A Country of Diverse Consumers

Earlier this year, a McKinsey report predicted that China will have 290 million middle class households by 2011 with annual income ranging approximately from $3000 to $5000. By all accounts, this prediction seems too conservative. A recent report by Boston Consulting Group and experts at Wharton says that China has already 25 to 30 million middle class households with annual income of $4300 to $8700.

While this causes much excitement in the business community, many difficulties remain for western companies that want to sell in China. On one hand, Chinese consumers are embracing new economic ideas and lifestyles, buying goods that have long been unavailable to them; on the other hand, they are part of a consumer culture and economic system that are very different from the West. Here are the key points from the BCG report and my comments:

Although China has 1.3 billion people, only 400 million are in urban areas. Coming from a culture that is extremely frugal, the middle class Chinese are both savers and spenders. There are people who are looking for value and a bargain price, and there are others who are seeking a premium branded product.

Some of the most popular products among the middle class are color televisions, mobile phones and personal computers. Interestingly enough, in big cities like Shanghai, diamond engagement rings are big sellers, even though the concept of Western-style engagement prior to marriage does not exist in China.

Chinese value education tremendously. Families with kids spend a disproportional part of their incomes on their children’s education. Chinese are also very status conscious. They are willing to spend much of their discretionary income on items that will help them rise in status, but won’t spend on anything their friends and neighbors cannot see. There is so called “consumptive anxiety” – the need for people to buy products so as “not to be left behind.”

Perhaps the biggest challenge for companies selling in China is navigating through its fragmented sales and distribution channels. Many distributors are state-owned. Local government officials, often on the boards of local companies, make it very difficult for companies from other provinces to do business in order to favor the products of home-grown companies. As one senior executive said, doing business in China is half business and half politics.

China is so big, with many diverse cultures and traditions. It’s almost impossible to generalize the market. For the next five years, most of the growth will be in smaller cities. The needs of these consumers are very different from those from big cities. It’s critical for companies to have a localized mindset and develop products that factor in the local tastes and appeal to the consumers in smaller cities.

China, emerging middle class, China business, emerging market, Chinese consumers

Innovation and Leadership

Themed around “Innovation & Leadership,” the HYSTA annual conference, a signature event of the Silicon Valley premier Chinese entrepreneurial association, drew over 1,000 people at Hyatt Regency Hotel in Santa Clara on Saturday.

The conference brought together some impressive speakers and panelists, including the visionary venture capitalist John Doerr, to discuss the topic of leadership. Despite my hectic schedule, I managed to attend part of the conference. It turned out to be well worth the time. It’s very interesting to hear people talk about the growing pain of developing business leaders as China moves toward the global economy.

One of the challenges is that, although Chinese are very entrepreneurial, many of them focus on short-term gain and lack long term vision and perseverance. There is a real dearth of leaders who can lead organizations systematically to scale. One panelist pointed out, traditionally, Chinese culture rewards mediocre players rather than outstanding souls.

On the other hand, some people tried to transport the leadership skills learned in the United States to China. That doesn’t necessarily work either, because the leadership skills required in this environment are very different from the leadership skills required there. While there is no easy fix to these challenges, here are some take-aways from the panel that can shed some light:

1. Although some leadership traits are born, leadership ability can be trained;
2. Great leaders are the ones who want to make others successful;
3. In order to become a leader, one needs to have self-knowledge;
4. In today’s world, it’s important to know what’s happening around the world and be well-informed;
5. It’s not what you say or do, but how you make other people feel that matters

The evening keynote by Mark Thompson, who is a friend of mine, was very inspiring. Mark interviewed over 200 the most successful people in the nation for his book Success Build to Last. He defines success for leaders as making meaningful impact that really matters.

While Chinese are working on their leadership challenges, Americans are wondering when China will take over the United States to become a global leader – that was the exact question from the audience. No one can answer this question easily. But I believe strongly that Americans and Chinese have different strengths that can be learned from both sides. They don’t have to be in competition; they can complement and balance each other to achieve a better world.

China, leadership, business, success, chanllenge