Archive | June 2013

Negotiation with Chinese: Practical Guide for Western Managers

Even so Chinese businessmen are more aware of international rules and etiquette, in recent years, the cultural differences will still remain as a major barrier to successful business with Chinese during the next century at least. Many managers believe no specific attention is needed for doing business, and actually the capability to understand and manage cultural relationship is defined by the Cultural Intelligence (CQ – which is a fairly new concept defined by C. Earley in Harvard Business Review Oct.2004 (http://hbr.org/2004/10/cultural-intelligence). The lack of cultural awareness has been the root cause of many failures in China and is often attributed to unfair business but rarely to behavioral differences. We expect below to give some basic principle of negotiations with Chinese that would greatly help getting successful deals oversea.

Preparation:

  •  Date: Avoid main Chinese holidays like national day, autumn festival and Chinese New Year. –
  • Language: Learn some basic Chinese, always very appreciated, few examples: Nihao (means hello, pronounced “nee haow”), Xiexie (means thanks, pronounced “she-yeh she-yeh”),… Google Translate gives good pronunciations for learning purpose. –
  • Topic: Read recent positive news from China (achievements, sports, industrial development): this is very valuable during dinner to show that you know about China, and gives your Chinese partners a sense of proud and happy. It is better to avoid controversy topics, don’t speak about national politics with Chinese, and especially China’s own problems like pollution or corruption.
  • Energy: Be prepared for long meeting, especially for difficult and complex subjects, better to start the meeting well rested without too much jetlag.

Meeting:

  • Schedule: Be punctual to meeting, if late, inform your contact as soon as possible. –
  • Agenda: As always, it is better to prepare and propose the meeting agenda well in advance, avoiding surprises and increasing meeting efficiency. – Gift: Always positive to prepare gifts. At minimal, one for the host, alcohol or chocolate is a good pick. Gift values should be similar in price than they are offering (reciprocity concept). The gifts shall be wrapped in red or gold paper preferably and black, white shall be avoided. –
  • Naming: When calling your Chinese contacts: Mr./Ms. + last name or Last name + first name, if they have an English name, it is normally enough by itself, no need for the last name. –
  • Business card exchange: During the first contact, hold with 2 hands, take time to read the title while holding it, importance is a bit over exaggerated, but still better to do. Try to give more attention on the highest ranked host, title is very important in China. Last, it is not recommended to write, even the date, on the business card, better to do it after the meeting.
  • Meeting room: Sit preferably in front of the door when you are the visitor. Historically reason was coming from old tradition with assassin coming from the door to kill visitors. Being in front, you see them coming. The host normally sit at the middle of the table.
  • Giving face: Ensuring that you are never personal on negative matters, consider yourself and your Chinese counterpart as part of a corporation/team with shared responsibility for any decisions and actions. Bringing a problem personal will never improve the negotiation in China. If you come in team, it is preferred the meeting is leaded by your highest executive. It shows respect to your counterpart.
  • Eye fixing: Looking straight in the eyes might be regarding as impolite and lack of respect. Eye contact is still important thus, but not fixing. –
  • Yes or No: Asian are famous for never saying no. This is actually not that straight. A “No” can be seen as a failure and a face issue. As such they tend to express their refusal in a different way, try to observe the body language and the words used. A “it’s ok” for example is meaning a partial acceptance and it is better to discuss further the case. In many situations, reformulating your questions with different words is a great way to confirm the answer. –
  • Conversation: Unlike Latin habits, do not interrupt Chinese until they stop talking. Be patient and never show anger
  • Negotiation: Chinese are tough negotiators varying the style to get results. Be prepare to some concessions, it will give face to the negotiator and help getting the deal.

Dinner:

  • Dining and drinking is a very important part of the process of negotiation. Accepting lunch or dinner proposal is a must and part of the business process, a refusal can be misinterpreted. There is a saying in China that “business is done on dining tables”. It is better to plan in advance and to accept the invitation. If needed, initiate dining invitation by yourself. – Always accept the proposed food (should happen even more for things you don’t want to eat). There is a trick that you can still leave what you don’t like inside the plate. – Don’t eat on the provided plate (like westerners do), put food in the bowl and use the chopsticks in the bowl. The plate is used for rubbish. – Don’t stick the chopsticks in the rice, or fruits, even to put it in the mouth, this is equivalent to death symbol. If you cannot use chopsticks, most restaurants can provide knife and fork.
  • Ganbei: Somehow equivalent to cheer, it means drinking alcohol bottom-up for toast. Nowadays, the liquor is often replaced by wine or beer, still bottom-up, be prepared. Chinese believe that “friendship is built by drinking together”, and will find many reasons to Ganbei with you, from cooperation to friendship and partnership. The main purpose is to emphasis positive aspects of the business and your active participation find topics to cheer will be highly appreciated. – Don’t be surprised by Chinese managers asking for your salary or cheering for money. Money is a popular subject like health in Europe. – Don’t discuss about business at dinner unless your Chinese counter-part is asking for. Dinner is a place to build relationship; any other topics can be addressed, especially about the Chinese boss’ achievements and success. Again politic shall be avoided unless you get close relationship.

Of course, there are many more specific manners, please check here for more details: http://en.wikipedia.org/wiki/Customs_and_etiquette_in_Chinese_dining Overall, the dinner place is beneficial to build business relationship and this is a very important concept. It will increase the trust level as well as the deal success rate from the meeting. Those tips has for purpose to prepare you to go to China and doesn’t include all, the key is awareness, modesty and respects: – Awareness of the differences, reading signs like body languages, change of tone… – Modesty, no need to try to impress your counterpart, inferiority feeling will not have positive effect. – Respect: consider your counterpart as your equivalent and adapt to their traditions.

Fabien Gaussorgues, SAOS General Manager

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The Chinese luxury market evolution

In 2013, Chinese luxury market is evolving in 3 main ways:

  •  Firstly, more and more Chinese travel and buy luxury goods overseas
  •  Secondly, internet use has a big impact on the luxury consumption in China
  •  Thirdly, national luxury brands are emerging and will change play rules of the luxury market in China which was leaded by foreign brands, especially European brands.

In this article I would like to give you a basic understanding of the current keys of this market.

(click on the pics to make it bigger)

1.      Luxury goods are more and more  purchased overseas

1.a. Traveling increasing.

The first key of luxury goods consuming evolution is the increasing of Chinese travellers. They were 53% in 2008, they are 71%  today. Most of them travel overseas for leisure, but business trips represents 56% of the total trips in a year.

graphiques luxe en Chine

Two conclusions:

  • Chinese people improved their standard of living these last few years, despite the international economy crisis. As a consequence Chinese travel more than before.
  • According to Global Blue (a tax free statistics company), Chinese tax free shopping rose by 58% in the third quarter of 2012 (July-September) in comparison to the same period in 2011 and the total Chinese tax free shopping accounted for 26% of total free shopping in 2012.
  1. b. Where do Chinese buy luxury goods?

luxury market evolving 1

  • Hong Kong is a very important place for the Chinese luxury market. Indeed, Cosmetics represent 22% of total Chinese consumption of luxury goods overseas whereas Watches represent 23, 3% of this market.

2. The impact of internet use on the Chinese luxury market

2.a. More and more people are looking for information about luxury brand products on internet.

luxury market evolving 2

Luxury market evolving 3

Internet is a real asset for brands that know how to use it. Indeed, 30% of Chinese consumers say  information found on internet play a significant role in their choice of brands and 45% think internet allows to understand brands key features. Finally almost 40% of respondents think internet provides trust about brands.

  1. People are more and more interested on buying luxury goods on internet.

According to the KPMG Luxury study 2013, 40% people say they are somewhat or very much interested in purchasing luxury goods on internet in 2012, increase by 22% in 2011.

Why? Because:

  • Chinese people use internet more and more often
  • They are connected with their phone and computer all day long
  • E-commerce in China is very popular and is evolving very quickly

E-commerce is the most exciting field in China nowadays. E tailing offers a lot of big opportunities in China especially though Taobao, the first e-selling platform in the world, which has a specific shopping channel named “Global Shopping” to buy goods overseas on behalf of Chinese customers. If you want to know more about e-commerce in China, click here.

  1. The emergence of Chinese luxury brands

A new rich social category of has recently emerged in China. Those Party members and captains of industry are more and more looking for local luxury brand to differ from new rich stereotypes.  The First Lady Peng Liyuan has a real promotion influence of local luxury brands: “Big luxury brands in Europe or America are often the first choice for many rich Chinese consumers when they dress up (…) But I believe top local fashion brands will draw much more attention among buyers at home in the future after Peng showed her elegance and confidence in wearing home-grown labels” said Hong Dongni, an adviser with Golden Wisdom Fashion Brands Management Consulting Centre in Beijing.

Today, local luxury brands represent 5% of market shares in China. Moreover, Chinese luxury brands export their creations. Actually, 70% of NE Tiger’s creations (Chinese haute couture brand) have been sold in Europe and in America, parts of the world’s internationally famous for their haute couture creations.

Many European brands are adapting to this market change already. For example, Hermes has created the brand Shang Xia, dedicated to the Chinese market. This brand’s clientele is composed by 60% Chinese and 40% of foreigners.

The emergence of Chinese luxury brands in China and in the world is reflecting the economy maturity of the country. China is getting back its previous aura as a super power, and people are proud to be Chinese. Even if European brands are not threatend, Chinese brands will have more and more importance on the Chinese and international market.

By Leïla Hatoum

The Chinese Luxury Market

China will count for a third of the worldwide luxury market (China’s luxury good consumption will be about $175 billions) in 2015. In 2012, China’s luxury consumption was very high (about $145 billions), despite the international economy’s decreasing. Indeed, Chinese salaries are rising and China owns nowadays an incredible concentration of millionaires.

(Click on the pics to make it bigger)

 

Who consumes luxury goods in China and how?

  • Millionaires

In 2012, China had:

  • 1,020 000 millionaires
  • 7500 billionaires (+3500 from 2011)

Who are they?

Initially, main luxury goods consumers were men, because the only people who could afford these expensive goods were members of the Party. Today, women buy more and more luxury goods, which could be explained by the rise of working women.

According to a KPMG study, in 2013, 60% of Chinese millionaires are men with an average age of 39 years old.

Concerning their job occupation, four major subcategories of Chinese millionaires are emerging:

  • Stock market investors
  • High salaried executives
  • Privates business owners
  • Real estate investors

Why do they consume luxury goods?

  • To sustain their guanxi (professional relationship)
  • To keep the face (Chinese concept of personal image, which is very important for Chinese people, showing their achievement and position in the society)
  • High middle class

It represents 150 million people, but only 15 to 25 millions are frequently consuming luxury goods. This rising class  is highly interested in that kind of brands and their images.

  • The enai (the mistresses)

Every respectable businessman in China has to keep one or more enai up, and these young and beautiful ladies are greedy of luxury goods.

  • Little emperors/princesses

China’s “little emperors” phenomenon is very specific to that country. Actually these young consumers are the consequence of the one child policy in the end of the 70’s. The ones that are born from this period and without any cousins and siblings are the centre of attention of six adults, parents and grand-parents buying them everything they want. That is why we can see a lot of college students, even the underprivileged ones owning an Iphone or an Ipad, which clearly exceeds their consuming capacity though. So, very pampered, this group represents a good target for many industries and especially the luxury one. The oldest have 30-35 years old, are working and so get a salary. As they always were pampered, they are naturally researching the best for themselves, and luxury goods are a very strong social symbol in China. According to the international association for luxury goods, 25-30 years old Chinese are the primary consumers of luxury products.

  • Why Chinese people consume luxury goods

Luxury goods consumption motivations are not the same for men and women as shown in the graph below.

pk ils consomment des biens de luxe homme femme

The first reason for buying a branded luxury product is self-reward, no matter is the sex. The most significant increasing is the social dimension for men, and enjoying the ownership for women.

pk ils mettent le prixBuying luxury goods is a guarantee of high quality and durability for Chinese buyers. The country of Origin is not very important but CSR (Corporate Social Responsibility) is the fourth reason people buy those items at such an expensive price. Surprisingly, the fashion criterias are less important than CSR.

  • How do they consume luxury goods?

Psychological effects are a very important part of luxury consumption. What are the psychological criterias Chinese customers are submitting on when buying luxury goods?

  • Chinese stereotypes countries for providing specific products.

association produit paysFrance ends up being the most recognized country for its luxury goods. For example French company Ricard is the first whisky importer in China, but China is not so far away. This fact highlights the evolving of Chinese luxury brands on the luxury Chinese market, which will be developed in another article.

  • Chinese consumers have different perceptions of luxury brand and luxury goods depending on which country they are from. Accordingly, the country of origin can strongly impact the sales and product acceptance.

perception marques sselon les pays

  • What are the main targets of luxury products in China?

ce que consomment les chinois

Favourite luxury goods in China are:

  • Watch. Luxury watch is a very appreciated business gift in China that is why this product is the most consumed by Chinese people. They don’t buy it for themselves, but to offer.
  • Cosmetics
  • Bags and shoes
  • Jewellery
  • Clothes

 

  • The evolution about luxury brands logo.

Still, Chinese behaviour is evolving like in western countries, the interest in brand and logo tends to be replaced by more discretion and elegancy. Another reason of this evolution is the China’s strengthening effort in anti-corruption.

By Leïla Hatoum

 

The Chinese e-Maket Overview

I.                Taobao platform

Taobao- A Success Story

China has the largest online population in the world: 538 million users by end of 2012 versus 141 million people in the USA.

 E-tailing in China has generated 190 billion dollars in 2012 and e-tailing industry increased by 120% since 2003, birth year of the most important e-tailing platform in China, but also in the world: Taobao, which means “finding a treasure” in Chinese.

Taobao is owned by Alibaba group, the most important Chinese e-commerce giant.  The main objective of Taobao is to foster a comprehensive e-commerce system which will provide an online user experience. Unlike eBay, whose strategy was to duplicate the American system to the Chinese market, Taobao was able to respond to market specificities.

Chinese online consumers’ expectations are very different from occidental ones that is why the commercial strategy must be adapted. For example, for Chinese people, trust between seller and buyer is of the utmost importance. As such, Taobao allows buyers and sellers to communicate via “ALiWangWang”, Alibaba’s chat tool and proposes mostly fixed prices and only few auctions. Indeed, the bargaining is a part of the trust building between seller and buyer in Chinese culture. Auctions are an individualist way to buy or sell and are inappropriate in collectivist countries like China.

Moreover, people pay as they receive their item, mainly by cash on delivery. Indeed, the most usual way of payment in China is cash, and cash on delivery is like checking goods before buying, in retail shops.

Taobao’s website interface is adapted to Chinese customers. Taobao’s colours are red and orange, which symbolize festivity and prosperity in Chinese culture, a very positive message for online customers. In China, unlike the occidental world, symbolic is very important for doing business

Finally, Taobao offers a free listing as well as a local and efficient customer service which is operational 24/24.

Thus, Taobao is totally adapted to the Chinese market, and thus achieve a big success.

Today, Taobao represents:

  • 80% of the C2C online Market
  • 500 million registered users
  • 60 million of regular visitors per day
  • More than 800 million types of items
  • Almost 100 billion dollars turnover
  • One of the world’s top 20 visited websites ( 11th rank in April 2013) *

 

Who consume on Taobao?

taobao's customers

 

Taobao users are mostly between 25-35 years old. They are more and more interested in buying high technology products on internet and spend a lot of time to compare prices.

Taobao opportunity:

Taobao is a powerful tool for small and medium sized enterprises:

  • It doesn’t need to invest a lot of money, instead, you can create your online presence for free
  • Being the biggest online selling platform in China, Taobao allows you to have a high visibility on the Chinese e-tailing market
  • According to a Mckingsey Institute survey, e-tailing will expand continuously in China: online sales could reach 650 billion dollars by 2020
  • E-tailing have  strong incremental effect on private consumption
  • Taobao allows you to sell in small cities (few million people still), where there are neither good ways of distribution, nor a big choice of products.

How SAOS can help you

We propose tailor-made solutions to help you launch your e-tailing shop.

  • Set up basic shop on Taobao with brand logo and colours
  • Products delivery to hand customers
  • Import and Chinese tax management
  • Client retains ownership of stocks for any purpose

Optionally:

  • Import license
  • Brand registration
  • Full logistic and manufacturing
    • Provide warehousing and logistic service specific for small size product
    • Customer care (complaint and return goods)
    • Taobao promotions
    • Advanced design

(*) According to Alexa site ranking.

II.Tmall

 

A question of trust

Tmall is an extension of Taobao. This platform is focused on B2C e-selling while still visible from Taobao website. Unlike Taobao, which has the reputation to offer everything you want to buy for the lowest price, Tmall offers to sell brand products of good quality. The price is not the argument of Tmall. Tmall’s targeting customers are trust of and the safety of brands against counterfeit.

Customers are ensured to not buy counterfeit and thus are confident on the hosted online shops, and companies for which brand is a marketing key can control their image and reputation.

 

Tmall shop 1 Tmall shop2

 

Tmall opportunity

Opening a Tmall e-shop is very interesting for many reasons:

  • Created in 2008, Tmall represents 50% of B2C e-market already
  • B2C e-commerce evolved +130% from 2010 to 2012
  • Your customers are protected against counterfeit, thus they would buy your product more easily because they would trust your e-shop

But, opening a Tmall e-shop is an investment and a bit complicated for foreign companies, that’s why it should be dedicated to long term entry on the Chinese market.

To open an e-shop on Tmall, you must:

  • Have your company registered in China
  • Have your own brand and trademark registered
  • Take an online exam operated by Tmall to understand their rules
  • Present some official documents

Pay about 160000 RMB* (about 3000 USD) as a security deposit (not involved in SAOS’ fees)

* Amount based on Tmall rules, various rate could apply, consult us for confirmation.

 

How SAOS can help you

SAOS offers an all-in-one solution to you:

  • Before creating your shop, SAOS can help you to register your company in China. Please contact us if you need further information.
  • Online shop design based on corporate branding
  • Separate independent website for company presentation, promotion and branding
  • Monthly operation and reporting
  • Logistic, fulfilment and inventory management
  • Marketing strategy
  • SEO, online marketing and social medias
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