Connecting with China’s Consumers

Western businesses won’t break the Chinese market with ambition alone. It takes patience, research and knowledge of the market’s consumers. Understand the customer and you will know how to position, alter and grow your offering.

To think that China is a homogenous or static market would be a huge mistake. Criticaleye’s Global Conference Call, Understanding China’s Consumer Landscape aimed to drill down into the complexities of consumer behaviour.

Michael Crompton, General Manager for Asia at Criticaleye, said: “Understanding the consumer is so important. The company − its brand, its product or service and everything it stands for − has to match the desires in the marketplace. Work out what people are passionate about and appeal to that. Also consider product differentiation depending on whether you enter a basic, mid-range or premium market.”

Here are some of the key points to emerge from the call:

Foreign vs Home-Grown 

David Comeau, former President for Asia Pacific at Mondelez International, which owns brands, including Oreo, Chips Ahoy! and Belvita, explained that you can’t just export a Western idea and hope that it’ll stick.

“It’s not simply about bringing a product or idea to China, it’s about how we understand what the Chinese want and do it in a way that feels home-grown,” he said.

To tackle this, David gave his Chinese team the freedom to tailor the brand communication and new product pipeline to suit the market. “We gave them ownership, we set them creating messaging around the brand that made sense to the Chinese consumer so it felt home-grown,” he said.

Remember you will be competing against a rising number of domestic brands, many of which are enjoying growing customer loyalty.

Anne Stevens, Criticaleye Board Mentor and Board Trustee for charity Over The Wall, reflected on the market changes that have occurred since she was Vice President for People & Organisation at Rio Tinto Copper, where she led the people strategy and practices across the Americas and Asia Pacific.

“There has been a rapid amount of change in a relatively short space of time; businesses and products are now viewed differently. In particular by millennials and younger Chinese consumers,” she noted.

“Previously, we saw a lean towards Western products, for example Prada and Burberry in luxury fashion, but now there’s a move towards local brands. Leaders need to stay on top of these changes and tune into what the market is telling them.”

Take Advantage of Trends 

A taste for domestic brands is not the only consumer trend in China and understanding more of them helps you position your product or service.

Chris Riquier is Board Director at Foxley, a platform for website design and online marketing; prior to that was CEO for the market research and market information group, TNS Asia Pacific, where he gained insight into the Chinese market.

On the Conference Call Chris noted some trends that Western companies have done well to adapt to; one of which is the growth of domestic tourism, which outdoor clothing company The North Face has taken advantage of. “Previously, their advertising in China was very much directed at Western experiences such as trekking in The Alps, now it’s directed at urban Chinese who want to experience rural China.”

He also explained that uniqueness and self-expression are of growing importance among Chinese consumers. “Individuality is an intoxicating taboo that is growing within the marketplace and according to research, 64 per cent of consumers within Beijing and Shanghai agreed with the statement: ‘I don’t like it when I see others wearing the same clothes as me,” he shared.

Understand the Channels 

According to Iñaki Amate, Group Director for Greater China at Fjord, Western companies often underestimate the power of digital platforms in China, especially those on mobile.

“It’s important to understand why people behave as they do and why people in China consume media in a different way compared to other markets,” he said. “Always test before you enter, and not just segments; create the persona of the different users before you create the products and services. In a market like China, which is so broad, it may sound challenging but you need to go one level deeper.”

Take the pervasive WeChat, for example. While it is similar to an instant messaging platform like WhatsApp, it also has a payments platform, meaning consumers can order food, taxis, manage their money, sort utility payments, pay traffic parking tickets, check the weather – it has a long list of uses and owner Tencent is constantly developing it.

Chris said: “I come back to a Western market and see the messaging apps we have; they seem positively archaic compared to China. Brands have to be aware of this if they are going to connect with consumers.”

When David was at Mondelez he realised the company had to adapt to the rise of ecommerce in China. “We saw other companies [start] on [nothing] and grow unbelievably quickly – for example, we saw a Chinese nut company called Three Squirrels go from zero to more than 200 million sales online. We weren’t growing like that,” he explained.

That’s when Mondelez started partnership discussions with companies, including internet service portal Tencent and the ecommerce company Alibaba, to develop the business’ online mindset.

“That was a huge win for the organisation in terms of incremental growth. A lot of growth will come from those channels as consumers develop stronger online habits; this is happening elsewhere but China’s leading the way,” said David.

Partnering isn’t a Necessary Evil 

There’s often a presumption that China plays by different rules. One of these is that you must join forces with a Chinese entity to get your business off the ground, but this is not always the case.

Chris at Foxley noted that it’s difficult to make a generic statement about partnering and the best course of action, be it a joint venture, M&A, investment or going in alone. “It’s contingent on what market you are going into, your company and products or services,” he said.

“Apple is an example. Where it has strong products it’s going in alone; where it feels less able to compete it’s going down the partnering or investment route – for example, it has invested $1 billion in the app-based taxi company, Didi Chuxing, which is Uber’s main rival.”

If you’re going to form a partnership, be it via a joint venture with a commercial partner or another type, it must deliver discernible value and include clear roles for those involved. “Partnerships in China need to be seen as a good thing. It’s a real chance to create a ‘one plus one equals three’ scenario,” David adds.

Read more from Chris Riquier, or find out how to organise your leadership team in Asia 

Follow Criticaleye on LinkedIn 

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Trust and Leadership in China

Big Western brands in China pay the price for failing to adapt to local market conditions. It’s a form of cultural blindness they would find unthinkable when operating in their home territories. As a result, they lose out to companies with senior management teams that understand what customers want and how to extract the best from employees.

Adequate thought has to be given to skills, training and leadership if foreign entrants are to keep pace with indigenous competitors that are moving quickly and at scale. Criticaleye spoke to executives that either work in China or conduct regular business there to explore what companies are doing to be successful:

1) Know What’s Expected as a Leader

The word ‘hierarchy’ crops up a lot when discussing effective leadership. Chris Riquier, CEO of Asia Pacific for market research company TNS, comments: “A leader in China needs to recognise they are in charge and be seen as such by the team on the ground. They need to gain respect, have extremely strong listening skills and be very perceptive, with a high level of emotional intelligence.

“You’ve got to have experience and an understanding of Chinese culture so you’re able to read a room and interpret what is communicated to you.”

There are nuances to take into account. Roger Steel, President of New Markets and Business Development in Asia for Sun Life Financial, says: “You need to listen to the way things work and have an incredible amount of humility in the face of innovation because China is innovating so fast.

“For example, in my industry of insurance, it’s almost a bit scary how good they are at creating new distribution channels.”

Ultimately, organisations require people that are at ease with the way business is done. Andrew Minton, Executive Director at Criticaleye, states: “As stakeholder bases become more diverse, you need to really understand your customers, employees, suppliers and the regulatory environment.

“It’s clear that the make-up of executive teams must reflect this diversity, otherwise they will struggle to navigate the different market conditions and will not perform at the highest point. This can’t be overstated for a market as varied as China.”

2) Map Your Talent Strategy 

Opinions about how to attract and retain people vary by sector. Barrie Goodridge, former Chairman and CEO of Edipresse Media for Asia, says: “Generally, getting quality talent in China is not easy…The growth they’ve had in the last 15 years has outstripped their ability to produce enough talent.

“My experience is it’s quite difficult to find internationally orientated people over the age of 45, and the younger people, if they speak English and have international experience, know their value. With our office in China, we had a very high turnover of people.”

It’s not helped by the fact that the cachet and lure of working for a Western brand isn’t what it used to be. Roger says: “If you’re super talented in China, you want to work for one of the big Chinese companies because they’re growing fast, they’re innovative and very dynamic.

“It’s increasingly difficult for Western companies to attract top talent, unless they have a very strong market proposition.”

Chris says: “At the senior level it can be difficult, but at the mid-level the economy is maturing and, to a degree, you’re starting to see more people with 10, 15, 20 years of experience. If you’ve got the right remuneration structures, it shouldn’t be a difficult proposition.”

According to some commentators, events that have occurred in China over the last 40 to 50 years, from the Cultural Revolution and the one-child policy to its re-emergence as a superpower, mean there are marked differences between the generations. This puts additional emphasis on gauging the mindset, motivations and values of employees.

Jingru Liu, Director of China Advisory Services for professional services firm BDO, refers to how “one of the largest Chinese IT companies trains its middle management staff, who were born in the 1980s, on how they’re going to manage people born in the 1990s.”

3) Don’t Rush into a Joint Venture

There are industries where a joint venture (JV) is mandatory. For other companies, a partnership won’t be legally necessary but it may seem a simpler way to combine resources, share knowledge and improve chances of gaining market share.

Ann Coughlan, Managing Director of Bupa Asia, comments: “China has multiple layers of rules and regulations, plus distinct cultural characteristics and consumer preferences. For some companies, particularly those without previous experience of doing business in China, JVs or partnerships can add a lot of value, insight and knowledge that you would not necessarily have as a foreign investor setting up on your own for the first time.”

Like any JV, it’s a case of remembering the basics:

• Conduct extensive due diligence
• Be clear about expectations and financial rewards
• Use advisors and make sure there is a break clause
• Adopt a hands-on approach

George Yip, Criticaleye Thought Leader and Professor of Management and Co-Director for the Centre on China Innovation at China Europe International Business School (CEIBS), says: “When strategic objectives are aligned it’s a win-win for the two of you. You have to be as sure as you can that the JV partner isn’t someone who is likely to turn into a competitor in the future – that is one of the biggest things to worry about.”

4) Results Take Time

New entrants to China can be dazzled by headline growth rates. However, supply chains, logistics, market compatibility, the cost of labour and knowing how to build relationships all require significant research and effort. It’s also easy to underestimate the impact politics has on the way business is done and decisions are made.

In this context, good risk management is another essential. The issue of intellectual property rights and piracy remains problematic, notably for businesses operating in industries designated as high-priorities for China’s economic development. If a JV / partnership is struck with a private or public company, it’s wise to adopt a cautious approach to commercially sensitive information.

On a positive note, there is a crackdown on corruption and it’s also acknowledged that China’s Government is more internationally focused than the previous leadership. This is creating greater openness in terms of how trade is approached, helping companies from an export and investment point of view, and there are hopes this will improve with China taking Chairmanship of the G20 Summit in 2016.

5) Study Where Your Company Fits

As the e-commerce giant Alibaba showed with the marketing magic of ‘Singles Day’, whereby an estimated $9 billion was spent in 24-hours last November, it seems plenty of Chinese consumers have cash to burn.

That said, such stories shouldn’t lull businesses into thinking it’s an easy market to crack. Jingru of BDO says: “China is not one market – it’s larger than Europe and it’s diversified. If a foreign player wants to enter China for anything consumer related, they would have to research by region to find the right market segment.”

Roger warns: “You do not want to go into China with ambitions to run a national business. Your first entry ought to be in one or two selected cities. Get to know the places before you seek to expand.”

When examining where to start trading, businesses are frequently advised to note China’s system of ranking cities into five tiers (one being the most advanced). But for Chris at TNS, there is a danger that focusing too much on this grading system could result in poor decision-making.

He explains: “China usually gets segmented by marketers and commentators as having its cities separated by tiers, all reflecting different levels of development, economic status and various other things. It’s an oversimplification – for a company entering the market, which is a small part of the overall Chinese economy, there may be little difference between a tier three and tier one city, in terms of category.”

It will depend strictly on what service or product a company is looking to trade. “They need to really come and do their own landscaping with the category they’re operating in, to understand the consumer and market opportunity,” he adds. “They can’t just rely on a consultant’s point of view.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Winning Strategies for Asia

Comm update_12 November1 The scale and pace at which markets across Asia are growing can leave you breathless. For both indigenous and foreign corporates, the pressure is on to move fast, whether it’s responding to urbanisation, creating new technology or simply meeting customer demand. It all presents a rigorous test for executive teams as they are expected to devise winning strategies in a complex, competitive landscape where talent is in short supply.

These were some of the key themes to emerge from the Criticaleye Asia Leadership Retreat, held in partnership with China Europe International Business School (CEIBS). Over the course of 24-hours, attendees gathered in Hong Kong to share ideas on innovation, sustainability, talent and what the rise of China’s private enterprises means for multi-national corporations (MNCs).

Hellmut Schütte, Vice-President and Dean of CEIBS, observed: “Perhaps the golden age in China is over for foreign MNCs. Everyone is here now, labour costs keep rising, and China’s own MNCs are making enormous progress.”

Aside from the emergence of international powerhouses like e-commerce conglomerate Alibaba and telecom equipment and smartphone maker Huawei, competition was described as particularly acute in China’s third and fourth tier cities, where an increasing number of home-grown private enterprises are capitalising on their local market knowledge. “China still presents significant opportunities for MNCs but it’s now a lot harder to realise,” said Stephen Mercer, Partner in Charge of Multinational Clients at KPMG.

“You have to understand what segment of the market you are dealing with as they can be so different. If you were operating in Europe, you wouldn’t replicate your market entry strategy for each country or market and China [is] the same. Unless you are clear about what you are trying to achieve in China, it will be very difficult to succeed.”

For those companies that do get it right, China’s $9.2 trillion economy provides plenty of openings and areas for growth. Hellmut said: “If China ‘only’ continues to grow its GDP by 7 per cent over the next ten years, it will still almost double the size of its economy. If you combine [Brazil, Russia, India and South Africa] … and the next ten emerging markets, all together they add up to the size of China’s economy today. This is very much in the mind of China’s Government when it deals with the outside world.”

The ability to bring new products to market rapidly was generally agreed to be a significant differentiator for successful businesses. George Yip, Professor of Management and Co-Director of the Centre on China Innovation at CEIBS, said: “Chinese companies have a deep understanding of the customer – [they take] a pragmatic, profitable and customer oriented approach to innovation… Western companies can be too slow because there are too many processes in place.”

Sujit Chatterjee, President & CEO of TATA Consultancy Services China, said that “innovation, as it was understood in the Western world, was for a long period about creating new markets, but, as we see in Asia, especially China, innovation is about capturing markets”.

Companies have to be capable of adjusting to the characteristics of a rapidly changing and geographically diverse country. “Each year, Western companies set-up more R&D centres in China than in any other country in the world, including the US,” George added. “Western companies have an appreciation for Chinese methods of innovation; they are eager to learn how to innovate faster.”

A long-term view

If businesses are to continue to take advantage of the consumer appetite for goods and services, attendees agreed that it needs to be done in a sustainable fashion. Peter Wong, President of Dow Chemical Greater China, said: “Sustainability is very much part of our strategy in terms of driving business growth. For example, in China we are looking at a few of the issues the Government is focusing on, such as food security and safety.

“If we bring our capabilities together, we believe that we’ll be able to find a solution that is going to help the Government tackle some of these challenges, like food spoilages.”

Setting the right strategy and implementing it is key. Peter Lacy, Managing Director of Strategy Practice & Sustainability Services for Asia Pac at Accenture, said: “Companies need to be aware of opportunities to improve their approach to sustainability… It needs to be integrated into organisational design so that support functions are created to incentivise people, so they want to make improvements. That’s as true here in Asia and China as it is elsewhere in the world.”

The challenge is to create alignment across the whole organisation. “At Dow in China, I’ve been trying to build a cross-collaboration model,” said Peter Wong. “It’s been about looking at what the issues are and seeing how people can jump beyond their own boundaries. Hopefully they’re thinking about how we can better collaborate, utilising the R&D lab to [address] the issues we have – if you don’t even understand your true capability, you can’t really develop an innovative mindset.”

Cecilia Ho, President of International Paper Asia, commented: “There actually has to be a change in mindset around sustainability; you’ve got to accept that if you do not operate sustainably you cannot operate at all. [If you understand that], then you’ll do it because it’s beneficial to the company as well as to the environment…

“You can do all the communication and internal marketing – and we certainly do – but the most important thing is that employees are convinced that you practice what you preach. So it needs to be driven by the senior leadership team.”

According to Peter Lacy, thinking sustainably can be a real driver for innovation:  “At the moment a lot of the focus in Singapore, India, China and Japan is on urbanisation and smart technologies and how they can be used to better manage energy and transport systems. There is a ‘digital revolution’ taking place, and we are really only just beginning to see the power of connected physical and digital infrastructure in areas like cloud computing, mobile tech [and the] Internet of Things (IoT).

“This is clearly a strong business imperative, but it’s also a sustainability benefit… Companies in China especially are using things like smart-metering and smart-grids to drive energy efficiency per unit of GDP.”

Matthew Smith, Global Head of Market Development for the Internet of Things at Cisco Systems, estimates that over the next ten years the connectivity of devices will create profits and cost savings of approximately $19 trillion. “People are not afraid to fail in China and that type of attitude is going to be really beneficial in this kind of economy,” he said.

The impact of the IoT will be felt in multiple sectors, from retail and healthcare to life insurance and, of course, energy. Matthew continues: “Texting went from zero to $300 billion in about six years. Thanks to WhatsApp and We Chat, it’s gone back to zero again – the point is a lot of new markets will emerge due to the Internet of Things.”

People first

If technology is unlocking new business models, and globalisation creates a more competitive environment, what kind of skills-mix is required to come out on top? Even for those companies that have a theoretical answer to this question, the reality of identifying and keeping the right people continues to be tough.

In the marketing industry, for instance, digital is having a seismic impact on the way customers behave and this requires a different set of skills. Chris Riquier, CEO for Asia Pacific at Taylor Nelson Sofres, said: “As marketers, we’re not investing sensibly and we’re not recognising the ROI today. We’re also ignoring new platforms, which means we don’t have the skills and expertise in the business.”

The quality of graduates, particularly in China, was also discussed. Hellmut questioned whether the country’s education system, with its emphasis on hierarchy and rote-learning, was preparing the younger generation for the dynamism and innovative thinking required for the modern workplace. “Ten years ago there were one million graduates, whereas today you have 7.5 million graduates and the number of universities and colleges has doubled during the same period,” he said.

“There has been tremendous growth but there is the problem of young people coming into the job market and being unable to find employment. At the same time, you have companies crying out for people. As companies must innovate in order to compete, it is not easy to find the talent you need when they come from this rules-based background.”

In order to overcome the shortfalls in talent, companies were encouraged to start looking regionally to bring in people of the right calibre. Michael Guo, Partner of Human Capital & Change Management Advisory for Greater China at EY, said: “Businesses are increasingly connected. Ten years ago the prime movers in Asia were China, India and Indonesia…

“Now … there are so many different countries where different solutions are required, and for that you need a diverse range of talent, especially for your senior leadership team.”

Global leadership

When discussing ‘Asia’, it’s important to remember the distinct national and cultural differences. Each country and region will present its own idiosyncrasies in terms of doing business, from how relationships are built, bureaucracy navigated and the regulatory environment understood. Nevertheless, the Retreat demonstrated there are questions being asked of senior leadership teams in Asia that will resonate internationally.

Andrew Minton, Executive Director at Criticaleye, said: “Whether leaders are confronting issues around sustainability, talent or digital transformation, they must be able to… see the bigger picture in order to shape their own strategy.

“That’s why, regardless of geography or culture and irrespective of industry or function, there is an overwhelming need for leaders to step out of the day-to-day if they’re to combat complexity successfully.”

Executives need to be prepared to reflect, collaborate and benchmark with others. Trying to establish strategic clairity in isolation is no longer an option.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Winning & Retaining Talent in Asia

Comm update_15 Oct1

The biggest headache for many organisations operating across high-growth markets in Asia is caused by trying to find and keep hold of the best people. While there’s no failsafe plan to prevent quality employees moving on, there is a growing need to devise ways of building trust and loyalty that go beyond remuneration and financial incentives. After all, someone else will always be willing to pay more.

Marcus Downing, Associate Director at management consultancy Hay Group, highlights the scale of the problem: “There’s basically a talent shortage in many parts of Asia. Countries such as China and Vietnam have a massive amount of investment put into them but the human capital just isn’t there. You have the situation where, locally, people move jobs every [six to] 18 months and get a 92 per cent pay increase for moving…

“Companies in those regions are trying to hire the best of what’s available… they might fly in an ex-pat which is expensive and only a short-term solution; they might try and hire locally. But they are only getting what’s available, not necessarily the person that can do the job.”

Rose Colledge, CEO of employer marketing and talent management services company Work Group, says that “monetary rewards as well as career development are viewed as more important than other benefits, such as work/life balance and flexible working, particularly in China”.

Career development can certainly be used as a way to differentiate a business in a fiercely competitive labour market. Serge Colin, Group HR Director at construction supplier Lafarge Tarmac, comments: “If you want to bring in the best talent you need to expose them to senior level people during the recruitment process… introduce them to the top managers, so [it’s clear] they are being hired by the multinational.”

Howard Kerr, Chief Executive at standards and training provider BSI, says: “Good talent is often nervous about joining a foreign company that they’ve never heard of, so new entrants have to do an awful lot of upfront pre-selling and preparing the groundwork, explaining who they are, what the business prospects are, the style of the business and who their customers are… because it all comes down to a question of trust.”

According to Craig Wilkinson, Regional Managing Director for the Hong Kong-based LDC Asia, which is part of the UK mid-market private equity firm LDC, people and talent form “one of the toughest challenges” for companies entering the region. He explains: “A significant proportion of the workforce is mobile and prepared to move frequently for better terms – however, there is some caché associated with working for a foreign-owned business and we have found our portfolio companies… have been able to secure and retain good people.”

Facing the future

Cultural nuances need to be studied and understood. Brian Stevenson, Criticaleye Board Mentor and Non-executive Director of the Agricultural Bank of China, comments: “If you’re trying to head-off mistakes then you need to think about how senior executives going [there can] learn about the region, but also how they grow and develop a board that is culturally sensitive to how the region behaves and thinks, otherwise you won’t get the best out of it.”

Nick Allen, former VP of Strategy and Portfolio at oil and gas company Shell, says: “Status matters in Asia and a job title is a demonstration of this. I once lost a top talent in Singapore because he was moving from a President role in another company to a manager role in Shell. Financially it was a promotion but he wouldn’t take it because of the title… people would find out what his real ‘title’ was and he’d lose face.”

All too often, assumptions are made which prove misguided. Mei Wong, Affiliate Partner for Asia at executive search firm Warren Partners, provides the example of western companies giving senior roles to people who are returning back home to China after jobs abroad. There can be disproportionate expectations, says Mei, about their knowledge and ability as it’s easy to become out of touch with a “constantly changing and complex new China”, and such individuals may also have only held “relatively junior positions abroad but are given full responsibility to run the China operations”.

Conversely, dropping in people from HQ won’t provide a long-term answer either. Howard Thomas, Criticaleye Thought Leader and Dean of Lee Kong Chian School of Business in Singapore, comments: “Unfortunately, many foreign firms get into the practice of bringing ex-pats to fill key jobs in Asia as part of their global talent development programmes. As a result, local talent often jokes that they have a new boss every three years – year one is training the new boss, year two is helping them do something unique, and year three is packing them up to go home.”

Roger McDowell, Chairman of engineering company Avingtrans, says that, after six years in China, “the obvious answer to the ‘hiring’ question is not to hire senior people, but to build our own”. He explains: “We hire people with potential then give them challenges and the room to [develop]. To retain talent we keep our business growing faster than our people are able to grow… that stretches and excites their imagination and ambition. The business environment needs to be fun, exciting and [should show the] potential ahead.

“We rarely bring people in at a senior level – as an example, for our Aerospace business Sigma, our first employee recruited in 2005 is now [General Manager] of our facility employing 150 people… [We let people] prove themselves before they are promoted.”

Getting that degree of trust in people can take years to build and time is a luxury that the majority of companies invariably feel they don’t have. Poor hires will be made but if it becomes apparent that this has happened, the general rule is to act swiftly. “We see lots of companies who make recruitment mistakes and don’t do anything about it,” says Roger. “In Asia, if you make a mistake, don’t be proud: change things quickly and move on.”

Howard Thomas says: “Companies need to really understand the local customs and practices and consider how hiring is not only about obtaining talent, but also about building the right relationships for the success of the business.”

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Why the Ageing Population Means Business

Rather than judging the ageing population as a burden, it’s time to see the opportunities that can be gained from harnessing the skills and knowledge of an older workforce, while tapping into the demand from five generations of consumers. Without this shift in mindset, businesses are going to be at a serious disadvantage in the global marketplace.

The numbers speak for themselves – by 2050, more than two billion people will be aged 60 or over. Dominic Swords, Criticaleye Thought Leader and Business Economist at Henley Business School, says: “The biggest thing to observe is those businesses that notice that there is an opportunity here and that can innovate in a way that meets the needs of the population, whether it’s tailored holidays, or leisure facilities that service people with more time on their hands during week days.”

Simon Johnson, UK Managing Director at HarperCollins, says: “Book publishers have long successfully targeted the silver market. Technology offers the ability to increase access to our content. Device retailers regularly comment on older consumers being attracted by the variable font size on e-readers – the digital equivalent of the relatively niche large print format – and new features that sync audio to text on e-readers will surely open up the market for audio books.

“Digital and print on demand offers the potential of unlimited shelf space. With books staying ‘in print’ forever, it allows us to profitably target niches… But often, the same piece of base intellectual property will be compelling to widely different demographics. Our challenge is to work with our authors to properly create the different products from the IP that works for and reaches each demographic, and to do this at scale.”

Andy Pomfret, CEO of wealth management concern Rathbone Brothers, comments: “On the whole, this notion of an ageing population has been fairly good for us. Thirty-odd years ago men retired at 65 and were expected to live into their mid-70s, equating to ten years of retirement. Now, up until a year or so ago, you’d expect to be retiring at 60 and live into your 80s, so it’s doubled the amount of time you are in retirement. About half our clients are retired, which means we have them for twice as long.”

Preconceived ideas and stereotypes need to be quashed, such as how an older generation embraces technology. Mark Purdy, Senior Executive and Chief Economist at Accenture, explains: “If you think about the iPad, it’s actually incredibly age-friendly. It’s intuitive and designed for anybody to use. This idea that older consumers are less likely to adopt new technology is a myth… There are quite easy changes that manufacturers can make and by doing that they actually open up that segment of the population so they can tap into that important source of demand.”

However, it would be a mistake to ignore the differences between baby boomers, Gen X, Y and millennials. “In order to understand the impact on business of new products and services, you have to understand the properties, dimensions or attributes of the segment profiles, then, as a business, try and figure out how you can contribute to that,” says Steve Muylle, another Criticaleye Thought Leader and Professor and Partner at Vlerick Business School. He provides the example of ‘technology anxiety’ among patients in hospitals, where the younger generation might be happy to book an appointment online, whereas for older patients it remains important to have a person to talk to, either face-to-face or over the phone.

Hard labour

The other side to this is how businesses manage their workforce. This means getting smarter about incentives and tax systems that currently – in the UK at least – penalise people for working later in life, alongside encouraging flexible working to create an environment which accommodates the needs of different age groups.

Dominic says: “Flexibility [over retirement] can be a sensible idea, allowing people to stay in the workforce but on different contractual arrangements, like annualised hours so that the business can tap into capacity, knowledge and experience when required but not have a permanent, full-time commitment to it.”

The economic case for this appears strong, with a study by the UK Government last year showing that increasing time in the workforce by just one year per person would boost the level of real GDP by approximately 1 per cent.

Likewise, according to research by Accenture, in collaboration with Oxford Economics, increasing the number of older people in the workforce could see the US increase its GDP by $442 billion and lift employment levels by 5 million by 2020, while Germany could see a €61 billion hike in GDP, and a lift in employment levels of 1.5 million in the same timeframe, if it harnessed the power of the silver economy.

Mark comments: “If you think about the employee lifecycle, you start off in a job on probably a relatively low wage, you get more experience and then it plateaus just before retirement… Often it can be quite expensive to hold onto people at the top of the wage curve. So, one of the challenges is how to get more flexibility, and it’s not always the case that just because someone is more senior they have to get paid more. Actually, people who are on the verge of retirement may not always want to work full time and at the same wage rate.”

There are examples of employers adjusting in order to capitalise on demographic trends. “BMW compared the productivity of younger and older workers in one of their factories and found that there was some decline in productivity with the older cohort,” continues Mark. “They reorganised the production line, introduced ergonomic equipment and looked at the health of the workers. They equipped them so that they could work better, and the difference in productivity disappeared.”

Dominic comments that, in the UK, the DIY store B&Q was one of the first to recognise that older, part-time workers could fill a need for providing advice on buying products. “The maturity that those people represent in the store has the double benefit to the workforce, both in terms of showing mature leadership but also because of the expertise, skills and knowledge that they can offer customers and staff,” he says.

Age-old problems

Questions over demographics are as pressing in the East as in the West. Nandani Lynton, Criticaleye Thought Leader and Adjunct Professor of Management at CEIBS, Shanghai, says: “The change in China is coming among the under thirties, who have the bulk of the spending power, because not only will their parents give it to them, but also in terms of their sheer earning power, they are in a really good spot. That’s where industry has to look.”

As for ways to incentivise staff, Nandani says that although China will undoubtedly have to raise the retirement age, the bigger questions centre on how the older population is cared for. “Anything that a company can put together to help their younger workers, aged between 30 and 40, whose parents are already starting to retire… such as a mortgage for the house of the parents, more health insurance and so on, are some of the best ways to tie in your young people.”

For businesses and policymakers, the age profiles of the population cannot be ignored. There are tremendous problems to solve, particularly around healthcare, elderly care, the pensions time-bomb and whether a more active older workforce makes it harder for the younger generation to find employment.

What’s certain is that the silver economy is here to stay. Dominic says: “As of the beginning of this year, the genuine front-end baby boomers hit 65 years of age and for the next 18 to 20 years we’re going to have an additional half a million people hitting retirement. The product and labour market model we’ve been used to will be forced to change, if they haven’t started to already.”

Joined-Up Thinking in China

A joint venture can often be the best way to crack the tough nut that is China. Such partnerships allow you to leapfrog the dangers of being an unknown challenger in an aggressive, highly competitive environment. But for all of the perceived benefits, you need to know exactly what you’re getting into and have a clear idea of what constitutes success.

Brian Stevenson, Non-executive Director at the Agricultural Bank of China, says: “A joint venture with a local firm gets you into the market with someone who is already experienced with the culture and behaviour there, and if it is a regulated environment, you are more likely to get an approval if you go in with somebody who already holds it.”

As with any JV, it would be foolish not set parameters. Martin Bloom, Non-executive Chairman of Chinese solar wafer manufacturer ReneSola, says: “Over time people’s objectives change. In any business relationship it is essential to have a break clause because whatever one thinks today, things won’t always move in the same direction… [such a clause is essential] even if people feel it may show bad faith to look at how the JV will break, because it has negative connotations about the partnership.”

A similar note of caution is struck by Marc van Grondelle, Head of the Joint Venture Practice for KPMG UK and Europe: “Some of the largest companies in the world struggle to be effective in today’s joint venture space – particularly in the emerging economies. Even if a good joint venture agreement, which is a rarity in itself, is signed, this is no guarantee of success, as cultural differences continue to be potentially disruptive long after the ink is dry, and value-destructive issues frequently only emerge two to four years into the venture.”

Clearly, there’s a reason why The World Bank recently ranked China 79th out of 183 countries in its ‘ease of doing business’ rankings. Mike Howe, Managing Director at Stannah Stairlifts, which is building a joint venture with an existing Chinese supplier, says: “It’s a different kind of relationship when you go into a joint venture [with a supplier] as what worked well as an arms-length relationship suddenly has to be buttoned-up much more tightly… Although we have experience in Europe and the US of setting up our own businesses from scratch, our intuition and the advice we got [was to seek a JV].

“We wanted good advice from legal and financial organisations that understood both the UK and Chinese culture and practices, which meant there were significantly higher costs than if we’d used simply a Chinese organisation… But it’s worth paying the money, particularly if you have concerns, because crisp, clear advice – albeit at a price – helps you move forward that much faster.”

Know thyself

The excitement of international expansion through an alliance can get the better of cold hard reason. Nandani Lynton, a Criticaleye Thought Leader and Adjunct Professor of Management at CEIBS, Shanghai, says: “Lots of people don’t stop to think about exactly what they want a partner for: is it for government relations, channels to markets, or both? You need to be clear, because companies have often found to their disappointment that you may have a partner who has fantastic access and channels, but who is only in one province and is almost as incompetent crossing the provincial boundary as a foreign company.”

Brian says: “The sorts of things a Western, capitalist joint venture partner may be looking for, such as return on equity, may not be what your partner necessarily wants, at least in the short term, and that will influence things like reinvestment decisions. Those sorts of issues are critical arguments for getting it right up front.”

Viewing a JV as a shortcut can also be a mistake. Peter Lorange, President Emeritus of the IMD and a Criticaleye Thought Leader, says: “Looking at joint ventures as a way to overcome cultural differences could be a disaster as you are abdicating the development of your local understanding. [Entering a new market] is a matter of developing the understanding to exploit it, not exporting your view there.”

Jon Dymond, Director at management consultancy Hay Group, argues that it’s important to go beyond whether the agreement makes financial sense. He explains: “There’s a need to pause and acknowledge differences, so apply some of the due diligence into the ‘soft’ cultural issues: how a different culture, norms and rules will impose time costs on you…

“Far more time and effort [than you expect] needs to go into building a proper picture of where you do and don’t overlap. If you don’t do that kind of due diligence work, the thing will founder, no matter how compelling the business logic for it to happen.”

It’s a lot to consider given how much can go wrong. Marc says: “The average life of a JV in China tends to be less than in more mature markets, so business leaders must question whether they are creating something that has long-term strategic value.”

Complex it may be, but business is always a case of nothing ventured, nothing gained. Mike says: “What always makes me laugh about these situations is that you spend most of your time on the legal issues, dealing with what could go wrong. But all the time that you’re talking about the negatives, you’ve got to remember that what’s driving you [to do] this is a big positive

Cracking China

For all those management teams who have made a success of expanding into China, it’s fair to say there are legions more who have been left perplexed, frustrated and significantly out of pocket after attempting to gain a foothold in the world’s second largest economy.

Clive Ansell, Group Managing Director of Technology for the education specialist Tribal Group, warns that you should “expect entrepreneurialism, both in its good and bad features, at every turn”. For Graeme Hossie, the CEO of London Mining, it’s vital to “understand that China business practice is different to the West in so many ways: don’t assume anything is ‘mutually understood’ unless you have discussed the detail”.

Still, the scale of growth means that when looking at international expansion it’s a country that proves hard to resist. Nicholas Emmerson, a Partner at international law firm Eversheds, says: “China is the second biggest economy in the world and the Beijing area alone has a GDP equivalent to that of the UAE. It can currently be summed up in two words: mass urbanisation. It’s on a scale we’ve not seen before with massive migration from the countryside to the cities.”

Notwithstanding concerns about the country’s slowing economic growth (8.9 per cent for the fourth quarter), the appetite for inward and outward investment remains uniquely ambitious for the current climate. Graeme says: “It is a very good and opportune time to get involved and establish a relevant business presence and relationships. China is growing in all aspects, including a huge and very capitalist/entrepreneurial private sector as well as state-owned enterprises looking for growth and partnering opportunities.”

Quality matters

As with any move to expand internationally, the two common denominators for success are to find the right local partners who know the market and to have some of your best people on the ground to ensure expectations and reality are aligned. Peter Blezard, former CEO of Plant Impact plc, says: “Choose the right partners with good contacts and deep experience of the business field. You need to remember that China is a vast country with great cultural diversity between regions. Just like the US, you are more likely to require regional/local partners than a single national partner.”

Clive says: “Invest in relationships and the long  term when dealing with senior people. You also need clarity and good commercial arrangements and specificity when dealing with mid-level people.”

Again, it’s dangerous to assume anything. “Work on a win-win basis,” states Graeme. “It is important that all parties fairly benefit from the relationship and it is seen as value creation rather than a zero sum game – approach the venture/relationship as a marriage and treat it as a long-term investment that can grow in many years. Be very clear about the big picture of what you are doing and why it makes sense for both parties – keep this in mind throughout.”

The complexity around legislation and red-tape is as well documented as the need to spend time on building relationships. “You’ll need to have a good grasp of how to deal with each level of bureaucracy if your business is to truly flourish,” says Sharon Shi, Head of China (EMEA) at Eversheds“There’s central government, the provincial level, five municipal cities with certain powers of autonomy and further levels of local government, each with different authorities that may issue their own rules.”

Sadly, it’s still true that a lot of businesses fail as they become caught up in the excitement and frenzy to enter the market at all costs. Chris Merry, who in the mid-nineties was Managing Partner of PricewaterhouseCoopers’ (then Coopers and Lybrand) office in Shanghai, says: “There is a lot of information, expertise and sensible people to talk to now, both here and on the ground in China, so take some time to get briefed.”

See the difference

There will almost certainly be frustrations around intellectual property rights, hiring and retaining talent and the differences between the first, second and third tier cities. “Some foreign companies have discovered the cultural variations early enough and adapted their product or services accordingly,” says Sharon.

This is fundamental for Pankaj Ghemawat, a Criticaleye Thought Leader and Professor of Strategic Management at IESE Business School. “The first point is that you have to go beyond looking at market size or just the number of Chinese. Many people seem to be interested in this market based on the idea that there are lots of Chinese and that’s not exactly a proprietary insight.

“The important thing is to start going beyond market size and to recognise the numerous differences that exist between China and where you’re coming from. Then you have to try and figure out whether the market is of interest and, if so, what are the best ways of pursuing that.”

It’s in these niches, whereby a company can tweak its offering to meet the specific needs of a local market, that real traction can be gained. “I do think there is often a disconnect between people on the ground in China and the folks who work at HQ,” adds Pankaj, who notes corporate management may need to get smarter when listening to the insights of their country managers, rather than rigidly abiding to a global strategy (food and restaurant chain Yum! is a great example of a company getting it right).

Not so long ago China embarked on its 12th ‘Five-Year Plan’, which details the avenues where foreign companies and investors can capitalise on this grand push for growth. Graeme says: “The local market is growing exponentially in multiple sectors. It is ripe for proven business concepts and models and products from abroad. The entrepreneurial opportunities are very substantial.”

It may be a market that’s not going to work for every company, but for those that can detect an opening the basic rules are planning, preparation and putting in the groundwork to meet the people who can open doors and also save you from expensive and potentially disastrous dead ends.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon.

Matthew

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