China Business

Standardization Versus Localization and Home Office Versus Foreign Office

China and home office tension

Bill Dodson just did a post on a very common issue for companies doing business in China: the disconnect between China and the home office. The post is entitled, A GAP in Understanding China [link no longer exists] and its focus is on the GAP company in China.

In his post, Dodson talks of going to a GAP store in Shanghai and for the first time bought his Chinese wife a t-shirt, the coolness of which he would need to explain to his wife. Dodson then went on to discuss a fascinating and revealing conversation he had with an American buyer for the GAP at that store that day:

This is the first item I’ve ever bought from GAP for my (Chinese) wife: a loose-fitting berry-red T-shirt with a GAP in darker red printed on the front. I’ll have to explain to my wife, though, why she’ll have to consider the logo cool, which seemed to be a point not lost on the American buyer for GAP with whom I spoke that same day.

“Our greatest challenge right now is getting the local consumers to understand what GAP is all about,” the Buyer explained to me. We chatted on the shop floor of GAP’s Shanghai store. “And they [Chinese people] think we’re a little expensive.” I explained to the young lady that I had recently inhaled sharply at the price of a men’s sweater I had taken a fancy to. It was as expensive as any in a major American city.

She commented on how Chinese tastes also lean a bit more to complicated designs and and color schemes. I joked about the addition of rhinestones to some of the GAP designs. She acknowledged Chinese tastes could on occasion be a bit gaudy. Which, though, brought me to an important point about the degree to which GAP was localizing its offerings.

“At first we chased Japanese styling into China,” she explained to me. “We didn’t know the Chinese market, so we had a learning curve”.

I noted Uniqglo seems to be doing incredibly well in China. “The Uniqglo at Times Square in the second-tier city of Suzhou packed the customers in during its opening days, and continues to have customers when other shops in the outdoor mall area are empty – including the South Korean brands,” I said.

She acceded, “We see Uniqglo as our competition. They are doing extremely well in China. Interestingly, in New York, Americans claim their clothing is too little,” she laughed. Of course, we both agreed, Americans tend to feel constrained by East Asian sizes for clothing. “We admire the variety of colors Uniqglo has, for instance, for polo shirts. The Chinese will buy theirs, but don’t consider buying ours – even though ours are cheaper!” Still, I asserted, GAP had work to do to localize their products.

“You know,” I said slyly, “1969 was a bad year in China.” 1969 is the latest ad campaign for GAP jeans and shirts. The idea is to elicit the idea of the fun and freedom of the era in AMERICA. Some of the clothing even brandishes a 1969 logo next to the GAP trademark. In China, the Cultural Revolution was in full swing in 1969 and no one but Mao Zedong and the most righteous of the Red Guard were having fun.

She hesitated, rolled her eyes. “I know,” she said. “But GAP’s plan is to rationalize it’s offerings around the world so that a store in New York City will have the same as the store in San Francisco and in Shanghai.”

Though its children’s lines are a hit in China, it looks as though GAP will have to go full circle on the localization issue before they’ve figured out this latest historical misstep.

Dodson’s conversation beautifully illustrates what may be the two biggest tensions companies face when they go into China. One is localization versus world-wide standardization. The other (and very much related) is the relationship between the home office and the foreign office. As a lawyer, I would never purport to know where on the spectrum a company should fall on these two issues but I do know enough to know that it will be different for every company and may even be different for every product.

Optimally balancing the scale between standardization/localization and home office rule/country rule is always going to take time and require constant calibration. GAP may still get there yet.

What do you think?

6 responses to “Standardization Versus Localization and Home Office Versus Foreign Office”

  1. This is pretty typical of American companies and to some degree, MNC in China (though the Europeans are somewhat better at this because they have gone international long ago due to smaller home market).  
    These MNC come to China and start their operations with all these great expectations.  But there are somethings you can infuse relatively easily, such as lean production, good logistics management and control, a good quality system.  But there are some functions that need to be very adapted to local conditions, sales/marketing, legal and regulatory considerations, and people management.  
    And in the case of the latter examples, you need to either learn Chinese and understand the local conditions, or trust someone who already knows.  So often, both of these are missing, and the company does not reach its potential.  
    Another big difference: those companies that come here for the low labor rates (your savings are being erased every single day), and those that come for the market share.  

  2. Just a couple of random thoughts. With it’s existing strategy, I don’t think the GAP will every be successful in China in China. Here’s why.
    – The GAP stores I have been to in China are not even close to being convenient in China. The Beijing store is a good example. They are in a shopping mall with hardly any foot traffic. Bad decision here.
    – Uniqglo is hardly a competitor the the GAP. Uniqglo’s pricing is, on average, 40% less than the GAP’s. Probably a more realistic competitor is Levi. Typically, they are 20% more expensive that the GAP. Levi is located in major shpping areas which are easy to get too and Chinese people have no problem paying $120 for a pair of Levi’s.
    – The whole “1969” fiasco.
    All of these things and more tell me the GAP has no idea how to do business in China. They fail in at least three areas in China: 1) The don’t understand their competition, 2) location, location, location and 3) their failure to develop a value proposition specific to their market (a “global” strategy notwithstanding).
    Many many companies in other markets (i.e. IT) make the very same mistakes. Western companies may never learn how to do business here and for whatever reason aren’t too interested in emulating western companies in their market segment that have been successful. No, that wouldn’t work. Probably because of American arrogance.

  3. I noted that the latest Apple iOS and Mac OS announcements made special mention of improvements they have made for Chinese users. It’s definitely a market they care about and are investing in.

  4. Interesting post Dan – The idea that a global marketing strategy and message could be the same all over the world is simply foolish and will ultimately be unsuccessful.   What plays in San Francisco will surely not play in Shanghai and it’s naive to think anythign else.  
    BTW it’s Uniqlo.   

  5. !n 2009 CLB posted a piece that Mattel was opening a Barbie doll store in Shanghai. At the time I commented that in my region I had never seen a Chinese child with a western doll.
    Mattel closed its store in 2011. 

    •  …and yet “洋娃娃”* are alive and well in China. They tend to be more the very formal craft dollmakers’ doll than Barbie, but there’s no shortage of them. There also seems to be a proliferation of Barbie-like dolls around and no shortage of genuine Barbies either.
      *“洋娃娃” is also a very irritating (to me, at least) term for a “Western” (i.e. White or White/Asian mix) baby.

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