What did Media Markt do wrong? - Ben Cavender

Ben Cavender

The German electronic retailer Media Markt announced now officially it will close its China stores in April, after a two year long expedition into the China market. Retail analyst Ben Cavender sums up for the China Daily what Media Markt did wrong. 

The China Daily:

Media Markt's exit from the promising but elusive Chinese market reminds industry insiders of Best Buy Co Inc's departure a couple of years ago. 

The electronics retailers' disappointing experience in China highlights just how difficult it is to build a new retail brand in the country, especially in the consumer electronics space, said Ben Cavender, an associate principal at the China Market Research Group. 

There is a tremendous amount of competition from well-established domestic brands and consumers' attention is shifting very rapidly to other shopping channels, like the Internet, Cavender said. 

Given the high cost of operating large footprint retail stores in first-tier Chinese cities, their decision to leave the market is not surprising, he added... 

Analysts said that these examples do not necessarily indicate a failure of Western retail models, but only show the companies' inability to better understand the Chinese market. 

Understanding what Chinese consumers really want should be the companies' most important task, they said. 

"Where many companies fail here is looking at the costs of operating their business. Media Markt, with a massive flagship store in Shanghai, was a good example. 

"The store ended up costing a tremendous amount of money, while effectively becoming a showroom that consumers could use before buying the products online from other sources," said Cavender.

More in the China Daily.

Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Failing foreign firms in China was also the subject of the China Weekly Hangout on January 30, with panelists +Richard Brubaker of Collective Responsibility and +Andrew Hupert, expert on conflict management in China. Moderation: +Fons Tuinstra  of the China Speakers Bureau. Including references to Apple, Mediamarkt, Foxconn and many others.

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Failing foreign firms - China Weekly Hangout

KFC Localized Logo Beijing China (Photo credit: Wikipedia)

No month passes without yet another foreign firm trying to enter the China market throws in the towel: they do not make it. The China Weekly Hangout dives on Thursday 31 January Wednesday 30 January into the backgrounds of those failures. Are Chinese governments giving foreign firm a harder time than their domestic competitors. Or is it stupidity on the foreign side who do not get what the Chinese consumers want? Or a combination of both.
Will they survive competition, food scandals and increasingly critical customers?
On Thursday CEIBS-adjunct professor Richard Brubaker will join us and we will discuss both KFC and Apple at length. Yes, both are still successful, but will they hang on?

Last week, in our China Weekly Hangout on pollution, Richard Brubaker mentioned names of foreign firms who do well in China: Alstrom, Siemens, GE and others who offer the quality Chinese companies do not have. But the number of failures seems larger: Media Markt, BestBuy, Google, Yahoo, Caterpillar, B&Q, just to mention a few.

Update: who is next heading for trouble? We bet on General Motors, who is busy jeopardizing their relationship with their China partner SAIC. They should first talk to Volkswagen, who did a similar move in the 1990s.

Do you want to have you say too? Leave your questions at our event page (available here), or register for participation.

The China Weekly Hangout takes mostly place on Thursdays 10pm Beijing time, 3pm CET (Europe) and 9am EST (US/Canada). This week it will be on Wednesday. You can follow the discussion also on YouTube at our event page on here in this space.

Is this going to be your first Google+ Hangout and do you want to try it out in a dry run before participating. Send me an email, or add me to your Gtalk (if you use that).
Yesterday the China Weekly Hangout discussed how pollution affects the lives of those living and working in China. Participating, Richard Brubaker and Fons Tuinstra, president of the China Speakers Bureau.

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What did Starbucks do right in China? - Shaun Rein

Shaun Rein

Starbucks turned a nation of tea drinkers into coffee lovers. Business analyst Shaun Rein explains in CNBC what Starbucks did right to succeed in China: they went local.

Shaun Rein:

Instead of trying to force onto the market the same products that worked in the U.S. like regular coffee, Starbucks developed flavors, such as green tea flavored coffee drinks, that appeal to local tastes.  Rather than pushing take-out orders, which account for the majority of American sales, Starbucks adapted to local consumer wants and promoted dine-in service. 

By offering comfortable environments in a market where few restaurants had air conditioning in the late 1990s, Starbucks became a defacto meeting place for executives as well as gatherings of friends. In other words, Starbucks adapted its business model specifically for the Chinese, rather than obstinately trying to transplant everything that worked in America into China, as so many brands like Best Buy and Home Depot have done... 

Starbuck’s high pricing strategy of specialty drinks allows it to have its Chinese outlets to be more profitable per store in China despite the lower volume. Overall in Asia, its operating margins were 34.6 percent in 2011 versus 21.8 percent in the U.S.  Too many brands push for market share by cutting prices but in reality they should be aiming for margins. Not only does Starbuck’s premium pricing strategy fit market demands but it also allows it to regularly roll out higher margin specialty products like gift sets that offset rising commodity costs. As China’s urbanization rate nears 52 percent, companies need to put into place strategies to handle rising commodity costs.

More in CNBC

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Shaun Rein is the author of the upcoming book The End of Cheap China: Economic and Cultural Trends that will Disrupt the World. More about Shaun Rein and his book on Storify
. 

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