Chinese characteristics make life hard for tycoons
He Lun
"Every morning, waking up, I think: What surprises await me today?" This is what a president of a multinational car-maker said to me concerning the special characteristics of the China market. He has worked for many years in China and speaks fairly good Chinese. My question then is: "Do you mean new policies coming out, market fluctuation, client litigation, or media attacks?" His answer is: "All of these. But no matter what, it will hit us from the side and will impact our business."

The answers from other multinational car companies' senior management that have been baptized on China's car market are basically the same. Of course, their wordings are different, for instance, "The China market is very, very special," "unique," "very challenging," and "will wear you down." Some of these sound like praise to the Chinese market or a show-off of their own self-confidence and challenge-seeking personality, or a hint to their foreign headquarters that things here don't always succeed; though there is great potential, the situation is complicated and setbacks are unavoidable.

Whatever the case, these words indicate that they are truly starting to understand the China market. They are becoming aware that effective measures elsewhere may not work here, or may even backfire. Of course, this is just a "beginning." Most of them are far from coming up with an optimal solution for Chinese characteristics. The reason is mainly twofold: a problem with the Chinese system and a problem with the culture.

The system problem is obvious: China's auto market is in a transitional stage. It is both different from the traditional planned economy and different from a typical market economy. It is a government-led or government-controlled market system. Apart from prices, nothing else is market-oriented. The consumption is not completely market-oriented, because there is a large number of government organization cars, which are chosen by the government. Most car manufacturers are state-owned enterprises, whether central government-affiliated or regional government-affiliated, suited to the planned economy. Their business objective (placing equal emphasis on output value, profit and tax and employment, and the short term) and mode of operation (short-term) are all governed by the government and not by the market or enterprise itself. Now, we have added a thing called an "independent brand," which not only determines press opinion towards a company but also government support and aid. Its production capacity and product structure are "regulated" by the government and not the market. The government "regulates" this by means of a market access system, which is usually ineffective as far as total production capacity and structure are concerned but is usually effective as far as specific manufacturer is concerned (unless the company has very good government relations) and especially effective for the share percentages of joint ventures. One sees no end to this regulation at present. There are other effective and incomprehensible policies, like demanding joint ventures to use Chinese labels to identify the manufacturer on the car body, which is not related to the safety, technology or performance criteria of the car, but serves to simply indicate the "existence" of a Chinese partner in this car's production.

Multinationals face the challenge of cultural communication on all markets other than its own country. What's different here is that the gap between the vast and profound Chinese culture and western culture is greater. It not only makes challenges more severe for multinationals in China but brings pain and failure to Chinese companies starting to go abroad.

An economist said that a car can be used to explain the entire content of economics, but this is not enough in China. Decades or hundred years of car market experience in other countries are greatly condensed here. A car has become a focal point of various contradictions, including that between politics and the market, opening up and control, "socialism and capitalism," "Chinese and foreign," national sentiment and practical needs, Sino-foreign cooperation and conflicts, dreams and ignorance of cars, ethics and the law, and press freedom and press self-discipline, far exceeding the realm of economics. Such complicated factors often make senior foreign managers dazzled and lost for words. Even experts of the auto industry or other industries often find themselves made fools of because of their wrong verdicts or predictions, let alone automobile journalists who dare to blabber about the industry as soon as they get in the door. Actually, the best prediction for China's car market is perhaps best characterized into two points: First, within a short term, everything is unpredictable and fickle, and second, in terms of the long-term future, China's car market has incomparably great potential and multifaceted needs.

The so-called incomparably great potential and multifaceted needs are a constant in the formula of China's auto market. All others are variables and most variables are undefined and not quantifiable. With so many undefined factors, as soon as a few variables change or a new variable comes into being, the formula will lead to a totally different result.

Senior foreign managers of multinationals like figures and number models: "Do you have statistics to prove your point or argument?" In a mature market economy, this is no doubt a professional question. But in China, this may be a very stupid question. The reason is, some factors unique in China cannot be quantified; some world-famous survey firms don't even realize the existence of some factors, let alone quantify them and some figures that were valid yesterday may not be valid anymore today.

Based on the investigation of a certain international consultancy, the majority of interviewees in a survey favored automatic gears in a new car about to be put on the market. But the reality was quite the opposite and the manufacturer suffered unimaginable losses. Did the consultancy interview the wrong people? Did the interviewees lie? Or, did they change their minds after half a year? All these are possible. In questions about market demand for two-box versus three-box cars, pricing, demand for different types of cars, brand orientation, building a sales network, and so on, investigation results from international consultancies differ greatly from reality. Surveys of users also often come out surprising, ridiculous or even distorted. The reason is that the investigation methods these consultancies traditionally use on overseas markets cannot truly reflect the complicated China market. They need to undergo localization.

A foreign senior manager of a multinational told me once, during the first half of one year, the market was not so good, so they made cautious plans for the second half and production for the next year. However, during the second half of the year, the market suddenly shot up; the supply could not meet the demand and orders and deliveries of major imported parts required at least three months, so they could not immediately satisfy market demand. Even worse, they could not risk increasing orders for parts because the market could drop again after three months. In addition, the media thought the multinational was trying to "create hunger," artificially create a shortage to maintain high prices and make unreasonable profits.

The media represents one of the challenges that foreign senior managers of multinationals find most puzzling. If a foreign company's product localization rate is low, the press will criticize it for making money on imported parts or accuse it of making its Chinese partner lose money so that the latter will transfer shares to its foreign partner in the future. If the product localization rate is high, the media will say the products are like "turnips" and "still have mud on them," or in other words, there are problems with the quality of the products. If the products have problems that are not safety problems and the company does not conduct a recall, the media will accuse this company of being prejudiced against Chinese consumers. However, if the company does conduct a recall, the media will accuse it of putting on a show. If a company makes money, the media will accuse the company of "making money from Chinese pockets" and that the company is not a friend of China. If a company reports losses, the media will accuse the company of lying, because it would claim that the company has already made money from the purchase of imported parts and technology transfers and that the only party losing money is the Chinese partner. If a company says it will not import a certain product, the media will accuse the company of being biased against the Chinese market and Chinese consumers, or that the company does not want to introduce the best technology to China. If a company says that it will introduce a certain product, the media will say that the company must think Chinese people are naive. If a company refuses to decrease prices, the media will say the company is black-hearted. If the company does decrease prices, the media will either say that the company’s profit margin was too great to begin with or the product is worthless.

In summary, almost all issues may become very sensitive political issues in the Chinese media, may rise to the level of a "national struggle" and may counter a foreign company’s common sense understanding of modern macro or micro economics and auto technology. This requires foreign companies to truly understand the reason behind a reporter's question and understand the special values and logic of Chinese journalists. A company should not let reporters feel that it is not answering their question and must consider all possibilities while trying to find a fail-safe and well-rounded answer.

Of course, answering questions is only one aspect of the media challenge. In media relations, if, for example, after much effort, a company begins to understand why it must pay at least RMB200 in "transportation fees" to reporters, that means it is starting to understand the Chinese media a little bit more. This is just one hidden rule to follow in media relations. If a certain reporter who was not present at a company’s press conference suddenly out-of-the-blue writes a "negative report" about this press activity and the company responds with "we understand him," that means the company’s understanding of the Chinese media has taken a step forward. If a reporter claims that he has a user complaint in his hand or he can obtain consumer complaints from authorities and seek compensation for a company's advertisements in his paper, then it is best for the company to respond with respect and consideration. In addition, if a company thinks the Chinese media is a total mess and incomprehensible, then it will pay a high price for this.

Truly recognizing and understanding the essence of problems and the reasons behind them is a basic premise for solving problems and challenges. However, for foreign senior managers of multinationals, the process from being aware of China's special characteristics to truly understanding these characteristics is an extremely arduous one. This is not only because they face a very strange system and culture, but because they are actually "living somewhere else" in China and living in a "non-Chinese language environment”: They read foreign newspapers, watch foreign TV programs and communicate in foreign languages or through an interpreter. This means that they obtain very limited information about the local market. Expanding the scope of their information is vital for them if they want to truly understand China's special system and culture and make correct decisions.

Experience shows, even foreign senior managers who know a little Chinese are not much better off. Because of their Chinese skills, they tend to believe that they know China very well and they are thus unwilling to listen to Chinese colleagues and hence make wrong decisions. Therefore, in senior positions requiring direct communication with locals, such as marketing, government relations, media relations, and human resources management, most multinationals use local people or foreigners with very good Chinese. This is inevitable. Of course, not all these people can do their jobs well. Some of them are deficient in their understanding of international business rules and tend to adopt some measures that may be very Chinese but are in violation of business ethics or the long-term interests of the company.

In conclusion, to correctly acknowledge and understand a very special market like China, one must on the one hand analyze large quantities of data based on investigation and on the other hand have an instinct for determining factors that have Chinese characteristics and cannot be quantified, so that an appropriate balance can be found between rational judgment and feelings and a rational solution developed. The top decision-makers of multinationals who are far away from their homeland can obtain all the relevant data they need, but they cannot obtain the feeling of being in the midst of the market. Even foreign senior managers working and living in China find it hard to find the pulse of the China market because of a language barrier. So, multinationals must use people who have international standard business training, a good local background and proficient language abilities. Unfortunately, these people are extremely rare. In China, multinationals must cross the river by feeling out the stones; they must follow their feelings. They must learn to feel the stones in setbacks. For foreign senior managers of multinationals, if they really cannot find local people worthy of their trust, then the next best thing is to listen to a wide range of different opinions. It is too bad that quite often, as soon as they get the feeling for the China market, their time is up, and a newcomer has come to follow in their doomed tracks.

by reporter He Lun