Artefact Designing for China

8/8/2019 Artefact Designing for China

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2What to Know About Designing for China /artefact

IntroductionThis article is not a primer on how

to do business in China. The reality of

doing business in China can be, well,

pretty ugly. We will not go into

the corruption and other non-niceties

of conducting business there

in detail. To summarize very briefly,

Chinas leading political ideology

(if there is one) according to James

McGregor, is enriching the country

(and usually the political leadership

and cadres families) in any way

possible, without ever disrespecting

or challenging the governments

structure, position, and authority.

In China, you pretty much have

to play by their rules, show respect,

and demonstrate how your

objectives are not only good for your

business but also good for China as

a nation. You shall never criticize the

government or proclaim whats

wrong with their politics. For more

information on these topics and

some of the more interesting

anecdotes from the front lines, we

highly recommend McGregors One

Billion Customers: Lessons from the

Front Lines of Doing Business in

China. McGregor himself also

recommends an excellent reference

on the nuances and peculiarities of

business culture and negotiation in

China in Lucian Pyes work Chinese

Negotiating Style.

Take the recent debacle between

Google and China over censorship:

the audacious Googlers violated the

simple rule that you simply dont

ever question their rules. To be

sure, China regularly censors sites

and content, closes down search,

social networking, and other sites,

and spied on Google accounts. They

may have done some other

questionable things, but one must

remember that China is not a

democracy. In a way, it reminds me

of the movie Fight Club, where

the first rule of fight club is you dont

talk about fight club (thats also

the second rule of fight club,

incidentally). In China, the first rule of

China is you dont question the

rules of China. The second rule is

you dont disrespect the Communist

party or the government. They

shall not lose face. Im trying to avoid

taking political positions here,

so be it. Googles exit is, perhaps,

Baidus gain.

But let us not digress further.

Discussing the politics of China is not

within our purview at Artefact,

so better to leave that to the political

pundits, freedom fighters, activists,

and global political leadership.

We might contend, however, that

even by playing within Chinas rules

of censorship, progress can be

slowly made and Chinas citizenry

can be empowered with technology,

information, and the means of

assembling and building

communities, for they are a clever

people with a lot of pent-up creative

ingenuity. Revolution and political

change is ultimately up to

Chinas people, not to foreign

multinational corporations who want

to sell their products and services in

Chinas markets.
http://amazon.imdb.com/title/tt0137523/http://www.nytimes.com/2010/01/15/world/asia/15beijing.html?ref=asiahttp://www.nytimes.com/2010/01/15/world/asia/15beijing.html?ref=asiahttp://www.amazon.com/Chinese-Negotiating-Style-Commercial-Approaches/dp/0899307248/ref=sr_1_4?ie=UTF8&s=books&qid=1263843404&sr=8-4http://www.amazon.com/Chinese-Negotiating-Style-Commercial-Approaches/dp/0899307248/ref=sr_1_4?ie=UTF8&s=books&qid=1263843404&sr=8-4http://www.amazon.com/dp/0743258398/?tag=arcapubl-20http://www.amazon.com/dp/0743258398/?tag=arcapubl-20http://www.amazon.com/dp/0743258398/?tag=arcapubl-20http://www.amazon.com/dp/0743258398/?tag=arcapubl-20http://www.onebillioncustomers.com/index27b5.html?page=authorhttp://www.onebillioncustomers.com/index27b5.html?page=author


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Who is the Intended Audience?The audience for this article is

primarily professionals in product

management and development,

innovation, R&D, product and

product portfolio planners, engineers,

and executives who are responsible

for designing and creating

technology products (hardware,

software, services). In particular,

those of you people above who feel

perhaps a bit less informed about

China than youd like to be.

What this article is intending to

convey are some key insights,

lessons, or realities you should know

about if you intend to develop,

design, and market consumer

products for China. Among the many

considerations youll need to make

as a business interested in entering

or further penetrating the Chinese

market(s), learning how to work and

communicate well with the right

officials and rainmakers, being

unbelievably persistent, and

understanding the varying and even

appalling levels of corruption that

may be involved will consume much

of your time and energy (and,

perhaps, your soul). Your challenges

will range from building the right

win-win argument, establishing

long-term relationships with the right

Chinese business people, power

brokers, and partners, all the while

not defying the rules or causing

anyone to lose face. Another

significant challenge will be

distribution, as getting your product

in front of consumers in China is

not quite how it works elsewhere in

the world.

In the spirit of full disclosure: I

myself have never traveled to China,

though I was in Hong Kong for 10

days in 2007 and studied some

Mandarin and Chinese history in

college. In researching and writing

this article, I owe a tremendous

amount of debt to the market

researchers, strategists, cultural

translators, user researchers, and

Chinese graduate students and other

Chinese professionals whom I

interviewed for this article (Elaine

Ann, Ash Bhoopathy, Ravi

Chhatpar, Ian Donahue, Anjali

Kelkar, Shuang Li, Lin Lin, Fei Qi,

Erin Sanders, Pinxia Ye, and Lisa

Yong among them).
http://www.linkedin.com/in/lisayonghttp://www.linkedin.com/in/lisayonghttp://www.linkedin.com/pub/pinxia-ye/17/a7a/502http://cn.linkedin.com/in/erinmsandershttp://www.linkedin.com/pub/fei-qi/11/791/669http://www.linkedin.com/pub/lin-lin/4/179/9b2http://www.linkedin.com/pub/shuang-li/0/380/404http://hk.linkedin.com/pub/anjali-kelkar/0/28b/12bhttp://hk.linkedin.com/pub/anjali-kelkar/0/28b/12bhttp://cn.linkedin.com/in/iandonahuehttp://cn.linkedin.com/pub/ravi-chhatpar/0/29b/771http://cn.linkedin.com/pub/ravi-chhatpar/0/29b/771http://www.linkedin.com/in/ashbhoopathyhttp://hk.linkedin.com/pub/elaine-ann/0/88/160http://hk.linkedin.com/pub/elaine-ann/0/88/160


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one

China consists of many markets and

many unique customer segments. If

you dont know this by now, you

really should. Therefore, you will have

to do your share of ethnographic

homework and market research tosucceed. However, doing the above,

particularly the ethnographies and

user research, will be more difficult

than you are used to. Add to that

that most Chinese consumers still

dont really know what their needs

are! Their world has changed so

incredibly fast, and for many, they still

are learning about what there is in the

consumer marketplace beyond the

basics of food, clothing, shelter, andthe most basic consumer durables.

Therefore, products cannot simply be

translated into Chinese; they must

take into consideration the cultural

and social context, thought models,

and unique behaviors of the many

different types of Chinese people.

The Short Version:10 Tips + 1 CaveatIf you are pressed for time, short on patience, or just generally not fond of my laborious prosaic style, here is the

abbreviated version of all the main points I want to make. If you care for more details, please read beyond this

section for additional details, anecdotes, charts, and statistics.

two

The Chinese have got their minds on

their money, and their money on their

minds. The Chinese mindset is,

contrary to most Western perceptions,

quite individualistic and in a country in

which there is little to believe in, theprimary directive is to get gloriously

rich. In yuan they trust. Like the

astute social commentators and fans

of Chinese martial arts culture, The

Wu-Tang Clan sang, Cash Rules

Everything Around Me. C.R.E.A.M.

Get the money. Dolla dolla bill, yall.

Why? Because life in China is

unstable and insecure. The

government is no longer a provider of

any form of safety net. So everyonemust look out for themselves. Money

is power, prestige, and respect in

China. Hence, the Chinese are prone

to flaunt it if they have it. Incomes in

China have not necessarily kept pace

with GDP growth over the past

couple decades, and meanwhile the

cost of living is rising. Foreign goods

are also subject to high import tariffs,

making them extraordinarily

expensive by Western standards. Theparadoxical thing with the Chinese,

however, is that while they admire

and strive for luxury and quality items,

they are also traditionally very frugal

and value-minded, particularly the

older generations.

three

Chinese society can be partially

understood in terms ofsocial

identity theory and notions of

ingroup and outgroup. The

Chinese will always be suspicious of

outgroup individuals. This is not justa matter of Chinese citizen versus

foreigner, but even within China

between different regional or ethnic

peoples, or to some extent even

between social groups or tribes.
http://en.wikipedia.org/wiki/Social_identityhttp://en.wikipedia.org/wiki/Social_identityhttp://en.wikipedia.org/wiki/Wu-Tang_Clan


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four

Chinas youth generation aged 15-30

(nearly 330 million today), in particular

the urban youth sometimes

known as the rare generation

are remarkably different from their

elders. They are mostly only children,

under tremendous familial pressureto perform and succeed in life, but

they also want to enjoy their

freedoms, the good life, consume a

whole lot, and they want it right now!

They are driven by the constant

search for newness or novelty. They

are optimistic about the future, yet

very impatient. They are individualistic

and self-expressive, yet they are

incredibly tribal, in Seth Godins

sense of the word (except, perhaps,in terms of having a clear leader).

And because they are continuously

experimenting with their own

identities and new freedoms through

fashion, style, food, and material

goods, who they are and what they

want is constantly shifting. They have

a lot of purchasing power and will

represent a major consumer force for

China, yet they are curiously protean

and one of the most demanding

consumer segments in the world.

five

Because of these characteristics of

ingroup bias and tribal behavior,

Chinese consumers are especially

drawn to products and brands that

communicate a clear lifestyle,

identity, and culture. The desire to be

individualistic has its limits; Chineseconsumers, especially the urban

youth, want to fit in with the sub-

cultures or tribes in which they want to

be accepted. This means buying the

same brands and products, following

the same styles and trends, etc.

six

In contrast with the rare generation,

Chinas more senior consumers

(aged 35 and older) tend to be very

frugal, stubborn to adopt new things

and technologies, and are extremely

value-conscious (if they are middle

class; the wealthy are a differentstory). Most are investing the majority

of their time, energy, and income on

providing the best of everything for

their only children (the spoiled rotten

ones are sometimes referred to as

Little Emperors). However, in a

world completely different from the

world in which they were born and

grew up, these Chinese adults are

suddently bombarded with and

overwhelmed by choices theyvenever had to make before. They

need information and explanations of

how new products will matter to their

lives, otherwise theyll simply rely on

what theyve always known and buy

the cheapest, good-enough option.
http://en.wikipedia.org/wiki/Little_Emperor_Syndromehttp://www.amazon.com/Tribes-We-Need-You-Lead/dp/1591842336http://www.amazon.com/Tribes-We-Need-You-Lead/dp/1591842336


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seven

One important thing to understand is

that the Chinese have a tremendous

amount of national and cultural pride,

stemming not just from thousands of

years of being one of, if not, the

most powerful civilization in the

world, but also from three decadesof tremendous economic progress.

While they admire foreign, global

products for their quality,

technologies, and design, they also

fully intend to build their own

domestic brands to compete

globally. They are looking to the West

to learn from and borrow (or steal

its often true) their intellectual

property, methods, and practices, so

that they can catch up. But, it iscritical to recognize that the Chinese

want to modernize, not Westernize.

They wish to be modern while

retaining their Chinese essence. On

the more pop cultural level, you see

this in the form of so-called China

Style, or fusion of traditional Chinese

elements with Western styles, music,

fashion, etc.

eight

In addition to competition coming

(eventually) from domestic brands,

you must also recognize that right

now you are engaged in fierce

competition with shanzhai products

(knockoffs). Regardless of the

differences between the youth andtheir elders, most Chinese do

recognize and appreciate quality and

luxury. They just simply cannot afford

it. They are drawn to the global

brands and products that exude

qualities like performance, luxury,

beauty, style, and power. However,

most Chinese who cannot afford the

global branded products they aspire

to own, are perfectly happy with fake

alternatives, which are often as goodas the real thing. In addition, these

shanzhai products will be

manufactured and made available to

consumers in more variations than

youve ever dreamed of before your

products will ever make it to market.

You can count on that! Finally, the

shanzhai industry should also be

given some credit and recognition for

the creative, entrepreneurial, DIY

culture it is fostering, providing

consumers with access to a high

degree of personalized or

customized items across a variety of

product categories. In a country of

1.3 billion people, its difficult to

differentiate oneself from the crowd,

but shanzhai products (particularly

electronics) introduce all sorts of

novel variations, at remarkable

product development cycle speeds,

feeding into the Chinese thirst for

anything new.

Its worth noting a thing or two

about the Chinese consumer retail

environment and experience as

well. While the retail environment is

beginning to look a lot more like

that of the West (modern shopping

malls and hypermarkets arebeing built by the hundreds), there is

still something very different and

unique about how and where the

Chinese shop, which is one reason

you will really need to work hard

on your distribution strategy.

Shopping malls are more like lifesized

catalogs for most of the middle

class, where they can browse and

take note of the latest high-end

styles and products. But, more oftenthan not, the middle class consumer

will then head out to the street to

the large marketplaces or bazaars

(in areas like Zhongguancun in

Beijing) where hundreds or

thousands of small vendors will sell

the same or shanzhai versions of

many products (electronics, fashion,

or media) at negotiable prices.
http://en.wikipedia.org/wiki/Zhongguancun


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nine

The Chinese have a well-justified

distrust of media in general.

However, in the Internet they trust.

Bulletin board systems (BBS),

forums, blogs, online communities,

and social media are their most

trusted sources of information. Theydo not generally believe advertisers

claims. They seek out the advice,

experiences, reviews, and feedback

of their peers online before making

purchase decisions. Chinese

Internet users spend 18 hours per

week online versus only 12 hours

by their American counterparts.

Chinese consumers are also

beginning to greatly increase the

amount of shopping they do online,as credit card penetration has rapidly

increased and other forms of online

payment have emerged and gained

consumer trust and confidence (like

Alipay from Alibaba, which is more or

less like Paypal). Also, the Internet

simply offers a great variety of

products to choose from, things

which may not be available on the

mainland. Today, most online

shopping is transacted as cash-on-

delivery, but that is likely to change in

the coming years. And because

mobile phone penetration in China is

significantly higher than computer

penetration, expect that consumers

will begin using their phones and

computers to shop more.

Despite the high value that most

Chinese consumers place in peer-

review of products, however, they are

still suckers (like most of the rest of us)

for the right celebrity product

endorsement. So, dont underestimate

the influence of the right personality.

ten

Chinese consumption to date has

been primarily focused on goods

(fashion, gadgets, etc.), but as

consumers they are beginning to

sophisticate and mature. Relatively

speaking, the average Chinese

consumers purchasing power is stillbut a fraction of that of the average

American consumer. However, as

incomes continue to rise, and for

those already upper middle class and

wealthy consumers, expect them to

become more demanding for new

services and experiences, in such

areas as food, style, living, mobility,

health and wellness, and finances.

eleven (one caveat)

Everything just stated above is,

unfortunately, not carved in stone.

Because of the incredible rate of

progress and change occurring in

China, anything you learn today may

not be true a year or two from now.

You are playing a frantic gamechasing rapidly moving targets.

Therefore, take our suggestions

above to heart, but be willing to

revisit them in the near future for

further evaluation or validation.

WARNING: Stop here if youve had

enough or are a lazy reader. Continue

below the fold if youd like to hear a

lot more details. And also join in the

conversation on our blog by

commenting on, debating, or even

contesting our claims. We hope to

open up the conversation to all of our

readers for our mutual enlightenment.
http://www.zdnetasia.com/insight/specialreports/0,39044853,62028599,00.htmhttp://www.zdnetasia.com/insight/specialreports/0,39044853,62028599,00.htmhttp://www.zdnetasia.com/insight/specialreports/0,39044853,62028599,00.htmhttp://www.zdnetasia.com/insight/specialreports/0,39044853,62028599,00.htm


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The Future Looks Red,But No Need to Panic (Yet)Global GDP (nominal) was roughly

US$61 trillion in 2008. According to

the International Monetary Fund, theEuropean Union collectively

represented about 30.2% of the

global economy, the United States

23.7%, Japan 8.1%, and China had

the fourth largest economy

representing 7.1% of global output.

Ten years ago China represented only

3.9% of global GDP.

In the last 30 years, starting just

before Deng Xiaoping initiated

Chinas economic reforms, thecountrys GDP has grown more than

81-fold, while the USs GDP grew

only about 6.3-fold (not adjusted for

inflation). This is truly awe-inspiring!

But, make no mistake, China is still

overall a relatively poor nation. Today,

it is a country of relatively few haves

and significantly many more have-

nots. It has an emerging middle

class, which depending on how you

define middle class, is anywherefrom 50-500 million people. The

middle class and the rural poor have

managed to more or less escape

extreme poverty in these past three

decades, and now are finally

becoming a massive and legitimate

consumer force in their own right.

In Maoist China (1949-1979), key

consumer possessions were a

bicycle, a wristwatch, and a sewing

machine. In the 1980s and 1990s,major consumer durables included

color TVs, washing machines,

refrigerators, and electric fans. In the

past decade, key consumer

possessions became mobile phones,

computers, air conditioners (in urban

areas), and showers. For the typical

Chinese, the future decade will

become about buying his/her first carand possibly owning a home.

Late last year, China passed the

United States as the #1 automobile

purchasing nation. They now

manufacture more cars than we do

too. Theyve all but acquired Volvo

from Ford and bought the rights to

technology platforms from Saab

from GM. They have more Internet

users (338 million) than the United

States has people. They now haveover 720 million mobile phone

subscribers, and are still at only

54.5% penetration. With their strong

and steady economic growth rate,

predictions from a variety of experts

Sources: US Bureau of Economic Analysis, National Bureau of Statistics of China

and analysts from the World Bank

to the IMF to Goldman Sachs,

Morgan Stanley, and Credit Suisse

indicate that Chinese GDP inpurchasing power parity (PPP) may

actually pass that of the United

States in anywhere from 5 or 10

years (optimistically) to maybe 20 or

30 years (conservatively). The ever

entertaining Swedish professor of

international health and co-founder

and Director of the Gapminder

Foundation, Hans Rosling, has even

predicted the very day that Chinese

GDP per capita in PPP (and that ofIndia) will pass that of the United

States: July 27, 2048. Definitely

check out his TED talk.

What is undeniable is that

eventually China will have the largest
http://www.ted.com/talks/lang/eng/hans_rosling_asia_s_rise_how_and_when.htmlhttp://www.gapminder.org/http://www.gapminder.org/http://www.nytimes.com/2009/12/15/business/global/15saab.html?_r=1&fta=yhttp://dealbook.blogs.nytimes.com/2009/12/23/ford-and-geely-to-detail-volvo-progress/


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economy in the world (though not

necessarily the highest per capita

wealth in the world).

Nobel laureate economist Robert

Fogel recently raised a lot of

eyebrows by declaring that in 30

years, Chinas GDP will reach $123

trillion and represent 40% of the

global economy, with the United

States trailing in a distant second at

14% of global output, and the

European Union at a measly 5% of

global GDP. (see image)

His critics arguments aside, the

point here is that Chinese political

leadership has made it clear that

they no longer wish to be the factory

for the world. They are proud,

optimistic, and determined to attain

superpower status. And, part of this

road to global economic hegemony

will include developing their own

Chinese companies and brands that

will themselves become global brand

powerhouses. So, while today you

may consider a Lenovo laptop or a

Haier beverage cooler when you go

to Best Buy or Home Depot, be

prepared for an onslaught of other

Chinese brands to become part of

the American consumer landscape.

Eventually. Maybe in a couple

decades. Maybe more?

The good news is that this means

there is still time for you, as an

American or Western business, to

still look to China as an important

component of your global strategy.

Chinese-made products are still

beleaguered by a perception (and,

perhaps still too often, a reality) of

low quality, cheap and shoddy

manufacturing, and questionable

adherence to safety standards.

China is still learning how to move up

the global value chain, but it is doing

so at an alarmingly rapid clip. Shaun

Rein, Founder and Managing

Could this be what global economic hegemony will look like?

Director of China Market Research

Group and a widely-recognized

expert on strategy consulting in

China, has even found through his

own companys studies that

Chinese consumers are also leery

of Chinese-made products (food,

in particular) and willing to pay a

10-20% premium for foreign brands

they believe will be safer. Moreover,

he rejects a McKinsey report to

suggest that Chinese trust levels in

domestic brands are actually at an all

time low. Good news for you!

So, stay positive and read in more

detail about the 10 things you should

know about designing products for

the Chinese consumer. We know

that these cant possibly cover

everything youll need to know to

succeed, but these lessons should

provide you a great start.
http://www.forbes.com/2010/01/04/china-consumer-marketing-leadership-managing-rein.htmlhttp://www.forbes.com/2010/01/04/china-consumer-marketing-leadership-managing-rein.htmlhttp://www.cmrconsulting.com.cn/about/shaun_rein.htmlhttp://www.cmrconsulting.com.cn/about/shaun_rein.htmlhttp://www.foreignpolicy.com/articles/2010/01/04/123000000000000http://www.foreignpolicy.com/articles/2010/01/04/123000000000000


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The Longer Version

one

Many markets, many customer

segments. Do your ethnographic

homework and market research.

China is big. Really big. And things of

that scale make eyeballs widen and

mouths salivate. But one thing China

most definitely is not is a

homogeneous country of 1.3 billion

identical customers. If there is one

thing you should know about China

by now, this is it. The myth of selling

your product to 1.3 billion customers

has long ago been busted.When foreigners think of China,

they often imagine unity, consistency,

and regularity a predilection

toward the collective over the

individual. The truth is, however, that

China is a complex collection of

provincial, local, cultural, and social

sub-markets, where local politics and

cultural practices create major

differences. Furthermore, the

Chinese are far more self-interestedand individualistic than you may

assume. For centuries, there have

been vast differences between the

rural and the urban, between one

province and another, but since

Deng Xiaopings economic reforms

began around 1980, the country has

diverged along multiple dimensions

as economic development, planning

of special economic zones, and new

wealth have been distributed

unevenly, unfairly, and at differing

rates throughout the country.

As cultural translator and socio-

cultural researcher Lisa Yong ofY

Studios in San Francisco told me,

Beijing and Shanghai are not China.

Its just not true. Just like New York

and L.A. are not America.

Youve probably heard aboutTier-1, Tier-2, Tier-3, and so on

cities. But, few users of this

classification system are ever very

specific or consistent about which

cities fall into which buckets

(particular Tier-3 and lower), and

most global companies have tended

to focus on the richest Tier-1 cities

first, then work their way down.

Clearly, the Tier-1 cities consist of

Beijing, Shanghai, Guangzhou, and

Shenzhen (Hong Kong too, if you

want to include this Special

Administrative Region, though it

differs from the rest of China in many

ways). The Tier-2 cities tend to

consist of the provincial capitals.

Nonetheless, if you look at GDP per

capita figures for these Tier-1 and

Tier-2 cities (based on data from theNational Bureau of Statistics of

China), they range quite strikingly

from Nanning a provincial capital

whose key industry is mining with

a GDP per capita of 15,685 yuan in

2007 ($2,062 US), while Shenzhen

a major electronics, high tech,

and manufacturing center has the

highest GDP per capita among

Chinas cities at 89,814 yuan in 2008

($13,091 US). Due to the policies of

these special economic development

zones and different regional

industries, even among these Tier-1

and Tier-2 markets the differences

can be significant.

Sources: Artefact (click to enlarge)
https://reader009.%7Bdomain%7D/reader009/html5/0526/5b08e2b7a860f/5b08e2c018e9a.pnghttp://www.stats.gov.cn/english/http://www.stats.gov.cn/english/http://ystudios.com/vision/http://ystudios.com/vision/


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What has happened in China in

the past 30 years has been that

many people, usually well-connected

to Communist Party officials, have

used their positions and connections

to amass their family fortunes as

privatization increased. The early

entrepreneurs and business people

also capitalized on new business

opportunities. Real estate

developers and speculators became

some of the richest of these

entrepreneurs. Others, opening new

businesses, found their fortunes

increase almost overnight. As stock

markets opened, many played the

markets and capitalized on the

boom. What this has led to is a

tremendous inequity in the

distribution of wealth. There are the

super rich, the nouveau riche, the

poor rural folks, and now a large and

growing middle class or who are

typically well-educated, white-collar

professionals working for large

companies. But, defining this middle

class is somewhat controversial in

China with no widely accepted

answers, and the most typical

estimates of the number of Chinese

who are considered middle class

ranges from 100 million to 250

million people. Some would go so

far to say that the range might even

be more like 50 million to 500 million.

One scheme for defining the East

Asian Middle Class (EAMC) developed

by Hsin-Huang Michael Hsiao and

Alvin Y. So includes six classes in

Chinese society, an elite capitalist

class at the top, four classes

representing the middle, and a

lowest class of farmers and peasants:

An analysis conducted by Li

Chunling of the Chinese Academy

of Social Sciences, estimates that

of the urban Chinese population in

2006 (577 million), 0.6% were in the

Capitalist class, 18.8% in the New

Middle class, 19.6% in the Old

Middle class, 25.4% in the Marginal

Middle class, and 35.7% in the

Working Class. Presumably the

remaining rural population (737

million) was lumped into the Farmer

class. Again, one can see in the table

below a tremendous range in

incomes and distribution of wealth.

Chinas GDP per capita as a

whole was 18,934 yuan in 2007

($2,490 US). The differences

between rural and urban China are

considerable, as you can see in the

table above. Rural China,

representing 55% of the population

of the country, has per capita net

disposable income of 4,140 yuan

($603 US) versus 13,786 yuan

($2,009) for urban households. In

other words, urban Chinese on

average have 3.3 times as much

income as their rural counterparts,

the differences being even more

pronounced in Tier-1 and Tier-2

cities.

Lisa Yong admits that the

differences between all of these

tiers of cities was and still isnt

entirely clear cut. She sees the

development of Chinas cities

occurring more organically, with often

some of the most interesting things

often happening in the heartland or

the most unexpected places. For

example, she claims that Inner

Mongolia has been successfully

growing its own regional brands in

the food and beverage industry. The

lesson here is that you will be facing

competition from the bottom-up who

are more in tune with the currently

most underserved consumers.

Then, theres the whole

consideration of segmenting these

markets. The major difference,

beyond regional differences and

income-level, is without question

age. The urban youth generation (15-

30 years old) are markedly different

from their parents and elders,

earning them the nickname the rare

generation. Well discuss some of

these differences in more detail later.

Beyond, the demographic

differences, youll really need to get

immersed in the culture and do more

Sources: Chinese General Society Survey 2006 and National Bureau of Statistics of China
http://www.sociology.cass.cn/pws/lichunling/grwj_lichunling/P020090525597135469507.pdfhttp://www.sociology.cass.cn/pws/lichunling/grwj_lichunling/P020090525597135469507.pdfhttp://www.sociology.cass.cn/pws/lichunling/grwj_lichunling/P020090525597135469507.pdf


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proper ethnographies and user

research to understand the more

psychographic, motivational, and

behavioral difference among these

age clusters.

Finally, if you thought the Tier

system was already enough to wrap

your head around, now McKinsey

Insights Asia is suggesting a new

framework around city clusters,

which they believe overcome some of

the limitations of the Tier system,

which relied primarily on GDP per

capita. In this approach, 22 clusters

have been identified, recognizing the

linkages between neighboring cities in

terms of industrial composition,

government policies, demographic

characteristics, and consumer

preferences. The clusters tend to

include one or two large hub cities,

Source: McKinsey Insights Asia (click to download report)

with groups of smaller cities

developing in their vicinity, as seen

below. One advantage in this model is

that one can begin to understand how

the value chains between businesses

and industries link neighboring cities

together, thus influencing their

economic development as well as the

social and cultural customs and

trends. (see image)

Do your ethnographic

homework and market research.

What all the aforementioned implies

is that in order to succeed in China,

your business will have to invest

continuously and intelligently in user

research activities and ethnographies

to understand the various segments

you might wish to target. And, this

wont be easy. The Chinese people, in

general, are less comfortable with the

notion of user research and

ethnography, especially when

conducted by foreigners. Culturally,

there is a suspicion of foreigners and

their motives, ingrained for centuries

as Western imperial powers tried and

tried to open China up to trade,

started the Opium Wars, and found

numerous other was to offend,

anger, and oppress a proud

civilization. Certain topics (money,

marriage, politics, etc.) may be taboo

or considered rude or too personal

for user interviews.

Experienced design researchers in

Asia, like Elaine Ann from strategic

innovation consultancy Kaizorin

Hong Kong, says that many of the

methods of user research taught in

the West, at places like Carnegie

Mellon or the IIT Institute of Design,
http://newbauhaus.id.iit.edu/index.htmlhttp://www.design.cmu.edu/http://www.design.cmu.edu/http://www.kaizor.com/http://www.mckinsey.com/locations/greaterchina/McKinsey_Annual_Consumer_Report_Downturn_part2.pdfhttp://www.mckinsey.com/locations/greaterchina/McKinsey_Annual_Consumer_Report_Downturn_part2.pdfhttp://www.mckinsey.com/locations/greaterchina/McKinsey_Annual_Consumer_Report_Downturn_part2.pdf


13/33


dont always work that well in China.

Her advice is to approach things in a

more personal way, by taking the time

to establish a real relationship first. In

other words, youll have to invest

more time for many Chinese people

to feel comfortable. And, because the

Chinese are very concerned with how

they are perceived by others, it can

be disastrous to conduct

ethnographies or research where

people are being viewed by strangers

or other outgroup individuals.

You also want to make sure to

research the right people. This might

be confusing to some Chinese, who

expect that youd want to interview

and observe the most senior people

in an organization, say, as opposed

to someone who works on the

warehouse floor.

Knowing your customers and their

needs is, of course, a basic principle

of smart business. In China, the

challenge is that the consumers are

very different from place to place, by

age, by income level, outlook on life,

and by education level. Furthermore,

Chinese consumers are still learning

about their own needs and wants as

consumers. So much has happened

so quickly that they may not even

know what want. And, what they like

today might be different tomorrow.

Ian Donahue, a market research

consultant at Anovaxin Shanghai,

explains some of the other unique

challenges with understanding

Chinese consumers. For example,

language ability is not enough.

Social identity theory is an

important frame for understanding

Chinese notions of ingroup and

outgroup. Though fluent in Mandarin,

he never moderates an interview

because he is viewed as an outsider.

He suggests further that even

regional differences are critical.

Always use local moderators, if

possible from the same city, he

explains.

For example, going into a home in

Shanghai for an ethnography with

a Beijing moderator can be a

problem. Like Elaine Ann suggested,

one should also expect to invest

more time conducting ethnographies

than what might be needed in

the West. As Donahue broke it

down, the first hour will consist of a

lot of resistance, confusion, and

discomfort. Why are you here?! the

participants will be wondering.

However, with a skilled and charming

moderator, possessing a good

personality, and adept at building

rapport, those barriers can

be overcome in the second and third

hour of an interview. At this point,

participants will be more likely to

open up.

Other tips from Donahue include

using small teams for in-home

studies. Chinese homes are small

The best advice, ofcourse, is to go there for

yourself and really getimmersed. See it with yourown eyes. Have patienceand work with locals tohelp build rapport with thepeople you want toresearch. Learn Mandarin(or putonghua) too.
http://en.wikipedia.org/wiki/Social_identityhttp://www.anovax.com/


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and space is a concern. Try to limit

yourself to three people: a

moderator, an observer/notetaker,

and a videographer.

When interviewing younger people

(age 15-29), expect their parents and

grandparents to hover by closely and

suspiciously. These children of the

one-child policy often called Little

Emperors as they are the single

pride and hope of their families

tend to be very spoiled and

pampered. Their families are very

cautious and protective of them.

Therefore, make sure to show

respect toward other family

members. Allow them to sit in and

participate, but respectfully try to

keep the focus on the participant.

Although in complete agreement

with the sentiments of Ann and

Donahue, design research consultant

Anjali Kelkar from the Studio for

Design Research in Hong Kong,

believes that with many younger,

urban Chinese, it can be a little bit

easier to make the connection that is

critical to a good ethnographic

interview. She bases this on her

experience that many of these young

folk are very curious, chatty, and

eager to talk to foreign people and

share their experiences. Admittedly,

though, this sometimes requires

either being or being accompanied

by someone who is part of that right

ingroup, someone who belongs.

Shuang Li, Principal UI Designer

at Intuit, has many years of

experience and perspective doing

user research in China, as well as

trying to import and teach good UI/

UX and design practices for

companies like Sina.com. She

corroborates the general truth that

the Chinese are somewhat taken

aback when people want to know

what they think. It is typical for a

Chinese research participant to try to

guess what they think you the

interviewer want to hear rather than

be open and honest. But, as she

points out, this isnt too different

from conducting research in the

United States, especially when

getting paid for ones participation is

a primary motivator.

In addition, the fields of user-

centered design and ethnographic

research are still relatively new in

China, and as a result, many of the

local partners with whom you might

work may not be as skilled or

experienced as you might hope. It

will be a challenge for you to keep

protocols straight, practice good

interviewing techniques, and impress

upon your Chinese research partners

to not view the interviews as

unstructured conversations.

Emphasize sticking to protocol,

asking questions about why people

behave as they do, not interjecting

ones own opinion, and so on. Finally,

data are not always viewed by the

Chinese as inviolable nuggets of

truth. Culturally, there is a deeply-

rooted history of manipulation of

data in day-to-day life, government,

and elsewhere. So, emphasize the

importance of quality, objective data.

As Li puts it, usually people dont

take them (data) seriously.

For another perspective on the

fudging of data and cooking the

books, check out this piece from

Shanghai-based business journalist,

Jordan Calinoff. And, check out

Thomas Friedmans latest columns

where he suggests that China could

be the next Enron (note: I

intimated something along those

very lines in an off-hand Facebook

status update on December 29,

2009, two weeks before Friedmans

column just saying).
http://www.nytimes.com/2010/01/13/opinion/13friedman.html?ref=opinionhttp://www.nytimes.com/2010/01/13/opinion/13friedman.html?ref=opinionhttp://www.foreignpolicy.com/articles/2009/09/03/how_china_cooks_its_books?obref=obinsitehttp://www.intuit.com/


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average citizen with nothing left to

trust in. Except for cash money.

Cash money

and the support of family are

truly the only safety net the Chinese

have. Despite decades of

continuous strong economic growth,most Chinese feel less secure than

before, as they are no longer

guaranteed jobs, housing, and a

pension. Consequently, as a

society, overall, the Chinese are

very thrifty, saving reportedly

40% of their income on average.

The older generations are known

for their frugality and extraordinarily

high savings rate in order to provide

for their child. Education is alsono longer free, so parents who want

their children to succeed in life

must save as much as they can to

invest in the childs future and

two

To get rich is glorious.

The proverb above is a loose

adaptation of Deng Xiaopings

exhortation to his country to let some

people get rich first. The Chinese

have always been a mercantilesociety full of entrepreneurial spirit.

After the devastation of their

economy under Mao Zedongs Great

Leap Forward and Cultural

Revolution, with Deng opening the

country up to economic reforms, it

became evident that the only

leading ideology for the country as

a whole was to enrich itself, as

James McGregor points out in One

Billion Customers. As Chinasgovernment policy shifted from

wealth repudiation to wealth

creation, the dismantling of much

of the socialist safety net also left the

Photo by: Evan Osnos, Artist: Tao Hongjing, Source: The New Yorker(click to view source)

development, hoping theyll turn out

an exceptional individual.

Meanwhile, the cost of living is

increasing. Foreign goods are also

subject to high import tariffs,

making the shanzhai products even

more attractive bargains. TheLittle Emperors are known to be

spoiled rotten and be the me

me me generation. They are crafty

at getting money from parents

and grandparents to spend on

fashion, gadgets, and whatever else

they desire. After all, they symbolize

the singular hope for carrying on

the family name.

Money and wealth and the

material goods they afford translateto status and respect from others.

This explains why many Chinese

who have arrived like to flaunt their

fashions, cars, or gadgets. For

Chinese youth, the mobile phone is

the largest consumer purchase they

typically make. It is for them their

most important symbol of status

and freedom.

The high savings rate that

the Chinese exhibit as a whole does

not translate across all groups,

however. The young, urban Chinese

(15-30) are reported to essentially

save nothing at all, as Pascal

Nouvellon of COFIDIS explained

to Shaun Rein of CMR in an

interview last February.

As credit card penetration

continues to expand, we might

expect the hallmark frugality of the

Chinese consumer to change, with

younger people, more optimistic

about the future and their prospects,

choosing to buy on credit and

accumulate more debt in order to

obtain the material goods they desire.
http://seekingalpha.com/article/117997-china-s-credit-card-market-interview-with-pascal-nouvellon-cofidishttp://seekingalpha.com/article/117997-china-s-credit-card-market-interview-with-pascal-nouvellon-cofidishttp://seekingalpha.com/article/117997-china-s-credit-card-market-interview-with-pascal-nouvellon-cofidishttp://seekingalpha.com/article/117997-china-s-credit-card-market-interview-with-pascal-nouvellon-cofidishttp://www.newyorker.com/online/blogs/evanosnos/2009/12/30-degrees.htmlhttp://www.amazon.com/dp/0743258398/?tag=arcapubl-20http://www.amazon.com/dp/0743258398/?tag=arcapubl-20


16/33


Sources: National Bureau of Statistics of China, company websites, and other(click to enlarge)

Donahue describes every subway

station in major cities having makeshift

kiosks set up to get young Chinese

to sign up for the newest credit

cards. He describes these kiosks as

regularly surrounded by dozens of

young people, who are often enticed

with a free gift as well.

As the chart above also shows,

other forms of payment are taking

off. While China is still primarily

a cash society, Alibabas equivalent

of Paypal, called Alipay, has

increased its membership

dramatically in the past few years.

The Chinese have not always felt

comfortable with the security of

making transactions online, hence

most e-commerce today is

transacted as cash-on-delivery. But,

Alipay seems to have garnered the

young consumers trust, with

accounts now exceeding 250

million. That makes buying things

on Alibabas other property, Taobao

(Chinas version of eBay), a snap.

Shaun Rein firmly believes that

e-commerce will continue to

explode in China thanks to the

proliferation of credit cards, Alipay,

and the ability of consumers to shop

not only from their computers, but

from their Internet-enabled mobile

phones as well. This phenomenon,

however, will most surely be limited

to the young, urban Chinese who are

comfortable with this type of

consumer behavior.

In sum, the young Chinese

consumer is still single-mindedly

optimistic about making it rich.

Along the way, he/she is also

becoming more sophisticated in the

new ways of transacting commerce.

The desire to flaunt ones arrival will

continue, and I would suspect that

many young people (or their

parents) will be soon learning the

dangers of abusing credit limits.

Already, a New York Times article

cites that about 11 percent of

Chinese parents have paid credit

card debts for children 22 to 27

years old, a group that has become

accustomed to the good life but has

found it difficult to pay for,

according to a survey by the Beijing

Youth Daily newspaper.

Nonetheless, the emerging

Chinese middle class mindset may

now be that after letting some

of the people get rich f irst, as Deng

suggested, now the masses

would like to eat the emperors

grain too. Taking a page from

American hip-hop culture, emcees

from the growing hip-hop scene in

China understand the brutal reality

of an increasingly materialistic

world. Wang Li, a 24-year-old

rapper from Dongbei, says in a

New York Times article that, All

people care about is money. If you

dont have money, youre treated

like garbage. And if youre not local

to the city you live in, people

discriminate against you; they give

you the worst jobs to do.
http://www.nytimes.com/2009/01/24/arts/music/24hiphop.htmlhttp://www.nytimes.com/2009/08/14/business/global/14card.html?_r=2&pagewanted=2http://www.forbes.com/2010/01/04/china-consumer-marketing-leadership-managing-rein.htmlhttp://www.forbes.com/2010/01/04/china-consumer-marketing-leadership-managing-rein.htmlhttp://www.artefactgroup.com/blog/wp-content/uploads/2010/01/PhonesInternetPayment.png


17/33


They are not thinking a whole lot

about their future and are not very

responsible with their money. The

Young Professionals, on the other

hand, follow their parents wishes

much more closely, focusing on

making the right choices in school,

career, etc. They are incrediblyhardworking and have very limited

social time. They work on the

weekends if they need to, tend to be

bottom-rung workers in large

companies, and aspire to higher

salaries which will eventually enable

them to buy the luxury items they can

display as symbols of their success.

But, some Chinese youth dont

necessarily view these young

professionals in the most positivelight. Qi Fei, a 25 year old graduate

student from Dalian, says that a lot of

people think that these members of

the

embarrassment. They work very

hard at large companies, but are at

the bottom of the hierarchy, and

dont have much money compared

to the entrepreneurs or people with

their own companies. To make

matters worse, they have very little

time for much of a personal life.

Of course, there are many other

youth segments to consider, including

the Sporty/Jock types for example,

who might embrace an entire culture

around sports and a brand like Nike,

which invests heavily in creating

and marketing a culture around their

brand and products in China.

Another popular word in Chinese

is

bourgeois. If you ask a Chinese to

describe such a person, you will

almost universally hear them

described as young, single, urban

women under 30, fond of Starbucks

three, four, five & six

Ingroup and outgroup / Youth tribes

and their elders / Identity, lifestyle,

and culture / Seeking the good life

The challenge with the Chinese

consumer is that there are so many

different segments to consider. Wethink two of the most valuable

distinctions to make are 1) between

rural and urban Chinese, and 2)

between the youth and their elders.

However, below we will tend to focus

the discussion on the latter: the

differences between the rare

generation and their parents and

elders. What is their middle class

dream? What do they want? How

are they different? What is the goodlife that they are seeking?

Chinese youth and young adults

under 30, to put it bluntly, are

fundamentally different from their

elders. They are typically only

children (born under the one-child

policy) whove grown up without

experiencing major political turmoil

(the Tiananmen Square Massacre

perhaps one exception) during times

of continuous economic growth and

having relatively more freedom to

make personal and professional

choices. They are the pride of their

families, often overindulged and

spoiled rotten (Little Emperors),

given the best of everything their

families can give them, because their

parents are investing all of their hope

in the future success of their one

child who will carry on their family

name. These youth are ambitious,

energetic, modern, individualistic,

creative, and optimistic. They have

attitude and personality, are savvy

and complex, are proud to be

Chinese, and are constantly

experimenting with self-expression

and identity through consumer

choices. They have no instinctive

aversion to borrowing or

accumulating debt, like their elders.

They are obsessed with the latest

fashions and gadgets. Newness and

novelty are important values to themas they want to keep up with styles.

This means they cant always wait to

save up their money to buy the

things they want. They have to buy

them now, before its too late and

theyve gone out of vogue!

While highly individualistic and

self-expressive, their desire to

be different is not quite the same

as in the West. As Ian Donahue

explained it, Chinese youth sociallytend to resemble the American high

school clique culture. Social

acceptance to a group, or tribe as I

might call it, is critical. Being an

independent renegade or loner is not

desirable. Remember, these are

also mostly only children, and to a

certain extent there is a high degree

of loneliness or isolation as they have

grown up without siblings. They

seek acceptance and companionship

from others.

Influenced heavily by Korean and

Japanese trends, as well as American

products and styles, you will witness

many different types of groups or

tribes forming. Donahue mentions the

two most apparent ones as the

Party and Club group of youngsters

and the Young Professional as

another major group. The former

tends to work just enough to pay for

their night time lifestyle. They care

about fashion, clubs, music, and

socializing. They might convince their

parents to buy them a nice car, or hit

up grandma and grandpa for cash.


18/33


coffee and Hagen-Dazs ice cream,

who typically spend 1/3 of their

income on bars and restaurants, 1/3

on shopping for brand-named

clothing, have an aversion to saving

money at all, love watching European

art performances and listening to

Italian violin, and have Van Gogh

paintings hanging on the walls of their

apartments. They appreciate the

value of design and lust after the

latest trendy foreign products (iPod,

Miss Sixty jeans, Gucci, Chanel), but

have to save up for some time to be

able to afford one or two of these

luxury items. These women seem to

enjoy the experience and atmosphere

of being out and about in expensive

clothing, sipping coffees, and view

themselves as rather elegant. But, the

term is also used somewhat

disparagingly by other Chinese youth.

Yu, Chan, and Irelands

identification of four personas

among the urban youth of China

(from Chinas New Culture of Cool),

included: 1) Ding Li, The Playgirl, 2)

Wang Liang, The Striver, 3) Chen

Hong, The Modern Conservative,

and 4) Li Hua Min, The Rule Breaker

or those who are sometimes called

the or hooligans.

There are some clear consistencies

between Donahues more general

assessment of the youth market and

the Cheskin teams four personas.

The Playgirl and Rule Breaker tend to

cluster with the Party and Club-going

tribe, though the Playgirl tends to be a

younger teenager, working a low-end

job in something like retail, interested

in friends, boys, fashion and

shopping. She aspires for luxury items

in her life eventually, though she

doesnt think a whole lot about the

future yet. The Rule Breaker is usually

older, perhaps not having succeeded

in entrance exams for the university,

and now leads more of a hardcore

party lifestyle at night, drinking,

dancing, listening to deejays, etc. He

gets money from his family to support

his lifestyle. He might look more like a

street punk, with dyed hair, tattoos,

and piercings. He sleeps in late and

gets up in the afternoon to hang out

until he parties the rest of the night.

Both of these groups/tribes/personas

are similar in that they will have a

unique set of preferences, styles,

brands, and definitions of whats

cool or fashionable.

The Striver and the Modern

Conservative might cluster together

into the Young Professional segment

described by Donahue. The Striver

is a young professional, very

hardworking, ambitious, and

The Wu Zi (5 Zi): Aspirational motivators for the Chinese middle class (typically, male)

dream, Source: Anovax

aggressive. He is driven by attaining

fame, power, and money. He wants

a cool car to reflect his status and is

passionate about technology and

gadgets. He spends a lot of his free

time on his computer, watching

movies and listening to music

(mostly free or bought on pirate

discs on the street), playing games,

and reading about and engaging

socially online in his passions. His

mobile phone, as with all the other

young people in China, is his

most essential tool and symbol of

status when away from home. He

strives for the good life that he

believes is possible through the

formula below for achieving success

(primarily among those in the Tier-1

and Tier-2 cities):


19/33


As you can see, this is clearly the

more male perspective on what

constitutes the good life. In a country

where there are 40 million more men

than women, these young men are

actually in serious competition to

achieve their version of the Chinese

dream. Many feel a great amount of

pressure to earn enough income,

own a nice car, and have a house

before being considered eligible or

desirable for marriage.

The parallels between this

perspective from American hip-hop

artists to the new Chinese

hip-hop artists is incredible. The

perceived keys to male middle class

(heterosexual) success are

seemingly identical. Compare Young

MCs lyric from his popular hit Bust

a Move to the freestyle rap of Wang

Li of Dongbei, mentioned earlier:

Got no money and got no car, then yougot no woman and there you are. Young MC

If you dont have a nice car or cash,You wont get no honeys,Dont you know China is only a heavenfor rich old men,

You know this world is full of corruption,Babies die from drinking milk. Wang Li

On the flip side, there is also a

growing trend of female

empowerment in China. Many of

these young women are interested

in savoring life and the things you

can buy and not particularly

interested in having children.

The Modern Conservative is

similar to The Striver in terms of her

desire to achieve professional

success. She is socially more

conservative and reserved, and

possibly more likely to be one of the

so-called Little Emperors. She is

under tremendous pressure to please

her parents and live up to their

standards, but though she studies

and works hard, she may not want to

be competing to the be the very

best. She wants to live a rich and

fulfilling life, which she defines

differently from her parents, where

she seeks more balance, though she

may be too reserved to admit this to

them. She follows the rules and tries

not to stand out too much, but she

values her personal freedom to

choose a career and eventually

choose to live however she likes. She

is less likely to want to have children,

though shed like to be married and

lead a life of balance between work

and personal leisure and travel.

These are just some of the few

segments beginning to describe the

large and complex group of 327

million young people in China. These

tribes form their own unique social

cultures, where the products,

fashions, and styles they strive for

tend to be more consistent within the

ingroup. However, as a rule of thumb,

brand loyalty within these tribes is

very low in China, because all brands


20/33


21/33


I think we can all agree then, at

this point, that Chinas urban youth

(15-30) are and will become a

unique and transformative force, vital

to spurring consumption in the

Chinese economy. And, in doing so

they will also lead social and

cultural changes as they exercise

their significant collective purchasing

power. The key to success,

according to Donahue, is that these

young consumers need to be

able to understand how the products

marketed to them are beneficial to

and fit into their lives and the

lifestyles they want to lead. Otherwise,

they will just be passing fads.

So what about their elders? The

older generation of Chinese

consumer (35 and up) remember a

time when they had next to nothing

and few if any choices. While they are

excited with the quantities and

varieties of foods they may find at a

hypermarket, they are generally

struggling to understand all the new

products and brands which theyve

never had a need for before.

Consequently, they are very resistant

to change or experimentation with

new products. They feel that their

lives are good enough, and their

interests are in providing for their

child. Raising a child has become

more expensive, college tuition is

expensive, and their child has many

wants and needs. They may wish to

spend extra money on developing a

talent in that child (music, sport, etc.)

in the hopes of making him/her a

more exceptional student who will

succeed in entrance exams andpursue and education leading to a

good career. Children in college rarely

get part-time jobs, and if they do,

they tend to be low paying ones.

Entry level jobs after graduation also

are low paying, so parents frequently

support their child with housing

costs, and especially for a male child

by buying him a car. The net result is

that this older middle class

demographic is extremely challenging

to market to.

Qi Fei, the graduate student from

Dalian, says her father is not at all

tech-savvy and is frequently

overwhelmed with technology. When

she left Dalian to go to graduate

school in Chicago, she strived to

teach him to use MSN, video chat,

email, and the computer in general

so that they could communicate.

But, today he still struggles with

these technology products and

wouldnt dream of buying something

online. On the other hand, his

generation is very happy about the

options they now have in clothing,

shoes, and accessories.

As Qi explained, Almost all

technology products are geared

toward young people. I dont believe

manufacturers are doing a good job

at selling to people like my dad and

providing them support. They always

feel frustrated so they dont use

these things actively.

For many of the older generations

of Chinese, now confronted with

more consumer choices than ever

before in more areas of life than ever

before, they are simply poorly

equipped for making confident

decisions in the face of over-

whelming options. This is a potential

source of stress and confusion

that product developers and

marketers should be sensitive to. For

example, consumer advocacy,information resources, and peer

review and filtering resources could

be of tremendous value to these

consumers. That is, if they are willing

to adopt the technologies that offer

such resources.

On the other hand, another

graduate student from Beijing, Ye

Pinxia, says that its easy for the

older generations to make choices:

they just compare prices and get

the cheapest one. She shared with

me another story about how she

and her mom went to the big

electronics marketplace to get her a

new mp3 player because the CD

player shed been using for 8 years

had broken. While Ye urged her

mom to get something cool and

fancy, her mother was unmoved by

the thousands of choices, features,

and designs. She wanted something

that played mp3s, had a radio, and

was cheap. End of story. After

comparing prices among many

vendors, she got a non-descript

device for 140 yuan (about $20). Ye

is pretty certain its a shanzhai

product too.

As we mentioned before,

traditional Chinese attitudes toward

saving are deeply ingrained. Among

the older generation, who are used

to using cash almost exclusively, you

always save first and then spend. Qi

feels that the notion of buying on

credit is actually quite foreign to

many older Chinese, in fact, and that

too many people have limited

knowledge of how credit cards work.

She knows people who have used

credit cards for a few months and

then cancelled them after too many

unexpected charges. Chinese banks

in general have not been very

customer-centric, and there may still

be a lot of mistrust among

consumers when it comes to creditand other banking products.

In terms of associating products

with particular lifestyles or cultures,

the older generation are less likely to

be swayed by the designs of

modern global brands, which


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younger generations tend to

associate as being cool and

different. For Ye Pinxia, a Macbook

or Apple product is cool, not just for

its design but because so few

people in China have them. Even

with her cell phone, she does

research on which stickers her

friends have placed on their phones

to make sure she doesnt end up

getting the same stickers. However,

for Yes mom, she f inds the products

which appeal to more traditional

Chinese styles more appealing.

Mom recently told her that an HP

laptop skin designed by a Hong

Kong designer with a huge Chinese

flower and lots of red and gold

ornaments was her favorite.

In the end, Chinas urban youth

tend to be more interested in

brands and products that project a

lifestyle or image theyd like to

identify with or aspire to, something

new and exciting, and not

necessarily purely about traditional

luxury or status-oriented brands.

With the older generation, the

traditional values, colors, designs,

and brands with strong reputations

tend to be more appealing. But for

all, being a savvy shopper will

become an essential life skill.

When all is said and done,

though, each type of consumer will

have his/her unique set of

preferences and needs. As the

ancient Chinese proverb goes:

Ancient Chinese proverb


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seven & eight

Competition: national pride and

national brands + the shanzhai

industry

At its core, Chinese society is all

about self-interest. It is very strong

on competition but very weak oncooperation. Despite its admission to

the WTO in 2001, China still hasnt

quite gotten its act together in terms

of respecting intellectual property

rights. Historically and culturally, they

just have never had major qualms

about stealing ideas.

Commenting on the current

situation with Google and the

Chinese government, Oded Shenkar,

a professor of business managementat the Ohio State Universityand

author ofThe Chinese Century,

stated in a New York Times piece

that, The U.S. is the worlds greatest

innovator and China is the worlds

greatest imitator.

Shuang Li has witnessed in the

past 8 years that Chinese companies

are taking the influences of product

design from Japan, Britain, France,

and other countries, but starting to

design their own unique versions and

takes on them to better suit the

tastes of traditional Chinese culture.

However, in the realm of software

and user interface design, she feels

they are still mainly imitators with a

lot to learn. Her experience trying to

instill good human-computer

interaction (HCI) principles at Sina.

com was frustrating. People here

like these things, the cartoons, small

animations, lots of blinking but in

the past few years they are picking

up and starting to build serious

applications, for banks and real

estate companies, and they are

drastically improving. Nonetheless,

she says if you compare two

bookstore websites like Amazon.

com with Dangdang.com, youll see

many violations of basic HCI

principles in the latter. It will take time

for the domestic brands to learn.

In James McGregors book, healso is pretty brutal about the fact that

your technology, trade secrets,

designs, and know-how will be stolen

and/or copied (and probably even get

to market first). Guaranteed. China, he

says, is not the legalistic society that

typifies the West. If a Chinese wants

to do something, he will find a way to

skirt the rules or laws. (see quote below)

But, dont forget lesson #7 about

the tremendous national pride of theChinese. They do not wish to be the

worlds factory any longer. They do

not want their consumers to

embrace and adopt only global

brands. As they learn and modernize

Any technology company

doing business in Chinashould assume thatits designs and productsare being copied. Chinastech sector is built on

reverse engineering foreignproducts. James McGregor

and their economic power continues

to grow, China is fully intent on

building and growing its own national

brands to compete globally. Few are

well known at this point, besides

Lenovo and Haier. But there are

major competitors growing

domestically in China, like Huaweiwhich is beginning to rival Cisco.

And China has been working hard to

create their own microprocessors

to feed their tremendous demand for

computing power.

In other industries, China is even

taking a lead, like new, clean energy

technologies, for example. Theres an

excellent piece by Evan Osnos on

their 863 Program in a recent New

Yorker article.Another rising domestic brand in

China is Li Ning, a sporting

equipment and apparel company

that is taking on Nike. In my

conversation with Ian Donahue from
http://www.lining.com/EN/home/index.htmlhttp://www.newyorker.com/reporting/2009/12/21/091221fa_fact_osnoshttp://www.newyorker.com/reporting/2009/12/21/091221fa_fact_osnoshttp://www.wired.com/magazine/2009/12/st_essay_china/http://www.nytimes.com/2010/01/14/business/global/14western.html?hpwhttp://www.amazon.com/Chinese-Century-Rising-Economy-Balance/dp/0131467484http://www.osu.edu/


24/33


Anovax, he explained their

successful strategy of targeting the

lower tier cities first by offering

products with styling and looks

reminiscent of global brands like Nike

but at a fraction of the cost. They are

now one of Chinas most well known

and well regarded brands, working

their way up from the lower-end

consumers and now hoping to

challenge Nike head-to-head in

some Tier-1 and Tier-2 cities.

Of course, Nikes response or

approach is to do what they always

have done: emphasize their

technological advancements and

superior features which distinguish

their product, and do a heck of a

job marketing themselves. But, Nikes

are affordable only to the richest of

the Chinese consumers. Never-

theless, theyve done a remarkable

job of creating a community and a

culture around their brand. And, as

mentioned in lesson #5 above,

Chinese youth are drawn to

aspirational products and brands that

they can identify with, products that

evoke a lifestyle, culture, and identity.

Will more Chinese brands become

dominant global players? Yong

believes that the Chinese are confident

that there will be a homegrown Apple

or Microsoft eventually.

The fact remains, however, that

the Chinese consumer on average,

is still relatively poor by Western

standards. Based on the National

Bureau of Statistics of Chinas 2008

Yearbook, this is what the

breakdown of urban household

consumption was per capita in2007. The data are broken out into 7

groups: the poorest 10%, the

second poorest 10%, the 2nd

quintile, the 3rd quintile, the 4th

quintile, the second wealthiest 10%,

and the wealthiest 10%. Keep in

mind, also, that the average urban

citizen earned 2.6 times as much as

the average rural citizen, while

consuming 3.6 times as much on

personal household expenditures.

As a result, the amount of

consumption by rural folks on many

of these consumer categories are

incredibly low. Ive converted to US

dollars to give you a better sense of

the relative difference with American

citizens. (see image below)

Since we at Artefact are

particularly interested in technology

products, we then broke out the

transportation and communications

Source: National Bureau of Statistics of China, Analysis by Artefact (click to enlarge)

category for urban households. Keep

in mind that as of 2007, automobile

ownership was quite low overall for

China with about 6 cars for every 100

urban households. For the high

income urban households in the 9th

decile, there were nearly 12 cars per

100 households. For the highest

income urban households (10th

decile), there were slightly more than

25 cars per 100 households. We

were unable to break down the data

in the transportation and

communications category to any

more granularity, but lets see how the

numbers turned out: (see image page 24)


25/33


Source: National Bureau of Statistics of China, Analysis by Artefact

As you can probably conclude

from the chart above, the average

Chinese urban consumer is

not currently spending a whole lot

of money per year on

transportation and communication

products or goods. Cars and

electric bikes aside, even mobile

phones are hard to come buy

for $131 if you are in the middle

class. Mobile phones in China are

not subsidized by carriers;

consumers must pay full retail

prices. Suddenly it becomes a little

easier to understand why buying a

$300 or even $500 mobile phone is

a major expense.

And, thus, shanzhai products

come in to fill a market need for

more affordable technologyproducts (or fashion, shoes, etc.).

Get something that looks

more or less the same, works

more or less the same, has the

same features, but costs half the

price or less.

Literally, mountain stronghold,

but it has come to mean the pirated

or knockoff goods, especially

electronics, made by those who

operate far from official control.

For the aspiring middle class

consumers, fake products are just

fine. Sometimes theyre even better

than the real thing. Li describes the

typical Chinese consumer decision-

making process as follows:

1. Is someone else using it?

2. Can I afford the full price one?

3. Is the fake alternative available

and being used by lots of people?

4. If so, I can get a fake one and

not lose face since so many other

people have them.

5. Finally, for small electronics,

phones, and watches, often the

more features there are, the better.

Because, culturally, people like to

show off the bells and whistles.

Another reason why Chinese

consumers are generally okay with

shanzhai products is that getting a

good deal is important in the culture.

It shows you are an intelligent, savvy,

smart shopper.

So, Chinese consumers do not

have big hangups about pirated or

fake products. And fake everything is

available around every corner, in

more styles and variations than you

can possibly imagine.

According to Shaun Reins firm,

CMR, they estimate that as many

as 3.5 million Chinese consumers

have at one point owned an iPhone.

He contends that 2 million real

jailbroken iPhones were smuggled

into China before China Unicoms

debut of the phone on October 30,

2009. Many of the real ones already

resold on the secondhand markets.

Meanwhile, China Unicoms

predictions of 5 million handset salesin the first few years is looking

unlikely, as supposedly only 5,000

have been sold. The reasons for this

Literally, mountain stronghold, but it

has come to mean the pirated or knockoff

goods, especially electronics, made by those

who operate far from official control.
http://www.forbes.com/2009/11/06/iphone-apple-china-leadership-managing-failure.htmlhttp://www.forbes.com/2009/11/06/iphone-apple-china-leadership-managing-failure.html


26/33


have been explained above, but

basically can be summarized as

Apple and China Unicom didnt really

understand their target consumers

and their needs and preferences.

But besides the jailbroken iPhones

in China, there are the HiPhones,

iPones, iPhone Airs, iPone Airs, and

hordes of other shanzhai phones

trying to capitalize on the appeal of

the Apple brand and product, with

some estimates as high as 10-13

million so-called iPhones. Heres a

gallery of a small sampling of fake

iPhones and other shanzhai phones.

Or someone proudly showing off her

shanzhai iPhone and iMac (sic).

And, it only takes a small

workshop with 5-10 people to

produce these devices. Theyre all

over Shenzhen, within 100 miles of

all of the suppliers the real phone

companies are using. So, they just

buy the same parts and assemble

and modify them into all kinds of

strange frankengadgets. By avoiding

taxes, these little enterprises can sell

shanzhai devices very cheaply and

still make a handsome profit.

Gartner estimates that more than

20% of phone sales in China are

shanzhai devices. So, not only are

these products competing with foreign

global brands, but with legitimate

domestic Chinese brands as well.

Moreover, the shanzhai industry is

exporting their wares too, in large

numbers. Their biggest destination is

India, but they also export to

developing countries in Eastern

Africa, Asia, and Latin America.

iSuppli estimates on the number of

gray market wireless handset

shipments have grown from 37

million units globally in 2005 to 145

million units in 2009, with growth

expected to continue. They

anticipate 192 million fake phones

shipping worldwide in 2012. If you

combine those figures with Gartners

figures on global handset shipments,

youll discover that 4.53% of all

mobile handset shipments in 2005

were shanzhai phones. In 2008, the

proportion increased to 8.64%.

That means that all together,

shanzhai phones had about the same

market share as LG or Sony-

Ericsson!

And, its not just phones, laptops,

purses, or sneakers. According to

the Annovax website, Microsoft

estimated that 82% of their Windows

operating systems being used in

China in 2007 were pirated.

Counterfeit products are produced in

every product category, from engine

lubricants to mobile phones to food

and beverage. Even shanzhai

tissues for your nose.

The better your reputation, the

more likely you are to have your

products counterfeited.

Of course, to look on the positive

side, one interesting aspect of the

shanzhai industry is the entre-

preneurial spirit and creativity of young

Chinese individuals or small groups of

individuals. It makes one wonder if

they could potentially take their DIY

approach and legitimize it and cater

to more demanding niche audiences

making customized or bespoke

gadgets? Think the Long Tail.

Lisa Yong, in fact, believes this is

the next logical step for the smart and

progressive entrepreneur. To evolve

their design process into one that

becomes a highly customizable

experience for the brand or the

product. Not unlike the modding

scene in the US for computers,

laptops, or cars, she says. The

beauty of all of this, she believes, is

that it is all happening organically,

from the street, the bottom-up, with

these small workshops in Shenzhen

or with other entrepreneurial business

people who want to co-opt whats out

there and make it uniquely their own.

Bottom line for you: your stuff will

Documents

Artefact Designing for China