artefact designing for china

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  • 8/8/2019 Artefact Designing for China


  • 8/8/2019 Artefact Designing for China


    2What to Know About Designing for China /artefact

    IntroductionThis article is not a primer on how

    to do business in China. The reality of

    doing business in China can be, well,

    pretty ugly. We will not go into

    the corruption and other non-niceties

    of conducting business there

    in detail. To summarize very briefly,

    Chinas leading political ideology

    (if there is one) according to James

    McGregor, is enriching the country

    (and usually the political leadership

    and cadres families) in any way

    possible, without ever disrespecting

    or challenging the governments

    structure, position, and authority.

    In China, you pretty much have

    to play by their rules, show respect,

    and demonstrate how your

    objectives are not only good for your

    business but also good for China as

    a nation. You shall never criticize the

    government or proclaim whats

    wrong with their politics. For more

    information on these topics and

    some of the more interesting

    anecdotes from the front lines, we

    highly recommend McGregors One

    Billion Customers: Lessons from the

    Front Lines of Doing Business in

    China. McGregor himself also

    recommends an excellent reference

    on the nuances and peculiarities of

    business culture and negotiation in

    China in Lucian Pyes work Chinese

    Negotiating Style.

    Take the recent debacle between

    Google and China over censorship:

    the audacious Googlers violated the

    simple rule that you simply dont

    ever question their rules. To be

    sure, China regularly censors sites

    and content, closes down search,

    social networking, and other sites,

    and spied on Google accounts. They

    may have done some other

    questionable things, but one must

    remember that China is not a

    democracy. In a way, it reminds me

    of the movie Fight Club, where

    the first rule of fight club is you dont

    talk about fight club (thats also

    the second rule of fight club,

    incidentally). In China, the first rule of

    China is you dont question the

    rules of China. The second rule is

    you dont disrespect the Communist

    party or the government. They

    shall not lose face. Im trying to avoid

    taking political positions here,

    so be it. Googles exit is, perhaps,

    Baidus gain.

    But let us not digress further.

    Discussing the politics of China is not

    within our purview at Artefact,

    so better to leave that to the political

    pundits, freedom fighters, activists,

    and global political leadership.

    We might contend, however, that

    even by playing within Chinas rules

    of censorship, progress can be

    slowly made and Chinas citizenry

    can be empowered with technology,

    information, and the means of

    assembling and building

    communities, for they are a clever

    people with a lot of pent-up creative

    ingenuity. Revolution and political

    change is ultimately up to

    Chinas people, not to foreign

    multinational corporations who want

    to sell their products and services in

    Chinas markets.
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    Who is the Intended Audience?The audience for this article is

    primarily professionals in product

    management and development,

    innovation, R&D, product and

    product portfolio planners, engineers,

    and executives who are responsible

    for designing and creating

    technology products (hardware,

    software, services). In particular,

    those of you people above who feel

    perhaps a bit less informed about

    China than youd like to be.

    What this article is intending to

    convey are some key insights,

    lessons, or realities you should know

    about if you intend to develop,

    design, and market consumer

    products for China. Among the many

    considerations youll need to make

    as a business interested in entering

    or further penetrating the Chinese

    market(s), learning how to work and

    communicate well with the right

    officials and rainmakers, being

    unbelievably persistent, and

    understanding the varying and even

    appalling levels of corruption that

    may be involved will consume much

    of your time and energy (and,

    perhaps, your soul). Your challenges

    will range from building the right

    win-win argument, establishing

    long-term relationships with the right

    Chinese business people, power

    brokers, and partners, all the while

    not defying the rules or causing

    anyone to lose face. Another

    significant challenge will be

    distribution, as getting your product

    in front of consumers in China is

    not quite how it works elsewhere in

    the world.

    In the spirit of full disclosure: I

    myself have never traveled to China,

    though I was in Hong Kong for 10

    days in 2007 and studied some

    Mandarin and Chinese history in

    college. In researching and writing

    this article, I owe a tremendous

    amount of debt to the market

    researchers, strategists, cultural

    translators, user researchers, and

    Chinese graduate students and other

    Chinese professionals whom I

    interviewed for this article (Elaine

    Ann, Ash Bhoopathy, Ravi

    Chhatpar, Ian Donahue, Anjali

    Kelkar, Shuang Li, Lin Lin, Fei Qi,

    Erin Sanders, Pinxia Ye, and Lisa

    Yong among them).
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    China consists of many markets and

    many unique customer segments. If

    you dont know this by now, you

    really should. Therefore, you will have

    to do your share of ethnographic

    homework and market research tosucceed. However, doing the above,

    particularly the ethnographies and

    user research, will be more difficult

    than you are used to. Add to that

    that most Chinese consumers still

    dont really know what their needs

    are! Their world has changed so

    incredibly fast, and for many, they still

    are learning about what there is in the

    consumer marketplace beyond the

    basics of food, clothing, shelter, andthe most basic consumer durables.

    Therefore, products cannot simply be

    translated into Chinese; they must

    take into consideration the cultural

    and social context, thought models,

    and unique behaviors of the many

    different types of Chinese people.

    The Short Version:10 Tips + 1 CaveatIf you are pressed for time, short on patience, or just generally not fond of my laborious prosaic style, here is the

    abbreviated version of all the main points I want to make. If you care for more details, please read beyond this

    section for additional details, anecdotes, charts, and statistics.


    The Chinese have got their minds on

    their money, and their money on their

    minds. The Chinese mindset is,

    contrary to most Western perceptions,

    quite individualistic and in a country in

    which there is little to believe in, theprimary directive is to get gloriously

    rich. In yuan they trust. Like the

    astute social commentators and fans

    of Chinese martial arts culture, The

    Wu-Tang Clan sang, Cash Rules

    Everything Around Me. C.R.E.A.M.

    Get the money. Dolla dolla bill, yall.

    Why? Because life in China is

    unstable and insecure. The

    government is no longer a provider of

    any form of safety net. So everyonemust look out for themselves. Money

    is power, prestige, and respect in

    China. Hence, the Chinese are prone

    to flaunt it if they have it. Incomes in

    China have not necessarily kept pace

    with GDP growth over the past

    couple decades, and meanwhile the

    cost of living is rising. Foreign goods

    are also subject to high import tariffs,

    making them extraordinarily

    expensive by Western standards. Theparadoxical thing with the Chinese,

    however, is that while they admire

    and strive for luxury and quality items,

    they are also traditionally very frugal

    and value-minded, particularly the

    older generations.


    Chinese society can be partially

    understood in terms ofsocial

    identity theory and notions of

    ingroup and outgroup. The

    Chinese will always be suspicious of

    outgroup individuals. This is not justa matter of Chinese citizen versus

    foreigner, but even within China

    between different regional or ethnic

    peoples, or to some extent even

    between social groups or tribes.
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    Chinas youth generation aged 15-30

    (nearly 330 million today), in particular

    the urban youth sometimes

    known as the rare generation

    are remarkably different from their

    elders. They are mostly only children,

    under tremendous familial pressureto perform and succeed in life, but

    they also want to enjoy their

    freedoms, the good life, consume a

    whole lot, and they want it right now!

    They are driven by the constant

    search for newness or novelty. They

    are optimistic about the future, yet

    very impatient. They are individualistic

    and self-expressive, yet they are

    incredibly tribal, in Seth Godins

    sense of the word (except, perhaps,in terms of having a clear leader).

    And because they are continuously

    experimenting with their own

    identities and new freedoms through

    fashion, style, food, and material

    goods, who they are and what they

    want is constantly shifting. They have

    a lot of purchasing power and will

    represent a major consumer force for

    China, yet they are curiously protean

    and one of the most demanding

    consumer segments in the world.


    Because of these characteristics of

    ingroup bias and tribal behavior,

    Chinese consumers are especially

    drawn to products and brands that

    communicate a clear lifestyle,

    identity, and culture. The desire to be

    individualistic has its limits; Chineseconsumers, especially the urban

    youth, want to fit in with the sub-

    cultures or tribes in which they want to

    be accepted. This means buying the

    same brands and products, following

    the same styles and trends, etc.


    In contrast with the rare generation,

    Chinas more senior consumers

    (aged 35 and older) tend to be very

    frugal, stubborn to adopt new things

    and technologies, and are extremely

    value-conscious (if they are middle

    class; the wealthy are a differentstory). Most are investing the majority

    of their time, energy, and income on

    providing the best of everything for

    their only children (the spoiled rotten

    ones are sometimes referred to as

    Little Emperors). However, in a

    world completely different from the

    world in which they were born and

    grew up, these Chinese adults are

    suddently bombarded with and

    overwhelmed by choices theyvenever had to make before. They

    need information and explanations of

    how new products will matter to their

    lives, otherwise theyll simply rely on

    what theyve always known and buy

    the cheapest, good-enough option.
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    One important thing to understand is

    that the Chinese have a tremendous

    amount of national and cultural pride,

    stemming not just from thousands of

    years of being one of, if not, the

    most powerful civilization in the

    world, but also from three decadesof tremendous economic progress.

    While they admire foreign, global

    products for their quality,

    technologies, and design, they also

    fully intend to build their own

    domestic brands to compete

    globally. They are looking to the West

    to learn from and borrow (or steal

    its often true) their intellectual

    property, methods, and practices, so

    that they can catch up. But, it iscritical to recognize that the Chinese

    want to modernize, not Westernize.

    They wish to be modern while

    retaining their Chinese essence. On

    the more pop cultural level, you see

    this in the form of so-called China

    Style, or fusion of traditional Chinese

    elements with Western styles, music,

    fashion, etc.


    In addition to competition coming

    (eventually) from domestic brands,

    you must also recognize that right

    now you are engaged in fierce

    competition with shanzhai products

    (knockoffs). Regardless of the

    differences between the youth andtheir elders, most Chinese do

    recognize and appreciate quality and

    luxury. They just simply cannot afford

    it. They are drawn to the global

    brands and products that exude

    qualities like performance, luxury,

    beauty, style, and power. However,

    most Chinese who cannot afford the

    global branded products they aspire

    to own, are perfectly happy with fake

    alternatives, which are often as goodas the real thing. In addition, these

    shanzhai products will be

    manufactured and made available to

    consumers in more variations than

    youve ever dreamed of before your

    products will ever make it to market.

    You can count on that! Finally, the

    shanzhai industry should also be

    given some credit and recognition for

    the creative, entrepreneurial, DIY

    culture it is fostering, providing

    consumers with access to a high

    degree of personalized or

    customized items across a variety of

    product categories. In a country of

    1.3 billion people, its difficult to

    differentiate oneself from the crowd,

    but shanzhai products (particularly

    electronics) introduce all sorts of

    novel variations, at remarkable

    product development cycle speeds,

    feeding into the Chinese thirst for

    anything new.

    Its worth noting a thing or two

    about the Chinese consumer retail

    environment and experience as

    well. While the retail environment is

    beginning to look a lot more like

    that of the West (modern shopping

    malls and hypermarkets arebeing built by the hundreds), there is

    still something very different and

    unique about how and where the

    Chinese shop, which is one reason

    you will really need to work hard

    on your distribution strategy.

    Shopping malls are more like lifesized

    catalogs for most of the middle

    class, where they can browse and

    take note of the latest high-end

    styles and products. But, more oftenthan not, the middle class consumer

    will then head out to the street to

    the large marketplaces or bazaars

    (in areas like Zhongguancun in

    Beijing) where hundreds or

    thousands of small vendors will sell

    the same or shanzhai versions of

    many products (electronics, fashion,

    or media) at negotiable prices.
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    The Chinese have a well-justified

    distrust of media in general.

    However, in the Internet they trust.

    Bulletin board systems (BBS),

    forums, blogs, online communities,

    and social media are their most

    trusted sources of information. Theydo not generally believe advertisers

    claims. They seek out the advice,

    experiences, reviews, and feedback

    of their peers online before making

    purchase decisions. Chinese

    Internet users spend 18 hours per

    week online versus only 12 hours

    by their American counterparts.

    Chinese consumers are also

    beginning to greatly increase the

    amount of shopping they do online,as credit card penetration has rapidly

    increased and other forms of online

    payment have emerged and gained

    consumer trust and confidence (like

    Alipay from Alibaba, which is more or

    less like Paypal). Also, the Internet

    simply offers a great variety of

    products to choose from, things

    which may not be available on the

    mainland. Today, most online

    shopping is transacted as cash-on-

    delivery, but that is likely to change in

    the coming years. And because

    mobile phone penetration in China is

    significantly higher than computer

    penetration, expect that consumers

    will begin using their phones and

    computers to shop more.

    Despite the high value that most

    Chinese consumers place in peer-

    review of products, however, they are

    still suckers (like most of the rest of us)

    for the right celebrity product

    endorsement. So, dont underestimate

    the influence of the right personality.


    Chinese consumption to date has

    been primarily focused on goods

    (fashion, gadgets, etc.), but as

    consumers they are beginning to

    sophisticate and mature. Relatively

    speaking, the average Chinese

    consumers purchasing power is stillbut a fraction of that of the average

    American consumer. However, as

    incomes continue to rise, and for

    those already upper middle class and

    wealthy consumers, expect them to

    become more demanding for new

    services and experiences, in such

    areas as food, style, living, mobility,

    health and wellness, and finances.

    eleven (one caveat)

    Everything just stated above is,

    unfortunately, not carved in stone.

    Because of the incredible rate of

    progress and change occurring in

    China, anything you learn today may

    not be true a year or two from now.

    You are playing a frantic gamechasing rapidly moving targets.

    Therefore, take our suggestions

    above to heart, but be willing to

    revisit them in the near future for

    further evaluation or validation.

    WARNING: Stop here if youve had

    enough or are a lazy reader. Continue

    below the fold if youd like to hear a

    lot more details. And also join in the

    conversation on our blog by

    commenting on, debating, or even

    contesting our claims. We hope to

    open up the conversation to all of our

    readers for our mutual enlightenment.,39044853,62028599,00.htm,39044853,62028599,00.htm,39044853,62028599,00.htm,39044853,62028599,00.htm
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    The Future Looks Red,But No Need to Panic (Yet)Global GDP (nominal) was roughly

    US$61 trillion in 2008. According to

    the International Monetary Fund, theEuropean Union collectively

    represented about 30.2% of the

    global economy, the United States

    23.7%, Japan 8.1%, and China had

    the fourth largest economy

    representing 7.1% of global output.

    Ten years ago China represented only

    3.9% of global GDP.

    In the last 30 years, starting just

    before Deng Xiaoping initiated

    Chinas economic reforms, thecountrys GDP has grown more than

    81-fold, while the USs GDP grew

    only about 6.3-fold (not adjusted for

    inflation). This is truly awe-inspiring!

    But, make no mistake, China is still

    overall a relatively poor nation. Today,

    it is a country of relatively few haves

    and significantly many more have-

    nots. It has an emerging middle

    class, which depending on how you

    define middle class, is anywherefrom 50-500 million people. The

    middle class and the rural poor have

    managed to more or less escape

    extreme poverty in these past three

    decades, and now are finally

    becoming a massive and legitimate

    consumer force in their own right.

    In Maoist China (1949-1979), key

    consumer possessions were a

    bicycle, a wristwatch, and a sewing

    machine. In the 1980s and 1990s,major consumer durables included

    color TVs, washing machines,

    refrigerators, and electric fans. In the

    past decade, key consumer

    possessions became mobile phones,

    computers, air conditioners (in urban

    areas), and showers. For the typical

    Chinese, the future decade will

    become about buying his/her first carand possibly owning a home.

    Late last year, China passed the

    United States as the #1 automobile

    purchasing nation. They now

    manufacture more cars than we do

    too. Theyve all but acquired Volvo

    from Ford and bought the rights to

    technology platforms from Saab

    from GM. They have more Internet

    users (338 million) than the United

    States has people. They now haveover 720 million mobile phone

    subscribers, and are still at only

    54.5% penetration. With their strong

    and steady economic growth rate,

    predictions from a variety of experts

    Sources: US Bureau of Economic Analysis, National Bureau of Statistics of China

    and analysts from the World Bank

    to the IMF to Goldman Sachs,

    Morgan Stanley, and Credit Suisse

    indicate that Chinese GDP inpurchasing power parity (PPP) may

    actually pass that of the United

    States in anywhere from 5 or 10

    years (optimistically) to maybe 20 or

    30 years (conservatively). The ever

    entertaining Swedish professor of

    international health and co-founder

    and Director of the Gapminder

    Foundation, Hans Rosling, has even

    predicted the very day that Chinese

    GDP per capita in PPP (and that ofIndia) will pass that of the United

    States: July 27, 2048. Definitely

    check out his TED talk.

    What is undeniable is that

    eventually China will have the largest
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    economy in the world (though not

    necessarily the highest per capita

    wealth in the world).

    Nobel laureate economist Robert

    Fogel recently raised a lot of

    eyebrows by declaring that in 30

    years, Chinas GDP will reach $123

    trillion and represent 40% of the

    global economy, with the United

    States trailing in a distant second at

    14% of global output, and the

    European Union at a measly 5% of

    global GDP. (see image)

    His critics arguments aside, the

    point here is that Chinese political

    leadership has made it clear that

    they no longer wish to be the factory

    for the world. They are proud,

    optimistic, and determined to attain

    superpower status. And, part of this

    road to global economic hegemony

    will include developing their own

    Chinese companies and brands that

    will themselves become global brand

    powerhouses. So, while today you

    may consider a Lenovo laptop or a

    Haier beverage cooler when you go

    to Best Buy or Home Depot, be

    prepared for an onslaught of other

    Chinese brands to become part of

    the American consumer landscape.

    Eventually. Maybe in a couple

    decades. Maybe more?

    The good news is that this means

    there is still time for you, as an

    American or Western business, to

    still look to China as an important

    component of your global strategy.

    Chinese-made products are still

    beleaguered by a perception (and,

    perhaps still too often, a reality) of

    low quality, cheap and shoddy

    manufacturing, and questionable

    adherence to safety standards.

    China is still learning how to move up

    the global value chain, but it is doing

    so at an alarmingly rapid clip. Shaun

    Rein, Founder and Managing

    Could this be what global economic hegemony will look like?

    Director of China Market Research

    Group and a widely-recognized

    expert on strategy consulting in

    China, has even found through his

    own companys studies that

    Chinese consumers are also leery

    of Chinese-made products (food,

    in particular) and willing to pay a

    10-20% premium for foreign brands

    they believe will be safer. Moreover,

    he rejects a McKinsey report to

    suggest that Chinese trust levels in

    domestic brands are actually at an all

    time low. Good news for you!

    So, stay positive and read in more

    detail about the 10 things you should

    know about designing products for

    the Chinese consumer. We know

    that these cant possibly cover

    everything youll need to know to

    succeed, but these lessons should

    provide you a great start.
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    The Longer Version


    Many markets, many customer

    segments. Do your ethnographic

    homework and market research.

    China is big. Really big. And things of

    that scale make eyeballs widen and

    mouths salivate. But one thing China

    most definitely is not is a

    homogeneous country of 1.3 billion

    identical customers. If there is one

    thing you should know about China

    by now, this is it. The myth of selling

    your product to 1.3 billion customers

    has long ago been busted.When foreigners think of China,

    they often imagine unity, consistency,

    and regularity a predilection

    toward the collective over the

    individual. The truth is, however, that

    China is a complex collection of

    provincial, local, cultural, and social

    sub-markets, where local politics and

    cultural practices create major

    differences. Furthermore, the

    Chinese are far more self-interestedand individualistic than you may

    assume. For centuries, there have

    been vast differences between the

    rural and the urban, between one

    province and another, but since

    Deng Xiaopings economic reforms

    began around 1980, the country has

    diverged along multiple dimensions

    as economic development, planning

    of special economic zones, and new

    wealth have been distributed

    unevenly, unfairly, and at differing

    rates throughout the country.

    As cultural translator and socio-

    cultural researcher Lisa Yong ofY

    Studios in San Francisco told me,

    Beijing and Shanghai are not China.

    Its just not true. Just like New York

    and L.A. are not America.

    Youve probably heard aboutTier-1, Tier-2, Tier-3, and so on

    cities. But, few users of this

    classification system are ever very

    specific or consistent about which

    cities fall into which buckets

    (particular Tier-3 and lower), and

    most global companies have tended

    to focus on the richest Tier-1 cities

    first, then work their way down.

    Clearly, the Tier-1 cities consist of

    Beijing, Shanghai, Guangzhou, and

    Shenzhen (Hong Kong too, if you

    want to include this Special

    Administrative Region, though it

    differs from the rest of China in many

    ways). The Tier-2 cities tend to

    consist of the provincial capitals.

    Nonetheless, if you look at GDP per

    capita figures for these Tier-1 and

    Tier-2 cities (based on data from theNational Bureau of Statistics of

    China), they range quite strikingly

    from Nanning a provincial capital

    whose key industry is mining with

    a GDP per capita of 15,685 yuan in

    2007 ($2,062 US), while Shenzhen

    a major electronics, high tech,

    and manufacturing center has the

    highest GDP per capita among

    Chinas cities at 89,814 yuan in 2008

    ($13,091 US). Due to the policies of

    these special economic development

    zones and different regional

    industries, even among these Tier-1

    and Tier-2 markets the differences

    can be significant.

    Sources: Artefact (click to enlarge)

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    What has happened in China in

    the past 30 years has been that

    many people, usually well-connected

    to Communist Party officials, have

    used their positions and connections

    to amass their family fortunes as

    privatization increased. The early

    entrepreneurs and business people

    also capitalized on new business

    opportunities. Real estate

    developers and speculators became

    some of the richest of these

    entrepreneurs. Others, opening new

    businesses, found their fortunes

    increase almost overnight. As stock

    markets opened, many played the

    markets and capitalized on the

    boom. What this has led to is a

    tremendous inequity in the

    distribution of wealth. There are the

    super rich, the nouveau riche, the

    poor rural folks, and now a large and

    growing middle class or who are

    typically well-educated, white-collar

    professionals working for large

    companies. But, defining this middle

    class is somewhat controversial in

    China with no widely accepted

    answers, and the most typical

    estimates of the number of Chinese

    who are considered middle class

    ranges from 100 million to 250

    million people. Some would go so

    far to say that the range might even

    be more like 50 million to 500 million.

    One scheme for defining the East

    Asian Middle Class (EAMC) developed

    by Hsin-Huang Michael Hsiao and

    Alvin Y. So includes six classes in

    Chinese society, an elite capitalist

    class at the top, four classes

    representing the middle, and a

    lowest class of farmers and peasants:

    An analysis conducted by Li

    Chunling of the Chinese Academy

    of Social Sciences, estimates that

    of the urban Chinese population in

    2006 (577 million), 0.6% were in the

    Capitalist class, 18.8% in the New

    Middle class, 19.6% in the Old

    Middle class, 25.4% in the Marginal

    Middle class, and 35.7% in the

    Working Class. Presumably the

    remaining rural population (737

    million) was lumped into the Farmer

    class. Again, one can see in the table

    below a tremendous range in

    incomes and distribution of wealth.

    Chinas GDP per capita as a

    whole was 18,934 yuan in 2007

    ($2,490 US). The differences

    between rural and urban China are

    considerable, as you can see in the

    table above. Rural China,

    representing 55% of the population

    of the country, has per capita net

    disposable income of 4,140 yuan

    ($603 US) versus 13,786 yuan

    ($2,009) for urban households. In

    other words, urban Chinese on

    average have 3.3 times as much

    income as their rural counterparts,

    the differences being even more

    pronounced in Tier-1 and Tier-2


    Lisa Yong admits that the

    differences between all of these

    tiers of cities was and still isnt

    entirely clear cut. She sees the

    development of Chinas cities

    occurring more organically, with often

    some of the most interesting things

    often happening in the heartland or

    the most unexpected places. For

    example, she claims that Inner

    Mongolia has been successfully

    growing its own regional brands in

    the food and beverage industry. The

    lesson here is that you will be facing

    competition from the bottom-up who

    are more in tune with the currently

    most underserved consumers.

    Then, theres the whole

    consideration of segmenting these

    markets. The major difference,

    beyond regional differences and

    income-level, is without question

    age. The urban youth generation (15-

    30 years old) are markedly different

    from their parents and elders,

    earning them the nickname the rare

    generation. Well discuss some of

    these differences in more detail later.

    Beyond, the demographic

    differences, youll really need to get

    immersed in the culture and do more

    Sources: Chinese General Society Survey 2006 and National Bureau of Statistics of China
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    proper ethnographies and user

    research to understand the more

    psychographic, motivational, and

    behavioral difference among these

    age clusters.

    Finally, if you thought the Tier

    system was already enough to wrap

    your head around, now McKinsey

    Insights Asia is suggesting a new

    framework around city clusters,

    which they believe overcome some of

    the limitations of the Tier system,

    which relied primarily on GDP per

    capita. In this approach, 22 clusters

    have been identified, recognizing the

    linkages between neighboring cities in

    terms of industrial composition,

    government policies, demographic

    characteristics, and consumer

    preferences. The clusters tend to

    include one or two large hub cities,

    Source: McKinsey Insights Asia (click to download report)

    with groups of smaller cities

    developing in their vicinity, as seen

    below. One advantage in this model is

    that one can begin to understand how

    the value chains between businesses

    and industries link neighboring cities

    together, thus influencing their

    economic development as well as the

    social and cultural customs and

    trends. (see image)

    Do your ethnographic

    homework and market research.

    What all the aforementioned implies

    is that in order to succeed in China,

    your business will have to invest

    continuously and intelligently in user

    research activities and ethnographies

    to understand the various segments

    you might wish to target. And, this

    wont be easy. The Chinese people, in

    general, are less comfortable with the

    notion of user research and

    ethnography, especially when

    conducted by foreigners. Culturally,

    there is a suspicion of foreigners and

    their motives, ingrained for centuries

    as Western imperial powers tried and

    tried to open China up to trade,

    started the Opium Wars, and found

    numerous other was to offend,

    anger, and oppress a proud

    civilization. Certain topics (money,

    marriage, politics, etc.) may be taboo

    or considered rude or too personal

    for user interviews.

    Experienced design researchers in

    Asia, like Elaine Ann from strategic

    innovation consultancy Kaizorin

    Hong Kong, says that many of the

    methods of user research taught in

    the West, at places like Carnegie

    Mellon or the IIT Institute of Design,
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    dont always work that well in China.

    Her advice is to approach things in a

    more personal way, by taking the time

    to establish a real relationship first. In

    other words, youll have to invest

    more time for many Chinese people

    to feel comfortable. And, because the

    Chinese are very concerned with how

    they are perceived by others, it can

    be disastrous to conduct

    ethnographies or research where

    people are being viewed by strangers

    or other outgroup individuals.

    You also want to make sure to

    research the right people. This might

    be confusing to some Chinese, who

    expect that youd want to interview

    and observe the most senior people

    in an organization, say, as opposed

    to someone who works on the

    warehouse floor.

    Knowing your customers and their

    needs is, of course, a basic principle

    of smart business. In China, the

    challenge is that the consumers are

    very different from place to place, by

    age, by income level, outlook on life,

    and by education level. Furthermore,

    Chinese consumers are still learning

    about their own needs and wants as

    consumers. So much has happened

    so quickly that they may not even

    know what want. And, what they like

    today might be different tomorrow.

    Ian Donahue, a market research

    consultant at Anovaxin Shanghai,

    explains some of the other unique

    challenges with understanding

    Chinese consumers. For example,

    language ability is not enough.

    Social identity theory is an

    important frame for understanding

    Chinese notions of ingroup and

    outgroup. Though fluent in Mandarin,

    he never moderates an interview

    because he is viewed as an outsider.

    He suggests further that even

    regional differences are critical.

    Always use local moderators, if

    possible from the same city, he


    For example, going into a home in

    Shanghai for an ethnography with

    a Beijing moderator can be a

    problem. Like Elaine Ann suggested,

    one should also expect to invest

    more time conducting ethnographies

    than what might be needed in

    the West. As Donahue broke it

    down, the first hour will consist of a

    lot of resistance, confusion, and

    discomfort. Why are you here?! the

    participants will be wondering.

    However, with a skilled and charming

    moderator, possessing a good

    personality, and adept at building

    rapport, those barriers can

    be overcome in the second and third

    hour of an interview. At this point,

    participants will be more likely to

    open up.

    Other tips from Donahue include

    using small teams for in-home

    studies. Chinese homes are small

    The best advice, ofcourse, is to go there for

    yourself and really getimmersed. See it with yourown eyes. Have patienceand work with locals tohelp build rapport with thepeople you want toresearch. Learn Mandarin(or putonghua) too.
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    and space is a concern. Try to limit

    yourself to three people: a

    moderator, an observer/notetaker,

    and a videographer.

    When interviewing younger people

    (age 15-29), expect their parents and

    grandparents to hover by closely and

    suspiciously. These children of the

    one-child policy often called Little

    Emperors as they are the single

    pride and hope of their families

    tend to be very spoiled and

    pampered. Their families are very

    cautious and protective of them.

    Therefore, make sure to show

    respect toward other family

    members. Allow them to sit in and

    participate, but respectfully try to

    keep the focus on the participant.

    Although in complete agreement

    with the sentiments of Ann and

    Donahue, design research consultant

    Anjali Kelkar from the Studio for

    Design Research in Hong Kong,

    believes that with many younger,

    urban Chinese, it can be a little bit

    easier to make the connection that is

    critical to a good ethnographic

    interview. She bases this on her

    experience that many of these young

    folk are very curious, chatty, and

    eager to talk to foreign people and

    share their experiences. Admittedly,

    though, this sometimes requires

    either being or being accompanied

    by someone who is part of that right

    ingroup, someone who belongs.

    Shuang Li, Principal UI Designer

    at Intuit, has many years of

    experience and perspective doing

    user research in China, as well as

    trying to import and teach good UI/

    UX and design practices for

    companies like She

    corroborates the general truth that

    the Chinese are somewhat taken

    aback when people want to know

    what they think. It is typical for a

    Chinese research participant to try to

    guess what they think you the

    interviewer want to hear rather than

    be open and honest. But, as she

    points out, this isnt too different

    from conducting research in the

    United States, especially when

    getting paid for ones participation is

    a primary motivator.

    In addition, the fields of user-

    centered design and ethnographic

    research are still relatively new in

    China, and as a result, many of the

    local partners with whom you might

    work may not be as skilled or

    experienced as you might hope. It

    will be a challenge for you to keep

    protocols straight, practice good

    interviewing techniques, and impress

    upon your Chinese research partners

    to not view the interviews as

    unstructured conversations.

    Emphasize sticking to protocol,

    asking questions about why people

    behave as they do, not interjecting

    ones own opinion, and so on. Finally,

    data are not always viewed by the

    Chinese as inviolable nuggets of

    truth. Culturally, there is a deeply-

    rooted history of manipulation of

    data in day-to-day life, government,

    and elsewhere. So, emphasize the

    importance of quality, objective data.

    As Li puts it, usually people dont

    take them (data) seriously.

    For another perspective on the

    fudging of data and cooking the

    books, check out this piece from

    Shanghai-based business journalist,

    Jordan Calinoff. And, check out

    Thomas Friedmans latest columns

    where he suggests that China could

    be the next Enron (note: I

    intimated something along those

    very lines in an off-hand Facebook

    status update on December 29,

    2009, two weeks before Friedmans

    column just saying).
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    average citizen with nothing left to

    trust in. Except for cash money.

    Cash money

    and the support of family are

    truly the only safety net the Chinese

    have. Despite decades of

    continuous strong economic growth,most Chinese feel less secure than

    before, as they are no longer

    guaranteed jobs, housing, and a

    pension. Consequently, as a

    society, overall, the Chinese are

    very thrifty, saving reportedly

    40% of their income on average.

    The older generations are known

    for their frugality and extraordinarily

    high savings rate in order to provide

    for their child. Education is alsono longer free, so parents who want

    their children to succeed in life

    must save as much as they can to

    invest in the childs future and


    To get rich is glorious.

    The proverb above is a loose

    adaptation of Deng Xiaopings

    exhortation to his country to let some

    people get rich first. The Chinese

    have always been a mercantilesociety full of entrepreneurial spirit.

    After the devastation of their

    economy under Mao Zedongs Great

    Leap Forward and Cultural

    Revolution, with Deng opening the

    country up to economic reforms, it

    became evident that the only

    leading ideology for the country as

    a whole was to enrich itself, as

    James McGregor points out in One

    Billion Customers. As Chinasgovernment policy shifted from

    wealth repudiation to wealth

    creation, the dismantling of much

    of the socialist safety net also left the

    Photo by: Evan Osnos, Artist: Tao Hongjing, Source: The New Yorker(click to view source)

    development, hoping theyll turn out

    an exceptional individual.

    Meanwhile, the cost of living is

    increasing. Foreign goods are also

    subject to high import tariffs,

    making the shanzhai products even

    more attractive bargains. TheLittle Emperors are known to be

    spoiled rotten and be the me

    me me generation. They are crafty

    at getting money from parents

    and grandparents to spend on

    fashion, gadgets, and whatever else

    they desire. After all, they symbolize

    the singular hope for carrying on

    the family name.

    Money and wealth and the

    material goods they afford translateto status and respect from others.

    This explains why many Chinese

    who have arrived like to flaunt their

    fashions, cars, or gadgets. For

    Chinese youth, the mobile phone is

    the largest consumer purchase they

    typically make. It is for them their

    most important symbol of status

    and freedom.

    The high savings rate that

    the Chinese exhibit as a whole does

    not translate across all groups,

    however. The young, urban Chinese

    (15-30) are reported to essentially

    save nothing at all, as Pascal

    Nouvellon of COFIDIS explained

    to Shaun Rein of CMR in an

    interview last February.

    As credit card penetration

    continues to expand, we might

    expect the hallmark frugality of the

    Chinese consumer to change, with

    younger people, more optimistic

    about the future and their prospects,

    choosing to buy on credit and

    accumulate more debt in order to

    obtain the material goods they desire.
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    Sources: National Bureau of Statistics of China, company websites, and other(click to enlarge)

    Donahue describes every subway

    station in major cities having makeshift

    kiosks set up to get young Chinese

    to sign up for the newest credit

    cards. He describes these kiosks as

    regularly surrounded by dozens of

    young people, who are often enticed

    with a free gift as well.

    As the chart above also shows,

    other forms of payment are taking

    off. While China is still primarily

    a cash society, Alibabas equivalent

    of Paypal, called Alipay, has

    increased its membership

    dramatically in the past few years.

    The Chinese have not always felt

    comfortable with the security of

    making transactions online, hence

    most e-commerce today is

    transacted as cash-on-delivery. But,

    Alipay seems to have garnered the

    young consumers trust, with

    accounts now exceeding 250

    million. That makes buying things

    on Alibabas other property, Taobao

    (Chinas version of eBay), a snap.

    Shaun Rein firmly believes that

    e-commerce will continue to

    explode in China thanks to the

    proliferation of credit cards, Alipay,

    and the ability of consumers to shop

    not only from their computers, but

    from their Internet-enabled mobile

    phones as well. This phenomenon,

    however, will most surely be limited

    to the young, urban Chinese who are

    comfortable with this type of

    consumer behavior.

    In sum, the young Chinese

    consumer is still single-mindedly

    optimistic about making it rich.

    Along the way, he/she is also

    becoming more sophisticated in the

    new ways of transacting commerce.

    The desire to flaunt ones arrival will

    continue, and I would suspect that

    many young people (or their

    parents) will be soon learning the

    dangers of abusing credit limits.

    Already, a New York Times article

    cites that about 11 percent of

    Chinese parents have paid credit

    card debts for children 22 to 27

    years old, a group that has become

    accustomed to the good life but has

    found it difficult to pay for,

    according to a survey by the Beijing

    Youth Daily newspaper.

    Nonetheless, the emerging

    Chinese middle class mindset may

    now be that after letting some

    of the people get rich f irst, as Deng

    suggested, now the masses

    would like to eat the emperors

    grain too. Taking a page from

    American hip-hop culture, emcees

    from the growing hip-hop scene in

    China understand the brutal reality

    of an increasingly materialistic

    world. Wang Li, a 24-year-old

    rapper from Dongbei, says in a

    New York Times article that, All

    people care about is money. If you

    dont have money, youre treated

    like garbage. And if youre not local

    to the city you live in, people

    discriminate against you; they give

    you the worst jobs to do.
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    They are not thinking a whole lot

    about their future and are not very

    responsible with their money. The

    Young Professionals, on the other

    hand, follow their parents wishes

    much more closely, focusing on

    making the right choices in school,

    career, etc. They are incrediblyhardworking and have very limited

    social time. They work on the

    weekends if they need to, tend to be

    bottom-rung workers in large

    companies, and aspire to higher

    salaries which will eventually enable

    them to buy the luxury items they can

    display as symbols of their success.

    But, some Chinese youth dont

    necessarily view these young

    professionals in the most positivelight. Qi Fei, a 25 year old graduate

    student from Dalian, says that a lot of

    people think that these members of


    embarrassment. They work very

    hard at large companies, but are at

    the bottom of the hierarchy, and

    dont have much money compared

    to the entrepreneurs or people with

    their own companies. To make

    matters worse, they have very little

    time for much of a personal life.

    Of course, there are many other

    youth segments to consider, including

    the Sporty/Jock types for example,

    who might embrace an entire culture

    around sports and a brand like Nike,

    which invests heavily in creating

    and marketing a culture around their

    brand and products in China.

    Another popular word in Chinese


    bourgeois. If you ask a Chinese to

    describe such a person, you will

    almost universally hear them

    described as young, single, urban

    women under 30, fond of Starbucks

    three, four, five & six

    Ingroup and outgroup / Youth tribes

    and their elders / Identity, lifestyle,

    and culture / Seeking the good life

    The challenge with the Chinese

    consumer is that there are so many

    different segments to consider. Wethink two of the most valuable

    distinctions to make are 1) between

    rural and urban Chinese, and 2)

    between the youth and their elders.

    However, below we will tend to focus

    the discussion on the latter: the

    differences between the rare

    generation and their parents and

    elders. What is their middle class

    dream? What do they want? How

    are they different? What is the goodlife that they are seeking?

    Chinese youth and young adults

    under 30, to put it bluntly, are

    fundamentally different from their

    elders. They are typically only

    children (born under the one-child

    policy) whove grown up without

    experiencing major political turmoil

    (the Tiananmen Square Massacre

    perhaps one exception) during times

    of continuous economic growth and

    having relatively more freedom to

    make personal and professional

    choices. They are the pride of their

    families, often overindulged and

    spoiled rotten (Little Emperors),

    given the best of everything their

    families can give them, because their

    parents are investing all of their hope

    in the future success of their one

    child who will carry on their family

    name. These youth are ambitious,

    energetic, modern, individualistic,

    creative, and optimistic. They have

    attitude and personality, are savvy

    and complex, are proud to be

    Chinese, and are constantly

    experimenting with self-expression

    and identity through consumer

    choices. They have no instinctive

    aversion to borrowing or

    accumulating debt, like their elders.

    They are obsessed with the latest

    fashions and gadgets. Newness and

    novelty are important values to themas they want to keep up with styles.

    This means they cant always wait to

    save up their money to buy the

    things they want. They have to buy

    them now, before its too late and

    theyve gone out of vogue!

    While highly individualistic and

    self-expressive, their desire to

    be different is not quite the same

    as in the West. As Ian Donahue

    explained it, Chinese youth sociallytend to resemble the American high

    school clique culture. Social

    acceptance to a group, or tribe as I

    might call it, is critical. Being an

    independent renegade or loner is not

    desirable. Remember, these are

    also mostly only children, and to a

    certain extent there is a high degree

    of loneliness or isolation as they have

    grown up without siblings. They

    seek acceptance and companionship

    from others.

    Influenced heavily by Korean and

    Japanese trends, as well as American

    products and styles, you will witness

    many different types of groups or

    tribes forming. Donahue mentions the

    two most apparent ones as the

    Party and Club group of youngsters

    and the Young Professional as

    another major group. The former

    tends to work just enough to pay for

    their night time lifestyle. They care

    about fashion, clubs, music, and

    socializing. They might convince their

    parents to buy them a nice car, or hit

    up grandma and grandpa for cash.

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    coffee and Hagen-Dazs ice cream,

    who typically spend 1/3 of their

    income on bars and restaurants, 1/3

    on shopping for brand-named

    clothing, have an aversion to saving

    money at all, love watching European

    art performances and listening to

    Italian violin, and have Van Gogh

    paintings hanging on the walls of their

    apartments. They appreciate the

    value of design and lust after the

    latest trendy foreign products (iPod,

    Miss Sixty jeans, Gucci, Chanel), but

    have to save up for some time to be

    able to afford one or two of these

    luxury items. These women seem to

    enjoy the experience and atmosphere

    of being out and about in expensive

    clothing, sipping coffees, and view

    themselves as rather elegant. But, the

    term is also used somewhat

    disparagingly by other Chinese youth.

    Yu, Chan, and Irelands

    identification of four personas

    among the urban youth of China

    (from Chinas New Culture of Cool),

    included: 1) Ding Li, The Playgirl, 2)

    Wang Liang, The Striver, 3) Chen

    Hong, The Modern Conservative,

    and 4) Li Hua Min, The Rule Breaker

    or those who are sometimes called

    the or hooligans.

    There are some clear consistencies

    between Donahues more general

    assessment of the youth market and

    the Cheskin teams four personas.

    The Playgirl and Rule Breaker tend to

    cluster with the Party and Club-going

    tribe, though the Playgirl tends to be a

    younger teenager, working a low-end

    job in something like retail, interested

    in friends, boys, fashion and

    shopping. She aspires for luxury items

    in her life eventually, though she

    doesnt think a whole lot about the

    future yet. The Rule Breaker is usually

    older, perhaps not having succeeded

    in entrance exams for the university,

    and now leads more of a hardcore

    party lifestyle at night, drinking,

    dancing, listening to deejays, etc. He

    gets money from his family to support

    his lifestyle. He might look more like a

    street punk, with dyed hair, tattoos,

    and piercings. He sleeps in late and

    gets up in the afternoon to hang out

    until he parties the rest of the night.

    Both of these groups/tribes/personas

    are similar in that they will have a

    unique set of preferences, styles,

    brands, and definitions of whats

    cool or fashionable.

    The Striver and the Modern

    Conservative might cluster together

    into the Young Professional segment

    described by Donahue. The Striver

    is a young professional, very

    hardworking, ambitious, and

    The Wu Zi (5 Zi): Aspirational motivators for the Chinese middle class (typically, male)

    dream, Source: Anovax

    aggressive. He is driven by attaining

    fame, power, and money. He wants

    a cool car to reflect his status and is

    passionate about technology and

    gadgets. He spends a lot of his free

    time on his computer, watching

    movies and listening to music

    (mostly free or bought on pirate

    discs on the street), playing games,

    and reading about and engaging

    socially online in his passions. His

    mobile phone, as with all the other

    young people in China, is his

    most essential tool and symbol of

    status when away from home. He

    strives for the good life that he

    believes is possible through the

    formula below for achieving success

    (primarily among those in the Tier-1

    and Tier-2 cities):

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    As you can see, this is clearly the

    more male perspective on what

    constitutes the good life. In a country

    where there are 40 million more men

    than women, these young men are

    actually in serious competition to

    achieve their version of the Chinese

    dream. Many feel a great amount of

    pressure to earn enough income,

    own a nice car, and have a house

    before being considered eligible or

    desirable for marriage.

    The parallels between this

    perspective from American hip-hop

    artists to the new Chinese

    hip-hop artists is incredible. The

    perceived keys to male middle class

    (heterosexual) success are

    seemingly identical. Compare Young

    MCs lyric from his popular hit Bust

    a Move to the freestyle rap of Wang

    Li of Dongbei, mentioned earlier:

    Got no money and got no car, then yougot no woman and there you are. Young MC

    If you dont have a nice car or cash,You wont get no honeys,Dont you know China is only a heavenfor rich old men,

    You know this world is full of corruption,Babies die from drinking milk. Wang Li

    On the flip side, there is also a

    growing trend of female

    empowerment in China. Many of

    these young women are interested

    in savoring life and the things you

    can buy and not particularly

    interested in having children.

    The Modern Conservative is

    similar to The Striver in terms of her

    desire to achieve professional

    success. She is socially more

    conservative and reserved, and

    possibly more likely to be one of the

    so-called Little Emperors. She is

    under tremendous pressure to please

    her parents and live up to their

    standards, but though she studies

    and works hard, she may not want to

    be competing to the be the very

    best. She wants to live a rich and

    fulfilling life, which she defines

    differently from her parents, where

    she seeks more balance, though she

    may be too reserved to admit this to

    them. She follows the rules and tries

    not to stand out too much, but she

    values her personal freedom to

    choose a career and eventually

    choose to live however she likes. She

    is less likely to want to have children,

    though shed like to be married and

    lead a life of balance between work

    and personal leisure and travel.

    These are just some of the few

    segments beginning to describe the

    large and complex group of 327

    million young people in China. These

    tribes form their own unique social

    cultures, where the products,

    fashions, and styles they strive for

    tend to be more consistent within the

    ingroup. However, as a rule of thumb,

    brand loyalty within these tribes is

    very low in China, because all brands

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    I think we can all agree then, at

    this point, that Chinas urban youth

    (15-30) are and will become a

    unique and transformative force, vital

    to spurring consumption in the

    Chinese economy. And, in doing so

    they will also lead social and

    cultural changes as they exercise

    their significant collective purchasing

    power. The key to success,

    according to Donahue, is that these

    young consumers need to be

    able to understand how the products

    marketed to them are beneficial to

    and fit into their lives and the

    lifestyles they want to lead. Otherwise,

    they will just be passing fads.

    So what about their elders? The

    older generation of Chinese

    consumer (35 and up) remember a

    time when they had next to nothing

    and few if any choices. While they are

    excited with the quantities and

    varieties of foods they may find at a

    hypermarket, they are generally

    struggling to understand all the new

    products and brands which theyve

    never had a need for before.

    Consequently, they are very resistant

    to change or experimentation with

    new products. They feel that their

    lives are good enough, and their

    interests are in providing for their

    child. Raising a child has become

    more expensive, college tuition is

    expensive, and their child has many

    wants and needs. They may wish to

    spend extra money on developing a

    talent in that child (music, sport, etc.)

    in the hopes of making him/her a

    more exceptional student who will

    succeed in entrance exams andpursue and education leading to a

    good career. Children in college rarely

    get part-time jobs, and if they do,

    they tend to be low paying ones.

    Entry level jobs after graduation also

    are low paying, so parents frequently

    support their child with housing

    costs, and especially for a male child

    by buying him a car. The net result is

    that this older middle class

    demographic is extremely challenging

    to market to.

    Qi Fei, the graduate student from

    Dalian, says her father is not at all

    tech-savvy and is frequently

    overwhelmed with technology. When

    she left Dalian to go to graduate

    school in Chicago, she strived to

    teach him to use MSN, video chat,

    email, and the computer in general

    so that they could communicate.

    But, today he still struggles with

    these technology products and

    wouldnt dream of buying something

    online. On the other hand, his

    generation is very happy about the

    options they now have in clothing,

    shoes, and accessories.

    As Qi explained, Almost all

    technology products are geared

    toward young people. I dont believe

    manufacturers are doing a good job

    at selling to people like my dad and

    providing them support. They always

    feel frustrated so they dont use

    these things actively.

    For many of the older generations

    of Chinese, now confronted with

    more consumer choices than ever

    before in more areas of life than ever

    before, they are simply poorly

    equipped for making confident

    decisions in the face of over-

    whelming options. This is a potential

    source of stress and confusion

    that product developers and

    marketers should be sensitive to. For

    example, consumer advocacy,information resources, and peer

    review and filtering resources could

    be of tremendous value to these

    consumers. That is, if they are willing

    to adopt the technologies that offer

    such resources.

    On the other hand, another

    graduate student from Beijing, Ye

    Pinxia, says that its easy for the

    older generations to make choices:

    they just compare prices and get

    the cheapest one. She shared with

    me another story about how she

    and her mom went to the big

    electronics marketplace to get her a

    new mp3 player because the CD

    player shed been using for 8 years

    had broken. While Ye urged her

    mom to get something cool and

    fancy, her mother was unmoved by

    the thousands of choices, features,

    and designs. She wanted something

    that played mp3s, had a radio, and

    was cheap. End of story. After

    comparing prices among many

    vendors, she got a non-descript

    device for 140 yuan (about $20). Ye

    is pretty certain its a shanzhai

    product too.

    As we mentioned before,

    traditional Chinese attitudes toward

    saving are deeply ingrained. Among

    the older generation, who are used

    to using cash almost exclusively, you

    always save first and then spend. Qi

    feels that the notion of buying on

    credit is actually quite foreign to

    many older Chinese, in fact, and that

    too many people have limited

    knowledge of how credit cards work.

    She knows people who have used

    credit cards for a few months and

    then cancelled them after too many

    unexpected charges. Chinese banks

    in general have not been very

    customer-centric, and there may still

    be a lot of mistrust among

    consumers when it comes to creditand other banking products.

    In terms of associating products

    with particular lifestyles or cultures,

    the older generation are less likely to

    be swayed by the designs of

    modern global brands, which

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    younger generations tend to

    associate as being cool and

    different. For Ye Pinxia, a Macbook

    or Apple product is cool, not just for

    its design but because so few

    people in China have them. Even

    with her cell phone, she does

    research on which stickers her

    friends have placed on their phones

    to make sure she doesnt end up

    getting the same stickers. However,

    for Yes mom, she f inds the products

    which appeal to more traditional

    Chinese styles more appealing.

    Mom recently told her that an HP

    laptop skin designed by a Hong

    Kong designer with a huge Chinese

    flower and lots of red and gold

    ornaments was her favorite.

    In the end, Chinas urban youth

    tend to be more interested in

    brands and products that project a

    lifestyle or image theyd like to

    identify with or aspire to, something

    new and exciting, and not

    necessarily purely about traditional

    luxury or status-oriented brands.

    With the older generation, the

    traditional values, colors, designs,

    and brands with strong reputations

    tend to be more appealing. But for

    all, being a savvy shopper will

    become an essential life skill.

    When all is said and done,

    though, each type of consumer will

    have his/her unique set of

    preferences and needs. As the

    ancient Chinese proverb goes:

    Ancient Chinese proverb

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    seven & eight

    Competition: national pride and

    national brands + the shanzhai


    At its core, Chinese society is all

    about self-interest. It is very strong

    on competition but very weak oncooperation. Despite its admission to

    the WTO in 2001, China still hasnt

    quite gotten its act together in terms

    of respecting intellectual property

    rights. Historically and culturally, they

    just have never had major qualms

    about stealing ideas.

    Commenting on the current

    situation with Google and the

    Chinese government, Oded Shenkar,

    a professor of business managementat the Ohio State Universityand

    author ofThe Chinese Century,

    stated in a New York Times piece

    that, The U.S. is the worlds greatest

    innovator and China is the worlds

    greatest imitator.

    Shuang Li has witnessed in the

    past 8 years that Chinese companies

    are taking the influences of product

    design from Japan, Britain, France,

    and other countries, but starting to

    design their own unique versions and

    takes on them to better suit the

    tastes of traditional Chinese culture.

    However, in the realm of software

    and user interface design, she feels

    they are still mainly imitators with a

    lot to learn. Her experience trying to

    instill good human-computer

    interaction (HCI) principles at Sina.

    com was frustrating. People here

    like these things, the cartoons, small

    animations, lots of blinking but in

    the past few years they are picking

    up and starting to build serious

    applications, for banks and real

    estate companies, and they are

    drastically improving. Nonetheless,

    she says if you compare two

    bookstore websites like Amazon.

    com with, youll see

    many violations of basic HCI

    principles in the latter. It will take time

    for the domestic brands to learn.

    In James McGregors book, healso is pretty brutal about the fact that

    your technology, trade secrets,

    designs, and know-how will be stolen

    and/or copied (and probably even get

    to market first). Guaranteed. China, he

    says, is not the legalistic society that

    typifies the West. If a Chinese wants

    to do something, he will find a way to

    skirt the rules or laws. (see quote below)

    But, dont forget lesson #7 about

    the tremendous national pride of theChinese. They do not wish to be the

    worlds factory any longer. They do

    not want their consumers to

    embrace and adopt only global

    brands. As they learn and modernize

    Any technology company

    doing business in Chinashould assume thatits designs and productsare being copied. Chinastech sector is built on

    reverse engineering foreignproducts. James McGregor

    and their economic power continues

    to grow, China is fully intent on

    building and growing its own national

    brands to compete globally. Few are

    well known at this point, besides

    Lenovo and Haier. But there are

    major competitors growing

    domestically in China, like Huaweiwhich is beginning to rival Cisco.

    And China has been working hard to

    create their own microprocessors

    to feed their tremendous demand for

    computing power.

    In other industries, China is even

    taking a lead, like new, clean energy

    technologies, for example. Theres an

    excellent piece by Evan Osnos on

    their 863 Program in a recent New

    Yorker article.Another rising domestic brand in

    China is Li Ning, a sporting

    equipment and apparel company

    that is taking on Nike. In my

    conversation with Ian Donahue from
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    Anovax, he explained their

    successful strategy of targeting the

    lower tier cities first by offering

    products with styling and looks

    reminiscent of global brands like Nike

    but at a fraction of the cost. They are

    now one of Chinas most well known

    and well regarded brands, working

    their way up from the lower-end

    consumers and now hoping to

    challenge Nike head-to-head in

    some Tier-1 and Tier-2 cities.

    Of course, Nikes response or

    approach is to do what they always

    have done: emphasize their

    technological advancements and

    superior features which distinguish

    their product, and do a heck of a

    job marketing themselves. But, Nikes

    are affordable only to the richest of

    the Chinese consumers. Never-

    theless, theyve done a remarkable

    job of creating a community and a

    culture around their brand. And, as

    mentioned in lesson #5 above,

    Chinese youth are drawn to

    aspirational products and brands that

    they can identify with, products that

    evoke a lifestyle, culture, and identity.

    Will more Chinese brands become

    dominant global players? Yong

    believes that the Chinese are confident

    that there will be a homegrown Apple

    or Microsoft eventually.

    The fact remains, however, that

    the Chinese consumer on average,

    is still relatively poor by Western

    standards. Based on the National

    Bureau of Statistics of Chinas 2008

    Yearbook, this is what the

    breakdown of urban household

    consumption was per capita in2007. The data are broken out into 7

    groups: the poorest 10%, the

    second poorest 10%, the 2nd

    quintile, the 3rd quintile, the 4th

    quintile, the second wealthiest 10%,

    and the wealthiest 10%. Keep in

    mind, also, that the average urban

    citizen earned 2.6 times as much as

    the average rural citizen, while

    consuming 3.6 times as much on

    personal household expenditures.

    As a result, the amount of

    consumption by rural folks on many

    of these consumer categories are

    incredibly low. Ive converted to US

    dollars to give you a better sense of

    the relative difference with American

    citizens. (see image below)

    Since we at Artefact are

    particularly interested in technology

    products, we then broke out the

    transportation and communications

    Source: National Bureau of Statistics of China, Analysis by Artefact (click to enlarge)

    category for urban households. Keep

    in mind that as of 2007, automobile

    ownership was quite low overall for

    China with about 6 cars for every 100

    urban households. For the high

    income urban households in the 9th

    decile, there were nearly 12 cars per

    100 households. For the highest

    income urban households (10th

    decile), there were slightly more than

    25 cars per 100 households. We

    were unable to break down the data

    in the transportation and

    communications category to any

    more granularity, but lets see how the

    numbers turned out: (see image page 24)

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    Source: National Bureau of Statistics of China, Analysis by Artefact

    As you can probably conclude

    from the chart above, the average

    Chinese urban consumer is

    not currently spending a whole lot

    of money per year on

    transportation and communication

    products or goods. Cars and

    electric bikes aside, even mobile

    phones are hard to come buy

    for $131 if you are in the middle

    class. Mobile phones in China are

    not subsidized by carriers;

    consumers must pay full retail

    prices. Suddenly it becomes a little

    easier to understand why buying a

    $300 or even $500 mobile phone is

    a major expense.

    And, thus, shanzhai products

    come in to fill a market need for

    more affordable technologyproducts (or fashion, shoes, etc.).

    Get something that looks

    more or less the same, works

    more or less the same, has the

    same features, but costs half the

    price or less.

    Literally, mountain stronghold,

    but it has come to mean the pirated

    or knockoff goods, especially

    electronics, made by those who

    operate far from official control.

    For the aspiring middle class

    consumers, fake products are just

    fine. Sometimes theyre even better

    than the real thing. Li describes the

    typical Chinese consumer decision-

    making process as follows:

    1. Is someone else using it?

    2. Can I afford the full price one?

    3. Is the fake alternative available

    and being used by lots of people?

    4. If so, I can get a fake one and

    not lose face since so many other

    people have them.

    5. Finally, for small electronics,

    phones, and watches, often the

    more features there are, the better.

    Because, culturally, people like to

    show off the bells and whistles.

    Another reason why Chinese

    consumers are generally okay with

    shanzhai products is that getting a

    good deal is important in the culture.

    It shows you are an intelligent, savvy,

    smart shopper.

    So, Chinese consumers do not

    have big hangups about pirated or

    fake products. And fake everything is

    available around every corner, in

    more styles and variations than you

    can possibly imagine.

    According to Shaun Reins firm,

    CMR, they estimate that as many

    as 3.5 million Chinese consumers

    have at one point owned an iPhone.

    He contends that 2 million real

    jailbroken iPhones were smuggled

    into China before China Unicoms

    debut of the phone on October 30,

    2009. Many of the real ones already

    resold on the secondhand markets.

    Meanwhile, China Unicoms

    predictions of 5 million handset salesin the first few years is looking

    unlikely, as supposedly only 5,000

    have been sold. The reasons for this

    Literally, mountain stronghold, but it

    has come to mean the pirated or knockoff

    goods, especially electronics, made by those

    who operate far from official control.
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    have been explained above, but

    basically can be summarized as

    Apple and China Unicom didnt really

    understand their target consumers

    and their needs and preferences.

    But besides the jailbroken iPhones

    in China, there are the HiPhones,

    iPones, iPhone Airs, iPone Airs, and

    hordes of other shanzhai phones

    trying to capitalize on the appeal of

    the Apple brand and product, with

    some estimates as high as 10-13

    million so-called iPhones. Heres a

    gallery of a small sampling of fake

    iPhones and other shanzhai phones.

    Or someone proudly showing off her

    shanzhai iPhone and iMac (sic).

    And, it only takes a small

    workshop with 5-10 people to

    produce these devices. Theyre all

    over Shenzhen, within 100 miles of

    all of the suppliers the real phone

    companies are using. So, they just

    buy the same parts and assemble

    and modify them into all kinds of

    strange frankengadgets. By avoiding

    taxes, these little enterprises can sell

    shanzhai devices very cheaply and

    still make a handsome profit.

    Gartner estimates that more than

    20% of phone sales in China are

    shanzhai devices. So, not only are

    these products competing with foreign

    global brands, but with legitimate

    domestic Chinese brands as well.

    Moreover, the shanzhai industry is

    exporting their wares too, in large

    numbers. Their biggest destination is

    India, but they also export to

    developing countries in Eastern

    Africa, Asia, and Latin America.

    iSuppli estimates on the number of

    gray market wireless handset

    shipments have grown from 37

    million units globally in 2005 to 145

    million units in 2009, with growth

    expected to continue. They

    anticipate 192 million fake phones

    shipping worldwide in 2012. If you

    combine those figures with Gartners

    figures on global handset shipments,

    youll discover that 4.53% of all

    mobile handset shipments in 2005

    were shanzhai phones. In 2008, the

    proportion increased to 8.64%.

    That means that all together,

    shanzhai phones had about the same

    market share as LG or Sony-


    And, its not just phones, laptops,

    purses, or sneakers. According to

    the Annovax website, Microsoft

    estimated that 82% of their Windows

    operating systems being used in

    China in 2007 were pirated.

    Counterfeit products are produced in

    every product category, from engine

    lubricants to mobile phones to food

    and beverage. Even shanzhai

    tissues for your nose.

    The better your reputation, the

    more likely you are to have your

    products counterfeited.

    Of course, to look on the positive

    side, one interesting aspect of the

    shanzhai industry is the entre-

    preneurial spirit and creativity of young

    Chinese individuals or small groups of

    individuals. It makes one wonder if

    they could potentially take their DIY

    approach and legitimize it and cater

    to more demanding niche audiences

    making customized or bespoke

    gadgets? Think the Long Tail.

    Lisa Yong, in fact, believes this is

    the next logical step for the smart and

    progressive entrepreneur. To evolve

    their design process into one that

    becomes a highly customizable

    experience for the brand or the

    product. Not unlike the modding

    scene in the US for computers,

    laptops, or cars, she says. The

    beauty of all of this, she believes, is

    that it is all happening organically,

    from the street, the bottom-up, with

    these small workshops in Shenzhen

    or with other entrepreneurial business

    people who want to co-opt whats out

    there and make it uniquely their own.

    Bottom line for you: your stuff will