Wal-Mart not bullied by China authorities - Shaun Rein

Shaun Rein

Unlike Wall Street Journal's columnist Bussey Shaun Rein does not think Wal-Mart - or any other foreign retailer in China - is bullied by the authorities. It's Wal-Mart who betrayed its customers. Foreign retailers gain more and more market share, he tells in CNBC.

Shaun Rein:

Contrary to Bussey’s position that the government is treating foreign retailers unfairly, the largest hypermarket chains, Wal-Mart, RT Mart, Carrefour,Tesco, Auchan, Lotus, are all foreign owned because consumers trust foreign retailers more not to cut corners. Combined, they control the majority share of the modern retail market. Where are the barriers to foreign retail investment? 

Most consumers, before the incident, told my firm they “trusted” Wal-Mart to sell good quality products. The government supports foreign retailers because they positively impact the food supply chain. So when even a trusted Wal-Mart sells bad products, it destroys public trust more and the government needs to make an example of them. 

As one 30-something woman shopper in Shanghai told me, “If Wal-Mart did this, I shudder to think what domestic chains will do. The government needs to stop the problem now by arresting people, not just issue little fines.”

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.

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What about your contingency plan? - Bill Dodson

Bill Dodson       

Is your company ready when China explodes, falls into piece, or does both, Bill Dodson wonders on his weblog. What happens in your company when the natives get restless?

Interestingly, most of the rejection has been of Asian companies; expressly, Taiwanese (Foxconn) and Japanese (most recently the car plants in the south whose workers went on strike while Foxconn staff was suicidal; and the rampant protests in Chinese cities against the Japanese in 2005). Mostly, Western companies, which in general tend to pay their workers more than their Asian FDI counterparts and – again, generally – tend to treat their staff with a bit more respect than Asian investors – have gotten off with little more than job-hopping youngsters who will quit and join another company for a 50 RMB raise in salary.
Still, that’s not to say that Western companies should be complacent about social upheaval in China that could affect their operations. Recall the boycotts of French brands and retailers in 2008, when the French government made gestures that drew the ire of Chinese hardliners: Carrefour and Auchan had a tough time of it while thousands of Chinese protesters all but ransacked the hypermarkets. American businesses must remember the ritual stoning of the American embassy in 1999 (oops, we bombed which embassy?) and then again in 2001 (spy planes like us).

Bill Dodson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Buying a Joyoung soya milk machine (again in Mediamarkt)

One of the nice things of running around in Shanghai with a local family is that you can study purchasing patterns on a really micro level. From even buying one product, you can get very useful information. For the Shanghainese this behavior is part of their daily routine, so they cannot imagine outsiders have to get used to that. For foreigners doing business in this highly competitive climate, those stories hold a few valuable lessons.
Today we bought a JoYoung soya milk maker in Mediamarkt, but rest assured that much water has gone through the Huangpu River, before the sales people could close a deal. It says much about how difficult it is to sell to Chinese - especially if you ever think of making a profit.
Interest was triggered off by a demonstration at the very busy Lian Hua Carrefour store. Triggering off interest was only the start of a lengthy process. At the stand we tasted at least four different combination of soya milk drinks that had been prepared with the machine. I thought they tasted equally disgusting, but our Chinese side decided it was worth more investigation after we had spent about half an hour at the stand. Cost of this Joyoung soya milk machine at Carrefour: 399 RMB. (Say 40 euro)
Since we passed by in Mediamarkt, we decided to check. The same Joyoung soya machine was there 100 Rmb cheaper: Carrefour was 30 percent over the Mediamarkt price. It was obvious that Carrefour had lost this potential deal. Carrefour offers to pay the difference, if you can buy a similar product for a lower price. But who wants to go back to Carrefour if you find a cheaper product elsewhere? Only if you are a very loyal Carrefour shopper and Shanghainese shoppers have not yet discovered the word loyalty when talk about retailers. (For manufacturers that might be different though.) Also at Mediamarkt, very well informed sales staff, with a lot of patience for demanding customers.
Next was Taobao.com, the popular e-commerce service that is increasingly used by Chinese customers. They offered a similar looking machine for 256 RMB, that had been bought by 860 customers over the past week and by thousands over the past months. That called for a family council, since mostly they would drop any deal for a cheaper offer, no matter who makes the offer, for a similar product.

Mediamarket by Qiao-Da-Ye賽門譙大爺 via Flickr

In this case it was different. The machine was needed for an upcoming trip to Europe, so timing was an issue. Second, they were not sure Taobao would offer genuine products. They would trust foreign brands like Carrefour and Mediamarkt (not their Chinese competitors) more in their policy of keeping fake products out.
If there would have been more time at hand, they would have gone for Taobao, do they could check the quality. Taobao offers to take products back within 15 days. (For other products, like the CGG boots, they would have less problems with fakes, as we might see in another upcoming story.)
So, online sales are going to be the main challenge for Mediamarkt too, as well as their domestic competitors. Online sales are going up fast and especially for the older segment of consumers building up trust is key. When online providers can do that, they will beat the offline electronic retails, foreign and domestic. Both Mediamarkt and Best Buy are only minor players and will have a tough challenge in building up a sizable business.

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Learning from the mistakes by others - the WTO column

Half a decade ago I met a former editor of the Harvard Business Review here in Shanghai and asked him why there were so few case studies about companies in China. There was one famous one about Qingdao's Haier, but that was done in 1995 and there were very few others. Harvard Business School developed this new teaching method where future business leaders would only get case studies, in stead of solid bookkeeping and other traditional elements of their business training. Other business school have taken over that strategy, at least in part. The case studies would feature mostly a major company that faced a "challenge", as disasters are called in the MBA-jargon. The case studies would have an open end, allowing the students to come up with their own solution. The cases were in theory fictive, but in most cases it would not take a lot of trouble to identify the real company behind it.

"We did not think we could learn from those cases in China," the former editor said. "There is nothing to learn for us in China."

I was shocked at the time, since I had had the opportunity to witness some of the corporate challenges in China very closely and I certainly thought others could learn from them. Since then the attitude has changed dramatically and the number of business case studies on China has exploded dramatically. No business school in the world can allow itself not to have a China-program.

A newly released set of China case studies "China CEO: A Case Guide for Business Leaders in China" by Juan Antonio Fernandez and Liu Shengjun is a welcome addition to those case studies. The book is a follow-up of the already very successful China CEO: Voices of Experience from 20 International Business Leaders by Juan Antonio Fernandez and Laurie Underwood, where 20 China CEO's got their opportunity to explain their successes. The main weak point of the first China CEO's book was of course the lack of distance and self-reflection those CEO's sometimes could show, but that has been greatly made up in the second book.

It documents some of the 'causes celebres' in recent China business history, like the early failure of the Peugeot operation in Guangdong, the GM versus Chery case and one of my all-time favorites: the illegal expansion of Carrefour in its early years in China.

The official story is always that foreign companies are in the long run better off when they stick to the rules and regulations of the country they operate in. I then always use the case of Carrefour, the French retailer, to point out that this rule is not set in stone. Carrefour went, with the blessing of local authorities, 100 percent against the restrictions the central government had imposed on the industry. While they were not alone in ignoring those rules - Taiwanese and Hong Kong companies did likewise - other foreign competitors watched their technically illegal expansion with amazement and shock, since it gave the French a huge competitive advantage. Carrefour ignored all the warnings it got.

In the end Carrefour got into trouble and was ordered to stop its expansion for six months. A Carrefour manager at the time summerized me their strategy after they really got into problems: "We went to Beijing and said we we sorry. Then it was ok." The competion was even shocked as the government allowed Carrefour to get away with their illegal practises.

In the book both participants in the process, foreign and Chinese, give their viewpoint and each case it commented by some experts, both from major business schools and experienced people in the industry. I enjoyed it.

Fons Tuinstra

China CEO. A case guide for business leaders in China, by Juan Anthonio Fernandez and Liu Shengjun. John Wiley & Sons, 2007. ISBN 9780470822241.