Proceedings of Applied International Business Conference 2008
CULTURAL CHALLENGES IN CHINA’S GROWING MARKET: ISSUES, ANALYSIS AND
SUGGESTIONS
Choong Y. Leeψ
Pittsburg State University, USA
Abstract
As American firms attempt to take advantage of the enormous market potential of China, several cultural
barriers challenge the way products must be marketed to Chinese consumers. With China’s culture being
so unique and rooted in Confucianism, there exists quite a discrepancy from a western domestic market.
As a result, firms must develop a localization strategy to account for the local cultural norms and to best
position their product for success. In addition, U.S. firms must also determine the most effective medium in
taking advantage of China’s consumer market. Therefore, the purpose of this paper is to examine the
cultural and e-commerce implications of marketing in China, and to provide an adequate framework for
U.S. firms wanting to focus their attention on this emerging market.
Keywords: China; Globalization; Localization; Cross-cultural; E-commerce.
JEL Classification Codes: M1; M19.
1. Introduction
For many of us, the mere mention of China brings about thoughts of indulging ourselves in a local all-youcan-eat smorgasbord. However, for many American businesses, China has brought about a world of
opportunity because of its enormous market potential. That’s not to say that operating in the world’s most
attractive market hasn’t presented challenges. International marketers continue to struggle with several
cross-cultural issues that often have a resounding impact on consumer decision making. Add in the
growing importance of the Internet due to the explosion of e-commerce as an international business
medium, and it is evident that strategic international marketing decisions become vital to a company’s
success. Therefore, the purpose of this paper is to examine the cultural and e-commerce implications of
marketing in China, and to provide an adequate framework for U.S. firms wanting to focus their attention
on this emerging market.
With over one billion consumers, it is easy to see why China is such an attractive market for international
firms. Since becoming a more open international market system in the late 70’s, businesses from around
the globe have been rushing in to try and grab their share of this booming market that was once in the dark
to so many. Add in the country’s decision to join the World Trade Organization, and it is understandable
why so many firms desire to be involved in the Chinese market. However, in entering a market that is still
relatively unknown to many American firms, the question of which marketing tactics best suite the Chinese
culture remains to be seen.
2. Globalization vs. localization
In implementing a strategy for marketing in China or internationally in general, firms must decide on one
of two strategic pathways: globalization or localization. A globalization strategy refers to a firm viewing
the entire world as one market. In doing so, firms tend to market and sell standardized products and
services throughout the globe. When executed properly, globalization can drastically reduce costs through
realizing increased economies of scale, and thus pass on significantly lower prices to consumers.
Localization, on the other hand, involves a company customizing its products and services to the demands
of each local market it operates in. This often involves an emphasis on segmenting each individual market
and adapting a different marketing strategy for each. Needless to say, despite the advantages that
ψ
Corresponding author. Choong Y. Lee. Kelce College of Business, Pittsburg State University Pittsburg,
KS 66762, U.S.A. Email: [email protected].
Proceedings of Applied International Business Conference 2008
customization provides in each market, a localization strategy is attributed with a much more significant
operational cost than globalization.
Arguments surrounding the effectiveness of these two strategies as a worldwide marketing campaign have
circulated for some time now. Theodore Levitt’s “Globalization of Markets” article further stirred the
controversy by claiming that global consumer needs were becoming more and more similar due to the
advancement of communication technology (15). Still, many others believe that market segmentation and a
certain degree of adaptation to local demands is necessary to ensure a successful strategy. In realizing that
foreign markets are different in their respective wants and needs, most international companies will attempt
to cater to those needs in hopes of placing their products in a better overall competitive position, despite the
resulting increase in costs. Ideally, a company would like to implement a global strategy while portraying
their products as local. However, this combination is often difficult to achieve.
3. Chinese cross-cultural challenges and recommendations
As American firms attempt to take advantage of China’s growing market potential, they must be careful in
implementing an adequate strategy for reaching the Chinese consumer market. Although it does share
some similarities with other surrounding nations, China appears to be very unique and thus requires special
attention. In trying to appeal to the largest consumer market in the world, it is probably not wise to assume
that all of China can be approached as one market. Instead, the country’s vast discrepancy between large
metropolitan cities and rural areas is enough alone to assume that customer sentiments differ drastically
throughout the country. In fact, as Austin Lally, general manager of Proctor & Gamble’s Chinese beautycare business put it, “there is no such thing as China, there are 1,000 Chinas” (4).
Since the Chinese Government has allowed for more capitalistic ideals in opening the doors to international
businesses, China has become more and more diverse as a consumer nation. However, many international
firms have failed by getting caught up in the mere attractiveness of the market itself, while ignoring the
uniqueness of the Chinese culture and way of life. Too often, marketers of these firms tend to make the
assumption that marketing products in China is similar to strategies used domestically in the U.S. As we
will see, however, nothing could be further from the truth.
Despite the influx of western products and culture that has bombarded China in recent years; principles of
Confucianism still remain deeply embedded in the minds of consumers throughout the country.
Confucianism is an ideology based on an ethical code that outlines certain guidelines for maintaining
relationships (9). It involves its follower’s adherence to such characteristics as the respect of authority,
desire for harmony, order and stability in society, reduced competitiveness, honesty, modesty, and
conservatism (7). The Chinese culture is focused on one’s relationships with others, and a more passive,
fate-oriented lifestyle as opposed to western culture’s emphasis on the individual and competition (7).
Chinese consumers tend to be very value oriented due to ancient Chinese tradition, and therefore are quite
reluctant in trying new products or services without need. Therefore, a difficult challenge lies in the ability
of international firms to influence Chinese consumers to change to American brands.
In order to succeed in the Chinese consumer market, American firms must force consumers to take a more
active approach to purchasing goods and services. In order to do so, American firms need to educate
Chinese consumers on the benefits of their products. Chinese consumers are often known continue to use
products that are out of date, but still in good condition (7). Therefore, American firms must convince
consumers that they would be better off with the new product. Also, attempts to appeal to the Chinese
awareness of spending by marketing products as good values may encourage consumers to take on the risk
of a new brand or product. Once the Chinese consumer is satisfied with a new product or brand, they are
usually very willing to share this knowledge with their reference groups. This goes back to the cultural
emphasis on the relationships defined by the Confucian doctrine (7).
Since Chinese culture is so dependent on the status of one’s relationships with others, Chinese consumers
tend to be very risk averse. This risk aversion may refer more to the social risks involved in deteriorating
one’s relationship with the group, as it is in financial or other types of risks. Therefore, Chinese consumers
tend to seek out more pre-purchase information than western consumers do (7). This may involve such
things as researching product features, or searching for a well-known, reputable brand (7). In response,
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Proceedings of Applied International Business Conference 2008
American firms must have a brand name that is easily translated and congruent with the image the company
wants to portray. It is also important to have an easily identifiable logo along with the brand name since
Chinese consumers often rely on visual representations (7). American companies should also make sure
that their product information is readily available to aid Chinese consumers in their pre-purchase searches.
International firms conducting business in China should also pay significant attention to managing prices.
This may include placing the product in the proper retail outlet in order to portray a certain status among
consumers (7). Price is a very vital component of Chinese consumer culture. Consumers tend to be very
financially conscious, and therefore are careful never to overpay for a product. That being said, they also
may label a cheaper item as poor quality and avoid it as well, especially if coupons or similar type
promotions are involved (7). Overall, consumers tend to view international products with higher regard
than products made domestically. Therefore, it is important to differentiate international products by
emphasizing their country of origin in order to improve their competitive position in the Chinese market.
The Chinese tendency to rarely deviate from the group norm is another great influence of the Confucian
teachings. This involves followers to avoid extreme situations and instead live within one’s own means
(7). This is a primary reason that Chinese consumers don’t adhere to the use of credit cards as often as
other cultures do. Therefore, American firms must understand the Chinese’s unwillingness to make
extreme purchases without need, and instead promote product based on their value and functionality.
A final influential principle of the Confucian line of belief is its attribution to things being predetermined or
fate-oriented. Therefore, Chinese consumers tend to have very low expectations for products, and often
will attribute their failure to fate (7). Consumers also are very tolerant about their lack of satisfaction for a
product due to the belief in maintaining harmony. In response, American firms should avoid taking
advantage of the Chinese consumer’s lack of post-purchase dissatisfaction. By building their product up to
have unrealistic expectations, a firm could risk the undesired word-of-mouth promotion of a dissatisfactory
product (7). Firms should also be compliant in providing adequate customer service in response to
products that fail to meet consumer expectations.
Overall, for American firms to have success in marketing to the enormous Chinese consumer market, they
must understand that China cannot be viewed as one market. Instead, it must be segmented between
different geographic regions, and amongst the different wealth levels of its constituents. In doing so,
American companies must develop an understanding of these different consumer segments and they’re
purchasing patterns. They must then create a brand that both provides value and is appealing to Chinese
consumers. Finally, all activities of the international campaign must be aligned to create a more
meaningful customer experience (5).
While the cultural aspects of Confucianism provide several challenges for an international firm in
attempting to sell goods and services in China, other channels of marketing have much more global
ramifications. Thus, it is important to examine the impact of cultural differences on e-commerce in China
as firms must implement a much more globally conscious marketing strategy.
4. The impact of e-commerce
Although Theodore Levitt may have erred in stating that very little needed to be done in the form of
localizing products in foreign nations, he was exactly right in claiming that technology is the binding force
in today’s world economy (15). Indeed, technological advances have revolutionized the globe, shifting the
world’s focus towards an emphasis on convenience. The Internet in particular has created an entirely new
channel for marketing products and services throughout the world. However, the problem becomes how
firms must market their online products to account for the tastes and preferences of a global consumer. Too
often, American companies focus their e-commerce sites solely on their domestic market, inadvertently
ignoring the rest of the world. It has even been estimated that over half of U.S. companies, in particular,
have taken very little action in preparing their web sites for the global marketplace (2). Therefore, these
firms are ignoring a wealth of potential revenues because they do not have the capabilities to conduct
business with consumers outside of U.S. boarders. Instead, companies must understand that by offering
their products and services online, they immediately must think in terms of the global consumer in order to
realize the enormous potential that e-commerce creates.
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The world of e-commerce is one based on the convenience of exchanging goods, services, and information.
Although still in the beginning stages, e-commerce has already had a dramatic impact on international
business as we know it. Its ability to surpass geographic boundaries and time, all the while reducing the
distances between people, organizations, and nations around the world make it an invaluable tool in any
market. At the very least, e-commerce requires that all companies, regardless of size, must reevaluate their
marketing strategies in terms of the global consumer.
E-commerce is defined as “the sharing of business information, maintaining of business relationships, and
conducting business transactions by means of telecommunications networks” (10). It also involves such
components as Business-to-Business (B2B), and Business-to-Consumer (B2C). B2B refers to a company’s
ability to reduce costs by connecting themselves with their business partners to create synergy (3). B2C
refers to a company’s ability to sell their products and services directly to their customers through a
computer network. It is evident that despite its final use, e-commerce can present a valuable alternative
channel for distribution if it is utilized correctly.
However, in addition to the many benefits that e-commerce can bring to a company, just as many potential
problems can also exist. E-commerce is not exempt from the cultural differences that face other more
traditional types of business transactions. In fact, it is perhaps more difficult to adapt an online product to
the consumer’s unique culture because e-commerce knows no geographic boundaries. For instance, a
consumer in the United States and one in China may be viewing the same product online simultaneously.
Thus, companies must develop an online presence that relates to as many different cultures as possible.
In examining the potential for e-commerce in China, American firms must determine the cultural
implications that become relevant to marketing products and services online. In beginning, the American
firm should determine if the Chinese market potential is worthwhile in attempting to offer an e-commerce
alternative. Although China’s large population and booming Internet subscription may be indicative of
great market potential, several unique attributes of the Chinese culture may imply otherwise. For instance,
many eastern cultures have a strong desire to touch and feel products (especially clothes) before purchase,
which would obviously tend to divert them from browsing online. Also, due the large amounts of crowding
in major cities, people are attracted to more wide-open spaces such as malls, as shopping is seen more as a
form of entertainment and recreation (5). Instead, many Chinese consumers use the Internet as more of an
aid for finding out product information rather than to actually purchase the product itself (3). Chinese
consumers are also very conscious about the amount of time they spend online. This is due mainly to the
fact that the largest Internet Service Provider (ISP), China Telecom, still charges a per-minute fee for
online services (2). However, these examples do not mean that e-commerce cannot prove to be a
successful medium in China as there are exceptions to virtually every rule.
Once a firm determines that an e-commerce strategy is viable in China, perhaps the most obvious problem
that may come to mind is the difference in language. In most occasions, when Chinese people browse the
Internet they are not using English as their primary language. Therefore, American firms must translate the
linguistics of their web site in the language of the desired target market. For most of China, this involves
using more simplified Chinese characters than the ancient characters used in Taiwan and Hong Kong (2).
American firms may find it easier to outsource this translation to ensure that proper syntax and
connotations are offered.
Another important consideration that a company must make in regards to their website involves the
purchase process itself. First of all, Chinese consumers tend to be very price sensitive. As mentioned
earlier, the idea of being thrifty is inherent in Confucian teachings. Thus, Chinese consumers will often
determine the cheapest alternative to purchasing a product. For instance, consumers would rather travel
long distances to collect an item in order to save on the delivery charge (3). Thus, firms can further
stimulate this price sensitivity by showing the delivery charge as a separate item from the actual purchase
itself (3).
The delivery of online goods to Chinese consumers creates another major problem in e-commerce, as the
state-owned Post Office is the only true method of delivery. Perhaps this wouldn’t be such a major issue if
the Post Office weren’t notorious for being extremely slow and even careless with goods (2). Thus, since
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labor is fairly cheap in China due to the large available workforce, many firms simply deliver the items and
collect the payment upon delivery. Using this method presents a good solution to another common problem
with Chinese consumers online shopping. Payment methods also tend to divert consumers from purchasing
online because in China, the most common payment method for both offline and online purchases is cash.
This is due to the fact that for the most part, China lacks the availability of credit cards, although many
banks are attempting to make strides in relaxing the process of credit card approval (2).
Once delivery of the product has been executed, Chinese consumers still have no guarantee of satisfaction
since most e-commerce sites in China lack a formal return and refund services. This is especially important
since consumers are hesitant about buying things they cannot initially touch or see anyway. Therefore,
American firms need to ensure Chinese consumers of a satisfaction guarantee, and provide steps for
returning an item and obtaining a refund.
Perhaps the biggest problem that e-commerce presents both in China, and worldwide is that of privacy.
Although credit card theft is no longer much of a concern, invasive tracking is. This tracking involves
compiling personal browsing and buying patterns in order to customize product offers to suit consumer
tastes (18). The best way for American firms to handle this problem with their e-commerce sites is to be up
front with consumers about the firm’s privacy policies. It may even be worthwhile to obtain the
endorsement of another firm that guarantees your privacy policy in order to ensure consumers that their
identity is protected on your site. A related concern for American firms involves the inability to protect
their intellectual property. China is notorious for bootlegging and copying materials, and thus many
American firms remain hesitant about conducting business there physically or electronically.
5. An e-commerce framework for marketing China
In creating a standard framework for American firms participating in e-commerce activities in China,
several further recommendations should be made. First of all, the company should familiarize itself with
the cultural implications of doing business in China previously discussed. In doing so, the firm must
determine if China is an appropriate market for the goods or services it has to offer, and if e-commerce is
the proper channel to offer it through.
Second, the company must ensure that China continues to take steps towards improving its Internet
infrastructure. Infrastructure is a primary driver of the success of e-commerce in a given country. After all,
what good is marketing to China’s enormous population if only a percentage of them have Internet
capabilities?
Third, special consideration needs to be paid to government laws and regulations in the host country that
you plan to operate in. This would involve examining such items as tax laws and import restrictions on the
goods you deliver. Consequently, American firms need to implement a software system on their web site
that enables the consumer to determine the final cost he/she will be charged including delivery. This
software would have to account for tax laws or other fees specific to the buyer’s country of origin.
Although such software may be costly to initially implement, it convenience will provide the firm’s web
site with a substantial advantage in winning the price sensitive Chinese consumer.
Fourth, in using the Internet as a medium, firms must not fall into the trap of marketing globally because of
its relative ease. Instead, firms should hire managers to segment the markets in order to appeal to the local
audiences. Internet marketing can be more effective if companies approach it in a similar manner as their
physical locations. Special event promotions such as the Olympics coming to China in 2008 can improve
e-marketing by instilling a further sense of localization in the consumer’s mind.
Finally, American firms conducting online business in China need to place an emphasis on customer
service. Since e-commerce is barely in its infancy stage in China and consumers are still hesitant about
buying online, firms need to take every step possible in attempting to eliminate consumer’s apprehensions.
Focusing on customer service can reduce the differences that a consumer sees in purchasing online as
opposed to offline. Thus, making the consumers feel more at ease when shopping online.
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All of these steps can help ensure that Chinese consumers begin to feel more comfortable using the Internet
as an alternative-purchasing medium. They can also help create the potential for increased revenues for
American firms with very little relative costs up front. The key however, is to ease the process of buying
online in the minds of Chinese consumers. Once people feel comfortable in purchasing online, they are
likely to refer the experience to their friends and family. This is a vital step, especially in eastern cultures
where a great emphasis is placed on an individual’s relationships with others. Once that trust is established,
the resulting word-of-mouth marketing can take a firm’s web site a long way.
In devoting efforts to their e-commerce systems, American firms must remain cautious of new development
in marketing channels. One such possible alternative to e-commerce involves the idea of a consumer
information firm (CIF). CIF’s are agencies that collect consumer information and relay that information on
to manufacturers (10). CIF’s would then provide consumers the ability to order products from the
manufacturer through them, thus imposing a direct threat on the e-commerce system as a middleman.
CIF’s, however, are unlikely to completely replace the Internet as a transaction medium because of the
Internet’s relatively low cost and ease of use.
6. Summarizing the Chinese cultural framework
As a framework for dealing with the many cultural barriers of doing business in China, it is important that
American firms understand that the values present in Chinese culture are not exempt from change. With the
further influence of capitalistic exposure, the Chinese consumer sentiments will likely resemble those of
western cultures more and more in the future. The popularity of one-stop shopping among Chinese
consumers already provides evidence of that. Therefore, it’s possible that Mr. Levitt was a bit premature in
his theory of the homogenization of markets. However, it is apparent that the basic principles of
Confucianism can still be found in the Chinese culture.
A final element in dealing with business that crosses cultural boundaries is that there exists no room for
ethnocentric behavior. Just because a foreign culture is different, doesn’t mean it is any less important. In
order to have success, international firms must lean to accept different cultures, and market to their specific
wants and needs despite how unique they may be. In doing so, a company must also realize that despite its
best efforts, errors in handling cultural issues are virtually inevitable. Therefore, it is important to
understand and account for the risks involved; realizing that not all cultural differences can be determined.
Hypothetically, even if a company was able to identify all of the significant cultural differences between
the U.S. and China, it would be virtually impossible to resolve them all. That being said, American firms
should avoid viewing cultural differences as threats to their business, but instead as opportunities to seize
competitive advantages. In creating a marketing strategy that capitalizes on these opportunities, American
firms can drastically improve their revenue potential causing many to go back for seconds.
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