How to Resolve China's Inflation? A Big Stick.

On the radio news this morning in Shanghai was a discussion that Unilever & P&G were to increase their prices in China next month by up to 15%. This reminds me of a news item 2 months ago when Carrefour was blamed by the Chinese Government for contributing to food inflation by over-charging for certain goods. In the Carrefour case, Carrefour was subsequently found "guilty" and fined. I wonder if the Chinese Government are again using their (controlled) media to heighten consumer anger prior to "resolving" this issue with Unilever and P&G through force?

China's rampant inflation is largely of its own making, with loose financial policies stoking an already burning fire. And recent announcements about dramatically increasing the minimum wage over the next 5 years will only make the situation worse. However, expecting manufacturers and retailers to take up the slack is naive, especially the foreign-owned companies who do not have the Chinese financial safety net of being state-owned.

For many years, making a profit was an optional component in the land-grab of building a foreign-owned business in China. But not anymore. With developed economies still underperforming, the China honeymoon period is well and truly over and Global HQs are expecting their Chinese businesses to break even at the very least.

But with margins being squeezed from all sides, FMCG and consumer goods businesses in China are in for a rough ride, and it would not surprise me if we see one or two more big names pack their bags and leave.

Brand Value?

Below is a picture I took this morning of a valuable McLaren Formula 1 display car which has been the victim of China's continued lack of appreciation of brand value.















Clearly, the people who were responsible for creating/constructing this display stand outside one of Shanghai's busiest KTV outlets were focussing on how to make it as cheaply as possible rather than considering:

1. The value of the display car (and the duty of care that should go with that)















2. The value of the Johnnie Walker brand (and the duty of care that should go with that)

3. Optimising the media value of the premium outdoor display area negotiated with this leading Johnnie Walker outlet (which would have cost a LOT more than the display stand)














As I have written on these posts previously, China is reactive, not proactive. So it is likely that this stand will now be rebuilt in a few hours, and the car will be patched up/subsequently repaired. The cost of this remedial work will far exceed what doing it right in the first place would have cost. But that is a very familiar story in China and it shows no sign of changing.


Keep Walking.

Trained Dogs

I have always believed that life is a journey, not a destination. But no one seems to have told the Chinese. In their rush to achieve the various symbols of wealth, prestige and an international lifestyle, many of the pleasures that go with new acquisitions are lost.

One example is dog training. In the last ten years, owning a dog in China has gone from something highly unusual to something common place. But training the animals is still a relatively new idea. The solution, in time-poor, cash-rich China? Boot Camp for dogs. Yep - the Chinese send their dogs away for a few weeks to special doggy schools where they are trained in the art of sitting, not pulling on their leads and generally making their owner look good.


But I still have very fond memories of the amazing bonding time that training my first dog provided, and the personal satisfaction of seeing my efforts being rewarded. That is all sadly lost if you delegate this task to others and take no interest in the process.


Regrettably, many Chinese middle-class parents may, in time, find they are doing exactly the same with their single child:

• From the moment the child is born, the parents are hands off.
• For the first few months, the Grandmother stays with the new mother and takes total charge. Additional help comes in the form of a dedicated live-in Ayi (maid) who will take full responsibility for feeding, bathing and putting the child to sleep.
• As the kid grows older, the Ayi and Grandparent relationship is retained as the mother quickly goes back to full time work - essential to maintain the higher income levels that the family require to sustain their (misguided?) material aspirations.
• With the start of school comes relentless homework, but this valuable bonding opportunity is lost as the support/assistance of the child is often delegated to group-run homework clubs, whilst the weekends are childless as the kid is off attending morning to evening extra schooling and music classes.
• Finally there is university (hopefully in the UK or USA , if the kid has good grades and the family bank balance can afford it)

Throughout this whole "journey", the parents seem to only have their eyes on the destination. But by then it is too late. I have a Chinese friend who has realised their mistake and is now frantically trying to bond with their teenage kid before he grows up. But the boy just thinks it is weird and does not understand why they are now being followed everywhere and hugged by a father who has taken little interest in them for the past 13 years.

Historically, the Chinese had children primarily to ensure their retirement security. Those days may have passed, but some of the attitudes have unfortunately remained.

Bye Bye Barbie

Just days after the announcement that Best Buy were throwing in their red towel, it seems that Barbie is now doing the same.



















My earlier blog, Bye Bye Best Buy (achinadiary.blogspot.com/2011/02/bye-bye-best-buy.html) suggested some of the mistakes that Best Buy may have made. Barbie's misjudgment was more simple: Value.

The Chinese seek value in everything they do. They are happy to spend three months salary on a Louis Vuitton bag because of how it make them look to others, and the consequential benefit that this will therefore give them in the future. The price of a Barbie doll, whilst affordable to China's rapidly growing middle class, provides no value to their child, and in fact could actually do harm. The time the child is playing with their doll could be better spend studying. And the parent may feel that the value of money may be undermined in the eyes of the child by spending time in a shop where everything is so expensive.

In the simple value comparison that a Chinese parent will make, Barbie does not stack up. It costs more than double the price of a similar local-brand doll that, to the parent, appears the same. And it nearly costs as much as the larger dolls that walk and talk.

Whilst a major selling point in the West, the Barbie "eco-system" that surrounds the core product holds little interest (or value) to the parent and so adds nothing to their purchase consideration. It may actually even frighten the parent that this purchase is just the first of many.

So, whilst there may be a small number of Chinese consumers who are happy to buy the range of Barbie dolls and accessories for their child, Barbie will always be a niche product or one-off purchase in China. The mass-adoption levels that might have justified a pink, six story palace in the most expensive shopping street in China are as much a dream as Ken.

A Hobby? What's That?

I have spoken before in this blog of my concern about the Chinese education process and what it turns out. However, I was struck at the weekend by quite how deprived Chinese children are of out of school activities/leisure interests (beyond homework clubs and music lessons).

One of my Chinese friends was describing how her teenage straight-A student son cried last week during an interview for an overseas private school. The questions that made him cry?

- What was your favourite toy/why was it your favourite?
- What are your hobbies?

He was unable to answer either question as he did not really remember playing with toys when he was growing up as he spent all of his free time studying. Similarly, he had no time (or encouragement) to take up a hobby and was actually unsure what a hobby was!

This second point is probably more telling of the rapid change in society that has occurred here in China. Most Chinese parents today grew up at a time when their were no leisure opportunities or facilities. And as most hobbies in the West often seem to pass from parent to child, this might explain the gap in this child's education/upbringing.

The lack of parent/child interaction caused by excessive competition for the child's attention (4 grandparents and an Ayi/nanny) further reduces the opportunity for parental bonding/sharing of any common interests.

The end result is kids with some "missing pieces" that may not be completed until adulthood, if ever. This could help explain my post last Sepetember (Warwick or Wuxi) where I highlighted that Chinese kids in overseas education tend to stick together...they sadly may have nothing in common with anyone else.

My youngest son, Daniel, enjoying MY childhood hobby for the first time.
Shanghai, March 2011.

Have Your Cake and Eat It (or why there are so many local agencies in China)

Someone I know was approached last year by the Chinese Marketing Director of a major International company with a proposition to jointly set up a database marketing agency in Shanghai.

The shareholding of this new agency is 50% held by the Chinese Marketing Director and 50% held by the person I know, who is running the agency on a day to day basis.

They have one Client, who is investing an ever increasing amount of money in database marketing. Can you guess who their Client is?

Yes...their Client is the SAME International company that the Marketing Director works for.








This is NOT unusual, and is one of the reasons why there are so many local agencies in China - they are quickly set up to take advantage of approved marketing spend that might otherwise go to a legitimate agency. It is also THE key reason why it is so difficult to extract implementation-type work from Chinese Clients.

For those of us who refuse to play by the local rules, we face this every day.