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Francis Bassolino
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2015, The Year of the Goat (Rodeo)

Idle conversations in board meetings ponder if this is the year of the ram, goat or sheep. When the conversation turns to more pertinent questions on China strategy and the macroeconomic situation, the discussion is often not much more profound. Indeed many debates on China resemble a goat rodeo of six blind men describing an elephant, each recounting a story that is seemingly real but in the end reveals more about the storyteller than the subject. 

China continues to confound businesses looking to capture their share of the China Dream. Global business leaders and regional lieutenants struggle to get their messages across and strategies aligned. Is there a housing crisis with ghost towns as 60 Minutes and a collection of pundits would have us believe? Will the end of the one- child policy lead to a boom in nappy sales? Does the deceleration in topline GDP portend the beginning of the end? Will the ongoing anti-corruption campaign lead to the second coming of the Cultural Revolution? Faced with such binary questions and so little informed dialogue it is no wonder that many companies are cooling on the idea of expending more resources on capturing demand in China. 

Companies continue to waffle in the face of a market that poses formidable challenges that have become boring to recall—poor institutional infrastructure, irrational price wars, and overcapacity in everything—all leading to the conclusion that no one is making money. China is however still the world’s best growth story. Just ask the happy folks at Apple, Mercedes Benz and the host of other companies with solid strategies reaping rewards in China. 

By most accounts the past few years have been difficult. The decades of double- digit growth and fairly easy money have passed and the nation is now grappling with a collection of issues that often require skill sets that are not readily available. At the company level, performance improvement projects such as lean and post-merger integration programs are now in high demand as industries consolidate and supply has caught up with demand. Many companies for years could generate income just by offering a product, any product, first in the first-tier cities and then further afield into the third-tier and beyond. As the only distribution point for a product that is in demand, odds are that you will succeed just by showing up for work. But when industrial and retail consumers have a choice, it is important that you are not only good at what you do, but markedly better than the competition, particularly if you are asking for a premium price. 

In high-end fashion markets it has been clear for years that brands such as Louis Vuitton have been on a downward trajectory in relative terms as consumers were provided with more choice and realized that taking a quick trip to Hong Kong or Paris meant you could purchase the same merchandise for a deep discount to what was on the market in China not to mention that there was a higher probability that you weren’t buying counterfeit. Also more brands entered the China market. Michael Kors, Coach and Tory Burch all offered alternatives to flaunting your wealth and demonstrating fashion sense. The same story has been playing out in other markets as well. The consumers—industrial and retail—have been provided more choice and they are more discerning. 

Alongside the growth of product choice was the development of multiple channels to acquire your goods. Carrefour enjoyed robust growth for years, offering mediocre service and overpriced products. But with much better run convenience stores such as FamilyMart and fantastic online service from Yihaodian (aka Wal-Mart) as well as a multitude of niche online providers, the game to capture demand has become much more competitive. 

The problem with this change in the dynamics of the China markets is that many organizations are not prepared to identify the trends or articulate new strategies in response, modifying distribution channels or product offerings to adapt to the changes. Moreover, leaders on the ground are often ill-equipped to champion for change, particularly when lobbying regional or global leaders to adjust globally accepted norms for the industry or company. For example, many companies refuse to accept even modest changes in their business models such as adding direct sales support when such support is not required in other markets. 

Many organizations are handicapped by local leadership groomed in an education system and cultural environment that stifles creativity, rejects those who take initiative and suppresses collaboration. Students in China are built to pass standardized tests and regurgitate accepted knowledge. And this training works fine when there is a clear answer. But China today does not have clear answers especially in the merchandising, product development and distribution areas. The consumers have choices that did not exist even just a few years ago and they do not always want to choose standard products from channels developed for global markets. Of course this is not true across- the-board. Sales to Chinese consumers now account for more than 20% of Apple revenue if we account for gray channel imports. Unfortunately not all companies have such iconic and irreplaceable products to peddle. Most companies have products and service offerings that were designed for global markets and represent about 80-90% of what Chinese want. The tricky part is determining how to modify the remaining 10-20% to formulate a service and product proposition to capture demand. 

What is interesting about the mood this year is how sheepishly so many view the market. Pessimism is the dominant theme in most conversations. And headline news about China tends to reinforce the drama that China is on the precipice of disaster. Indeed a generally pessimistic disposition within the herd combined with a lack of entrepreneurship and leadership is the strongest indication that there will be many business failures and stagnant growth in China this year. But what is also clear is that while there will be many opportunities to play the blame game on a host of seemingly relevant statistics or events, the most probable reasons for failure are lack of leadership and a shortage of data-driven insight into the opportunities and challenges. 

And herein is the crux of the problem: for many businesses the conversation about China has become a theological debate where dogmatic mystics battle the non- believers in monologues where facts hardly matter. The country is so large and dynamics so fluid that you can find information and testimony to support any case. And unfortunately this is just what many people do, including business leaders, consultants, advisors and pundits who benefit from peddling their point of view.

 Chinese astrologers have fittingly not clearly proclaimed an animal to guide this year perhaps because they are suggesting that we choose our own mascot this year. We can sheepishly stick with the herd; Try to ram standard product offerings down traditional channels; or learn the disposition of our goat and determine what it needs to thrive so that we can milk the prodigious friend, as it is still the world’s most popular and economical source for milk. 

*Goat Rodeo: A chaotic situation, often one that involves several people, each with a different agenda/vision/perception of what's going on; A situation that is very difficult, despite energy and efforts, to instill any sense or order into. 

Francis Bassolino is a TrustedPeer Expert and the managing partner of Alaris, an advisory firm based in Shanghai. Francis_bassolino@alaris.com.cn 


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