bond movie (partly because the Chinese censors have snipped out huge chunks of it and I refuse to see a shredded version). Anyway, one of my Chinese friends just saw it.

“I didn’t like it,” she declared.

“Um, why?” I asked because the movie has done well in China – it crossed the RMB 100 million mark within four days of its release (it helps that Chinese cinemas, which screen Hollywood movies under a strict government-controlled quota of 34 movies a year, haven’t had another English release in the past few weeks).

“You know James Bond is not young in the movie,” she complained, scrunching up her nose for effect.

I nodded, understanding exactly where that sentiment came from.

“But you know,” she said, and her face brightened up, “there was something very interesting in the movie.”

“What?” I asked curiously.

“They shot part of the movie in Shanghai and they included big billboards of some Chinese brands,” said my friend.

Huiyuan Juice, the brand that Coca-Cola famously bid for and was rebuffed by Chinese authorities, was apparently one of the brands that featured big in the backdrop during Daniel Craig’s Shanghai sojourn.

That’s the intriguing thing about Skyfall. The movie has a record number of product placements – apparently one-third of the movie’s funding or $45 million came from product placements. Now I understand why Heineken would want a James Bond endorsement. Or Omega. Or BMW. But Huiyuan?

Viewers across the globe need to get used to a new trend – there will be more of China in Hollywood movies. Be it via product placements such as Huiyuan’s billboard, shooting in Chinese locations, Chinese actors, or simply Chinese money in Hollywood movies.

Take Iron Man 3, which is scheduled for release in May (and is incidentally being co-produced by DMG Entertainment, a Chinese company). Tony Stark (a.k.a Iron Man) will be seen using Chinese electronics giant TCL’s televisions and mobile technology in this sequel.

This is, by no means, a new trend. Transformers 3: Dark of the Moon (the Transformers series is very popular in China) featured many Chinese brands – Yili Milk (of the melamine-in-milk scandal fame), Meters/Bonwe, Lenovo and TCL.

While Hollywood is courting China for reasons that are not hard to fathom (huge audiences that can help them make up for low box office revenues back home – I’ll address this in a future post) and in ways that are a little surprising, Chinese brands advertising through Hollywood movies is a rather interesting trend. While I can see why a Lenovo or a TCL, brands that already have a significant global footprint, are doing this, I initially found it hard to understand what Yili Milk was doing in this motley bunch. While the company has global ambitions, so far it hasn’t done much outside China, except buy a New Zealand dairy company to manufacture baby milk powder.

This is not the first time Yili has taken a stab at unconventional advertising like this. During the London Olympics, the company launched a campaign on London’s famous red double-decker buses. The ad, which displayed a rather exuberant elderly Chinese couple, puzzled Londoners – Yili Milk is practically unheard of outside China and is not available in the UK.

New York’s Times Square, the mecca of digital advertising, has seen similar puzzling ads from brands as diverse as Erdos Group, Wuliangye Liquor and Xinhua News Agency. Very few of these brands have much to do outside China.

And then there is the curious case of Bosideng, a Chinese clothing brand that probably few outside the mainland have heard of. Bosideng went and opened a store in an upmarket location in London.

There is a rather convoluted explanation to all this. It is, in reality, a very complicated marketing ploy. Now, Bosideng’s target is probably not the consumer in London. They are looking at Chinese consumers based in London, as well as the increasingly mobile Chinese tourists, whose numbers are swelling each year. The assumption probably is that seeing a Bosideng store on London’s upmarket South Molton Street will have a positive rub-off effect on Bosideng outlets in Beijing and Shanghai. Consumers will start to view it as a Chinese brand with Western-acceptability, and hence a brand with the attributes of high-fashion and high-quality. That will bode well for the brand back home, the actual target market.

It’s the same for Yili Milk or Huiyuan Juice – whether it is in a James Bond movie or on a London bus.

But does this tack really pay off? I wish I knew.

A vendor shows a selection of fake designerware. Photo : Getty Images

“Is that the new maid?” I asked my husband rather incredulously, as we walked up to our apartment.

“Nonsense! She is probably a neighbour,” he snapped back.

This happened a year ago. We had just moved to Beijing – and into our new home. We didn’t speak Mandarin, and settling in was quite a challenge. Through a complicated process involving an iPhone, a translation app and sign language, we somehow managed to explain to the landlord that we would like to hire a maid to clean the apartment. He would send one soon, he promised.

And so we rushed home at the appointed hour, and sure enough, there was a lady standing at our door. And that was what the whole confusion was about – she didn’t look like a maid. She wore jeans, knee-high leather boots, a well-cut overcoat, her hair was permed, and she had a Louis Vuitton bag. Obviously not the maid. Or so we thought. Till we walked past her and opened the apartment door, and Madam-LV-bag-in-hand walked right in and uttered a cheery “Ni hao”.

Once inside, she unzipped the Louis Vuitton bag and much to our shock, she took out a collapsible broom, a duster and a pair of slippers. Off came the leather boots, and she diligently got to work.

This was my first brush with fake designer goods in China.

And then I went to Silk Market, a seven-storied complex in downtown Beijing with nearly 1,700 vendors. Don’t go by the name because Silk Market is really not about traditional Chinese silk anymore – it has gained notoriety for selling fakes. You name it, and they have it – from Timberland shoes to Samsonite suitcases, Armani belts, Gucci, Fendi and Prada bags, and of course, Louis Vuitton’s Spring, Summer and Fall collection. A pesky vendor offered to sell me a “Lolex watch” – cheap, only for me. A fake copy of a designer bag that would originally sell for RMB 18,000-20,000 can be bought here for RMB 100-200, depending on how well you can bargain.

Silk Market- Home of fakes in Beijing

Here’s the irony: a huge banner on the ground floor of Silk Market proclaims: “Do not buy any unauthorized brand, buy original.” It is, very obviously, just an empty slogan. A senior VP from a leading MNC retail giant we recently met wryly remarked that Silk Market is “a shrine for fake goods”.

He is absolutely right. Earlier in 2012 Beijing hosted (rather ironically) the World Intellectual Property Convention, and for a few days Silk Market vendors hastily replaced the fakes with tourist memorabilia, much to the disappointment of tourists who clearly came here for counterfeits. A senior official of this establishment was quoted as saying “we have respected intellectual property rights for a long time” and that “we have always educated our stall holders not to sell fakes.” But as soon as the conference was over, it was business as usual.

China is the world’s third-largest market for personal luxury goods today (and my guess is the biggest for counterfeits). While only a handful can afford the real thing, the others turn to places like Silk Market and countless others that dot all of China’s major cities.
The interesting thing is that with rising incomes, the big push for (real) designer brands is now coming from cities in China’s interiors, and not Beijing, Shanghai and Guangzhou. According to research by Fortune Character China Institute (FCCI), a consultancy that researches the lifestyle of China’s rich, the growth of luxury retail in Tier 2 and Tier 3 cities is faster than that of Tier 1 cities, thanks to the proliferation of wealth in the country. That has encouraged brands like Louis Vuitton and Gucci to go deeper into the hinterland. Will they succeed? The jury is not out on that yet.

For years, Louis Vuitton has enjoyed a first-mover advantage in China. They came here in the 1980s. Somewhat ironically back then, they had to decide between China and India, long before either country was considered hot. They chose the former. The bet paid off and China has become Louis Vuitton’s second-biggest market globally.
That advantage is starting to chip off today. The reason? The LV monogram has become ubiquitous – both on the real Speedy 35, as well as its RMB 150 fake from Silk Market. You see it everywhere – in high-end restaurants on Shanghai’s Bund as well as on the shoulder of the ordinary commuter in Beijing’s subway who pays just 2 yuan for a ride.
The brand – thanks to its wide reach in China – has gained “mass appeal” leading to a logo fatigue of sorts, which is apparently is making it less attractive for the sophisticated consumer who is looking for exclusivity. Instances like my Louis Vuitton-totting maid have damaged the exclusivity immensely.

I recently interviewed Vincent Bastien, former CEO of Louis Vuitton, and one of the people instrumental in the company’s China entry. He said, “My position has always been — and it is still the position in Louis Vuitton today — we don’t fight the people who wear fakes, because often they don’t know. If you wear a fake Vuitton, it means you like the brand otherwise you don’t wear it.” Louis Vuitton’s response is to fight against the people who sell fakes or produce them, and open more stores so that people can buy the real thing. However, in China, that is often not a very effective ploy as the counterfeit ecosystem is more deep rooted than just that. Warnings and occasional raids are not a long-term solution.

Louis Vuitton – and other luxury brands as well — might just have to come up with something more drastic. From what it seems, the future of luxury in China lies in brands that are not so easy to get.

Zhongguancun in Beijing’s Haidian District is a hotbed of entrepreneurial activity. It has been described by many as China’s Silicon Valley – it has just the right convergence of universities, venture capital, startup infrastructure and enough of the restless entrepreneurial energy that we otherwise get to see in the Bay Area. Many famous companies – such as Lenovo – grew out of Zhongguancun.

Feng Jun also started out in Zhongguancun.

Feng, the 40-something Chairman and CEO of aigo Digital Technology Company, is a self-made man. He started aigo (then called Beijing Huaqi Information Digital Technology Company) in 1993 with RMB 220 borrowed from his mother. Unlike many entrepreneurs who would wrinkle their nose at the thought of this, Feng bought a tricycle – the kind used by vegetable and fruit vendors in China – and on this tricycle, he would zip across town delivering keyboards to clients. “My keyboards were very strong – I would show them that they didn’t break even after falling,” Feng told me, using animated gestures to drive the point home. Among Feng’s early clients was Lenovo – before it became the giant that it is today.

YouTube Preview Image

Twenty years on, Feng’s company, aigo, has become the largest electronics brand in China. Its portfolio includes digital cameras, media players (MP3, MP4, MP5 and even MP6), USB storage cards, mobile phones, etc. It has filed a plethora of patents and seems to be getting into new product categories every day.

Feng sees himself as the salesman for his company. During an interview, it is hard to get a straight answer out of him: He cleverly deflects almost every question to say what he wants to say, and not what you want to know. He peppers almost every answer with the words “win-win” and “learn from the Olympics” (Feng Jun, by the way, carried the Olympic Torch in Athens in 2008). Ask him about revenues and market share and the answer once again, involves no numbers, and has the words “win-win” and “Olympics”.

After wrestling with him during a 30-minute interview with “win win” and “Olympics” repeated ad nauseum (and later painstakingly edited out of the video wherever possible), it’s hard to take him seriously. But you better do. Feng Jun has spunk, and lots of it – and if all goes as per his plan, aigo will soon be flexing its muscles in other countries.

Feng is an extremely clever businessman. He is quick to spot opportunities (“You are from India – aigo can sell in India!”) and even faster to act on them. If there is one thing that Feng has a lot of, it’s guts – in 2010 he dragged the Big Boys of the trade, Hewlett-Packard and Toshiba, to court over patent infringement allegations.

Recently, Feng Jun has become a self-styled crusader for the globalisation of Chinese companies – not just his own. Feng believes that there is power in numbers. So he formed something called the aigo Entrepreneurs Alliance that is helping a varied assortment of Chinese companies (50-odd companies, including Haier for refrigerators, Gree for air-conditioners, TCL for TVs and Huiyuan for bottled water) collectively develop a global footprint.

The idea is simple, as Feng told China Daily: “The Chinese government gives help to state-owned enterprises when they expand overseas, but little help is given to private-sector companies, so we have to help each other.” Together, the 50 companies will lobby with governments, set up offices, and do business across the world.

Feng has often remarked that he wants aigo to be the Sony or Samsung of China. He is nowhere near his ambitious – and even audacious – goal, but I won’t be surprised when he gets there.

What did surprise me, however, was that aigo sponsored the McLaren Formula 1 team, which meant that Lewis Hamilton’s fire-suit sported the aigo logo along with that of other sponsors such as Mercedes and Vodafone. If that wasn’t enough, Feng went ahead and sponsored Manchester United (I am tempted to say, “to create win-win”). For Feng, it’s like a badge of honour – a testament of the fact that aigo has ‘arrived’.

And so that’s Feng Jun.

Image: Christina Hu / Reuters

And then there’s the other Feng – real estate entrepreneur Feng Lun. Compared to aigo’s Feng Jun, Feng Lun, the suave chairman of Vantone Holdings, is more measured in his approach. He has a serious aura about him – like that of a deep thinker (he also has a PhD by the way). He has tasted success – Vantone is one of China’s biggest real estate developers – but he has an aura of humility around him. He has authored two books, both of which are bestsellers in China. Not surprisingly, Feng is a role model for many Chinese youngsters.

We met Feng Lun some months ago to understand how he is overhauling his business model and also pioneering the idea of a new kind of ‘integrated city’ in China. Business model aside, my biggest takeaway from that meeting was the level of Feng Lun’s ambition.

Like many Chinese entrepreneurs, Feng Lun has global ambitions. Any other person (read: from another country) would have gone and scouted for, perhaps, the cheapest piece of real estate he could find elsewhere in the world, before going all-out. Not Feng Lun. He went to New York and leased five-and-a-half floors in the new World Trade Center tower for his maiden US venture.

This set me thinking. The two Fengs are like chalk and cheese – one is gregarious and animated; the other is humble and reserved. But they have something in common (apart from their name): Their ambition is humongous. Both Feng Jun and Feng Lun want to make it big globally.

And the best way of telling the world that they have arrived is by creating a splash, whether it is by sponsoring McLaren or by acquiring a perch in One World Trade Center.

The story of both the Fengs, in more ways than one, represents the growing level of ambition in Chinese companies. Whether it is Lenovo’s rise to the top of the global personal computing market, Chairman Robin Li’s intention to make Baidu a household name in 50 percent of the world’s markets, or Bright Food’s somewhat surprising acquisition of the iconic Weetabix brand, Chinese companies are out to conquer the world.

The Chinese market is huge, no doubt, and still growing. And all these companies have more than enough room to grow within the country and achieve a scale that is not possible elsewhere. But that’s clearly not enough for them.

Last year, we were at a friend’s place for dinner in Fremont, California. She and her friends were planning to camp outside Macy’s in San Jose at midnight, waiting for the store to open. She invited me to join them, but I graciously declined. Much as I love shopping, I don’t have the patience to queue up at night and later have my toes trampled upon in a near stampede when the shop finally opens its shutters to let the milling crowds in.

It was Black Friday, the day American shoppers go berserk. (And they go berserk again on Cyber Monday, the day after Thanksgiving, when they get great discounts online.)

I thought that I had seen the height of shopping madness. And then I came to China…

Few days into my new job and I discovered that my colleague in the next cubicle was a shopping freak. She scanned e-commerce sites during lunch break, ordered online and frequently had packets delivered in office. Most of the time, she bought clothes.

Sometimes she would get a little more adventurous. One day, she walked in chuckling. I looked at her curiously as she tore open the latest parcel that had come in – out came a skull-shaped glass jug and skull-shaped drinking glasses. I fail to understand what kind of pleasure would anyone get drinking out of someone else’s cracked skull.

 Inside the headquarters of Alibaba on the outskirts of Hangzhou / Courtesy: Reuters

Inside the headquarters of Alibaba on the outskirts of Hangzhou / Courtesy: Reuters

I found out that this online shopping spree was not particular to my colleague alone. Every morning hordes of motorised cycle-rickshaws criss-cross through Beijing lanes delivering goods purchased online. And the delivery service is prompt…really prompt.

An order made online at 9 pm may find its way to your doorstep the next morning at 9 am! When these delivery vehicles park outside an office, the scene resembles a small marketplace – or perhaps a visit by Santa himself – as a stream of excited office-goers pours out of the buildings to collect their goodies (if the office permits, most will actually deliver it at your desk). This happens every single day, and not on a festival, a holiday, or any occasion.

And then there are festivals and holidays – and the manufactured ones. Take the curious case of Singles’ Day.

Singles’ Day (Guanggun Jie), or 11.11 (11th November), is a celebration of bachelorhood with the repeated occurrence of the number 1 in the day signifying singles. It turns out that some time in the 1990s, a bunch of students in Nanjing came up with the idea of celebrating their bachelorhood. It didn’t take long for the phenomenon to spread across the country, and it took even lesser time for China’s smart e-commerce companies to turn it into a marketing ploy.

Online retailer Dangdang, considered China's answer to Amazon

Online retailer Dangdang, considered China's answer to Amazon / Courtesy: Reuters

All of China’s e-commerce companies – from Taobao and Tmall to Dangdang and 360buy – give crazy discounts on Singles’ Day. They run 24-hour sales on that day. The discounts are, in some cases, as high as 70 percent – and they sell everything from clothes to washing machines and cars (it’s a different story altogether that China’s e-commerce retailers constantly operate on wafer thin margins and indulge in fierce price wars to outdo each other).

For the e-commerce retailers, it takes months of preparation to whip up such frenzy. They create campaigns which run on TV and sites like Sina and Youku (China’s YouTube counterpart), and advertise on billboards in subways and bus stations. On the day of the actual sale, affairs are run with the precision that one would expect of something like the Pentagon.

China’s 193 million online shoppers went berserk on Singles’ Day. As a result, workers at courier companies had to work in 24-hour shifts, and employ temporary staff.

Here’s what transpired in various Chinese e-commerce companies on this day:

  • Tmall’s sales: RMB 13.2 billion ($2.1 billion)
  • Number of visitors on Tmall: 100 million
  • Tmall and Taobao’s combined revenues: RMB 19.1 billion ($3.04 billion, three times more than last year)
  • Total number of parcels sent from Tmall and Taobao: 28.5 million (compared to an average of 8 million a day)
  • 360buy’s sales: RMB 2.5 billion ($403 million)
  • 360buy’s orders: 4.5 million
  • Electronics retailer Suning.com’s orders: 2.96 million (20 times more than the previous year)
  • Dangdang.com’s sales: RMB 100 million ($16.1 million)
  • Number of delivery employees working on Singles’ Day: 800,000 employees, including 65,000 temporary workers

 

While composite industry-wide figures for Singles’ Day sales are not available, with sales of $3.04 billion, Alibaba alone (the parent company of Tmall and Taobao) has outdone America’s total Black Friday sales of $1.04 billion this year! On Singles’ Day Alibaba’s Hangzhou headquarters apparently “set up 200 lounge chairs for its 800-strong staff to rest during the day” and “the company rented 180 rooms at nearby hotels for longer breaks”.

Tmall and Taobao were not the only winners in China’s Singles’ Day: I (definitely not single) walked away with a heavily discounted Philips hairdryer.

Coca-Cola, Kěkǒu-kělè

Coke? Coca-Cola? No, this is Kěkǒu-kělè

I don’t particularly marvel trips to my bank here. Almost no one speaks English and it’s hard to make the staff understand what I want. My near-zero Mandarin skills always lead to an interesting spectacle for others waiting for their turn at the counter. Most of these experiences are related to mundane everyday banking tasks that one would not give a second thought to in another country. But last week was different. A greater challenge lay ahead.

I was at my bank trying to transfer money to my account in India. This was the first time I was doing this and the process was already complicated – I had to jump through several hoops before I could reach the bank. I collected all documents and went to the local tax bureau to get a certificate saying this was money I had legitimately earned. Armed with my my tax certificate, I thought I was well-prepared.

However, my language disability reared its ugly head again and a bank employee who speaks patchy English, jumped to my rescue and served as an interpreter for me and the teller. Everything was going on smoothly until two bank employees started having an animated discussion in Mandarin. The ‘interpreter’ turned to me and asked: “What is HDFC Bank’s Chinese name?”

‘What is HDFC Bank’s Chinese name?!’ A better question might have been ‘Does HDFC Bank have a Chinese name?’ Or so I thought. But no. In this world, the thought that a bank may not have a Chinese name seemed unthinkable. The question simply did not arise.

“It doesn’t have a Chinese name,” I said. The teller wasn’t pleased at all and what followed was a confusing three-way conversation between the teller, interpreter and me. In the teller’s universe, any entity that didn’t have a Chinese name simply didn’t exist. After a good 10 minutes of argument, she finally acceded to my request to wire the money to my lowly-bank-without-a-Chinese-name.

That set me thinking and reminded me about my first few days in Beijing. This was my first experience in a Chinese workplace. On my second day at work, my colleague Carol, who helps me survive in this city with my extremely limited knowledge of Mandarin, walked up to me and asked me if I had a Chinese name.

“Of course not,” I said. I had never lived in China before and never felt the need for one.

“So you must get one,” she said definitively.

She went back to her desk where she sat deep in thought for a while. She returned after 15 minutes with something scribbled on a Post-it. “Your new Chinese name!” she said triumphantly. My eyes glazed over a jumble of Chinese characters and I simply smiled back and shook my head. “But it is pretty close to your actual name,” she insisted. I smiled again. That was the end of the conversation.

I have been in China for nearly a year, and I still don’t have a Chinese name. I am still very much Neelima. But both Carol and my bank teller might have a point.

It is increasingly becoming impossible for any global company to ignore the world’s second-largest economy. And to do business in China means that you have to conform to local norms and strike a chord with the people, which is especially tough because most of them don’t speak English. And so, if HDFC Bank does decide to come here tomorrow, it will have to get itself a Chinese name.

Arriving at the right Chinese name is tricky business, and the result is often a tongue-twister for an outsider like me. I can’t, for instance, still pronounce Coca-Cola right. In Mandarin it is called Kěkǒu-kělè while Pepsi is Bǎishì-kělè.

To my mind, finding the right Chinese name for a company is fast becoming a science. There are many dos and don’ts.

One, the name should be as close as possible to the original name such that the brand resonance stays the same – so Nike becomes Nài kè, Gillette Jí liè and McDonald’s Màidāngláo (there are some exceptions such as Apple which has become Píngguǒ Gōngsī literally translated as Apple Company).

Two, the name shouldn’t be similar to that of other companies. You need to legally register your Chinese name – as luxury brand Hermes recently discovered, its Chinese name Ai Ma Shi which means “officials who love horses” was similar to that of a Chinese company and that resulted in a painful lawsuit.

Three, Chinese consumers should find the name easy to pronounce.

And four, the name should stand for good things, and shouldn’t inadvertently refer to something unpalatable.

Consider the case of Best Buy, which experienced a dismal failure in China. The company adopted the Chinese name of Baisaimai, which was construed as “to buy after thinking a 100 times”. While the reasons behind Best Buy’s unfortunate run in China cannot be attributed to this, the fact remains that the name didn’t help its cause either.

Coca-Cola, too, didn’t get it right at the outset. Legend has it that when Coke first came to China they decided to go with a phonetic translation of their name which resulted in a hilarious meaning: “Bite the wax tadpole”. The company later changed it to Kěkǒu-kělè which means something like “delicious happiness”.

The interesting thing is some smart branding companies now, such as the Shanghai-based Labbrand and Nanjing Marketing Group, are offering specialised services to overseas clients to help them come up with a Chinese name for their brand.

Maybe, my friend Carol has a point after all.

 
 
Neelima Mahajan-Bansal
A former Forbes India correspondent, I worked for nearly 10 years as a business journalist in India before heading to the Graduate School of Journalism at University of California, Berkeley, as a Visiting Scholar in 2010. It was a step towards getting a first-hand experience of the US economic and business climate, as well as a great opportunity to get an insight into Africa with a Bill and Melinda Gates Foundation-funded reporting project of my choosing in the continent.
Post-Berkeley, one thing led to another, and in early 2012, I found myself braving sub-zero temperatures in Beijing, exploring the nuances of China's evolving business and economic landscape as Editor of CKGSB Knowledge (http://knowledge.ckgsb.edu.cn/), the research publication of Cheung Kong Graduate School of Business.
China is an exciting place to be and despite my constant struggles with Mandarin and unfamiliar food, each day opens my eyes to something new. Some of the things I find fascinating are MNC strategy in China and the evolution of Chinese companies into global powerhouses. Interestingly, several Chinese companies that haven't ventured beyond the Mainland are, in many ways, spearheading innovation in ways we cannot imagine. Another interesting trend that I am witnessing firsthand is the evolution of 'Made in China'. This blog is about my experiences and discoveries in the world's second-largest economy.
Apart from China, I have an abiding interest in Africa, where I spent the early years of my childhood. More recently, I have researched and edited two books, one of which was on Africa: Culture of the Sepulchre by former diplomat and UNESCO Goodwill Ambassador Madanjeet Singh (Penguin India, 2012), and Leading with Conviction: The Nine Principles of Integrated Leadership by Shalom Saada Saar and Michael J. Hargrove (Jossey-Bass, forthcoming).
The views expressed in this blog are my own, and do not represent those of the organization I work for.
 
 
 
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Aw, this was a very good post. Taking the time and actual effort to generate a top notch article_ but what can I say_ I put things off a whole lot and never seem to get anything done.
May 13, 2013 13:54 pm by Meghla
Nice post. Enjoyed reading it. When I came to China seven years ago, one of my Chinese friends too gave me a Chinese name...Mei Mei, which means sister and I think flower as well. But thankfully, I haven't had to use my Chinese name until now. But I have heard some unusual Western names Chinese ...
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I live in Shenzhen, and there's a similar market here called Luohu. I see similar signs warning people not to sell and buy 80% of the shops sell fakes. It is very popular with westerners and Indians as well. As soon as they see an Indian, shopkeepers start saying things like "sasta bag", "sasta ...
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