Although there may appear to be a global segment of aspiring middle class consumers in China, local market conditions and characteristics in each of the regions and their cities are continuing to challenge both Western and Asian companies.

This challenge extends to learning the appropriate business behaviour, culture and ways to build business relationships in each of China’s provinces and often in second- or third-tier cities too.

Instead of just adopting a one-size-fits-all approach to Chinese business, moving traditional product categories or engaging in practices developed in home markets, Western companies now have to focus more on enhancing their knowledge of each particular China market and the value they bring to local consumers.

Only by doing this can they build successful partnerships, increase economies of scale and strive to maximise returns in these new markets.

UNDERSTANDING REGIONAL DIFFERENCES

Understanding the differences in consumer and business behaviour by city tier, and also by geography, enables foreign companies to develop effective entry/expansion plans, marketing campaigns and brand strategies.

While several studies have focused on specific groups of Chinese consumers including women and Generation Y, they have been limited in geographic coverage and sample validity.

Most of the studies have focused on the inhabitants and their consumer behaviour in a few big cities. Research to date has not fully explored the regional variations in consumer characteristics and their marketing implications.

As Western companies continue to increase their stake in China, understanding of regional differences in culture, lifestyle and consumer purchasing power is critical to assess local market demand accurately and to enact effective business strategies.

LEVERAGING LOCAL RESEARCH

Countless stories have emerged of major Western companies that have failed in China, or sought a local partner after highly expensive mistakes because they couldn’t read or understand the precise local market culture.

In other words, the drive to understand and leverage the business culture of China must become even more laser-focused on the gathering of market research, local knowledge and competitive intelligence.

It doesn’t matter if you are a senior executive in a Western company, a partner in online retailing or an entrepreneur — ultimately you will have to target your brands to narrower consumer segments and offer products that are specifically tailored to local culture and tastes.

This means that you will have to get to know the local Chinese provincial or city culture (or more likely, cultures) in far more depth than is currently contemplated in most Western or even overseas Chinese companies, including those with a major presence in the country.

REGIONAL CLUSTERS

Over the years, I have advised several multinational companies based in Hong Kong. One of these is a major retail company with a leading position in its market throughout Asia.

For the last decade the company has been trying to establish its successful Asia-wide brand and store concepts in China. However, it still hasn’t turned a profit on years of investment and strategic positioning.

A few years ago, it began to group its stores in China into four regional clusters roughly equivalent to the points of the compass but it still hasn’t fully succeeded in aligning its products and brand with the culture, lifestyle, purchasing power and tastes of each cluster. And this is a Hong Kong Chinese company with localised Chinese management.

How much harder it is for non-Chinese companies to penetrate such a variegated and challenging market. Brands extended across too many consumer segments and price points may struggle to defend their market position.

EMBRACING DIVERSITY AND TARGETING BRANDS

Hard though the transition can be, at some point companies that have focused on maximising their brands’ scale will have to adopt a model based on a portfolio of more targeted brands or sub[...]