Rogue Chinese entrepreneurs threaten big brands

In India, we seem to be flooded with Chinese made goods. Everything from cutesy handbags to hair clips with Disney characters on them are available. But what many legitimate businesses are soon realising is that, by copying their products almost identically with only minor differentiation to suit Chinese tastes, is making their businesses suffer. So to succeed in China is a different ballgame and they need to understand the Chinese rules of doing business.  

A Strategy & report called Shan Zhai: A Chinese Phenomenon is good reading on this subject. Here is an excerpt from the report:  

Although each Shan Zhai company is different, they often have common characteristics, such as tendencies to do the following:

• Focus on the domestic market (at least initially)

• Target mostly mass consumers

• Strive for very short cycle time on product introduction

• Focus on cost (but often offer lower quality too)

• Tailor product features and functions specifically to local requirements.

Successful Shan Zhai companies may begin as counterfeiters or pirates but often evolve into legitimate businesses with their own intellectual property (IP) portfolios. 

 

So the report suggests that while Shan Zhai enterprises start out like rogue ones, they quickly evolve to grab marketshare from legit brands because they understand their consumers better. They then invest in R&D too to finesse their products even more.

So while they make cheap and inferior quality stuff to the branded products, they add enough frills and gimmicks in them to enhance their appeal to their Chinese users. These make them seem like a better deal to shoppers, than the genuine Apple, Nike and Toyota products in the market. 

Read the full interesting report here: Shan Zhai: A Chinese Phenomenon

Consumers don't put their money where their mouth is

This article from the Strategy+Business website is eye-opening. Here is an excerpt:

The trouble with the data on ethical consumerism is that the majority of research relies on people reporting on their own purchasing habits or intentions, whether in surveys or through interviews. But there is little if any validation of what consumers report in these surveys, and individuals tend to dramatically overstate the importance of social and ethical responsibility when it comes to their purchasing habits. As noted by John Drummond, CEO of Corporate Culture, a CSR consultancy, “Most consumer research is highly dubious, because there is a gap between what people say and what they do.”

During the last 25 years, there has been debate about the value of corporate social responsibility (CSR), particularly as it relates to the rise of “ethical consumers.” These are shoppers who base purchasing decisions on whether a product’s social and ethical positioning — for example, its environmental impact or the labor practices used to manufacture it — aligns with their values. Many surveys purport to show that even the average consumer is demanding so-called ethical products, such as fair trade–certified coffee and chocolate, fair labor–certified garments, cosmetics produced without animal testing, and products made through the use of sustainable technologies. Yet when companies offer such products, they are invariably met with indifference by all but a selected group of consumers.

Is the consumer a cause-driven liberal when surveyed, but an economic conservative at the checkout line? Is the ethical consumer little more than a myth? Although many individuals bring their values and beliefs into purchasing decisions, when we examined actual consumer behavior, we found that the percentage of shopping choices made on a truly ethical basis proved far smaller than most observers believe, and far smaller than is suggested by the anecdotal data presented by advocacy groups.

The purchasing statistics on ethical products in the marketplace support this assertion. Most of these products have attained only niche market positions. The exceptions tend to be relatively rare circumstances in which a multinational corporation has acquired a company with an ethical product or service, and invested in its growth as a separate business, without altering its other business lines (or the nature of its operations). 

For example, Unilever’s purchase of Ben & Jerry’s Homemade Inc. allowed for the expansion of the Ben & Jerry’s ice cream franchise within the United States, but the rest of Unilever’s businesses remained largely unaffected. Companies that try to engage in proactive, cause-oriented product development often find themselves at a disadvantage: Either their target market proves significantly smaller than predicted by their focus groups and surveys or their costs of providing ethical product features are not covered by the prices consumers are willing to pay.

To read the full article, go here: Values vs. Value