The challenge of doing business in China
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Kai Ryssdal: Our series this week, The Five-Year Plan, takes us to China and the live broadcasts we did from there in 2006. We went back last month to see what’s changed for them and for us. All right, so here’s something that wasn’t in China when we were here five years ago: Harley-Davidson. Our first Saturday in Shanghai we went out to the local Harley dealer to take a ride with the HOGs — the Harley Owners Group, both Chinese and Americans.
Our guide is Jim Rice — you met him earlier. He’s one of those people Malcolm Gladwell would call a connector, knows everybody, schmoozes everybody, makes introductions. The Chinese call it guanxi, essentially it’s not what you know, it’s who you know.
Jim Rice: I think we’re going to get rained out.
Sadly, we’ve come to China at the start of rainy season. And Shanghai traffic is lethal enough without riding a motorcycle on wet, slippery streets. So, we don’t go. Instead it’s coffee and doughnuts upstairs in what I guess you’d call a clubhouse — couches, coffee tables, Harley memorabilia everywhere. An average Harley-Davidson back home costs maybe $15,000, $16,000. Here, thanks to import duties, $35,000 or $40,000.
Jimmy Jung: It’s very luxurious. It’s very, very expensive.
Jimmy Jung is one of today’s rained-out riders.
Jung: People are out here now trying to show off their wealth. When you ride a bike, I think head turning around Shanghai with a Harley is maybe more than with a Ferrari now.
He’s also going to open a Harley dealership himself out in Suzhou, about 50 miles west of Shanghai. Because he wants a piece of this growth industry. Just six months in, sales this year have already beaten all of 2010. It’s an American brand that speaks to a changing Chinese sensibility.
Sean Jiang is the managing director for Harley-Davidson China.
Sean Jiang: Even in such a traditional society as China, there are populations that are in the position financially, mentally and socially to be able to use an American icon product to distinguish themselves and to show that they are successful.
Their customers are successful, so Harley’s successful. Jiang plans to add three or maybe four new dealerships every year for the next four years. Harley knows it needs to be in China in part because of another American icon.
Jiang: Everybody knows about GM’s success here. They have done such a beautiful job in identifying a local partner. And their relationship with their local partner is very, very strong. And in the industry, it’s a known story.
The story of GM is one of the highlights of corporate America in China. It’s been hugely profitable here, even as it was being bailed out at home.
Kevin Wale: When I came here six years ago, we did just over 550,000 units. Last year we did 2.35 million units.
Sales up 400 percent, so you could say it’s been a good run for Kevin Wale. He took over GM China in 2005.
Ryssdal: How do you square then, the bailout that General Motors got from the federal government with the profitability you got here? Make that make sense to the American taxpayer.
Wale: General Motors has been around for a long time. People were aware that we developed a whole series of legacy costs associated with various things. If you contrast that to China, we started with a new slate. We moved into the market at the right time.
You can say that again.
Wale: We moved into the market at the right time.
That would be the time of an exploding Chinese middle class, complete with middle class aspirations — like wanting to own a car. Timing, it turns out, really is everything.
Richard Choi: This is the cashier. That’s the GMAC desk though…
Richard Choi meets us at a dealership selling GM’s latest brand, Chevy. It’s only been on the market here since 2005. But last year they sold a million cars, including quite a few here at the biggest dealership in Shanghai. Richard Choi runs Chevy’s China sales and marketing. He knows exactly what he’s going after — wannabe buyers, 25 to 35, probably with a family or soon to start one.
Choi: So we’re trying to capture that in terms of how we are positioning Chevrolet. Our slogan actually is “The future is coming for me.” The whole idea about this is to say Chevrolet is a brand, we understand that you’re on your way and we want to be the car that takes you there.
Before those consumers can get on their way, they have to come see Miss Wu. She’s the sales manager, so I ask her to give me the sales pitch. It’s a little bit like in the States and a little bit different.
Miss Wu speak in Chinese.
We say hi, she says, as soon as they walk in. We give them our name card and we ask them whether it’s the first time they’ve been here. There’s not a whole lot of negotiation, she says. The price is the price is the price.
There’s a sporty looking red Coupe over in the corner, but I try to be the sensible consumer and look for something that’ll fit my family. I’ve got four kids I tell her, six people to schlep around, not a commonly heard problem here in the land of the one-child policy. But Miss Wu doesn’t miss a beat. Buy two cars, she says.
And like all good sales people, creates opportunity out of disadvantage. Kinda like GM in China. But when we told our Shanghai correspondent Rob Schmitz over dinner one night about our tale of American companies doing it right here, he offered us a slightly different take. So we met up at Hong Kong plaza in Shanghai, one of the two biggest shopping districts in the city. We were outside a very empty Gap store, a company that most definitely got it wrong with a high-profile branding campaign here, their 1969 jeans.
Rob Schmitz: The Gap decided that one of its major lines of clothing, the 1969 jeans brand, would be its cornerstone of its marketing here in China. 1969 might have been an interesting year in the U.S. It was not an interesting year in china. In fact, it was towards the end of the cultural revolution. It’s a time in China when people were burning down monasteries, they were defacing Buddhist statues, they were torturing intellectuals. Not really a year that you want to remember.
That’s cultural misfire number one. The 1969 campaign is what Gap’s had in stores in the United States, of course. So that’s misfire number two — not localizing your brand. But for all the successes and mistakes that American companies have made so far, now — says long-time businessman Kent Kedl — is the time to figure it out and get it right.
Kent Kedl: Last year sometime I was having a conversation with a bunch of other guys I know who have been here 15-20 years and one of the guys said, “OK, would you rather have been here 20 years ago ’til now or now and 20 years from now?”
Ryssdal: Oh, great question.
Kedl: It’s a great question. And I was the only who said no, now. Because now is when it’s real. Now GM relies on China to be hitting on all cylinders or else something bad happens. That is cool. We were just playing, we were a garage band before, we were just a garage band. And you know what, if you go out and make a few bucks, cool. It’s fun. But it’s real now in a way that it never has been.
It’s easy to forget how little time has passed since China wasn’t much more than a global economic afterthought. It was 40 years ago today that President Nixon announced he was going to go to Beijing and meet with Chairman Mao. Since then — well, I mean c’mon — since then, just look at what’s happened. It’s enough to make the world’s biggest economy a little uneasy, uncertain really, about the unknown. That’s why we went to China five years ago and it’s why we went back.
As often happens when you travel any place, cab drivers can deliver perspective along with a ride to wherever you’re going. Wang Zhu Qi has been driving a taxi in Chongqing for 15 years.
Wang Zhu Qi speaking in Chinese.
China growing like it has is a good thing, he says. It’ll make things better for other countries. And yeah, that’s basically the party line here, but it’s also not entirely wrong. Because as we said when we started this week, the global economy’s going to need some help. And it ain’t the developed world that’s driving things these days.
One last bit of Chinese cabbie wisdom before we wind things up. We were, I don’t even remember where we were in a cab one day and our Chinese producer asked the driver when we’d be there. And he said, in Chinese, mashang jiu dao le. Pretty common phrase, but pretty vague too. It can mean, like 5 minutes or it’s gonna be a little while. And it occurs to me that’s what we’ve been trying to get at all week. When’s China gonna be ready to help out? Could be soon. Or could be a while.
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