Multinational Being Chinese

The multinational firms take different localization measures to adjust them to the Chinese market.

According to the latest report, about 650 thousand foreign-funded enterprises have been registered in China. The amount of utilized foreign capital has reached 800 billion US dollars. 480 out of the Global 500 companies have already set up branches or representative offices in China. For most foreign companies, China is the paradise.

“Localization” is the frequently used word during the multinational’s development in China. When foreign companies initially began their development in China, they usually suffered losses due to the unfamiliarity with the Chinese market. Therefore, they consider localization as their trump in earning success in China.

Different foreign companies adopt different measures to manage their China branches and they hold different understandings of the localization. The major localization methods of multinationals are as follows:

I. Localization of Products

What products do the Chinese consumers need? This question is worth being carefully considered by every foreign company. They need to know the Chinese consumers’ characteristics, hobbies and demand etc. The localization of vehicles is a perfect example. The Chinese consumers love big cars because they believe that big cars can make them more prominent. In consideration of this, Volkswagen launched remodeled Passat in China with lengthened and widened body. PSG-Citroen turned Peugeot 307 from hatchback to notchback because of the Chinese consumers’ favor.

There are some unsuccessful examples: Volkswagen’s Golf is very popular in Europe because its excellent cost performance, but it encountered pale performance in China. The Chinese consumers don’t like hatchback - that’s what Golf is – and they pay more attention to the appearance and size of the cars than to the performance.

Chinese consumers care about products’ size, color, appearance, performance and price. Therefore, some unimportant factors can change the consumption of one person. For example, female consumers in China prefer the home appliances with the colors they like rather than the one with good performance. Due to the diversified factors, a kind of product usually takes on several forms in China. The foreign companies need to think of that when doing business in China. They can provide the Chinese consumers with more choices by expanding their product categories. This is a part of product localization strategy.

The product localization is followed by localized marketing. How to sell the products fitting Chinese market in a way the Chinese are fond of? How to deliver ads to targeted consumers efficiently? There are many problems the foreign companies need to think of. Chinese consumers, for example, are fond of the products having engaged celebrities as their image promoters and lay great trust onto the established brands. Therefore, it is important for foreign companies to set up and foreign brands among consumers.

II. Localization of Talents

Most of the foreign companies appoint their locals as the leaders of their China branches. These foreigners (to Chinese) bring about advanced management but are bothered by the insufficient knowledge of the Chinese market. In addition, they can not understand some particularities of Chinese market, like the human relationship. They usually have conflicts with Chinese employees due to their misunderstanding Chinese culture. The conflicts harm the development of the company.

Since using foreign senior executives have so defects, many foreign companies recruit Chinese locals into the decision-making level – the so-called localization of talents. Following are the kinds of talents foreign companies recruit:

1.      People born and growing up in China with Chinese college degree and overseas studying or working experience. The representatives are Kaifu Lee, Chen Yongzheng. These people are the primary choices of multinationals in appointing leaders of China branches. They have profound understanding of Chinese market and know the foreign corporate culture and management as well. They are very suitable to lead the multinationals’ China branches.

2.      People from Hong Kong, Macau, Taiwan and Singapore. There people live in the environment full of Chinese features. Therefore they also know Chinese culture and market. In addition, the mixed culture in these places teaches them the efficient ways to work with westerners. However, these people’s knowledge about China is usually limited to the place they are living and needs expanding.

3.      American born Chinese (or people with Chinese blood born in foreign countries). These people learn fluent Chinese from their parents and therefore are not bothered by the communication problems. They know well about the western culture and management. But they don’t have deep understanding of the Chinese market.

4.      The natural born Chinese businessmen. These people have been engaged in China’s market for a couple of years and have much more knowledge about this market than the three mentioned above. However, they are haunted by the disparity with foreign companies’ culture and management style.

The senior executives of multinationals’ China branches play important roles in the company’s development. Nowadays, more and more multinationals prefer the firs kind of people and the fourth kind of people are generally believed to serve as assistant.

III. Localization of Governance

Many multinationals are used to the management pattern mentioned below:

The pattern is somewhat similar to a line management style. The CEOs of China branches report their work to the CEOs of Asian-Pacific regional branches, who then report to the companies’ vice presidents in charge of Asian-Pacific area. Finally the vice presidents submit the reports to the global CEOs. Take a US company for example. The global CEO is usually an American who decentralizes the governance of Asian-Pacific area to a Latin American; then the company recruits a Singaporean, Japanese or Korean as the CEO of Asia-Pacific area and a Hong Kong people or Taiwanese as the CEO of China branch. Such a pattern has a fatal defect – the important development strategy may not be made with the complete and right understanding of Chinese market. The inappropriate decisions may damage the companies’ development in China. Actually, many multinationals once had good opportunities in China but failed grab them because of wrong decisions.

Some multinationals have notices this problems and taken measures. Hewlett-Packard set up a “China Affair Management Commission” in its headquarters in the USA to tackle the business and problems in China. Anything related with China is directly reported to this commission. It reduces the times that information was transited before being heard by the global CEO. Therefore, the misunderstandings can be avoided.

More companies choose to move their Asian-Pacific headquarters into China to find a faster and more efficient solution to this problem.

Recently, here gradually comes out a new management pattern in which the Chinese market is deviated from the Asian-Pacific area and run independently. Fuji and Xerox are two of the companies taking this measure, which improves the role of China’s market for these companies.

These government patterns share one principal – the decisions should fit Chinese market. The multinationals have to think about whether they can provide a proper circumstance for the localized management level to exert their talents. If the multinationals just recruit some local talents without giving them full rights, this localization is meaningless. The local talents should take part in the formulation of corporate strategies related with China instead of being pure executors, Only in that way can the true localization of governance can be fully realized.

IV. Localization of Operation

Suitable local leaders with proper rights can make use of localized products to develop the Chinese market with the help of localized development strategy. However, they still need the operation pattern featuring Chinese characteristics, which is called localized operation.

Simply speaking, localized operation means doing business in China according China’s market rules. Some of the rules are not based on laws and regulations; instead, they are more or less common rules in one industry or even the hidden rules. Though some rules seem unreasonable at all for foreigners, they have to follow them in order to get development in China. Therefore, understanding and using these rules are very important for the multinationals. Otherwise they can only leave China after being confused by “complicated Chinese market”.

Carrefour and Wal-Mart provide the best samples here.

Carrefour entered China in 1995 and Wal-Mart followed suit one year later. At that time China has very strict limitations over retailing chains. Wal-Mart followed these rules completely and set up self-owned companies. However, Carrefour set up a joint venture in China. In that way it was free of the restrictions and was allowed into more cities compared with Wal-Mart. Carrefour’s flexibility was awarded fast development – in 1999 it became the biggest chain retailer in China. In comparison, Wal-Mart missed the best opportunity to develop in China.

Each multinational needs to think carefully of their relationship with the Chinese government. Different from the developed countries, China’s government is a big market as well as a leader of several other big markets. Any tiny change in the government’s policy can result in great changes in the market. For example, the stylus printer has already been gone in foreign market, but it finds a paradise in China because of the Chinese government’s requirement over the invoice copy. It is just an epitome of government’s important role in the market. In order to form good relationship with the government, many multinationals have founded departments specializing in “relationship with government” in order to get used to this market particularity in China.

V. Localization of Partners

The multinationals usually have many “wooers” in the foreign countries, say, many small and big companies may work with the multinationals to provide various value-added services. The most representative example is the plug-in programs of some software products which can add more functions to the software. MSN, for example, has the additional functions of weather forecast, finance and so on. These value-added service providers are the partners of the multinationals. With the help of the partners, the multinationals can develop the market quickly and more efficiently.

When these multinationals come to China, they will find that there are no such partners in this country. Therefore, they have to look for even foster some partners here. The local companies are the best targets. In spite of their small sizes and fames, they play a very important role in the multinationals’ development in China. This part is called the localization of partners.

In China, the partners can not only provide value-added services, but also function in the promoting sale, bettering relationship with government and helping to know the Chinese market etc. Therefore, finding local partners is necessary for multinationals.

Conclusion

The concept of localization includes many aspects. In order to be successfully localized in China, a multinational must consider these factors: what market they are targeting, what products they are providing, who are in charge of this, what particularity the market has and what additional assistant is needed?

Multinationals’ localization in China aims at getting used to China and earning more from China. Only the multinationals having successfully been localized can exist and develop in China and stand out in the furious competition.