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Staying Power and Adaptability are Key to Corporate Success in

Summary: Staying Power and Adaptability are Key to Corporate Success in ChinaHIGH PERFORMANCE The Wall Street Journal s newsroom was not involved in the creation or production of this special advertising section STAYING POWER AND ADAPTABILITY ARE KEY TO CORPORATE SUCCESS IN CHINA By Catherine BolgarThe Wall Street JournalFebruary 11 2008You can t get ahead by standing still For companies that means constantly entering new markets China is the biggest new market of all and the success stories of high performance businesses there can teach companies everywhere about entering new territory China is a market that s very very open says Woody Driggs managing director of Customer Relationship Management CRM at Accenture the global management consulting technology services and outsourcing company There s a chance for any product to get into the market and be successful All the promise of China being the market of the future is very true But you need the appetite to stay to learn and to adapt Multinational companies have been thirsting to capture the Chinese market since the mid 1990s It s only now that consumers have the disposable income for the market to finally take off but foreign companies are finding success more elusive than expected Accenture s ongoing High Performance Business research reveals that a key building block to achieving high performance is achieving and maintaining a competitive position in attractive markets Accenture recently conducted a world wide study of brand building and marketing effectiveness with special emphasis on China the biggest and most attractive emerging market It found that the most successful companies targeted specific segments within the market adapted their marketing and surmounted distribution challenges Not Monolithic China is huge and everybody understands that says Lay Lim Teo Accenture managing director for CRM in Asia Pacific But it isn t a big market for everyone There s a right size and a right place for everyone in the market Companies have to avoid making assumptions about what Chinese consumers value most because that can be very different from one segment to another Even within the segment of high income Western oriented consumers Accenture s research found differences between young royals those with the highest incomes and education who want the latest technology and fashion and established money who while wanting the latest technology value brands that have been in the market a while Patriots favor Chinese brands out of loyalty while value players favor Chinese brands for offering both quality and affordability People talk about China s 1 3 billion consumers as if they re all the same but by no means are they says Mike Matheis Accenture managing director of the CRM marketing transformation consulting practice Companies that entered China thinking they could sell expensive products to the top of the market have faced an unpleasant surprise the experts agree Chinese products have improved vastly in quality and Chinese consumers don t automatically think that foreign products are better Thus they aren t always willing to pay a premium Focusing on the elite segment isn t profitable because there isn t enough volume to cover the fixed costs says Peter Williamson professor of international management at the Judge Business School of Cambridge University and co author of the book Dragons at Your Door How Chinese Cost Innovation Is Disrupting Global Competition Many companies have understood that in order to compete in China especially in a very tight price market they have to serve the mainstream market and even the bottom of the market But that doesn t mean dumping cheap goods Accenture s Ms Teo says Chinese consumers look for quality and value and spend time on research before buying There aren t a lot of impulse purchases she says The Chinese study things a lot They have a lot more choices than in many other countries Making Sense of the SegmentsNokia Corp of Finland has mined market niches with finesse giving it first place in phone sales in China with over a 35 share Nokia s phones are the same as those it sells elsewhere but the company has made adaptations for the Chinese market To make text messaging easier Nokia gave some phones a pen and scratch pad so that users could write out Chinese characters rather than have to transliterate them into letters an effort that had put off rural customers It helped us bond with Chinese consumers says Colin Giles president of Nokia China They had a feeling that we understood the Chinese market Global brewer SABMiller PLC saw international brewers enter China in the 1990s with premium beers only to find no takers In the past Chinese consumers have displayed little loyalty for brands in the beer segment says Ari Mervis managing director for Asia for SABMiller speaking from Hong Kong They bought on price And that meant few takers for premium beers China is not just one homogeneous country adds Nigel Fairbrass head of media relations for SABMiller in London There are huge cultural and language differences There are vast differences between north and south Getting the Lay of the LandSuccessful companies gather information often through good local partners who show them the ropes then they build strong domestic operations Accenture s Ms Teo and Mr Matheis agree That was key for Nokia which faced little domestic competition when it entered China 23 years ago Then in 2001 about 40 or so domestic players entered the market says Mr Giles Nokia tapped local partners for advice It s difficult to get data especially in rural China We went from working with eight national distribution partners to working with over 35 provincial distribution partners Mr Giles says speaking from Beijing Nokia had 300 marketing people putting up point of sale materials in Chinese stores some domestic competitors had 10 000 workers selling in the stores When customers came in to a retail outlet to buy they were greeted by the manufacturer s promoter Mr Giles says Nokia boosted its sales force to 6 000 people and decentralized away from Beijing and into 400 cities covering 55 000 outlets Nokia also developed a tool on its own phones used by its sales force Supervisors map out each sales representative s territory for the week with the data downloaded by general packet radio service GPRS to that salesperson s phone The sales reps enter data at each store visited which is uploaded back to the central office It gave us daily knowledge of market share market size best selling products and best selling shops Mr Giles says Building a BrandBranding in China is straightforward due to the dominance of the China Central Television network though it s expensive Mr Giles says Ads need to focus on explaining products Ms Teo of Accenture says In countries like the U K advertising is almost a form of entertainment and products are mentioned subtly That doesn t work in China where people tend to focus on product attributes she says Meanwhile standard marketing techniques such as direct mail show far lower response rates than in the West while electronic kiosks and other media not yet common in the West are more effective China has a lot of technology around advertising media that has leapfrogged Western Europe or North America says Mr Matheis of Accenture SABMiller bought the local Snow brand in 1994 taking it national in 2002 and making it the No 1 brand in China by mid 2006 Snow was the first national beer brand says Mr Fairbrass Until then it was very much regional brands We took a regional approach as well with regional pricing and playing to regional strengths areas with relatively high market shares where you can influence price Reaching the ConsumerWhen SABMiller entered China it skipped the biggest cities and started in the second tier and rust belt industrial cities buying 56 local breweries We bought breweries at good prices Our footprint now goes up China s east coast and down its rivers where most of the population is Mr Fairbrass says Beer is a local business says SABMiller s Mr Mervis The closer the brewery is to the customer the more successful the brewery The game for winning in China isn t playing out in just Beijing and Shanghai echoes Prof Williamson of Cambridge University It s not just in major cities not just the top 30 cities but in the 600 cities most people haven t heard of That s where growth is where people look for new products as they move from rural life to urban life Distribution is the Achilles heel for many foreign companies trying to enter China one that SABMiller works on several fronts to overcome Beer might change hands seven or eight times between leaving the brewery and reaching the consumer As a result SABMiller has been encouraging big well established distributors to develop their capability and make deliveries more directly cutting out middlemen and giving the company more ability to improve on the low margins We integrated demand Mr Mervis says Stores want to stock Snow beer because it sells and people want to buy it because they can get it Nokia found a similar virtuous circle We had a strong brand presence but not a strong retail presence People knew Nokia but couldn t find our phones We changed our distribution and turned our business around Mr Giles says Getting products to the consumer is key says Mr Matheis of Accenture We found in our data that the percentage of consumers willing to consider foreign brands is very high but only a small percentage reported having the chance to shop for international brands Lessons to ExportEntering China isn t so much entering one market as entering many Companies that learn the keys to success can transfer that knowledge when Staying Power and Adaptability are Key to Corporate Success in ChinaHIGH PERFORMANCE The Wall Street Journal s newsroom was not involved in the creation or production of this special advertising section STAYING POWER AND ADAPTABILITY ARE KEY TO CORPORATE SUCCESS IN CHINA By Catherine BolgarThe Wall Street JournalFebruary 11 2008You can t get ahead by standing still For companies that means constantly entering new markets China is the biggest new market of all and the success stories of high performance businesses there can teach companies everywhere about entering new territory China is a market that s very very open says Woody Driggs managing director of Customer Relationship Management CRM at Accenture the global management consulting technology services and outsourcing company There s a chance for any product to get into the market and be successful All the promise of China being the market of the future is very true But you need the appetite to stay to learn and to adapt Multinational companies have been thirsting to capture the Chinese market since the mid 1990s It s only now that consumers have the disposable income for the market to finally take off but foreign companies are finding success more elusive than expected Accenture s ongoing High Performance Business research reveals that a key building block to achieving high performance is achieving and maintaining a competitive position in attractive markets Accenture recently conducted a world wide study of brand building and marketing effectiveness with special emphasis on China the biggest and most attractive emerging market It found that the most successful companies targeted specific segments within the market adapted their marketing and surmounted distribution challenges Not Monolithic China is huge and everybody understands that says Lay Lim Teo Accenture managing director for CRM in Asia Pacific But it isn t a big market for everyone There s a right size and a right place for everyone in the market Companies have to avoid making assumptions about what Chinese consumers value most because that can be very different from one segment to another Even within the segment of high income Western oriented consumers Accenture s research found differences between young royals those with the highest incomes and education who want the latest technology and fashion and established money who while wanting the latest technology value brands that have been in the market a while Patriots favor Chinese brands out of loyalty while value players favor Chinese brands for offering both quality and affordability People talk about China s 1 3 billion consumers as if they re all the same but by no means are they says Mike Matheis Accenture managing director of the CRM marketing transformation consulting practice Companies that entered China thinking they could sell expensive products to the top of the market have faced an unpleasant surprise the experts agree Chinese products have improved vastly in quality and Chinese consumers don t automatically think that foreign products are better Thus they aren t always willing to pay a premium Focusing on the elite segment isn t profitable because there isn t enough volume to cover the fixed costs says Peter Williamson professor of international management at the Judge Business School of Cambridge University and co author of the book Dragons at Your Door How Chinese Cost Innovation Is Disrupting Global Competition Many companies have understood that in order to compete in China especially in a very tight price market they have to serve the mainstream market and even the bottom of the market But that doesn t mean dumping cheap goods Accenture s Ms Teo says Chinese consumers look for quality and value and spend time on research before buying There aren t a lot of impulse purchases she says The Chinese study things a lot They have a lot more choices than in many other countries Making Sense of the SegmentsNokia Corp of Finland has mined market niches with finesse giving it first place in phone sales in China with over a 35 share Nokia s phones are the same as those it sells elsewhere but the company has made adaptations for the Chinese market To make text messaging easier Nokia gave some phones a pen and scratch pad so that users could write out Chinese characters rather than have to transliterate them into letters an effort that had put off rural customers It helped us bond with Chinese consumers says Colin Giles president of Nokia China They had a feeling that we understood the Chinese market Global brewer SABMiller PLC saw international brewers enter China in the 1990s with premium beers only to find no takers In the past Chinese consumers have displayed little loyalty for brands in the beer segment says Ari Mervis managing director for Asia for SABMiller speaking from Hong Kong They bought on price And that meant few takers for premium beers China is not just one homogeneous country adds Nigel Fairbrass head of media relations for SABMiller in London There are huge cultural and language differences There are vast differences between north and south Getting the Lay of the LandSuccessful companies gather information often through good local partners who show them the ropes then they build strong domestic operations Accenture s Ms Teo and Mr Matheis agree That was key for Nokia which faced little domestic competition when it entered China 23 years ago Then in 2001 about 40 or so domestic players entered the market says Mr Giles Nokia tapped local partners for advice It s difficult to get data especially in rural China We went from working with eight national distribution partners to working with over 35 provincial distribution partners Mr Giles says speaking from Beijing Nokia had 300 marketing people putting up point of sale materials in Chinese stores some domestic competitors had 10 000 workers selling in the stores When customers came in to a retail outlet to buy they were greeted by the manufacturer s promoter Mr Giles says Nokia boosted its sales force to 6 000 people and decentralized away from Beijing and into 400 cities covering 55 000 outlets Nokia also developed a tool on its own phones used by its sales force Supervisors map out each sales representative s territory for the week with the data downloaded by general packet radio service GPRS to that salesperson s phone The sales reps enter data at each store visited which is uploaded back to the central office It gave us daily knowledge of market share market size best selling products and best selling shops Mr Giles says Building a BrandBranding in China is straightforward due to the dominance of the China Central Television network though it s expensive Mr Giles says Ads need to focus on explaining products Ms Teo of Accenture says In countries like the U K advertising is almost a form of entertainment and products are mentioned subtly That doesn t work in China where people tend to focus on product attributes she says Meanwhile standard marketing techniques such as direct mail show far lower response rates than in the West while electronic kiosks and other media not yet common in the West are more effective China has a lot of technology around advertising media that has leapfrogged Western Europe or North America says Mr Matheis of Accenture SABMiller bought the local Snow brand in 1994 taking it national in 2002 and making it the No 1 brand in China by mid 2006 Snow was the first national beer brand says Mr Fairbrass Until then it was very much regional brands We took a regional approach as well with regional pricing and playing to regional strengths areas with relatively high market shares where you can influence price Reaching the ConsumerWhen SABMiller entered China it skipped the biggest cities and started in the second tier and rust belt industrial cities buying 56 local breweries We bought breweries at good prices Our footprint now goes up China s east coast and down its rivers where most of the population is Mr Fairbrass says Beer is a local business says SABMiller s Mr Mervis The closer the brewery is to the customer the more successful the brewery The game for winning in China isn t playing out in just Beijing and Shanghai echoes Prof Williamson of Cambridge University It s not just in major cities not just the top 30 cities but in the 600 cities most people haven t heard of That s where growth is where people look for new products as they move from rural life to urban life Distribution is the Achilles heel for many foreign companies trying to enter China one that SABMiller works on several fronts to overcome Beer might change hands seven or eight times between leaving the brewery and reaching the consumer As a result SABMiller has been encouraging big well established distributors to develop their capability and make deliveries more directly cutting out middlemen and giving the company more ability to improve on the low margins We integrated demand Mr Mervis says Stores want to stock Snow beer because it sells and people want to buy it because they can get it Nokia found a similar virtuous circle We had a strong brand presence but not a strong retail presence People knew Nokia but couldn t find our phones We changed our distribution and turned our business around Mr Giles says Getting products to the consumer is key says Mr Matheis of Accenture We found in our data that the percentage of consumers willing to consider foreign brands is very high but only a small percentage reported having the chance to shop for international brands Lessons to ExportEntering China isn t so much entering one market as entering many Companies that learn the keys to success can transfer that knowledge when

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