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How Understanding Culture and Tradition is Key to Doing Business in China

The Chinese market is its own world.

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China has long been seen as the final frontier of new customers for Western companies, as a place where the commercial wells are deep — 1.35 billion people deep to be precise. Tapping this incredibly huge market has been an obsession for foreign companies since long before Reform and Opening. Today, this hasn’t changed at all. As China continues to evolve into a consumer oriented economy that has an ever growing number of middle and upper class consumers hungry for trendy new products, the drive for foreign companies to get their wares into this market is intense. In the words of Home Depot’s chief financial officer Carol Tomé, “China is too big to ignore.”

Though profiting from this massive consumer base has always been a tricky endeavour for Western companies. It has long been a mistake to assume that the Chinese will need or want a product just because it is popular in the West, and items that are standard purchases in the USA and Europe often do not sell in China. This has lead to many foreign companies receiving very rude awakenings in a market that turns out to be far more traditional and arcane than they initially believed. While many large foreign companies have successfully established themselves in China and have reaped huge profits, many other equally large companies have failed epically. According to estimates, around 48% of foreign businesses fail in China within two years of entering the market (ACBW 2013), and the reason for this is usually the lack of a basic understanding of how China works and what Chinese consumers really want.

“A lot of times there is an understanding that yes, there is this emerging middle class in China, but then there can be an assumption that . . . that must mean it’s like the American middle class or the French middle class or something like that. Whereas it is very different,” explained James Roy, Associate Principal at China Market Research Group.

“A company cannot simply bring over the same models and processes it employs abroad and expect them to translate perfectly to China. If a company comes in with an open mind, willingness to work with local partners, and long-term investment in cultivating the right local team, that company can succeed in this market,” stated Blake Stone-Banks, director of marketing consulting at trommsdorff + drüner.

A classic example of an industry being snubbed by Chinese consumers for cultural reasons is what happened with white wine.

In 2013, Chinese consumers emptied 1.87 billion bottles of red wine, a 136% increase in five years. By all accounts, the red wine market in China is booming. It’s red color is seen as auspicious and is associate with luck, wealth, and power. Red wine is also though of as being a healthier alcoholic beverage, being good for the heart and the skin, which conforms well with the popular traditional Chinese medicine practice of attributing certain health attributes with certain foods and drinks. In this way, red wine has inveigled a place for itself in modern China; it’s been branded as a drink that businessmen share when sealing a deal, and it’s also become a standard gift to bring to celebrations as well as a classy beverage to distribute at banquets.

Naturally, white wine producers felt that the same could happen for their product. But it didn’t. White wine, though available, is often shunned by Chinese consumers, and the doors of the market were virtually slammed shut before many purveyors could even get a foot in. The reasons for this aversion to white wine are embedded in Chinese culture and traditional concepts of health. A huge portion of the Chinese consumer base has adverse reactions to drinking cold liquids, which they feel is pernicious for the stomach, and white wine is often meant to be served chilled. This was combined with the facts that white wine isn’t seen as having the same health properties as red and that in Chinese folk tradition white is the color of death. This has meant that white wine has been a very hard sell in China, where 85% of all grape wine that’s purchased is of the red variety.

“The red wine’s wide appeal on the Chinese market was a direct effect of the marketing campaign: healthy product (anti-oxidants, lower alcohol than Chinese spirit), symbol of status (the famous French wines like Chateau Lafitte, Mouton-Rotschild etc), elegant drink suitable for both men and women etc,” said Ioana Benga, the export manager of Jidvei winery. “You would think that all these apply also to the whites, but for the Chinese it was basically: we know the red does this, what if the white doesn’t?”

Another Western product that has bombed in China was the clothes dryer. In the USA, washing machines and dryers tend to go together: if you have one you often have the other. In China, washing machines have become a standard part of a modern home but the dryer has never piqued much interest. For the average Chinese consumer, pumping money into purchasing and running a big metal box that does the same exact thing the sun and air do for free is the very definition of frivolous. Combining this with the typically small apartments that the Chinese often live in and the culturally embedded knowledge that ultraviolet rays from the sun also kill bacteria, and the dryer isn’t something many people in China have any use for.

“Because from ancient times to the present, the Chinese are used to using the sun to dry clothes,” said Qiu Ye, a 30-something director of a school in Ordos. “Maybe we think it is more healthy and it is not easy to damage clothes. Besides, I like the fragrance of the sun on the clothes after drying in the sun.”

Best Buy found this lesson out the hard way. “If you went to the section of the store that had the washing machines you would see that they had an equal number lined up across from each other of washers and dryers,” James Roy explained. “However, the vast majority of Chinese consumers do not use dryers at home, even if they are wealthy.”

With the rampant rise of the personal automobile in China it could be assumed that a knee-jerk demand for child car seats would be a given, but it wasn’t. While the car seat is a standard piece of safety equipment for children in the West, in China car seats are generally unused and unwanted. Even though China has half the number of cars as the USA but loses twice as many children per year in auto accidents, only 5% of parents in the country use car seats. This mainly has to do with a lack of awareness that is deeply rooted in the culture. According to two surveys, 65% to 80% of Chinese parents claim that they clutch their children in their arms when riding in a car rather than putting them in car seats. It is a common misconception that this way is actually safer, which is an attitude that percolates up into the realms of government policy makers who have failed to make child car seats a requirement. Though this may change in the future, as of now car seats don’t sell in China.

Hoping to capitalize on the housing boom and the tens of millions of new apartments without interior fit-out, Home Depot jumped into the Chinese market by acquiring 12 stores from Home Way, a domestic home improvement chain, in 2006. Though just six years later the world’s largest home improvement chain failed epically and closed all of its big-box stores. The reason, which the company readily admitted, was that they just didn’t understand the way things are done in China.

In China, Home Depot tried to install the same business model that served them well in the USA. They attempted to cut out the middlemen and buy merchandise directly from factories only to find that most factories were not licensed to sell their products domestically. There were also classic cultural misunderstandings with local vendor’s selling rights in their stores, a strategic flop where they did not properly display their products in complete showrooms (like in Ikea), and an oversight of not marketing directly to women, the main decision maker in interior home design in China.

Though Home Depot’s biggest mistake was thinking that the recently ascended middle and upper classes would want to do-it-themselves. The DIY ethic just isn’t fashionable for people who only a generation ago were farmers and manual laborers. No, China is currently a do-it-for-me culture, and working class contractors and handymen are readily available to do whatever needs to be done for cheap without the aid of a pricey foreign home improvement chain.

And as for those millions of unfinished apartments that Home Depot banked on supplying the home improvement punch for? Well, most of these apartments turned out to have been purchased as investments, not as places to fix up and live in — so, again, there was no need for Home Depot.

“The companies that succeed here localize in a way that adds great value to their customers,” said Blake Stone-Banks. “They don’t expect the local market to come to them. Instead, these companies adapt to meet the tastes and needs of customers in China.”

Though one of the worst incidences of a foreign company misinterpreting Chinese culture and missing the mark with a product launch was Apple with its iPhone 5c. “Culturally, Chinese people like “mianzi,” or dignity or prestige, a lot. In order to get a lot of respect from other people, Chinese . . . people love to buy luxury items even they can’t afford them financially,” said financial analyst Harry Wu. So when Apple launched the iPhone 5c at the same time as the more expensive iPhone 5s in 2013 they essentially created a social class dichotomy that few people wanted to be on the lower end of. As iPhones are seen as luxury goods in China and something which can give a user a feeling of prestige and the appearance of wealth, offering a lower cost model worked in direct opposition to this. Harry Wu explained that, “if a guy buys an iPhone 5c that means that he is poor and pretends to be rich, because he’s only able to afford to buy an iPhone 5c, not the more expensive 5s.” This meant that sales of the 5c greatly lagged behind those of the 5s and the standard iPhone 5, making it one of the biggest flops that Apple has yet experienced in China.

Whether or not a foreign product or company will be successful in China has been a conundrum since foreigners began trading here centuries ago. It’s often an unpredictable riddle that companies decode only after they’ve invested millions of dollars and years of time in the country. Some never get it at all, and summarize their miscalculations with phrases like, “We just didn’t understand the market.”

“What it means is that they brought a lot of their own assumptions from their home market over and assumed that Chinese people will adapt to them,” James Roy explained. “People [in China] are interested in other products and they are interested in Western brands but they like what they like. So many different companies are competing for their attention here that the ones who really understand their lives and their values are going to be able to give them an offering that’s closer to their tastes.”

While many new products, services, and ways of doing things will be accepted into Chinese society, the culture itself is a big factor in whether a new addition to the market will make it or not. While the Chinese are always hungry for new foreign products, they will often only swallow those that fit nicely into their pre-formed cultural molds. It may seem like a paradox, but innovation in China is often rooted by a framework of tradition, and understanding this tradition is a key differentiation point between foreign enterprises reeling in huge profits or going bust in China.

“The innovations that are transforming China will only take root if they make sense in the context of China’s culture and the tastes and needs of customers here,” concluded Blake Stone-Banks. “A deep appreciation of China’s culture is imperative for any company that wishes to succeed in business here.”

A version of this article originally appeared on the South China Morning Post at Why white wine, clothes dryers and car seats all flopped in China.

Filed under: China, Culture and Society, Economics

About the Author:

I am the founder and editor of Vagabond Journey. I’ve been traveling the world since 1999, through 91 countries. I am the author of the book, Ghost Cities of China and have written for The Guardian, Forbes, Bloomberg, The Diplomat, the South China Morning Post, and other publications. has written 3705 posts on Vagabond Journey. Contact the author.

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2 comments… add one

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  • pat December 7, 2015, 10:18 am

    I find it interesting that you ascribe white wines’ unpopularity in China to superstition and groupthink… maybe they just don’t like the taste.

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    • VagabondJourney December 7, 2015, 10:37 am

      It may seem strange but taste is generally not the biggest barrier to whether or not a product will be accepted into the Chinese market. The Chinese palate is changing at an astonishing rate and many foods and drinks that were generally considered repulsive not a decade ago are now becoming extremely popular. Coffee is a good example. Prestige, desired social affiliation, and perceived health benefits that are attributed to a newly introduced product are much more important factors.

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