Understanding culture called key for foreign businesses in China

Updated: 2015-05-07 10:51

By XIAO LIXIN in New York(China Daily USA)

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Foreign companies that want to explore and win in the Chinese market should take a bicultural approach, especially in an increasingly competitive space, according to a global business consultant.

"The first question you need to ask yourself is how much do I need to change my business, my brand, my operation and my product to be successful in China," said Michael Zakkour, vice-president of global business consulting company Tompkins International. "Or inversely, how little should I change yet still be successful in China?"

Zakkour spoke at an event at the Fashion Institute of Technology in New York on Wednesday themed: China's Super Consumers: Changing China, Changing the World.

Zakkour, who also leads his company's Asia/Pacific business, said it is a common mistake by US companies to try to use American best-practices business models in China without taking enough time to study and understand Chinese culture. A good and a bad example are Pizza Hut and Domino's, respectively.

Pizza Hut, as well as KFC, which are both owned by Yum Brands, has basically been printing money in China for the last 20 years, according to Zakkour.

"Pizza Hut was almost successful from Day 1 that people waited in long queues just to dine at the store, and seven years later, Domino's, thinking that Chinese really love pizza, entered the Chinese market but failed to make a name," he said.

The secret behind Pizza Hut's success and Domino's failure is that the latter did not understand it wasn't only about the pizza, Zakkour said.

"Pizza Hut, after opening the very first store in China, was among the first Western dining experiences for Chinese to go in, sit down, use a knife and fork, have a menu of pasta, lasagna and appetizers," he explained. "And it was a place you can feel good about to take your date, your colleagues, your parents to go and celebrate."

"Domino's would say ‘We are going to deliver your pizza to you in 30 minutes or less.' The problem is there was no delivery culture in China back then."

With Chinese consumer spending surging this decade, McKinsey estimated that by 2022, consumption will rise to nearly 27 trillion yuan ($4.35 trillion) from 10 trillion in 2012. China's domestic brands also want a piece of that market.

The competition among foreign and local brands is growing fiercer, with domestic companies wanting to build their own brand, despite the fact that "the concept of building a brand in China is still in its infancy", Zakkour said.

"For Apple's iPhone, there are plenty of domestic competitors, and one of the fastest-growing companies is Xiaomi, and five years ago, it was only a startup," he said.

Xiaomi has become the No 1 smartphone manufacturer and among the top five in sales in China.