GLOBEMIC Flashcards
What is the relation young and old people have to prices and quality in Chinese culture?
Old people are more price-focused while the younger generations increasingly value quality and are willing to pay premiums for higher-end products.
What are the Chinese consumer groups?
- Frugal retired: born before 1960 ⇒ Very sensitive to prices
- Wealthy retired: usually worked in government institutions or government enterprises. Less price-sensitive than frugal retired.
- Frugal forties: grew up 1966-76. SAVERS
- Wealthy forties: working for government or state-owned companies (less price-sensitive)
- Thirties: many well-educated, save less than older generations, first to shop online
- Twenties: first generation of one-child policy. Barely save. Consume electronics, entertainment and trendy products in general.
- New generation (<20 years old): the most westernized
- Migrant workers: rural citizens who moved to the cities in the 1990s. Very poor and send their savings to their family on the countryside
- The rich: 1 million people with $1.5 million+ in assets. Urban areas on the east coast.
What are some of the most prominent fast-growing consumers product categories?
- Toys
- Convenience foods (fast-food and frozen meals)
- Pet products
- Personal care products
- Wine and whiskey
- Snack foods
- Health food and products
- Baby products (back in the days babies were raised with self-supplied products)
- Auto products
- Products for the elderly (China’s population of senior citizens will reach 250 million within the next 5-10 years)
- Mid-range products
What are some good tips for retailers in China? (DPPFL)
- Discounts: Small discounts are better than none: price sensitive is strong and most consumers always want discounts
- Product safety mistakes can be devastating: consumers react strongly to the media’s stories
- Packaging: “Face” matters: product packaging is very important as it is an easy way for poorer consumers to look like they buy more expensive products
- Foreign brands: Chinese consumers generally favor foreign brands
- Localization is key
What can you compare the current situation of changing power of world markets to?
What the United States was seen as by Great Britain the late 1800s is how U.S. and Europe see China today.
The Western world can’t really imagine or execute the strategies necessary to do business in a geographical landscape that big and with so many dialects/languages and ethnic populations.
What are traditional characteristics of Chinese consumers? (WCCSP)
- Word-of-mouth: Rely on advice of others
- Comparing: Spent a lot of time comparing products (younger generations are more impulsive)
- Collectivistic (young individualistic in their buying decisions)
- Saving rates are high (average of around 22 %)
- Price-sensitive (less among younger generations)
What are some of the business implications of the more collectivistic and in-group focused behavior of Chinese people?
- Word-of-mouth is extremely important for consumers buying decisions
- Guanxi (relationship-based business)
Who are most mainstream in their preferences? (East Asians or Westerners)
Chinese are more mainstream and also see themselves as less unique than westerners see themselves.
The compromise effect is stronger among East Asians (picking the middle option)
Who are the most risk-taking of Americans and Chinese when focusing on financial investments and gambling?
Chinese are more risk-taking (Macau)
Westerners are more risk-taking with social interactions, sports etc.
What is Tong-culture?
Chinese culture with a narrow definition focused on: provincial association (townsmen)
Broad definition: hometown, universities, etc. where social interactions start.
How does the general societal income-class distribution look for China and the Western world?
(for business purposes when developing products - China’s middle-low class is as poor if not poorer than the bottom class in the Western world).
Within China, which regions are most thrifty (vs. pleasure-seeking) and who are fashion-seeking vs. traditional?
What are the drivers of successful entry in China according to the study from class?
What are the 3 main entry modes to the Chinese market?
- Export entry mode
- Indirect or direct with distributor or subsidiary
- Contractual entry mode
- Licensing, franchising, and all kinds of agreements and contracts
- Investment entry mode
- New establishment, acquisition, joint venture
How has the choice of entry mode to the Chinese market developed over time?
From small-risk entry modes with HK offices, joint ventures, indirect export etc.
to high-risk with local production, subsidiary and in some cases also regional HQs.
How do products in China differ from that of the western products?
- Regulations
- Consumer preference
- More colorful packaging
What do Chinese consumers value in products?
- Functionality
- Sophistication (many features and multi-use)
- Varieties (many options)
What does the “good-enough” market refer to?
The largest segment of Chinese consumers who pursue products of good-enough quality at as low price as possible.
Value for money oriented consumers.
Products don’t have to be perfect to succeed in China - they should be “good-enough” and be offered at fair prices.
What is driving the growth of the “good-enough” market in China?
- Low-income consumers getting richer and thus moving away from low-quality products
- High-income consumers fleeing away from premium Western brands and instead accepting less fancy and expensive but instead locally produced alternatives of reasonable quality
What is the general trend of Chinese consumers changing view of Western premium products?
Western products are still more prestigious and they are still willing to pay more for western products.
However, earlier it was normal that a 70-100 % premium was paid for Western high-end products compared to local products, whereas now the willingly premium paid is closer to 20-30 %.
How big is the e-commerce market in China?
721 million according to internetlivestats (more than U.S., Japan and most of Europe combined)
What are two of the key advantages of e-commerce fitting Chinese consumer demands?
- Varieties
- Price transparency
The opportunity of giving consumers tremendous amounts of different product varieties as valued by Chinese consumers.
Chinese consumers are price-sensitive and the internet provides price-transparency valued by the consumers (TaoBao as leading company for price transparency in the Chinese e-commerce market).
What are four handicaps for MNEs entering China?
- Poor supporting infrastructure and the lack of national distributors in China making it hard to get products out to the mass
- Global corporate standard that MNEs must live up to thereby limiting flexibility and increasing costs
- Trade barriers (provincial trade barriers and protection of local enterprises) which increases costs as it is harder to get economies of scale for MNEs
- Markets in early stage development making MNEs superior products out of reach economically for most consumers (low-cost + good-enough market are the biggest by far).
What are the 3 main advantages of Chinese companies in the Chinese market?
- Local knowledge: Understanding of local environment
- Flexibility and low-cost: leaner companies
- R&D savings/technological catch-up with open global markets: Chinese companies opportunity for catching up on technology by buying it or copying from foreign leaders and thereby quickly building “good-enough” products for the mass market without paying the R&D costs.
What are the main S&D hurdles in China?
- Scarce talent and unsophisticated trade partners (promotion to city-lead within a year is common)
- Fragmented markets and channels ⇒ Much time spent on managing distribution partners
- Top 100 retailers in U.S = 60 % of retail value versus only 20 % in China
- Intense competition
- Higher costs (HR, IT, administrative, infrastructure)
What is an estimated number of number of logistics operators in China? (2010)
730,000
= Highly fragmented
How big is the transportation and logistics sector in China as percentage of GDP? (2010)
Around 20 % compared to only 10 % in the U.S.
Most likely higher now as they in 2010 expected yearly growth of 15-20 %.
What is the main difference between Western and Chinese distribution providers?
In the Western world they are experienced in service and sales, whereas Chinese distributors only focus on distribution ⇒ They are passive sellers in China
When is direct channeling preferable?
- Information needs are high
- customization is important
- quality assurance matters
- purchase orders are large
- transportation and storage are complex
When is indirect channeling preferable?
- availability is important
- After-sales service is important (e.g., automobiles)
- One-stop shopping for many products is important to the consumers
How much lower do Chinese companies usually enter the market price-wise when starting a price-war?
30-50 %.
What can explain Chinese executives use of price-wars?
Grown up in a business environment with growing markets, heterogeneous firms with a wide distribution of cost-efficiencies, and new technologies with significant scale economies.
It has simply been profitable to engage in price wars – especially against Western companies with oligopolistic competition.
