Tom Doctoroff: Google’s China Misadventure: Not a Harbinger of Darkness

Last Updated on Tuesday, 23 March 2010 11:15 Written by Daisy Harley Tuesday, 23 March 2010 11:15

Today’s Washington Post has a headline suggesting that Google’s withdrawal from the Mainland is a harginger of much worse to come. It asserts, “China at a Crossroads of Change.” And it goes on to warn, “Google’s showdown marks turning point in bond between West and Beijing’s authoritarian system.”

Please. Let’s not get overexcited.

This HuffPo post neither endorses nor criticizes Google’s decision to cut its losses in the Middle Kingdom. The company’s strength as a brand is driven both by technological innovation and clear values — freedom of expression, infinite discovery, “doing no evil” — that strike a deep chord with global netizens. Google’s unwillingness to continue compromising its ethical and moral standards by submitting itself to authoritarian censorship laws was probably gut-wrenching, given the enormous size of China’s market. And, as an American, it is refreshing to see a corporation stick up for what it believes in.

But Google’s stand is unique and will not influence many other investment decisions.

Google’s demand that it be allowed to operate an uncensored, non-monitored website was extremely naive. The Chinese authorities, ruthlessly pragmatic, are often open to compromise, albeit negotiated through a prism of acute self-interest.

It’s true that China has always and will continue to vigorously defend its interests — as well as promote its “strategic” industry sectors — and we must anticipate an increasingly mercantile modus operandi. So they’re being marginally tougher on foreign business than in the past, but only marginally. The government knows foreign businesses can’t be pushed too far, too hard. When it cross a line that discourages investment, it will back off. The Party knows how its bread gets buttered.

The Google case was a Google botch. Google’s public condemnation of and demands against censorship touched the third rail of government insecurity. Anything that directly or directly threatens governmental control — i.e., the ability to frame the debate — and always been and will always be approached with zero tolerance. Google committed every sin that China 101 warms against and, in the end, did neither the consumers or their bottom line any favors. The fact that their complaints were released, stridently, in public also caused a massive loss of face, a near-unforgivable sin to any Chinese, government cadre and corproate warrior alike. And, finally, we shouldn’t ignore the fact Google knew perfectly well the conditions of maintaining a Mainland operation when they entered the market.

Google has repeatedly exhibited a lack of understand about what makes China business tick. Relative to Baidu, their primary online competitor, they underinvested in a sales force, rather arrogantly assuming a “build it and they will come” mentality, based on competitive advantages on engineering and technological levels. Their tone deafness was even evident when they launched in 2006. Google’s name in Chinese translates as “gu ge,” or “valley song,” hardly a label that connects with ambitious Chinese youth, eager to expand their horizons, liberate their potential and connect with the world.

So what’s next? My bet is Google will now fade with nary a whimper. Savvy competitors, both local and multinational (i.e., Microsoft’s Bing), will fill the gap. The on-line community will grumble, for a bit, and then get on with their lives, infinitely more “free,” both on-line and off, than just five years ago.

The China market is too big, too promising, for other companies, most not as religious as Google in terms of absolutist promulgation of values within vastly different cultural contexts, to ignore.

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Article source: http://www.huffingtonpost.com/tom-doctoroff/googles-china-misadventur_b_510844.html

Tom Doctoroff: Chinese Consumers Can’t Save the World

Last Updated on Tuesday, 23 March 2010 09:00 Written by Daisy Harley Tuesday, 23 March 2010 09:00

Sustainable 21st century growth will be achieved if, over time, America increases savings and long-term investment and China reduces saving rates and stimulates consumer demand.

Big Already

In absolute and aggregate terms, the PRC’s consumer economy has made Herculean strides over the past decade. The “new” middle class now counts more than 125 million individuals. Passenger auto sales, in units, have surpassed America’s. The Middle Kingdom has recently surpassed Japan to become the world’s second-largest market of luxury goods. Mobile phone subscriptions, over 700 million strong, penetrate lower-tier cities and rural fringe markets. Anta, a mass market sports shoe brand, has quintupled revenue in five years, up from 1.2 billion RMB in 2005 to almost 6 billion RMB last year.

Chinese consumption has emerged as a force to be reckoned with. When the government succeeds in further unleashing personal spending, a paradigm shift that has just begun, the PRC will become an even more fundamental driver of global demand.

Structural Impediments to Global Rebalancing

But it will be a long road to Rome. Over the next decade, Chinese consumers will not save the world; they can not make up for a sharp pullback in U.S. consumption. The Chinese, poor by global standards, are extremely cautious, ruthlessly price conscious and risk averse. This tendency, reflected in a bargaining impulse that approaches blood sport, is underpinned by: a) contemporary government policy and b) ancient cultural imperatives – i.e., assumptions regarding the relationship between society and individual. The relevance of the latter is indicated by persistently high savings rates even in “developed” Chinese societies such as Hong Kong, Singapore and Taiwan.

On the Mainland, factors militating against rapid reorientation of domestic demand are well understood. The Chinese economy is fueled by investment in infrastructure and capital; as a result, individual incomes are rising at a much lower rate versus the total economy. Shareholder rights are notoriously weak, sometimes non-existent. Welfare and health care “safety nets” remain in tatters. Reform has been stunted by the central government’s inability to inefficiently allocate resources at the municipal and provincial levels, often due to corruption and aggressive protection of local or factional interests. Private rural land ownership, perhaps the greatest opportunity to liberate mass market incomes, remains stranded a Twilight Zone of political incorrectness.

Cultural Factors that Inhibit Spending

“Culture” is another factor — less appreciated, non-quantifiable but no less fundamental – that makes wallets difficult to pry open. .

Everything that distinguishes China from the West – reverence of strong authority, a social contract that eschews outright rebellion, the primacy of the clan at the expense of U.S.-fangled “individualism,” glorification of hierarchical advancement within a mandated framework, relentless amassing of “face” (i.e., societal acknowledgement) as a defense mechanism against stagnation, outsized-yet-fragile egos, “mine is bigger” neon fixation, arena-sized lobby fortresses that project Power – can be boiled down to a unifying belief: safety first, then progress.

Across millennia, all strands of indigenous Chinese philosophy – Daoism, Confucianism, Legalism — have reinforced the imperative of stability as the foundation of advancement. Driven by a pervasive belief that “security” – on physical, societal and financial levels – is ephemeral, the Han worldview is an anxious worldview. For thousands of years, the Chinese have been taught that imperial authority is required to ward off chaos. Confucianism mandated strict adherence to a social contract in which: a) the clan, not the individual, is the basic building block of society and b) upward mobility is tantamount to mastery of “the rules.”

As a result, China never developed an institutional framework that defends the interests of individuals subordinated to the state. Today, a co-dependent relationship between a brittle, authoritarian central government and jittery populace persists, reinforced by quintessentially Chinese characteristics: a judiciary branch that must advance Party interests, non-transparent eminent domain, pervasive corruption at all levels of society and a lack of checks and balances within the Party. Age-old anxiety still runs deep.

Polarized Impulses: Protect vs. Project

To guard against threats, real or imagined, polarized impulses emerge. There remains an acute tension between bold ambition and risk-averse regimentation.

This conflict, at once dynamic and restrictive, also explains the topography of China’s consumer landscape. It explains the omnipresent tug-of-war between yin and yang urges: the first is conservative, penny-pinching, credit-averse, future-focused and “protective”; the second is ego-gratifying, dynamic, status-seeking and “projective.” It explains why the vast majority of these transactions are made in cash, not to mention ultra-low prices privately-consumed categories such as appliances, furniture and food. But it also explains why “entry level” middle-class families willing to shell out 130% of their year income on a car or $30,000 for a wedding party.

Both corporate marketers and government cadres hoping to stimulate domestic consumption should heed this distinctly Chinese buying dynamic. They must directly address either the “protect” or “project” instinct. The former dominates urban mass market buying, particularly in lower-tier cities. Efforts to spur spending here require epic structural reform, no easy task given the precarious balance that must be struck between “harmony” and “growth.”

There are “surgical” ways of quickly triggering demand. Wealthier individuals, still inclined to save for rainy days, can be motivated to spend on goods that enhance ability to project status. Several product purchases are universally considered to be rites of middle class passage. These “show off” items, usually publicly consumed, cover a broad swathe of purchases. The government’s 2009 tax break on fuel-efficient cars, for example, resulted in growth of 80%. Luxury goods – from fashion to watches and cosmetics to diamonds — are bought by the elite and twenty-somethings as “investments” in future success; reduction of import tariffs, now over 33%, would mean a splurge for the ages. Enhancing access to credit for small business owners would also encourage spending. (In a society where land ownership is illegal, a man’s company is his Rock of Gibraltar.) So would liberalizing tourism visa policy; in China, you are where you have been.

A few swallows, alas, do not make a summer. As we await a rebalanced Chinese economy, the world must muster the patience of Job.

Article source: http://www.huffingtonpost.com/tom-doctoroff/chinese-consumers-cant-sa_b_510778.html

Tom Doctoroff: China’s Senior Market: Gray Today, Golden Tomorrow

Last Updated on Sunday, 31 January 2010 11:45 Written by Daisy Harley Sunday, 31 January 2010 11:45

Within the next several years, China’s “gray” (50+) market will be the most potent spending demographic on the planet. By 2025, there will be more than 500 million “mature” Chinese consumers, up from 300 million today, or almost 36% of the Chinese population, up from 21% now. Their per capita spending power will exceed $4,100, up from $1,620 in 2006.

But, to date, this potential bonanza has been ignored by most marketers. According the National Seniors Bureau, only 10% of products and services bought by senior citizens are actually targeted to them. Why? First, their current incomes pale in comparison to younger, middle class cohorts, who mostly reside in Eastern coastal cities. Second, mature consumers are assumed, often erroneously, to be ultra-conservative culturally, caring little about brands and the aspirations they embody. As Chen Yimu, a 62-year-old netizen, makes perfectly clear, such apathy will fade: “We want to look pretty. But there are no fashion brands for seniors. When will our turn come?”

Mainland gray can be golden. Marketers, however, must realize that, as incomes rise, the Middle Kingdom will become more modern, more international, but not more Western. Goods must be positioned in accordance with cultural imperatives. Brands must resolve a fundamental and uniquely Chinese conflict – between fear of an ever-changing modern world and titillation by new-found freedoms and broadened horizons — at the heart of elderly existence. Those that do will be rewarded with deep loyalty and robust price premiums.

Displacement vs. Optimism

On one hand, the 50+ generation suffers from a sense of displacement. From civil war, World War II and Liberation to the Great Leap Forward and Cultural Revolution, they matured during a politically and economically insecure era in which “success” or “acknowledgement” was contingent on sacrifice, on both familial and national levels. They were conditioned to have faith that absolute loyalty to authority – by son to father, younger to older, ruled to ruler – was the gravitational force that would pull “New” China out of 150 years of imperial and Republican chaos. Their worldview is characterized by Confucian faith that age is tantamount to wisdom, that obedience by and respect from the younger generation are the fruit of their long, hard struggle through sixty years of nation building. As one senior citizen puts it, “We sacrificed. We deserve a return. We deserve dignity.”

The forces unleashed by economic reform and “opening up” – mandatory retirement; mobility that increases the physical distance between parents and adult children; an epic inter-generational values gap in which traditional collectivism co-exists uncomfortably with new-fangled ego affirmation – threaten the honor due life-long warriors for the Motherland. The 50+ cohort, anxious and self-protective, questions its own relevance.

That said, hope springs eternal. Driven by rising incomes, the power digital technology and a Middle Kingdom connected with the outside world, sunset days can blossom into rainbow years. The mature market is also beguiled by the promise of new friends, burgeoning fitness and travel options, on-line self-expression and a revolutionary concept that “fun” need not be guilty pleasure. Brands must mitigate an anxiety of displacement by becoming guiding lights into a new world of opportunity. They must pivot from fear-based messaging or, worse, neglect by either unleashing “possibilities of me” or forging new constructs of “we.” Beyond a self-evident need to enhance product accessibility – i.e., enlarged mobile phone key pads, anti-shake digital cameras, a Walmart senior “corner, a C-trip gray travel mini-portal – smart marketers can dive deeper by touching the heart of desire. Here’s how:

Possibilities of Me

Justify the Treat. We should provide permission to bite into forbidden fruits by positioning old-fashioned values as the source of future happiness or self-indulgence as a reward for enduring deprivation. Older Chinese are ruthless savers so AIA skillfully assets that, after years of hardship, freedom from worry is a worthy financial goal. Burberry’s “real quality never goes out of fashion” and Dove’s celebration of “real beauty” can be focused into mature-targeted campaign platforms.

Make Olden Golden. Brands must explicitly acknowledge 50+ wisdom and generate admiration of “elder masters.” Shide wine elegantly links the clarity of white alcohol with the “acumen of ancient sages.” In a one droll HSBC ad, a silver-haired father wields a credit card to restore family harmony while paying for an expensive meal. Even Nike, during the lead up to the 2008 Olympics, aired a droll TVC featuring a guru to personify an ageless Just Do It spirit. In airing senior-relevant copy, these brands suggest an unusual, if sub-optimally harnessed, insight into the minds of mature Chinese individuals.

Attain “Forever Young.” Brands promoting health benefits should move beyond worry-based protection (e.g., supplementing calcium deficiency to ward against weak bones) to embrace life-enhancing liberation. Furthermore, pounding clichés of lively grandmas and grandpas have passed their sell-by date, as assaulted viewers of relentless Nao Bai Jing commercials will attest. New Balance targets running shoes to elderly who crave “new roads and a new life.” New Zealand Tourism Board’s “100% Pure” campaign is begging for a senior spin that fuses Daoist celebration of qi with the promise of timeless rejuvenation. Vitality benefits can also be dramatized by beating the whipper-snappers – i.e., using the young generation as a playful foil. In Japan, Pocari Sweat, a sports drink, fueled the victory of spry old men over SMAP, a local boy band.

Reinforcement of We

Tighten Family Bonding. To strengthen the 50+ market’s sense of belonging, brands can bridge the gap between new and traditional ways of life by lubricating inter-generational communication. Historically, non-differentiated “gifting” has been the most prevalent means of encouraging offspring to fulfill Confucian obligation to parents. Recently, however, a few products have begun to address the widening generation gap with a bit more nuance. Ericsson reminds sons that real caring is conveyed through on-going dialog with fathers. China Mobile has gone beyond “connecting people” by opening “lines of love” between daughters and mothers.

Relatedly, in China, a culture in which the extended clan supersedes the nuclear family, every Little Emperor has six parents, not two. Savvy brands acknowledge grandparents’ interest in – indeed, obligation to contribute to — their grandkids’ well being. Both joy and responsibilities should be shared. Nestle’s Taitaile, a flavor enhancer, explicitly endorses — and facilitates — a mother-in-law’s dominion over the kitchen and, hence, the entire family’s nutritional well-being.

Build New Communities. In an era of sweeping change and social disorientation, brands should be platforms for social bonding. Which property tycoon will break ground by building a luxury village for seniors? When will DeBeers throw Diamond Anniverary Parties for couples whose love lasts forever? Digital technology – elderly chatrooms, blogs and social networking sites have begun to up everywhere – already facilitates the fortification of old and new acquaintances. Few marketers, however, have capitalized on this sociological paradigm shift. Who will be the first to sponsor on-line “silver dating?”

“China pride” can also be a vehicle for drawing together like-minded soldiers, heroes who, collectively, molded a great nation. Brands should give legions of patriotic seniors a new age megaphone to help them, together, cheer for China. Anta or Lining, mass market sports brands, could support a “Revolutionary Pep Squad” during upcoming Olympic games. China Mobile, perhaps the most ubiquitous Chinese brand of all, should exploit the spirit of senior citizens in ensuring a successful Shanghai World Expo.

In conclusion, China’s mature market will be gigantic but it is being ignored by most marketers. As spending power mushrooms, brands must tap into the tension between “fear of displacement” and “excitement for new beginnings.” Those that do will emerge as guiding lights on a vast new commercial horizon. We have listed five ways – justifying the treat, making olden golden, attaining “forever young,” .tightening family bonding and building new communities – to help manage the first steps on a beautiful journey towards everlasting relevance.

This article first appeared in Advertising Age.

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Article source: http://www.huffingtonpost.com/tom-doctoroff/chinas-senior-market-grey_b_443885.html