PETER PARKS - AFP/GETTY
Models show off creations during Italian label Prada's show Jan. 22 in Beijing. Miuccia Prada's first catwalk show outside Europe signaled her focus on China's huge market.
Editor's note: Negotiating business in China has never been more crucial for N.C. businesses. Over the next several weeks, we'll look at successful China strategies and 10 North Carolina businesses that have made the leap. This week: Know your customer, and understand legal differences.
China's huge population and sprawling landmass can be both an opportunity and a headache for companies new to the market.
Not only do consumer preferences vary by province, customers fall under two extremes: the price-conscious and those who are willing to pay handsomely for luxury goods.
According to McKinsey & Co., China will account for $27 billion in global luxury-goods sales by 2015, which equates to 20 percent of the global luxury-goods market. Bain & Co. estimates that China is already the seventh-largest market for luxury goods by sales.
Large foreign companies have been slow to capitalize on this growth. For example, Luxottica has been a leader in high-end eyewear for more than 50 years, but only recently began offering Asian collections of its popular Ray-Ban, Oakley, and Vogue sunglass lines. Luxottica CEO Andrea Guerra says the company recognizes that to capture this growth, it needs to design products consistent with domestic preferences and the physical differences between Asian faces and those of other nationalities. In 2009, the company established a design hub in Shanghai.
For Burt's Bees, pricing has been a big challenge. Jim Geikie, the Durham company's vice president of global marketing, said their concern was that their natural products were "not premium enough. ... You need to be luxury or mass, or you're in trouble. We are an accessible brand."
Burt's Bees' challenge is to create the idea of "affordable luxury" in China.
Raleigh software company Red Hat had a different challenge.
Chinese companies are willing to pay for individualized, non-replicable products and services, but they expect customer service to be included.
Red Hat started with the basics. The company localized its product to the local language. Next, following its global marketing strategy, Red Hat developed specific messages for the China market. Support in the U.S. market is typically offered 24 hours a day, seven days a week by phone.
The Chinese way of doing business, instead, involves seeing people in person. The company's then-general manager, Michael Chen, was a native of China and knew this. Thus, Chen's team scheduled quarterly on-site visits and offered dedicated support to key customers. Since Chinese love to haggle and get a bargain, Chen battled with Red Hat's corporate-pricing committee knowing that, at the end, his customers didn't necessarily want a better deal than their U.S. counterparts; they simply wanted to haggle.
Chen recommended to his bosses that they start at a price with this inevitable negotiation in mind.
Companies can design solutions such as these that account for cultural and regional differences by staying informed and remaining flexible.
Nor should they base their China business model on how consumers behave in the United States. The failure and subsequent retreat from China of brands such as Best Buy and Taco Bell are examples of the difficulties faced by U.S. firms.
Next week: Market American, operate Chinese
