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US Consumer Businesses are Still Betting on China

By Casey Hynes
Aug. 6, 2020
U.S. businesses still see opportunities in China, in spite of political tensions. (Photo credit): Gettyimages.com/DuKai photographer

How some businesses continue to make strategic investments in China despite trade tensions

To read the headlines, U.S.-China relations are fraying fast. Some officials and experts have declared that a new Cold War is here, particularly as tensions escalate surrounding the novel coronavirus. Trade disputes in recent years already strained the relationship, and with the U.S. presidential election heating up, the barbs will likely continue.

Yet, beyond the headlines and the government posturing lies a different story. Despite political tensions and the global pandemic, U.S. businesses still see opportunities in China, particularly in the consumer market. In early 2020, for example, foreign direct investment from the U.S. to China rose 6 percent from the previous year, indicating that China’s market potential still outweighs any political setbacks.

“At the end of the day, business is business. After making investments into China for quite some time, now is actually the moment for American companies to benefit from the huge maturing market in China,” says Andrew Pan, senior vice president and head of China business and strategy at East West Bank. “Personally, I think it’s bad timing for American companies to leave the very appealing Chinese market.”

The American Chamber of Commerce in China reported that despite drops in revenue due to the coronavirus, U.S. consumer companies are still betting on China. Forty-six percent of those surveyed said they will hold steady with planned investments, while some will invest more than initially planned. Apple Inc., for example, has just announced that a mainland Chinese company will be assembling iPhones along with the opening of one of their biggest Apple stores in Sanlitun district in Beijing—all of this amid souring relations between Washington and Beijing.

The numbers make sense, because there are good reasons to stay the course, according to experts, and good reasons for American businesses to make the leap into China—provided they have the right strategies.

Skewed perceptions and political dynamics

The media’s role in shaping public opinion is a topic of fierce debate in the U.S., driven in large part by President Donald Trump’s adversarial attitude toward the press. But the lens through which stories are covered in China may impact Chinese consumers’ perceptions of American brands right now, further complicating the landscape.

Stanley Chao, president of the Asia-focused consultancy All in Consulting, said that when Chinese outlets describe negative American views toward Chinese products, it can inspire a “revenge factor”: “If you’re not going to buy Chinese products, we’re going to think twice about buying American products or American brands.”

Chao adds, “The Chinese consumer base is reacting to whatever is happening in the U.S.”

Larry Namer, co-founder of E! Entertainment News and Metan Global Entertainment, which develops media and entertainment content for the Chinese market, shared a similar view.

“The way it gets reported in China, America gets painted as the bad guys, as unduly interfering in Chinese business and politics. Certainly, the riots [over the murder of George Floyd by a Minneapolis police officer] didn’t help because they’re all over Chinese TV, and it doesn’t paint a good picture of us,” Namer said. “But at the end of the day, [negative perception] tends to dissipate fairly quickly.”

Government sparring doesn’t help, though. Chao said the worst-case scenario is a “bifurcated world” in which China and the U.S. oversee separate trading blocs, making it more difficult for businesses to sell in those regions unless they have a strong foothold there. He noted that he doesn’t expect the worst-case scenario to play out, and suggested that business will pick up again and relations will normalize after the November presidential election.

“The countries are too coupled to disengage,” Chao said. “Both have a lot to gain by working together, and they both have a lot to lose by disengaging with each other.”

Certainly, both countries are leaders in economics and technology. Despite the unprecedented pandemic effects, the U.S. and China both saw several tech companies become unicorns (meaning they reached $1 billion or more in valuation) during the early months of the crisis. Given the significance of both economies and their consumer markets, it seems unlikely that a total freeze will happen.

Namer also believes relations will normalize by the end of the year. “At the end of the day, the U.S. and Chinese have to find some common ground because the two economies are too interdependent on each other,” he said.

Some of the largest American corporations continue to have a strong presence in China, including IBM and Microsoft. The American Chamber of Commerce in Beijing lists a number of other prominent U.S. brands among its membership, including Mary Kay, McDonald’s, the United States Information Technology Office, Airbnb, Hilton, Ritz-Carlton, Bloomberg, Cisco Systems, and many others. Additionally, many Americans who invest in mutual funds and exchange-traded funds likely hold investments in Chinese companies and bonds, adding another layer to the complicated ties between the two countries’ economic well-being.

Neither Chao nor Namer believe the waves of grim news coming out of the U.S. will define American businesses’ successes or failures in China in the long-term. The real determining factor will be whether they attune themselves to the Chinese market.

Made in America, for China

The number one rule for selling in China is to sell to Chinese consumers. That may seem like common sense, but that hasn’t always been the attitude of American businesses.

“What we see go wrong in China is, people walk in there and think, ‘Hey! We’re Americans, buy all our stuff,’ and that doesn’t happen that way,” Namer said.

“Previously, the more American you looked, the better,” Chao said. But sentiments have changed and now, he adds,“you’re going to have to look and feel more Chinese.”

(Photo credit): Gettyimages.com/dowell
“Previously, the more American you looked, the better… but sentiments have changed and now, you’re going to have to look and feel more Chinese.”

-Stanley Chao

Selling in China requires a carefully constructed strategy that includes everything from infrastructure, to marketing in ways that resonate with Chinese consumer. Developing on-the-ground relationships, including with local law firms and banks, is essential to establishing an effective business presence in China, according to Namer.

“There’s no formula to it; it’s all very individual depending on the kind of business you’re in,” he said. “So, if you want to do business in China, you’ve got to be very strategic.”

Chao noted that U.S. businesses should be prepared to establish local subsidiary offices and work with local production sources. Perhaps even more importantly, companies need to craft a strategy that speaks to Chinese consumers’ unique preferences and behaviors. A localized web and mobile strategy is especially important.

“You want to develop your own website in China with a Chinese spin, so to speak,” Chao said. He suggested finding local designers and partners, and asking, “This is what I’m doing in the U.S.—how does it translate in China?”

Consider, too, how Chinese consumers engage with content and products. Namer said the fact that so many people in China watch media on their smartphones has influenced the way Metan Global Entertainment’s shows are edited. In the U.S., shows may be edited to look great on a large TV screen, but it’s a different ballgame when people primarily watch on their phones. Adjusting for local norms is vital to developing a strong audience or consumer base.

Chao said U.S. businesses must also be prepared to sell on Chinese e-commerce sites such as Alibaba and Taobao. They should also embed themselves into popular Chinese social platforms, as consumers are highly engaged in browsing and purchasing directly from their preferred apps, said Mansoor Alam, an angel investor who has worked with Chinese-based companies.

“The way that you have to approach sales is understanding how intertwined social and commerce are,” he said.

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A social revolution

Understanding Chinese social media behaviors is critical, as well, Alam said. For brands that are used to having complete control of their narratives, that may be an adjustment.

“The cultural differences, when it comes to the digital ecosystems in China and the U.S., is particularly [evident] with the Gen Z generation,” Alam said. “I see a lot of investors advising companies entering China to do X, Y or Z, and then you’ll have a local team on the ground saying, ‘You can’t do that… It’s just not how it works here.’”

One significant trend among young Chinese consumers is the drive to use brands to create their own personal narratives, rather than simply buying into the companies’ established stories.

“In the U.S., I would say content is king. If your content is entertaining, it will gain traction, and I think that’s what a lot of brands pay attention to,” Alam said. “In China, it’s really about context.”

The context for marketing to Gen Z-ers, who will represent as much Asian market share as millennials within the next five years, is more interactive and autonomous than for their older peers. Alam said that where millennials were concerned with Fear of Missing Out (FOMO), Gen Z consumers in China are more focused on “punching a card” with experiences big and small. Everything from going to dinner, to visiting the Eiffel Tower, to buying a Gucci shirt warrants a photo and a social post.

“Brands are kind of losing their identities to many Chinese Gen Z consumers, in the sense that luxury is perceived more as the ability to express individualism as opposed to expressing what a brand wants to be seen as,” Alam said. With the example of a Gucci shirt, a young shopper might incorporate it into an experimental outfit and post a photo of the look, not considering how it’s “meant” to be worn according to the brand.

“You have to be willing to cede some control over your identity and allow your target demographic to define what it means to them,” Alam said.

Follow the rules

Knowing your market is a huge component of succeeding in China. But Alam said knowing the rules for growing and marketing companies and operating on different platforms is also essential. When it comes to setting up your business in China, apply the same mentality as you would to your sales strategy. Don’t assume that what works in the U.S. will apply in China, and be ready to tailor your work to local laws and preferences.

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