Its a cultural thing

Every place, country, family speaks of culture. China is no exception. The country contains  an array of unique things and places that you stand in awe of the moment you realize you becoming a part of it. The pictures picture speak a thousand words.

We have Amazon, there its the TMall and JD (aka Jindong). TMall has a ambassador of its own – a cute one too.

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The Bund – The Clarke Quay of China. Behind the team are the skyscrapers of Pudong.

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The Great Wall – the torchbearer of China’s history.

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The Forbidden City – Once upon a time in China, there lived a king…

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The Water City – Xitang- where you immerse yourself in a world of dreams.

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Then, I sensed something that brought people even closer together: food! In China, regardless of the dish you are eating, it will be served in such a way that you sit together, sometimes prepare it together and always share it, be it BBQs, hot-pots or duck feast. Eating and meals in China bring a feeling of togetherness. Being a vegetarian, I did not have the liberty to try all the dishes, but what I did enjoy and what will stay with me is that feeling of togetherness. I cherished being with my team of twelve people, all having laughs together.

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The outcome? You return to the US with happy memories and a strong project deliverable.

The final week in China

In the final week of our in-country experience, we consolidated the information that we had collected over the time we spent in China, specifically in Shanghai and Beijing. From the primary marketing research, there were some interesting results. Our Chinese experts on the team mentioned that the Chinese tend to trust foreign brands more than local brands when it comes to health conscious products such as air purifiers. They also hypothesized that the Chinese have huge trust, perhaps the greatest trust, in US brands. However, when asked on the survey, we learned that the Chinese do trust foreign brands, but that the US comes in third on the list after Germany and Japan in terms of air purifiers.

Another interesting research fact was the consumers’ choice of place/brand for purchase of replacement air filters. This choice is different from the mindset of Americans. Air purifiers are somewhat of an expensive investment, therefore, the Chinese are highly cautious when replacing the air filters. They want to make sure that the filter does not damage the purifier and will not void their warranty in any way. Therefore, they go to the same retail outlet through which they purchased the air purifier originally and also go for the same brand as that of the purchased air purifier. There is also the issue of education/product knowledge. In fact, 75% of the respondents were not aware that the air filters need not match the brand of the air purifiers. This was shocking to us. In order to break into the Chinese market, we would have to change the perception of the consumers and make them more open minded towards purchasing generic filters.

Furthermore, we learned that consumers do not really trust any government standards for the filters, but depend more on word of mouth from family and friends or blog posts from trusted sources. Analyzing this information, t became clear that our client had to establish a presence in China.

From these insights, our main conclusion is that in order to gain market share in the Chinese market, our client would have to first, educate the consumers on the usage of filters, and second, promote their brand extensively. Consumers need to be more aware of the performance and compatibility of our client’s filters with the existing air purifiers and make the brand more acceptable among the Chinese consumers.

A Potpourri of Regulations

There you go! Out comes another one of China’s efforts to lure MNCs. This time, it is patents and trademarks. About a fortnight ago, China signed a Memorandum of Understanding (MoU) with the World Intellectual Property Organization (WIPO). The purpose was to promote the recognition of a system for the international registration of trademarks. Not even two months ago, the government had released and implemented a new regulation called Cai Guan Shui 18 reclassifying aWIPO logoll e-commerce sales as part of general trade as opposed to the hitherto usual classification of cross-border trade coming under Parcel Composite Tax. A list of “eligible” import products was also    issued. Businesses whose products were not on the list made up their minds to pack up.

In less than six months, over 60 circulars have been issued to promote trade and e-commerce. In such a constantly changing environment, international companies may sometimes feel at a loss as it is difficult to predict how long-standing a regulation will turn out to be. Formulating business strategies becomes difficult as a result.

It all started about four VAT in Chinayears ago. A tax reform started with the objective of replacing Business Tax (BT) with Value Added Tax (VAT). The argument was that BT was an ineffective system that taxed businesses at each stage of a supply chain regardless of whether or not that stage added any value to the product. The VAT system was supposed to remedy this problem. VAT has gradually covered all cities and provinces in mainland China, as well as multiple business sectors.

An effective recourse, then, for American companies looking to do business in China is turning to agUS-China Business Councilencies such as US-China Business Council (USCBC). This non-profit has had a presence in China for over forty years and keeps abreast of all the relevant regulations, as well as the Chinese market. Over 200 US based companies are members. Alternatively, consulting companies such as PwC and E&Y can be consulted. In addition, products can be sold through “bonded ware-Bonded Warehousehouses” as opposed to non-bonded ones. A product stored in the former is still considered “in transit” and hence no taxes are paid on it until it is shipped out to a customer. The bonded warehouse provides a great advantage: international companies have a quick “out” in case unexpected regulations pop up and continuing business becomes unfavorable.

 

Logistics in China: what is good to know before you start your research

Our GAP project is to analyze the feasibility of a US-based company entering China’s market through the e-commence channel. This project involves three major aspects: marketing, logistics, and legal. This blog is the third in the logistics series. The first blog discusses China’s logistics & transport infrastructure. The second blog covers the process of meeting international and local logistics. In this third blog, I will share my experience about conducting logistics analysis in China. I hope theses three blogs will be helpful to those working on future projects based in China in the area of logistics.

As mentioned in the first blog, China’s logistics market is fragmented. Basically, the value chain of logistics can be divided into three kinds of third party logistics companies: freight forwarders, warehousing agents, and express companies. On one hand, many of the freight forwarders are usually international companies. They are big players and have higher MOQ demand. Despite of the higher costs, these international companies are usually equipped with strong English communication ability. Furthermore, they usually have offices in the US, which provides flexibility and reduces barriers to working with US companies. Many of them actually provide integrated services that cover all three parts of the value chain, which also reduces management difficulty. On the other hand, warehousing agents and express companies are usually based only in China. One can easily find a lot of Chinese companies in these areas. As a result, the costs are quite competitive. However, given that they are based in China, they cannot provide the same flexibility as international freight forwarders can. The language barrier is also a problem. They usually do not speak English fluently, which increases management difficulty. You can learn more about our meetings with those 3PL in the second blog.

The ability to integrate different information systems is also a key point. It is very important to understand how the third party logistics company handles the information flow. A good 3PL should have their own ERP system that is able to connect with your E-commence platform, so that when a customer places an order on the platform, the 3PL can get the information automatically. In addition, companies with their own ERP system are able to monitor the timely inventory level through the ERP system and adjust their logistics plans at any time.

It is also good to know that in China, cities are classified into tiers based on economic and development levels. Tier 1 cities include Beijing, Shanghai, Guangzhou, and Shenzhen, which are usually considered the most advanced cities in China. Many 3PL have different rates for the same service in different tiers of cities. Usually, in the Tier 1 and Tier 2 cities, services levels are higher and the costs are lower.

The concept of bonded warehouses is also crucial for importers who want to sell their goods through e-commence channels to understand. The second blog explained the benefits of using bonded warehouses. However, it is also equally important to know the restricts of those warehouses. Since bonded warehouses can only be set up in free trade zones, which are only located in certain locations, the locations of bonded warehouses might not be the best location for you. Moreover, since the number of the bonded warehouses are limited, 3PL usually charge higher service fees. Despite this drawback, by using bonded warehouses, companies are not required to have a legal entity in China. Bonded warehouses are a good option for importers who are not sure about their market demand in the initial introductory phase.

The Great Wall

The Great Wall

“Where has the moon got to?” The cloudless azure sky stretched limitless in all directions as I paused to catch my breath and look above—the view of the horizon all round was obscured by the outline of mountains. We were at the top of the world and wondering, “Are we really standing on one of the few man-made structures visible from the moon?”  The undulating wall followed the profile of the mountainous land it stood on—at places the ramparts were so steep we had to clamber up the steps whose rise was higher than the tread wide. Just then, an elderly American couple passed me.  My thoughts darted back to reality and I saluted their spirits—the incredible feeling of being there was making it difficult to keep thoughts coherent. Down below, an establishment of dwellings seemed as though it was in the middle of nowhere.

One of the cars of the continuously moving rope way scooped us off the platform down at the foot of the hill and hauled us all the way up to the top of one of the mountains from where we started our Great Wall experience. With our feet dangling under us and the land underneath retreating fast, the adrenaline was sent rushing even as the wheels trundled every time the car passed one of the suspension towers. The echo of my team mates’ ecstatic screams filled the valley below. On our way back, the experience was altogether different: hurtling down the meandering toboggan chute was a perfect way to round out the adventure.

The Olympic Garden (the site of Beijing Olympics), another marvel of engineering, stands testimony to the fact that China has arrived. The gigantic screen stretched across the the Olympic Gardenconcrete trusses surrounding the curved walls of the stadium, with dazzling images of ice hockey playing, threw flashes of light across the square sprawled around the stadium. It was easy to imagine the grandeur and the cosmopolitan atmosphere the place would have had eight years ago. The chilly air, the floodlit ambience and the starlit night sky made a perfect combination—the Olympic torch burnt close by, a true representation of the human spirit.

A train journey from Shanghai to Beijing and back gave us a glimpse of the Chinese countryside. As the train gathered speed, the high-rise concrete apartment and office blocks gave wBullet Trainay to endless acres of arable parcels of land dotted with polytunnels. Vehicles along the freeway running alongside and complete with all the street furniture looked like toy sets before the bullet train racing at 300kmph.

Cut to Shanghai alleyways. An interesting sight is the deftly maneuvering scooters navigating Shanghai’s streets despite heavy traffic—both pedestrian and vehicular. The lidded pannier mounted behind the pillion seat gave the scooters a utilitarian look. Sometimes it seemed like local business proprietors were carrying around their stuff, while at other times it was regular office goers trying to snake through the heavy rush hour traffic.

An open air tourist bus ride across the city gave us a low-down on the major landmarks of Shanghai—toriental-pearl-tv-towerhe Shanghai World Financial Center, the Bank of China Tower, the Shanghai Stock Exchange and the Shanghai Tower. From the topmost deck of the Oriental Pearl Tower, the sight of the city sprawled across thousands of acres in all directions was a thrill to watch as well. Pleased as Punch.

Chopsticks! They watched curiously as I struggled. Eventually, I gave up and went back to fork and knife. The minions at the local restaurant looked on as I ate my broccoli-mushroom and rice. I must admit that even after Hong’s repeatedly demonstrating how to hold chopsticks between the fingers and carry the food all the way to the mouth, I couldn’t do very well. Clearly, this art will take some getting used to.

Finally, a mention of the local cuisine. Strange smells wafting across the city streets made us realize we were away from home. Freshwater fish, eels, crustaceans, seafood, and water plant—all kept alive in water-filled tubs with air bubbling through. Street food culture in Shanghai is pretty popular. Patrons of all ages dining outside along the sidewalks are a common sight.Street food culture

China, Logistics, Maglev, Me and…. Woweee

Driven by increasing air pollution in China, as well an increasingly demanding industrial and retail sector, an e-commerce air-filter opportunity window has opened for the Columbus based air filter manufacturer Columbus Industries. My GAP team is visiting China to conduct a feasibility study for this new opportunity. The logistics and legal aspects are important and complicated pieces in the assessment of a go-to-market strategy for an imported product such as air-filters in China. 

I am a member of the Logistics team. Logistics is a totally new arena for me as I come from a technology background. However, a series of meetings and research regarding logistics in China has given me a huge amount of information I’d like to share in this blog. I would like to give the disclaimer that there isn’t a multi-step process for this understanding and “acing” of logistics in China. Rather, it is pure experience and one key asset – a native knowledge of  Chinese. Tadaaa!! Yes, it is very important to be fluent in Mandarin – writing and speaking. We set up most of the meetings in China via communicating in Mandarin.

I visited three logistics firms: SanXun (small scale), Kerry Logistics (medium scale) and FedEx (Large scale). Although the three firms differed in scale and presence, there was one common theme: all of the firms displayed a great willingness to analyze our needs. Many times the representatives shared a great amount of added information and gave us helpful suggestions. It was through one of these conversations that we learned about the two types of warehouses that can be employed for our client’s business needs. What is a warehouse? It may seem simple in theory, but I learned there is much more to it in practice.

Warehouse – A place where all the goods/products are stationed by the logistics firm and are under their authority and supervision.  There are basically two types – Bonded and Non-bonded. The bonded warehouse treats your product as if it is ‘in transit’. Therefore, the taxes are levied only when the product/goods are sold. In the event of uncertain demand or some assembly processing needed, bonded warehouses are recommended. The bonded warehouses do not have economies of scale on higher SKU’s in stock.

To our astonishment, the representatives at all the firms shared a huge amount of information on two other fronts as well: marketing and legal. It helped me learn a lot more and clear a myth – It takes a lot of meetings to do business in China. But with the right tools: a “nee-hao”, a Chinese-speaking friend, scale of business, and 60 minutes, you learn a lot.

I now know that the logistics industry is the backbone of the Chinese economy and this country truly exhibits its prowess in it. What else could explain the Maglev train (they whisk by at a speed of 300 km/hr, no kidding), the other amazing trains, and, to an extent, the budding logistics firms here. I have appreciated how the logistics industry in China is structured and delivers. In essence, it is just how they greet you when you go to meetings – no troubled waters here!

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Legal Team in Beijing: Notes on tax structure and import restrictions of retail scorpion snacks and air filters

Well, let’s pack our bags! China just released a regulation that severely restricts importing cross-boarder and direct-to-consumer retail goods, so I think we’re done here. Around 1200 products were placed on a list of allowable import goods, and, unfortunately, the only copy I have is twenty-four pages of simplified Chinese characters (or are they traditional?). In any case, I cannot read either; and what’s the chance an air filter will be on that short list anyway? Not likely! So let’s cut our losses, call the client and explain that China is controlling their oversupply through import restrictions that will likely last for a decade or more, then take the next camel train to Mongolia. I’m sure Heidi will appreciate our cultural curiosity.

Mongolia: Within Reach
There it is, on the other side of that wall, Mongolia!

Fortunately for the client (unfortunately for my bucket list of taking a camel train) and with the help of Google Translator, we were able to sift through the list of characters and find four items relating to air purifiers; somewhere between volcanized rubber condoms and prepared? or preserved? scallops. (Google has its limits.) We’re back in business!

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Legal Team: Doing Business

The legal team’s focus shifted through the week to study the tradeoff of between using a bonded warehouse versus a direct-to- consumer model to move products into China. Bonded warehouses connect customs control with the warehouse inside a boundary zone to stimulate open trade in a specific area and allow for faster delivery times on foreign products. They  also come with great tariff and tax reductions. However, the downside is the shortage of bonded warehouses in China and the rapidly changing regulations that reduce the tax benefits of cross-border trade, thus shifting the advantage to local retail and direct-to-consumer parcel shipment models in our model. In the remaining days, the Legal team will be working with the marketing and logistics teams to blend together a final recommendation for Columbus Industries.

 

Digital Marketing in China

Week 2 in China had a lot of interesting events for the Marketing team. One of those was a project related conference. Through contact with the OSU Beijing Alumni Association, we were invited to an event focused on Renewable Energy and Air Pollution. We talked with a number of people for in-depth interviews and invited many of them to participate in our survey. While we may have failed to speak with people at the mall, we talked to a good number of people at the conference. This opportunity helped us diversify our sample, and also increase the reliability of our survey results.

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After the event, Luke, Doug and I scheduled another meeting with my local Chinese friends for more in-depth interviews. After talking with different Chinese consumers, we gained better insights about the Chinese consumer’s decision making process and learned of product factors that are important to Chinese consumers.

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Above (right) is a very professional air purifier-the IQ Air brand. This brand and model is widely used in commercial situations such as ICT (information and communications technology).  We have also studied all kinds of different quality and types of filters, and read through the product description. In addition, we have learned how consumers normally use air purifiers in their apartments.

We also talked to two of the largest and most popular e-commerce platform companies – Tmall and JD. We compared types of service, setup requirements and charges between these two companies. Based on consumers’ purchasing preference, we will recommend that our client launch the products on one platform first. Talking with these E-commerce companies, we learned a lot about setting up an online store, what kinds of legal issues are involved, and what risks we might face in the future.

Anticipating that Columbus Industries will face difficulties in managing an online store due to the language barrier, the distant geographic location and time difference, we also consulted with local agencies to learn about their services and digital marketing tricks in China. We also received a quote from an agency that could support us in analyzing the feasibility of the project.

Currently, we are working on compiling our survey results and making product and price recommendations for the project. So far, all is on track and we are looking forward to giving the client a strong presentation and a well conceived set of actionable recommendations.

Shanghai-No Filter Needed?

This week’s sightseeing experience was one for the books! We traveled all around smoggy Shanghai as we took a bus under tpic 5he Huangpu River and returned back via boat ride. A lot of noodles were consumed, and we all had an opportunity to experience different perspectives of the city…

 

 

 

 

 

You can also see below the Shanghai tower, which is the second tallest in the world after  the Dubai tower.

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Rob got the chance to take some pictures with some of the older locals and witness what is was like to float above the city…

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Thanks goodness for Rob’s good looks because the air quality is sub par, but that is why they need us here!!!

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This morning we are traveling to Beijing via train to continue our research.

Marketing Research in Shanghai

We started our primary marketing research in Shanghai on Monday, 9th May by visiting some electronic stores in certain malls. We wanted to better understand consumer behavior and pricing, and also be able to estimate the market size if we introduce our client’s product to the Chinese market. Trying to talk to the sales representatives at these stores as college students working on a project, we realized that they were quite secretive about their sales information, and even refrained from sharing any in depth information about the products that they had on display. And so, we had to resort to some other story to tell the sales representatives in other stores in order to get them talking. We did not ask any sales information from then on, but tried to learn more about the purifiers that were being sold: the different brands, price ranges and also if they sold filters in the stores. It turned out that only one of the stores sold a particular brand’s filters, while all other stores mentioned that customers would have to purchase replacement filters in after sales centers of the various brands.

FilterThe other difficulty we faced was in talking to the general public passing by the stores about their air purifier purchasing experience. Everyone seemed to have a bias about being open to people asking them questions, even though we had our Chinese experts approach them. They almost always assumed that we were selling air purifiers, and therefore were keen to get rid of us. However, when we tried the same with some of the Americans or Europeans living in Shanghai, they were very happy to share their experience and were much more open than the local people. So the important lesson we learnt was that it would be necessary to know the people you interview for primary marketing research information and not to try and talk to strangers in public places.

Also, we had a survey prepared to send out to known networks and this seems to be With Phoebethe most successful approach. Although people do expect some incentive at the end of the survey like ‘Red Pockets’, connecting to people through WeChat is highly effective. WeChat is the main social media channel in China and using it is very convenient to reach out to known people and groups and request them to fill out the surveys. We also grew our network with the help of Ms. Phoebe You, the director of the OSU Global Gateway Office. We learned that it would have been important and beneficial to make contacts here prior to coming in order to be able to get in touch with useful resources for marketing research.