To say that China is a crucial growth market for many American companies would be an understatement. The bold move of the cautious country to open to foreign trade in the late 1970s quickly catapulted it into one of the fastest growing economies in the world, registering, what the World Bank called, “the fastest sustained expansion by a major economy in history”, and bailing over 850 million citizens out of poverty.
In 2020, when COVID-19 brought much of the world’s economies to their knees, China was the only trillion-dollar economy to still clock positive growth. Give it another seven years, and the country is predicted to overtake the United States as the largest economy in the world.
Understandably, this burgeoning upper middle-income population with deep disposable income pockets offers a lucrative 1.4 billion strong consumer base to American brands in China. What’s more, relatively favourable corporate tax laws, a wealth of diverse talent and world-class logistics further sweeten the deal for American companies. However, China is a complicated market. Since trade liberalisation, several major Fortune 500 American companies, including the likes of Google, eBay and Home Depot, have tried to tap into the Chinese market without success. Inadequate market research, failure to understand the local culture and consumer psychology, inflexibility – the reasons for their downfall were many and have been widely discussed.
Admittedly, it is a challenging market and carving a niche is difficult — but not impossible. In this article we take look at some of the most cherished American brands in China that have successfully established themselves by taking the time and effort to understand the country’s various complexities, including the Confucian ideal of ‘guanxi’, to realign their business models accordingly.
1. General Motors (NYSE: GM) – Feeling the pulse of the market
As one of the world’s top automakers, General Motors did not take any chances while launching in the world’s largest automobile market. GM operates in China through ten joint ventures, including a joint venture with SAIC Motor Corp to manufacture Cadillac, Buick and Chevrolet vehicles, and with SAIC Motor and Liuzhou Wuling Motors to build no-frills mini vans.
In 2020, GM through its joint ventures delivered 2.9 million vehicles in China. All these vehicles were manufactured in domestic factories, reflecting the company’s commitment of working “in China, with China and for China”.
In this way, GM localises its R&D efforts as well as takes advantage of the vast and gifted talent pool that China offers. The company also customised its product line with the audience in mind, introducing such models as the Buick GL8 minivan, which is only sold in China. Furthermore, in keeping with the recent trend of growing Chinese families, GM plans to import full-size SUVs that seat up to seven people into the Chinese market – another good example of the company staying abreast of changing audience needs.
2. Boeing (NYSE: BA) – A mutually beneficial agreement
Over 50 percent of the commercial jetliners that operate in China are manufactured by Boeing. Conversely, Boeing is the largest customer of aviation components manufactured in China. One in every four Boeing products is delivered to Chinese customers, while over 10,000 Boeing airplanes currently operate across the world using parts and assemblies built in China. The company also has four joint ventures, three wholly owned subsidiaries and over 35 direct suppliers within the country.
Boeing’s activities in China contribute over $1 billion in direct support to the country annually. The business also heavily invests in community initiatives and in helping to grow the aerospace sector in China.
3. Microsoft (NASDAQ: MSFT) – Toeing the line
Several American tech giants have tried to make a foray into the Chinese market over the years with little to no success. Many found it hard to navigate China’s strict internet regulation and privacy laws, and China’s Great Firewall led to the exit of Internet behemoths like Facebook, Twitter, and Google from the country. Microsoft also struggled during its first decade in China, incurring massive losses.
However, the company soon realised that China required a wholly unique business model, different from the one that was fuelling its success in the U.S. and Europe. Accordingly, Microsoft brought down its prices drastically to the point of selling a $3 package of Windows and Office to students.
The company began partnering with the government, going to the extent of giving them the right to investigate and change the fundamental source code of the Windows operating system. Microsoft also set up a cutting-edge R&D centre in China, its largest outside the United States, to groom and empower local talent. As Microsoft President Brad Smith said, “One of the things that we at Microsoft have long appreciated is the enormous ingenuity of the engineering population of China.”
Today, after nearly three decades in the country, Microsoft is the leader in desktop and server operating systems in China, boasting nearly 90 percent of market share.
4. Nike (NYSE: NKE) – Digital adaptation
More than 50 percent of the world’s online retail sales take place in China. It is the largest e-commerce market in the world and has its own unique set of online shopping and social media platforms that are alien to most American brands.
Nike was one of the first American brands in China to identify the digital shift in consumer behaviour and intuitively aligned its sales model accordingly as far back as 2012. Targeted at an urban youth audience, Nike launched a virtual store on one of China’s biggest online shopping platforms – Tmall. From here on, the sports goods brand continued its digital transformation by optimising its presence on platforms such as WeChat Shop, JD.com, and taobao.com, launching its own website store and app, and other direct-to-consumer mediums.
Recently, Nike also launched a ‘House of Innovation’ in Shanghai to deliver a seamless ‘digitally-connected shopping journey’ to its young, digitally-savvy consumer base. When the pandemic forced most brands to switch to online sales to cut costs, Nike thrived with its mature e-commerce models and well-established logistics network.