Hongzhi Gao on Business Value-Cocreation in China – Part 1
Dr Hongzhi Gao is a senior lecturer in the School of Marketing and International Business of the Victoria University of Wellington (VUW) and also an associate director in the New Zealand Contemporary China Research Centre. Apart from conducting academic research, Hongzhi also offers business advice to NZ firms who are interested in exporting in general and marketing in China in particular. Dr Gao can be contacted firstname.lastname@example.org. His staff webpage at VUW is http://www.victoria.ac.nz/smib/about/staff/hongzhi-gao.
For many NZ firms, exporting to China means ‘selling to China’ or ‘exchanging value’ with Chinese partners so NZ produced goods or services can make their way to China through these transactional activities. This view has lost touch with the new commercial reality in China. As China grows to be an increasingly sophisticated and fragmented consumer market, it offers unprecedented opportunities for foreign SMEs who are motivated and willing to adapt and co-create value with Chinese channel partners in China.
A distinction has to be made between ‘value exchange’ and ‘value cocreation’ before we go into details of SME channel strategies in China. The former is a predominant form of business activity in a mature market where the exchange parties can define each other’s value propositions precisely so the exchange of value between the supplier (in products) and the buyer (in terms of money) can be governed on a contract basis. In contrast, value co-creation is required when the parties in the business relationship operate in an emerging or highly ‘uncertain’ market where the value of each party is largely defined in the ‘working together’ process and not known until it comes to the ‘fruiting’ stages of the relationship. China requires more a ‘value cocreation’ approach for NZ SME exporters for a simple reason – NZ SMEs have a limited marketing spend and lower brand awareness in China, thus lacking a market power as those MNCs like IBM and McDonald’s enjoy in China.
Unsurprisingly, many inexperienced exporters from NZ tend to think that the value of their products is largely defined by technical terms or specifications which can be communicated via the instructions and manuals or from the packaging of the products. In other words, the technical aspects of their products are the focus of many SMEs’ marketing activities in China. For example, when the NZ party exports wine to China, they tend to promote their products based on the success formula they learned in the NZ market - the organic factor or the differentiated tastes of their wine (‘fruity’ or ‘smooth’). The organic and ‘tastes’ factors works well for the educated customers who have already got a sophisticated understanding of the sustainability concept and the right tastes for themselves. However, the associated values of imported wine for many Chinese consumers are different from consumers in NZ. As Charlotte Reid of Villa Maria (a NZ pioneering wine exporter in China) described it in the recent China Business Symposium in Auckland, drinking wine is a matter of FACE OVER TASTE in China – wine confers status and consumers drink with their eyes. Chinese consumers want wines that they believe will make them look and feel international, sophisticated and fashionable – currently the New Zealand wines do not achieve this. Plus, food & wine matching is still a foreign concept in China! Probably for some NZ wine exporters to China, it is more practical for them to think about how their brands can be associated with ‘social status’ and ‘prestige’ in the way that Chinese consumers are more related to than tediously saying how ‘good’ their wines are in taste and quality.
An interesting example of how foreign brands transformed their brand value in China is Playboy. When you compare Playboy’s American website and their Chinese website, it is not difficult to see this American brand has successfully transformed, and even re-invented themselves, in China. In its American site, nude and sexual images are everywhere but in their Chinese website this brand has been portrayed as a classy, sporty and fashionable label. The Playboy example simply shows that a foreign brand has to evaluate the social-cultural and institutional environment of China carefully and strategically to see how they can do their marketing and branding differently and cost-efficiently.
In China, the value of foreign imported products/services is highly influenced by the channel partners. Too often, NZ firms overlook the important step of co-creating customer value with their channel partners in China. Unless the firm has ground-breaking technology with huge demand, the NZ party must work with channel partners to develop their value propositions best suitable for their target groups in China. At the end of the day, the ultimate measure of success is determined by how Chinese customers perceive and define their products or services. An important implication for NZ firms of the value-cocreation approach is to work with people on the ground to find the best way to craft and express the symbolic and emotional value of the NZ offering. In other words, the NZ party should go beyond the functional and economic benefits of their products or services and emphasise the human and relational factors. For example, the values of integrity and honesty embedded in the NZ social and cultural values system. Also guanxi, mianzi and ren qing emphasised in the Chinese values system. The NZ party also needs to highlight the things that really hit Chinese nerves when they choose and evaluate foreign brands such as the high safety and quality assurance measures associated with the NZ’s reputable production system in the world. These values, benefits and measures will open the door for NZ SME exporters in China.
When a SME exporter has got little brand awareness, limited access and power in the market, growing the pie (guided by a value-cocreation perspective) is more important than competing for the shares of the pie (guided by a competitive view of the market). Putting the value co-creation in the context of channel management, NZ firms should focus on emerging channel partners rather than those well established channel members and also explore opportunities in tier 2 and 3 cities in China where more ‘value cocreation’ opportunities exist compared with the top tier cities where the MNC brands and hardnosed distributors dominate.
More analysis of the value-cocreation approach for NZ SMEs in China will be covered in the next article by Dr Gao.
May 15, 2012