Silicon Hutong

China and the World of Business • China Business and the World

Silicon Hutong - China and the World of Business • China Business and the World

Concept of the Week: Urbanizing In Place

Urbanizing in placeconcept – the idea that China’s urbanization is not being driven entirely by migration from the countryside to the cities, but that large areas that Beijing’s statisticians might once have considered “rural” are now considered “urban.”

In-place urbanization could occur in one of three scenarios.

The physical area of a municipality has been expanded to include what was once surrounding countryside.

In the second scenario, a village that was once considered part of the countryside has now grown into a town that a demographer or statistician would now classify as urban.

In the third scenario, a group of villages in a given area are considered to be conglomerated as a single administrative entity and reclassified as a single town.

In these cases, China’s urbanization is taking place without migration, and presents a different set of policy, marketing, and personal challenges and opportunities than classical migration-based urbanization.

Shameless Plug Dept.: New Fast-Food Paper

Hutong West
Contemplating lunch
1253 hrs.

My most recent paper, this one on addressing the challenges facing fast food franchisors in China, “Jumping China’s Great Food Wall (pdf),” is now up on the Allison+Partners website.

Failing that, you can find the paper on here.

This is more of a practical paper than my last one, giving a quick overview of the uneven success enjoyed by fast food companies in China, and offering a series of prescriptions designed to avoid some of the more serious rocks and shoals, and mitigate the effects of many others.

Shameless Plug Dept: New Paper on Strategic PR in China


Hutong West
The cool before the heat
1855 hrs.


Public relations people have a word fetish. We invest the aphorism “words have meaning” with an almost scriptural infallibility. Yet when it comes to terms we use to describe our own capabilities, we become maddeningly imprecise, if not deceptively hyperbolic. The best (or perhaps worst) example of that is the word “strategic,” as in “strategic public relations.” In fact, we use it so much when referring to so many different things that the phrase has almost lost its meaning.


In a new paper published last month by Allison+Partners (“Strategic Public Relations in China: Actions, Behavior and Communications”,) I ask the PR industry generally and in China specifically to take a step back. I argue for a definition of strategic public relations that steps completely outside of the communications function: as it was originally intended by the founders of the public relations craft, PR begins with the actions and behaviors of a company, and the obligation of PR counsel to guide them. My point: it is time for all of us to become more strategic, and in no place more so than in China, where so many brands consistently fail to understand, much less live up to, the expectations of their publics.


For my fellow PR practitioners and anyone else who oversees a PR function, the paper is available for free download and review on It’s a fairly quick read.




Rethinking Mobile Advertising in China

Mobile Advertising Lags China’s Smartphone Explosion
Angela Doland
Advertising Age
January 24, 2014

Reporting from Shanghai, AdAge‘s Angela Doland writes a thought-provoking piece on how mobile e-commerce continues to outpace the growth of mobile advertising in the world’s largest smartphone market. As a percentage of all e-commerce, mobile is creeping into the double-digits, reaching as much as 21% during major holiday promotions.

At the same time, after years of effort, the most optimistic projections would have mobile advertising reach 3% of total ad spend in China this year. Given that Chinese users spend some 40% of their media consumption time staring at their mobile screens, you can understand the frustration of the advertisers.

Mobile Advertising Done Right

On the one hand, this trend should not surprise us. History teaches that effective advertising techniques for any new medium emerge only after an often extended period of trial and error. E-commerce initially grew much more quickly as a percentage of Internet-based revenues than advertising, and advertising was slow to find purchase in print news, radio, and television.

What this suggests is that the problem is not whether advertising can be adapted to mobile. The problem, rather, is that advertisers have yet to find an approach that makes the channel compelling.

Mobile Ad 1.0

There are three ways to approach mobile advertising. The first is to approach it as another channel for online advertising. This is where you talk about text-based advertising, display banners sized for the mobile screen, mobile search-based advertising, and ways to insert clever ads into music, videos, books and games consumed on a phone or tablet. Let’s call this “Mobile Advertising 1.0.”

My experience is that this has been the common approach in China, but that the challenges involved in making it work across three carriers, a half-dozen operating systems, hundreds of devices, and thousands of apps have made it difficult to get economies of scale. This alone might, in fact, explain why we are yet at such low numbers. Would it be easier with one carrier, one phone, and one operating system? Indeed. But I suspect that is not the real problem.

Perhaps, instead, we are misunderstanding the channel, and need to rethink how we do things. Back in 2006, I was in the room when my friend and former client Ian Chapman-Banks explained to a Japanese reporter that the reason that mobile advertising was having so much trouble was that we had failed to understand the value proposition.

Mobile Ad 2.0

Ian’s point (and I am paraphrasing heavily here) was that advetising as we know it was based on reaching out to chunks of people with similar characteristics at a given point in time. Mobile, Ian noted, had the ability to enable us to deliver a specific message to a specific person at a specific location and specific time.

In other words, what was keeping mobile advertising from being effective was that we were not using what made it fundamentally better than mass media advertising. This is the first time in history that advertisers could reach a person of their choosing at the time and place of their choosing, and all advertisers seemed to worry about was where to stick the banner on a small mobile screen.

Mobile advertising would be effective, Ian implied, when we figured out a way to make these capabilities work for the advertiser. Clearly, we are still looking for that combination, yet given the speed with which mobile is evolving and the innate conservatism of the advertising industry, this should come as no surprise. The key was to experiment and to keep experimenting.

The Mobile Ad 2.0 argument, then, is that if we want to figure out how to make mobile work for the nearly 1 billion mobile users in China (not to mention the rest of the world,) we have to experiment. Ian, who at the time had a generous marketing budget at his disposal, had allocated 10% of it to what he called “R&D:” money to try new channels of advertising and marketing that would not be evaluated alongside traditional channels, but that were just there to make sure that when something new worked, the company would be ready to exploit it.

So we aren’t at Mobile Ad 2.0 yet, but if we stick with it, we will get there eventually.

Is there a Mobile Ad 3.0?

Late last year I wrote a post that summarized why there are a number of ways to approach social media, each of which is guided by the marketing or technology silo from which one has emerged: practitioners who come out of advertising see social media as an advertising medium; people who come out of direct marketing see it as a direct marketing channel; PR people see it as a means of delivering messages; and so on.

What is different with mobile is that, in part because the challenge in putting mobile to work is, at the moment, much more technically intensive, the companies, departments, and agencies playing in that field have been those with lots of money. In short, it has been the advertising people. For that reason, we tend to talk about mobile as an advertising platform.

That exposes an assumption that is not necessarily supported by the facts. Zooming out of our ad-focused myopia one step further, then, we have to ask this: does mobile marketing need to be advertising-based, or are we missing something?

It’s Mobile Marketing, Jim, But Not As We Know It

In addition to allowing us to target an individual based on habits, time, and location, mobile also allows us to engage that individual in a conversation at a specific time and place. Mobile market research is based on that premise, and some of the early results hae been promising. As long as market researchers do not bombard us to the point of insensitivity with intrusive polls, and provided that we make it worth someone’s while to respond (good information is never free), this is likely to be a fruitful channel for some time to come.

Mobile has great value for point-of-sale applications based on near-field technology that go beyond completion of a sale. I walk into a hotel, and I am already getting notes on Foursquare about specials in the coffee shop. That’s a good start: it would be better if those specials were relevant to my dietary needs (e.g., “hi, David! We have great vegetarian options for you today!”)

Or how about direct-response on demand? When driving from city to city, I could tell Google’s Waze app on my phone that I needed a Sinopec station, and it would tell me distance, directions, prices, and offer me a coupon for stopping in.

I could go on, but you get the point. If there is a Mobile 3.0, and I think there should be, the opportunity is to start from the targeted user’s wants, needs, location, situation, and time, and work backward to the advertiser. This demands an intermediary who can make the match, of course. That’s why I think services like Criteo are going to translate well into the mobile space, and, in the long run, so will Baidu and possibly Tencent. The real gold rush will be for those companies who have the mass of advertisers on the one hand and the mass of users on the other.

Hence, Baidu’s ongoing interest in mobile. IF there is a single Chinese company that should make mobile advertising 2.0 or 3.0 happen, Baidu is it.

No PR Playground

What I am still trying to figure out, though, is where public relations has room to play in mobile. I have heard a few ideas, but I don’t see anything compelling so far. Classic advertising and classic PR don’t yet have roles to play in mobile to the degree that advertising does with online and PR does with social.

Yet every time I sit down and watch another compelling mobile technology demonstration, I am reminded that the tools we are creating today will be hopelessly antiquated, irrelevant, or both in five years. At some point, we are going to figure out how to make a connection between a company and a mobile user work out well for everyone. But we aren’t there yet.

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Branding and BRICs

“Brazil leads in BRICS’s brands”
Jerry Clode

Added Value – Source
March 17, 2013

BRICS summit participants: Prime Minister of I...

BRICS summit participants: Prime Minister of India Manmohan Singh, President of Russia Dmitry Medvedev, President of China Hu Jintao, President of Brazil Dilma Rousseff, President of South Africa Jacob Zuma. (Photo credit: Wikipedia)

In a thought-provoking article in AddedValue’s Source blog, Jerry Clode notes that Brazil’s brands are going global while China and India’s brands seem mired at home. Clode probes why, and believes he has found the answer: Brazil’s brands do well because they have creative Brazilian people who are confident enough in their culture to it in a way that is meaningful to people overseas. And, by implication, China does not.

He notes:

Looking at the two Asian BRICs, China and India, we see increasingly discerning and globally literate middle class consumers who are placing increasing expectations on local brands. But a lack of concomitant confidence to tell local brand stories that move beyond quixotic foreign stereotypes seems largely absent.

The answer to creating Chinese brands, he suggests, is simple: Chinese companies just need to be more confident and down-to-earth when presenting narratives to global customers.

It’s an interesting argument, but I am not sure it would do the trick. National provenence carries different baggage for Chinese and Brazilian brands. Chinese companies must operate against the unappealing background of China’s messy national emergence. China’s assertive geopolitics, cultural differences, and a reputation for producing poisonous foods and questionable quality in toxic sweatshops have left a deeper impression on the world’s consumers than panda bears, kung fu, and calligraphy.

This is a problem that extends far beyond the ken of marketers to solve. The status quo is our canvas, and the aura of Chinese-ness is and will be for the foreseeable future more a curse than a blessing for all but the most extraordinary of Chinese brands.

At a more immediate level, uncertainty around company ownership in the PRC means that Chinese brands are assumed to have some affiliation with the Chinese government and, by extension, its activities. Meanwhile Brazil carries much more positive images for global consumers, it’s government is not perceived as threatening, and it can capitalize on the common European cultural origins of its primary audience.

For the time being, marketers for China, Inc. must address this with the grand strategy followed by Japan’s most successful brands: deodorize. Back when Japanese brands began their global breakout, they did their research and discovered that their “Japanese-ness” was a liability, and behaved accordingly. Nissan used the “Datsun” marque in the US from 1960 to 1980 to avoid being associated with the brand name used on trucks the company made for the Japanese army in World War II. Matsushita picked out the name “Panasonic” for similar reasons.

Most Japanese brands did not go so far as to change their names, but their Japanese origins and essence were played down in all aspects of marketing and sales. Origin was incidental, neither positive nor negative. What was important was the product and the credibility of the company that stood behind it.

Until such time as China’s companies no longer struggle to free themselves of the constraints of the nation’s global image, they can rely only upon their own good work. For most, if not all, that will mean leaving Brand China behind in their quest for global markets.

Branding from the Ground Up

In the Hutong
Surrounded by snow
1721 hrs.

I am usually suspicious about “thought leadership” pieces on marketing that come out of the major management consultancies. These firms have proven strengths in organizational design, operations, production, logistics, and strategy, but when they venture into marketing they tend to stumble for a range of reasons that would fill a book.

I was doubly suspicious of the McKinsey Quarterly article “Building Brands in Emerging Markets” by Yuval Atsmon, Jean-Frederic Kuentz, and Jeongmin Seong because their approach lumps all emerging markets together.  But while the article has its shortcomings, there are nuggets of critical insights in the paper for businesses operating in China.

China is Different…

The authors correctly note that Chinese consumers generally rely more on word-of-mouth to guide their purchasing decisions than do their counterparts in most other countries, especially the U.S. The in-store experience is also more important here. Chinese are more accustomed to changing their decisions at the point-of-purchase rather than leave a store if they can’t get what they came in to buy. Indeed, many consumer marketers find that point-of-sale is the second largest chunk of their budgets (next to advertising) because they will lose at retail what they won in advertising.

Finally, it is increasingly important in China to eschew a purely national approach to marketing and target consumers with a more local approach. China is a patchwork of local habits, climates, dialects, diets, and sub-cultures, and we are reaching the stage in the nation’s development where marketers can no longer afford to ignore that.

…But the Difference is Changing…

Aside from its geographic overreach (“emerging markets” are not all the same) and its broad-brush approach to consumer goods, I have two major quibbles with the article. First, the authors offer a snapshot of consumer behavior but ignore trends that might undermine their points; and second, apart from geography they treat all Chinese consumers as an undifferentiated mass.

First, where people get their advice is changing. While the authors state that only 53% of China’s consumers find online recommendations credible, they leave out the fact that well over half of China’s consumers don’t have access to the Internet.  If you are a company (like, say, Coca-Cola) who needs to reach most or all of China’s 1.2 billion consumers, the Internet is about half as important as friends and family. Conversely if, like a growing number of companies, your target consumer is likely to be online – that is, if she is young, urban, educated, and has money to spend – the importance of the internet is sorely understated.

What is more, as credible online resources emerge, there is mounting evidence that the 560 million Chinese who can get online are giving outside sources greater credibility. As early as 2009, Sam Flemming’s CIC Data noted that over half of online consumers actively sought online feedback on a product prior to purchase, and that nearly 90% paid attention to online buzz on a product whether they sought it out or not. In that case, the Internet runs a close second to friends and family in the purchasing decision.

The importance of the retail shop in the purchase process is changing as well. I spoke with a senior marketing executive for a consumer electronics brand last week who told me that online sales – e-commerce – had suddenly become more important than in-store sales. A growing number of consumers was apparently hearing about the product from advertising, checking with family, checking online, going to the store to look and feel, and then going home and buying the product online. China’s online retail business has now passed an average of $40,000 per second and continues to grow. If the final point of sale is online, how does that change McKinsey’s equation? We don’t know: McKinsey ignores the internet.

…So let’s not Whitewash the Nuances

Finally, the authors ignore the importance of several demographic factors, most specifically age. Although it should be axiomatic, a growing body of research in China delves into how differently the increasingly prosperous older (55+) consumers behave than their under-30 counterparts. Friends and family are essential to the elderly, but for most purchasing decisions the youngsters are relying on peers and the Internet. Older consumers are more likely to purchase in a store, younger consumers are more likely than the grandparents to buy online.

Perhaps I’m being overly critical of the authors: these are, after all, nuances that would not fit into a 3,000 word article. But these oversights point to the problem with taking the management consulting approach to marketing. Grand strategies and broad generalizations may make for mind-tickling patter with clients, but as Ludwig Mies van der Rohe said, “God is in the details.” The day is long past when marketers can view Chinese consumers as an amorphous mass with uniform habits, and I would wager that applies in Brazil, India, and South Africa just as well.

For China, Inc., Naked Is Not Enough

Hutong West
1015 hrs.

There is a growing cohort of public relations firms that are opening practices focused on helping Chinese companies build better reputations among global audiences. This is a good thing: heaven knows, no group of companies is more in need of this kind of help than Chinese enterprises.

What is discouraging, however, is that many senior professionals in the PR industry continue to misdiagnose the problem. To take one example, in a pay-walled PRWeek article dated New Year’s day (“Chinese Companies Bridging the Comms Gap in U.S. Market”), a senior global agency executive and a Chinese CEO both single out transparency as the missing element for China Inc. as it ventures abroad.

“When [Chinese businesses] come to the US, they think they are being transparent when they are not because our standards are so high in terms of transparency,” Black says. “They have to be willing to open themselves up to regulatory bodies and the public. It’s been a major adjustment.”

One of the early pioneers of the PR business, Edward Bernays, counseled PR practitioners in his seminal 1928 book Propaganda that to be effective PR has to be more than just corporate spin.

“In relation to industry, the ideal of the [public relations] profession is to eliminate the waste and the friction that result when industry does things or makes things which its public does not want, or when the public does not understand what is being offered it.” (Emphasis mine.)

Simply put, public relations is first about getting the company to behave and act in accordance with public expectations, and then communicate that compliance to ensure the public gets it.

For Chinese companies, transparency is useless if all it reveals is a company engaged in unsavory or nefarious behavior. Further, for reasons both political and cultural, that behavioral bar is higher in the U.S. for Chinese enterprises than it is for U.S. companies (or companies from just about any other country). To borrow from Donald Tapscott, if a company is going to be naked, it had damned-well better be good to look at. And Chinese companies need to better looking than everyone else to merit an equal reputation.

The core challenge for public relations practitioners is not only convincing Chinese companies to be transparent, but also – and first – helping Chinese companies to understand and behave in accordance with the expectations of highly skeptical global audiences. Once that is accomplished – and only then – is it time to open up for full scrutiny and communicate that they are doing so.

Naturally, this is not as simple as it sounds, nor is it a lot of fun. The alternative is to spend a lot of time and money first creating a Potemkin reputation, and then more time and money running around plugging holes in the facade. The end result of that fire drill is an also-ran company with a middling reputation that nobody likes very much, and with whom others will do business only if they have no other choice.

The companies that clean themselves up before venturing abroad (or even while doing it) get double credit, first for being sensitive to the expectations of foreign audiences, and then for doing something about it. The payoff not only in reputation but in credibility and trust would be priceless, the need for spin would disappear, and the positive attention would make sales and marketing simple.

Despite the potential benefits, I understand why some public relations executives balk at that challenge. It is scary to face up to a client and tell him or her truths they have no interest hearing. It is outside the comfort zone of a large number of PR people. And let’s not forget: it can be much more lucrative to provide costly palliatives for a crippled reputation than it is to deliver a genuine cure.

But Chinese firms owe it to themselves and their customers to seek out only the P.R. people – both inside and outside the company – who are prepared to deliver a cure, and who don’t babble on about reputation but focus on creating genuine trust.

Related Posts

Congress, Huawei, and ZTE
Disinformation Wants to be Free
The Beijing Consensus isn’t Building Brands

The New Public Affairs

Enroute HND – PEK
Dodging thunderstorms
0811 hrs.

A lot of the talk in the public relations industry relates to how much the media business is changing, and what that means to a craft that has traditionally placed a heavy emphasis on informing and (hopefully) influencing journalists. That focus remains viable in markets like China and India, where the media – especially traditional media – retain tremendous influence. In places like America and in Europe, that influence is in decline.

One aspect of public relations that is going through a huge change, however, is what we like to call public affairs. Despite a racy name that implies exhibitionistic behavior, public affairs is the term applied to the craft of understanding the government decision process and effectively influencing policy on behalf of a company or organization.

Whether through direct lobbying or indirect communications, the idea of a company or a special interest group influencing policy does not go down well among the citizens of free and open societies. Events of the past several years have cast this process as a bit underhanded, and perhaps nefarious, and much of the reason for that is that the practice of public affairs was formed at a time where some degree of behind-the-scenes sausage-making was expected in governance. A lot of people simply didn’t want to know about the ugly process, they were interested in the result.

But in the wake of two economic downdrafts in the past decade, alleged commercial-governmental collusion on a vast scale, the failure of regulatory institutions to act in the public benefit (particularly in the US and Europe), and growing public expectations of procedural transparency (thank you, Internet), the process of governance is now a public sport. Public affairs, as practiced, has to catch up. Discretion is no longer the better part of valor: it is suspect.

Updating this practice is going to demand some radical steps and a lot of discussion. In order to start the process, I suggest we alter our approach to government relations worldwide to conform to the following guidelines:

1. Transparency to the greatest possible extent. This means standing up in public and telling the world exactly what you are telling the government, and why. The agenda must be in the clear and open to both scrutiny and debate, as should be the tactical approach the company is taking. This also means that public affairs becomes more than a matter of speaking to government officials about company input on policy: it means involving the public as well.

2. Behavior and actions that withstand public scrutiny. The public is going to find out what you are doing to influence the process. Just ask Big Tobacco, Big Oil, Enron, and the Nuclear Power industry. In addition to making clear what you intend to do, conduct yourself in the process as if an overweight socialist documentary filmmaker from Detroit was following you around with a camera. Forget chummy dinners and back-room deals. When you are influencing public policy, you are going about the public business, and you need to behave accordingly.

3. Avoid behavior for which others have received opprobrium or censure. If someone else has done it before and gotten in trouble for it, why are you taking the risk?

4. Stop playing moneyball politics. Yes, the Citizens United decision in the United States has given corporations an unprecedented opportunity to influence the political process with money, and the opportunity for money or favors to influence the process exists in nearly every market in the world. Don’t do it. Let me say that again: don’t do it. Just because something is permissible doesn’t make it right in the eyes of your publics. The more you use money to influence the process, the more liability you are building in the bank of public opinion, and in each market a reckoning will come, rest assured. Find another way that does not hang a sword over your company’s head.

5. All of this means you will have to create a new set of tactics and techniques for conducting government relations. The way to start the process is to find a way to align your interests with those of the public at large, and keep them there. This will not be easy, but we have ample examples in the history of business to prove that it is not only possible, it is the best way to do business.

Let the discussion begin.

Disinformation Wants to be Free

Hutong West
Afternoon sunshine
1250 hrs.

One of the book projects for which I have been gathering string for years is a book on disinformation, so I have been following the issue of corporate disinformation and deception in China with great interest.

One of the core questions I have to deal with (both intellectually and as a professional) is whether corporate disinformation is ethical or permissible at any time. Despite Japanese maxims that business is the moral equivalent of war, there are some things that might be acceptable on the battlefield that are less tolerable in the marketplace. In a day of the internet and corporate transparency, I have yet to frame an ethical case for a company to deliberately misinform its publics.

So I was interested in how Agenda Beijing dealt with the issue in its interview with corporate espionage specialist Bruce Wimmer.

[Agenda Beijing:] Would you recommend companies to employ offensive tactics as well?

[Bruce Wimmer:] Yes.  Companies need to be able to detect and neutralize the attacks.  In boxing or martial arts that would mean not just deflecting the attack but countering with attacks that might neutralize the threat.  This could involve passing disinformation, legal actions and working with various government and law enforcement agencies.

I can see Wimmer’s point, and he is not alone in believing that there might be circumstances where passing deliberately incorrect information is acceptable. He wants to use it as a way to catch a thief, and I think it would be an excellent method to throw off competitors.

But I am not sure if Wimmer has run into the problem I have discovered, which is that once information is passed, it cannot be contained. Even if you were surgical in delivery, ensuring that your intended audiences and nobody else received the initial transmission of that information, that audience would almost certainly pass the information onward. If the disinfo was credible enough to be believed by hackers or your competition, everyone would believe it. The competitor or hacker could pass it onto a credible third party source, who himself could say he got it from a credible source, then everyone would believe it was true. Some examples, neutered to protect the parties in question:

  • Using a proxy, one Chinese dairy allegedly passed on disinformation that the products of a competitor dairy were causing toddlers to grow breasts. The target audience, consumers, reacted perfectly, and the competitor’s sales took a hit. Unfortunately, that information also found its way to authorities, whom upon investigating discovered that the disinformation was false, and the credibility and business of the originating company took a hit;
  • A market leader in a high-tech gets wind that a competitor is planning on introducing a product using an innovative technology. The market leader passes word to that competitor that, in fact, the market leader already has such a product, and is about to launch it. The competitor stops development, but then announces it is doing so because it understands the market leader is planning such a move. The originating company is then left in a quandary: deny the move, and look like a market follower (the impression it had sought to avoid), or confirm it is pursuing the product despite its earlier decision to ignore the technology. (I can count at least three instances of this occurring, and one company that crashed and burned as a result);
  • Motivated by worrying scientific data, Congress is considering legislation that would affect the future of an industry. The industry pays for the development of studies that impugn the original data and the scientists who gathered it, then pass that information to Congressional staffs. The disinformation leaks and is publicly discredited, effectively discrediting the industry and any legitimate case it seeks to make against the legislation.

The lesson is simple and should not be forgotten: disinformation cannot be confined to a single target audience. Every time a company sets out to deceive (however pure the motive), that information will get out. No company or industry can withstand the hit to its credibility and public trust that such a campaign engenders. We are nearing the day when a nation cannot, either.

Cross-Post: Rethinking How to Win Hearts and Minds

Soldiers from the U.S. Army's 350th Tactical P...

Image via Wikipedia

In the Hutong
Thinking about my phone
1445 hrs.

In my day job as a corporate communications strategist, I work with companies who want other people to think good things about them and their products. As a rule, the companies who find that easy do not seek me out, so I wind up working with companies who are having a hard time connecting with the people they need to make them successful.

Anyone who has tried it will tell you that communications is easy, but influence is hard, and the Internet, cultural differences, and the psychic baggage of globalization challenge the best of us. We learn a lot from experience, but we are always hungry for ideas that will help us not only improve our results, but also make the process itself more transparent and eliminate spin and disinformation from the corporate playbook.

One of the places to which I occasionally turn for inspiration about what to do – or what not to do – is the growing mass of literature on what is euphemistically called “information operations,” including psychological operations. I reviewed a fascinating work from the RAND Corporation for my other blog, The Peking Review, and I share it (with some additions) below.

PsyOps is Dead

The theory and practice of military psychological operations find their roots in World War II, and for decades remained largely unchanged. There was good reason for this: the media via which psychological operations were conducted were largely of a broadcast type. Aside from the advent of television, psychological operations were conducted with media that existed since the early 20th Century.

Now that the Internet has become all but pervasive, and mass media have begun to change, the military is being forced to take a step back from the channels of its communications and start to explore the nature of influence before trying to decide how to exert that influence. The result of that overdue introspection is Foundations of Effective Influence Operations.

I am a communicator by profession, and in the fraught, complex, and often dirty world of business in Asia I face challenges that bear notable similarities to those facing Army PsyOps people on the battlefield. As such, I was interested to see what a team of seven really bright RAND scholars had to say.

Actions First, Communications Later

The result was both surprising and delightful. Surprising, because the book is so good that it could serve as a capstone or entry-level introduction for anyone studying communications or marketing; delightful, because I found so many of my own conclusions echoed in its pages. My favorite passage:

Put simply, because what we actually do often matters far more than what we say, influence operations frequently will focus on explain- ing and leveraging off tangible actions by casting them in a positive context and thereby building trust with an audience or by countering adversary claims about such actions with factual information that is buttressed by facts on the ground and averred by local opinion leaders whose credibility and trustworthiness is judged to be high.

The other conclusion that hit home with me was that there are no easy formulas that will translate across different situations, much less across cultures, and that artful improvisation in the development of communications campaigns was essential. I’ve long believed that great communications is not a template, and to have that affirmed in this study was edifying indeed.

These glimpses only scratch the surface. The book also surveys the full range of communications theory, offers pointers to further reading, and elegantly addresses the question of online influence. There is great depth and much insight in this book that can only be appreciated by reading it.

Harmonious Luxury Marketing

In the Hutong
In the groove
2059 hrs.

On Monday I explained why I felt that the restrictions placed on luxury outdoor advertising in Beijing are aimed not at the goods themselves, but at ending ostentation. While it is too early to say whether the restrictions will be broadened to other cities or other media, there are several reasons that the measures should give pause to all of us in the business of marketing luxury items, whether they be gadgets, gold, leather goods, or private aircraft.

First, the measures are a reminder that advertising luxury goods in China’s mass media is wasteful. Too many of the “impressions” in outdoor advertising are people who not only have no intention or ability to buy the product advertised, they will likely never have the ability to do so. Media companies may argue that those impressions that are not wasted are worth all of the waste, but let us not forget that the waste factor is immense.

Second, the measures are a signal that there may be such a thing as “negative effectiveness” when making desirable the unaffordable and unreachable. We assume there is spillover, but we never actually track the effects those spillover impressions have on the “wasted” audience. Are the messages and ads simply ignored? Or do they engender a negative reaction? Are we, as the Beijing Administration of Industry and Commerce apparently fears, seeding resentment that undermines social harmony? How do we know?

Third, the measures are a reminder that the end (selling more baubles) does not always justify the means (any creative that gets the buyer to pay attention). There are ways to create mystique and value with an advertising campaign that are more imaginative than pairing a luxury good with panorama of a luxurious lifestyle or with a half-naked supermodel. Are there ways to ensure that the results of the spillover are positive? And if so, shouldn’t we be pursuing such a course?

Why Should We Care?

All of those questions can be dismissed by marketers as “not our problem,” and a fair case could be made that we would be technically correct in doing so. After all, we are paid to deliver sales, not worry about people who are angry at being unable to buy our product. In fact, when you think about it (we tell ourselves), such frustration might actually be a good thing.

Such rationalization is perfectly true, right up to the point where the government decides that your ad pisses off too many migrant workers. At that point, you may lose the ad, or you may lose access to a channel completely. The smart move is to think ahead, and that begins by buying into some basic principles.

Four Principles

Principle I:  There are more effective ways to market luxury goods in China than mass media. A corollary: there are now more ways than ever to conduct effective luxury goods marketing. Even if you have a fixation with paid media, you are better off using direct mail, flagship stores, relationship marketing, and carefully selected online media and, when it comes, mobile media. In fact, luxury brands should be driving the push to online marketing that individually targets a user, rather than just takes space on a page.

In luxury goods more than any other industry, it is even possible to lead with below-the-line approaches like tightly targeted public relations, trunk shows, store openings, and other tactics that take a personalized, bespoke approach to marketing and eschew writing advertising checks altogether. The options continue to grow, and they keep getting more tightly targeted. A close friend of mine gets a birthday card every year from Cartier on the basis of a single small purchase she made on the basis of word-of-mouth.

Principle II:  We need to learn to understand, measure, and avoid “negative effectiveness” in marketing in a country with deep and active social fault lines, regardless of what we are selling. This does not apply only to China, but to any country in which a luxury brand sells. We are very good at understanding the positive consequences of our communications, even if we do a mediocre job of measuring them. But we ignore the negative consequences until they blow up in our – or somebody else’s – face.

But for every Groupon/Tim Hutton Superbowl gaffe, there may be two – or dozens – of campaigns, ads, or messages that don’t just fall flat with our non-targets, they get people to actually hate us. Until we learn to measure how many people our marketing pisses off, why it does so, and understand what that means for the brand, we may well be doing more net damage than good.

On the other hand, if we create campaigns that get our target audience to buy and engender goodwill from people who will never buy our products, we will have lifted our brand and our products to an entirely new level. See Principle IV.

Principle III: In our own enlightened self-interest, all of us in the marketing profession need to behave with greater sensitivity to the people at the bottom of China’s pyramid. This requires no great explanation, just a thought. After nearly 34 years of reforming and opening, China is still home to hundreds of millions of people who live on less than $1 a day. Before you submit that ad for approval (or before you approve it), picture in your mind a photograph: your ad, on a bus shelter, with a poor Chinese farmer in a threadbare blue Mao suit walking past. If that image looks wrong, rethink the ad, if not the campaign.

Alternately, imagine your copy or your messages being read aloud to a meeting of senior Party ideologues. Does it still sound okay? If not, rewrite.

Principle IV: Great luxury marketing goes for the organ between the ears. It is a huge temptation to conduct marketing that appeals to our baser instincts. It’s easy, it gets attention, and it sells. Leaving aside any moral issues, using such an approach to sell luxury goods is probably what got us to the current situation with the outdoor advertising restrictions. And it is just unnecessary.

Take, for example, Rolex, a great luxury brand. For decades, the company has been running a campaign celebrating explorers, pioneers, and other people of noted excellence in their fields of endeavor. These are not people getting out of Bentleys or fondling the latest Victoria’s Secret model. The ads have a distinct aura of class, style, and excellence, and have helped establish Rolex at the top of the luxury timepiece market, all without sex or decadence.

Not every luxury company can use the same strategy as Rolex, but marketers are paid for creativity. Any half-wit can conjure (or approve) an ad campaign that speaks to greed or the gonads. Good marketers – and wise clients – know that they don’t have to. That applies triple when selling high-margin merchandise like luxury goods.

Selling Baubles Better

There is a business case behind each of the principles above, either maximizing efficiency, minimizing the chances of blowback, or creating more memorable and meaningful campaigns. But there is a moral point to be made, and with your permission I will finish on this note.

When we market luxury products, we create desire for the unnecessary. That is the hard truth. Doing so is defensible, though perhaps not a virtue, when we create that desire in people who have more money than they can spend. But it is indefensible when we do so in people who have less money than they need, and it is reprehensible to say that such accidents are not our problem.

Great companies, great brands, and great executives do not shy from that quandary. Instead, they let that struggle be a part of what defines them, not just because doing so offers great commercial rewards (it does), but because it is the right thing to do. That essence should be a part of every brand, but the obligation rests heavier on those who create and sell “the finer things in life.”

Beijing’s Outdoor Advertising Restrictions: It’s Not About the Goods

In the Hutong
Peking Spring
0928 hrs.

In a loosely worded statement released March 20, the Beijing Administration for Industry and Commerce announced a ban on outdoor advertising in the capital that “promotes hedonistic or high-end lifestyles.” The statement was specific on three counts: a list of words that were banned from usage (“royal,” “luxury,” “supreme,” etc), a 30,000 RMB fine for violating the edict, and a deadline of April 15 to comply.

My first concern was that this was part of a move against luxury goods generally, and one reporter I spoke to even suggested that this was a veiled form of protectionism to speed the emergence of Chinese luxury brands. But after spending much of the last few weeks digging into this issue, I think something different and more fundamental is at work here.

All Luxury, No Class

What the Party is concerned about is not luxury, but class. Whatever compromises have been made with Marxist-Leninist-Maoist doctrine over the past 34 years, the nation’s leaders are not prepared to allow China to become – or, more important, appear to become – a society divided by class as it was before the revolution. Allowing people to get rich is acceptable, as long as the Party can cling credibly to a claim that New China is fundamentally an egalitarian society.

The problems begin when people start believing, to paraphrase Orwell, that some pigs are more equal than others. When a poor farmer walks through the nation’s capital and finds himself surrounded by advertisements for goods and homes he will never be able to afford, or when he sees the owner of the Ferrari parking illegally and getting away with it, the farmer is going to start feeling excluded and resentful. Marx called this “alienation,” and alienation fuels resentment, frustration, anger, a jump in property crime, and even unrest.

Dump Your Billboards, Keep Your Stores

What the policy does not appear to be is a move against luxury goods or their manufacturers. In fact, the day after BAIC released its statement, Minister of Commerce Chen Daming told attendees at the 12th China Development Forum that China will resolve the price discrepancies between high-end goods in China and the same items sold overseas. Far from seeking to inhibit the sales of luxury goods, Chen’s ministry is looking for ways to make them cheaper for Chinese to buy here at home.

This is a smart move. A recent report from CLSA Asia-Pacific projected that by 2020 Chinese consumers will snap up over 44% of the world’s luxury goods. As more Chinese who can afford luxury products are able to travel abroad, the government has a choice: keep taxes high on luxury goods and force prosperous consumers to buy knockoffs or, more likely, go abroad; or cut the luxury taxes and take the increased VAT revenues and the increased employment in retail and distribution. If 44% of the world’s luxury goods are coming here, the latter move sounds like the right one.

“A Man’s Home is his…” Oh, Wait…

Casual research suggests that local real estate barons will be more hurt by these restrictions than foreign luxury brands. First competing with each other to see how many Chinese McPenthouses and McMansions they can squeeze onto a hectare of land, developers then battle to see who can best liken his cookie-cutter rabbit warrens to Buckingham Palace in a hyperbolic war of words played out on billboards and glossy handbills. Indeed, while all types of luxury products seem to use outdoor, high-end real estate appears to take up the plurality of luxury outdoor ads in Beijing.

Contrast this seeming oversupply of high-end (and to most Beijingers and migrant workers, unaffordable) Sino-chateaux with the government’s growing concern about a shortage of affordable housing in the capital, and the specific move against outdoor seems more understandable. Indeed, one could argue that the Party is more concerned about the housing issue, but again, the question appears to be much larger.

The Problem is the Sizzle, Not the Steak

It is likely, then, that we are watching the early salvoes in a long-term Party campaign not against luxury goods, but against overt privilege and ostentation. In addition to the new strictures on advertising luxury goods, Beijing’s traffic police have been ordered to start getting tough on drivers of luxury vehicles who are traffic and parking scofflaws. The messages are clear: go ahead and sell luxury goods, but do not do so in a way that reminds China’s masses that many of their comrades live lifestyles they can never hope to afford. You are free to buy and drive a Mercedes S600, but you are not entitled to any special consideration as a result.

Given the political climate, the campaign is probably just building steam. Wen Jiabao’s public comments in March regarding the 12th Five Year Plan’s focus on “resolving unfair income distribution” suggest policies that will be as much about addressing appearances of inequality as about redistributing wealth. Three matters will be important to watch in the coming months:

  • The extent to which the BAIC enforces its own edict, something we will know based on what is showing up on billboards in the capital;
  • Whether this effort will end with Beijing, or whether the State Administration for Industry and Commerce starts encouraging other cities to take similar measures (I’m thinking Shanghai, Guangzhou, and the other coastal metropolises);
  • Whether the strictures on outdoor ads are then extended to television, print, radio, or other media.

Movement in any of these directions will signal a widening of the campaign, so luxury marketers and media companies would be wise to keep a careful watch over how this evolves. This is may turn out to be one of those years in China when flexibility will be a marketer’s most treasured virtue.

In the longer term, though, this may mark the beginning of a larger change that may force everyone selling expensive baubles in China to reconsider the way those goods are marketed.

An Old China Hand and China’s New Foreign Policy Factory

In the Hutong
New Year Day Five
1718 hrs.

Ross Terrill of the Fairbank Center is an old China Hand, and he writes incisively about a range of topics on China, most notably the nation’s foreign policy.

Recently, he contributed a brilliant article to the Wilson Quarterly entitled “The Case for Selective Failure“, in which he argues for and posits several scenarios where China would stumble just enough to provoke positive and meaningful reform but without experiencing complete systemic breakdown. Undoubtedly we could talk all day about the likelihood of such an event occurring and argue ourselves to a standstill: there is just no way of knowing until after it happened, but the uncertainties are enough that you’d never want to purposely try to provoke such an outcome.

What interested me most, though, was Terrill’s view of China’s foreign policy-making process, revealed in this bit of the article.

There are wise heads in Beijing who understand the latent power of American nationalism and other dangers facing a Chinese rush to the top. They urge their leaders to stick with Deng’s maxim of “hide our strength and bide our time.” These cautious folk in well-connected think tanks and even government ministries do not believe the public mantra that the United States is “holding China back.” Rather, they see clearly that the United States is a force fueling China’s rebirth—by buying Chinese exports and supplying technology for Chinese industry, among many other ways.

There are indeed wise and cool heads in Beijing, but Terrill’s view of how foreign policy is formulated in China comes across as a tad outdated. As I wrote in “The Case for a New Public Diplomacy in China” both here and in AdAge China in 2008, the “cautious folk in well-connected think tanks and even government ministries” are no longer the sole nexus for the creation of policy. As we have seen evinced all too clearly in the past several months, there are a lot of chefs in China’s foreign policy kitchen, and two of the most important new entrants to the process are the PLA and popular opinion.

Over time, these two players will the formulation and execution of foreign policy a complex, slow, and highly politicized process that threatens to retard the conduct of diplomacy in China. To depend on the realists and ignore the idealists, irredentists, and nationalists in Chinese foreign policy would be like ignoring the progressives and the Tea Party in the United States.

Terrill “hopes” that events will see these players in Chinese foreign policy marginalized. But hope is not a method, and it is a poor approach to the conduct of international relations. Wise heads in Washington, DC, Tokyo, Brussels, London, and elsewhere need to adjust their efforts, strategies, and toolkits to incorporate the full set of foreign policy influencers in China, not just the ones who play by the old rules.

The above aside, the article is superb, especially the barbs he tosses at Nouveau Sinologists like Niall Ferguson and American Declinistas. Give it a read.

Should Li-Ning Be Taking On America Now?

In the Hutong
In Pinewood Derby Mode
1432 hrs.

Li-Ning is popping up on the radar. On Wednesday I got a call from Bo Jin of Campaign magazine in Hong Kong asking me what I thought about the company’s announcement that it would be launching a multi-million dollar ad campaign in the US in May, Then today, catching up on my reading, I read Christopher Shay’s excellent piece in Time magazine about Li-Ning’s foray into the US athletic shoe market.

Let me say at the outset that I have a soft spot for the company: Li Ning gave me a job when I really needed one in the early 1990s, and I was fortunate to spend some time working with him and some of the people who helped form the company. Despite that history–or perhaps because of it–I have to wonder whether now is the right time for Li-Ning to be venturing overseas, and more specifically into the worlds most competitive and challenging sportswear market: United States.

A Long Time Coming

In the company’s defense, this move did not happen on a whim. Li Ning has been thinking about the U.S. market at least since the early 1990s, but the company held back, knowing that a secure market position at home and a positive view of Chinese products abroad would be essential before venturing into the home turf of its strongest rivals. They learned that lesson up close: Li-Ning’s parent company at the time, sports drink maker Jianlibao, made a premature and costly foray into more than a dozen countries overseas, including the US. Not only did Jianlibao fail to take off overseas, the drink maker soon found itself under siege at home from Coca-Cola and Pepsico. Today, though I may look, I cannot find a can or bottle of Jianlibao in any Beijing store.

The company–and it founder–believed then that they would go overseas eventually. But with Nike and Adidas starting to make huge forays into China at the time, the immediate focus was to retrench out of first-tier cities in China and learn to beat the global majors at their own game.

Today, sixteen years later, it is clear Li-Ning has made immense progress toward that goal. The brand is  number 2 in China, behind Nike and ahead of Adidas. The company is public, profitable, and took in over $1 billion in 2009. It has set up a flagship store/design center/listening post in Portland, Oregon, America’s unofficial sportswear capital, enabling it to start tapping into that city’s deep concentration of industry talent. And it has signed an NBA star, Baron Davis, as a spokesman.

So why not blitz America?

Leave aside the fact that Nike alone is twenty times the size of Li-Ning, or that the U.S. is an insanely expensive and competitive market in which to do business. Is this the right time for Li-Ning to be leaping into what is probably the richest and toughest sportswear market in the world? Or is there a better path to global leadership for the Chinese upstart?

I would say no, and here is why.

China is Still not Won

Yes, Li-Ning is now the second largest sportswear company in China. But that position is not unassailable. Nike is still tops, and leads in the more prosperous cities where styles, tastes, and habits more closely match those in developed markets like the U.S. I would argue that until the company can beat Nike in the high-end market in China (which more closely matches the mid-range in the U.S.,) the move abroad is premature.

What is more, foreign brands are delving deeper into Li-Ning’s traditional strongholds in 3rd, 4th, and 5th tier cities. The global majors are finding the going challenging, but they have learned that the formula for success in those cities is different than what it is in Shanghai, and persistent and well-funded, they are adapting. And the big international brands are not the only ones to watch: don’t forget Anta and others are fighting for a chance to steal Li-Ning’s crown at home.

Just when Li-Ning should be using its local advantage to secure the home field against the interlopers, it is turning its attention away.

In America, China Isn’t Cuddly Yet

This is not a particularly opportune time for a Chinese manufacturer to go venturing into the U.S. There is a lot of angst and a certain amount of distaste toward China in the U.S. at the moment. I suppose you could argue that as China rises, there will always be some underlying friction and, after all, the Cold War didn’t kill anyone’s taste for Russian vodka or caviar.

Practically, though, the first four or five high-profile Chinese brands to venture into the West are going to be carrying the burden of America’s China Anxiety with it. The Chinese government hasn’t done much of a job burnishing Brand China lately, and the government does not appear ready to soften its stance merely to ease the marketing challenges of its fledgling global champions. (Nor, for that matter, should it.) What that means, though, is that Li-Ning will need to succeed in spite of China carrying a poor reputation for product quality AND serving as the nation’s bogeyman for its economic challenges.

That’s a lot for a company to carry, and doing so will be expensive. You have to wonder if it might not be wise to wait for a day where the headwinds are not blowing quite as stiffly.

Home Is Where The Growth Is

If Li-Ning goes to battle against the majors in the U.S., they are going to be competing against a host of more familiar brands whose products also extend from the top of the line to the outlet store/bargain basement. The profit share in the US is going to the top-end players. Diving into a market with high sales costs and thin margins is no way to build a war chest to defeat Nike in a global battle.

In China, conversely, more people every day have the ability to buy branded sportswear and footwear, and the market remains the largest in the world. What is more, the tastes of millions of loyal Li-Ning buyers are evolving. They are no longer looking for the basics, but more stylish and higher quality apparel. This is where the company has an opportunity not only to grow in unit sales, but to start using its overseas-built design expertise to grow its unit profits as well. Those profits, long term, will be Li-Ning’s competitive advantage as it takes on Nike and Adidas worldwide.

Other, Easier Fruit is Rotting

There are other markets in the world where the global majors remain weak, others where their products are inappropriate to local tastes and incomes, and even some where Nike and Adidas are only present on the gray market. Li-Ning could use its greater experience selling into developing markets to build deeper footholds into India, South America, Eastern Europe, Turkey, and Russia (and possibly Africa). This would help Li-Ning scale up to a size to be able to match the global giants, and it would fight the big boys on turf that suits its own strengths.

If Li-Ning can establish and retain leadership in China and build market-leading positions in the world’s most populated, high-growth markets, they could then take on Nike, Adidas et al at its leisure in their home markets, supported by immense economies of scale and a global footprint.

Better to Follow Mao

The above approach hearkens back to Mao’s strategy to win the revolution in China. Win the countryside and surround the cities. By dominating the developing markets first, and using those as a power/revenue/scale base from which to take on the more cosmopolitan markets of the world is the strategy that makes the most sense for Li-Ning, along with many of China’s bevy of global brand hopefuls.

So the question is what is compelling Li-Ning to jump into the US before taking the logical intermediary steps that might save it from Jianlibao’s fate? I could figure on several possible reasons. Perhaps analysts feel the “time is right.” Maybe it is all of the buzz about Li-Ning being a presumptive “global Chinese brand.” Perhaps the company wants to capitalize on the still-somewhat-fresh image of Li Ning doing his wire-assisted Peter Pan torch run during the Olympic opening ceremonies 30 months ago.

Or perhaps the company is getting impatient. Maybe they have bought into the idea that the global financial crisis somehow opens the door for them in the US and that they’ll never get a chance like this again. Or maybe it is a much simpler explanation: they signed Baron Davis, so that makes it time to go big time in the US.

Yes, there is something exciting about the prospect of a Chinese brand leaping into the global fray, and the company should be applauded for its guts. But when the applause and the excitement die, I hope they can give us all greater clarity as to why they chose this particular path to globalization.