Growing Internationally

by Colin Berkshire

Colin here.

One of the greatest opportunities any established business faces is growth internationally. Take a company like Apple. Recently, much has been made about how they have saturated the domestic marketplace wi their iPhones and iPads. The thinking is a concern over how earth’s largest company can grow much more. This type of thinking lead to a crash in their stock price of about 30%.

When I mention the opportunity that China represents to Apple, usually it is an American that scoffs about how the Chinese don’t have money for Apple products. People are stunned when they learn that a typical single Apple Store in China sells hundreds of millions of dollars a year and may have over 10,000 visitors in a day. The Chinese love Apple products and the Chinese have money.

Usually, again, I am questioned about the poor in China and how they don’t have disposable incomes to support Apple or premium brands. According to the US CIA World Factbook, four times as many Americans go to bed hungry at night as do Chinese, poverty in America is four times higher than in China (as a percentage of the population.) so, we need to overcome our pre-conceived cold-war stereotypes. That is the first, and most difficult thing.

The second thing is that we need to understand what it means to be a “numbers game.” There is twice the population of the entire United States who live a subsistence life, largely growing rice and mining coal. These people are not your customers, ignore them. That will leave you with a population that is still larger than the entire United States which will form your customers. It is a huge opportunity!

While the typical Chinese citizen makes much less than the typical American, you need to be very careful to not discount their spending ability. Their living expenses are far lower in China, and extended families tend to live together and pool their expenses. Rather than being saddled with retirement home expenses for their elderly, the family cares for their aged. Rather than having daycare costs, the elderly care for youth. The picture here should then be that a lot of the income of a Chinese professional is available to purchase discretionary goods. You cannot use your model of family finances to project what Chinese society is like.

Prada, Coach, Lamborghini, and other premium brands have their largest stores, largest markets, and highest margins in China. There is no shopping mall in the entire northwestern United States which is a beautiful, stylish, or large as some of the malls in Shanghai. If you are going to tap into the vast opportunity that is China, you must reorient your thinking.

Of course it is hard to enter any foreign marketplace. You need a corporate structure, banking relationships, and you need to meet local regulations. That is work. The great benefit we have within the US is that we are largely standardized across all of the states and we can do business throughout them without localizing for each one. But this also is a weakness, because we get lazy and don’t build up localization knowledge within our companies.

Localization is more than changing the spelling of “Color” to be “Colour.” It is a sensitivity to culture. Imagine a product being marketed in the US as “Model 666”. It would be a natural error for an Asian, as this number has no negative connotations, and can even be viewed positively. Here, we know it is a number to be avoided. The Chinese love the digit 8 and so having a phone number ending in “8888” is even more prestigious than having one ending in “1000” here in the US. You would choose “9999” in Thailand as 9 is their lucky number. And avoid 4 throughout Asia.

I was touring with a businessman who was interested in entering Asia and I explained this. His response was incredulous that he should be expected to abide by such superstitions. I asked him what he thought of the idea of going to a funeral in New York City wearing an all-white suit…to which my friend sputtered that this would be rude and insensitive. Well, in China you wear white to a funeral, not black.

My friend observed that there were many KFC restaurants in China, and not so many McDonald’s. why was KFC so successful? I think the answer is simple, and the question is a good one. McDonalds brought their globally standardized menu over to Asia. The Chinese don’t really like hamburgers all that much. KFC faces a similar problem with their menu…but they made the decision to localize it. You will not recognize any of the items on a KFC menu! Instead of a Cherry Pie you might have a Corn Pie, or a Ham & Egg Pie. Ketchup is sometimes offered in two flavors: American Ketchup (very, sweet and hated by Asians) and Tomato Ketchup (Not so sweet.) And by the way, Ketchup is in a green bottle (not red) in many Asian countries.

You will need to be sensitive to wording as well. Just as most of the world spells Color as “Colour” they will use different English words. A bandage is generally called a “plaster” outside of North America. Common medicines will be known differently; if you have a headache ask for a Panadol. If you ask where the Subway is you will be directed to the pedestrian underpass in Hong Kong, not to the Metro.

And, collecting money needs some thought. Credit cards are not widely used in China. Apple takes in millions of dollars of cash at one of their stores in a picas day. How are you going to count, audit, and safely transport all of that money to your bank? You don’t even think about those things domestically.

For many reasons, companies take on partners when doing business internationally. Partners can help you meet local needs. And, you should trust them and take their suggestions seriously. If they tell you that your setup screen color is bad, and should be pink instead of white, they may really know what they’re talking about. (White is the color of death in China.) You can overcome these, but do so very carefully! Apple felt that they needed to stay with white globally…and they probably were right…but it was not a simple decision for them.

So, is the hassle of globalization worthwhile? It certainly can be. Selling products globally can vastly increase the size of your business. Consider Apple. They are earth’s most valuable company. Yet, the opportunity they face in China could double their size. How is that for opportunity? I’ll take it!

(Disclosure: Colin Berkshire has no affiliations to any of the companies mentioned herein. He does occasionally eat at KFC and Mc Donald’s and he owns Apple gadgets and some of their stock. But Apple doesn’t know Colin from a hole in the ground and hasn’t paid him a dime or given him a song or a dance.)