Attention McKinsey: “Made for China” is Nothing New

In the Hutong
Considering the Consequences
2102 hrs.

Catching up on my reading over at the Harvard Business Review blogs, and read an interesting piece by Max Magni and Yuval Atsmon, two consultants for McKinsey in Shanghai entitled “From Made in China to Made for China.” Dan Harris and Faye at enovate have written well about different aspects of the article.

I enjoyed the general direction of the piece, but was surprised to read this bit:

Foreign companies are finally wooing Chinese consumers either by designing products for them or by unveiling global brands first in the country. In September 2010, France’s Hermes will open its first Shang Xia — which translates roughly as “from top to bottom” — store in Shanghai to mark the launch of a line of ready-to-wear clothing and crafts inspired by traditional Chinese motifs. Last month, America’s Levi Strauss launched, with much fanfare, a global jeans brand, dENiZEN, in the same city. Earlier in the summer, General Motors and SAIC announced their plans to introduce a new automobile, Bao Jun (“prized horse”), for about RMB 50,000 ($7,400), which is lower than the price at which the Chevrolet sells in China.

Old Wine, New Bottle

The authors imply that the strategy of creating a product especially for Chinese consumers is somehow new, and that Hermes, Levi’s, and General Motors are vanguards among global brands in taking this route. As two China-based consultants with a firm as prestigious as McKinsey should know, there is nothing new about this idea, and the firms they cite are far from being the first to follow this path.

In fact, global brands have been following this approach to varying degrees of success for some time. Just a few examples:

  • KFC has been offering menu items like its “Lao Beijing Zhan’r” (fried chicken strips, lettuce, onions, and plum sauce wrapped in a tortilla) for nearly a decade;
  • Motorola developed its MING line of smartphones in China specifically for Chinese consumers, and launched the device in China in March, 2006. The device and its successors – also local creations – were huge hits for the company in China, and were eventually exported as well;
  • Volkswagen modified its B2 line (Passat/Quantum) to create a new car for China, the Santana. The Santana was a big seller for VW, and eventually made it to Japan, Brazil, and Mexico as well.
  • Procter & Gamble has been offering toothpaste products designed for local palettes for over five years that I know of, likely longer.

There are more, but you get the point.What is more, none of this dives into the vast host of products that have been heavily modified or localized for China even though they were not created here.

Lead with the Unknown?

A few observations.

First, none of the companies mentioned above is a newcomer to China. With the exception of VW, all of the companies in the above list were in China for some time before launching products specifically for China. In other words, when they started out in China they did so with global products, but began making products for China only after gaining considerable experience and insight here.

(In VW’s case, the company jumped into local production rather early. What lowered the risk of the move was that the Santana was based on the company’s B-series platform, and shared enough commonality with the Passat and Quantum that the company limited the risk of leading with a new marque.)

Second, however, the authors use the experiences of the companies above to suggest bypassing the “long and cumbersome process” of introducing a product from a home market in China and go right to creating products made for locals. In addition to ignoring the successful track record of companies entering China, it disregards the much of the history of successful globalization.

Volkswagen first succeeded in America with the Beetle, a car designed for Germans a quarter of a century before; Levi’s 501 jeans were a global favorite long before dENiZENs, Coca-Cola doesn’t seem to fiddle with its core product anywhere in the world (although packaging might change); Motorola RAZRs, Nokia 11oos, Apple iPhones, Honda Accords, Big Macs, Snickers chocolates, Louis Vuitton handbags, and Kleenex tissues were among the hundreds of global products that succeeded brilliantly in China with minimal or not change at all, even in the brand names.

Third, leading in a new market with a new product only serves to multiply the uncertainty of the market entry – uncertainty about the market, uncertainty about the product. If the product doesn’t go over well, is it the problem of the product, or is it a market-specific issue? If it does go well, what has been learned for the future?

The authors seem to assume a degree of perfection of information that simply does not exist in the real world, no matter how much market research you do and how many expensive consultants you hire. Success in any market relies on educated guesses and the ability to endure through a period of trial and error before getting your product right. Sometimes you stumble into it by dumb luck.

To do that cheaply means starting out be selling what you’ve already got in the bag, and applying what you learn to localize, modify, and finally create from scratch the right products and services for the market.

Of course, McKinsey probably wouldn’t make much money advising clients to throw a whole bunch of stuff at the wall and see what sticks. On the other hand, maybe, if they called it “The Vertical Planar Adhesiveness Stratagem…”

Richard Ford

There is a lot I could say he in agreement with you. But won’t due to NDA’s. The main point for me is the “gestation” period. Be that by a company or a product or a manager here. A lot of time is needed to be invested in understanding China before anyone can even start to think about getting clever (local) with products and services.

David Wolf

One must wonder, musn’t one, how often such advice coming from the likes of McKinsey is designed to place clients in the position to say “oh, gee, but we have no idea which products to create for China. Maybe we should hire McKinsey to tell us.”

Don’t get me wrong – I think McKinsey can offer some essential assistance on business structure and strategy in the right circumstances, and that plenty of SOEs are going to need their help. But in my experience, they occasionally succumb to the temptation to reach into fields in which they are not quite as strong, where brain farts can start to look like real insights.

Richard Ford

Just another symptom of the “China Consultant-itis” that seems to plaque the borderlands of business.

In Australia it appears that immigrant Guangdong people that have infested Austrade and also all the local “China Entry Consultancies” and filled all their ranks.

Most apart from being ethnically Chinese have little in common with China – let alone stepped foot back in the place or run businesses on the ground.

I think that there is a huge market here for actual “real world results” oriented consultancies to flourish.

David Wolf

Couldn’t agree more. Fascinating that the level of Asia-savvy at the top American universities tends to drop sharply once you move east of the Mississippi. There are exceptions, of course – Ann Arbor, the Woodrow Wilson folks at Princeton, Huang Yasheng at MIT and some of the smaller New England colleges. But it amazes me how often institutions like Harvard, Yale, Cornell, Columbia, Georgetown, and Wharton (and especially their b-schools) show how little they understand about China.