August 29, 2012
Q&A, Tom Doctoroff, JWT North Asia area director and Greater China CEO
As part of our research for our August trend report, “Remaking ‘Made in China’,” we spoke to Tom Doctoroff, North Asia area director for JWT and Greater China CEO. Doctoroff is also the author of two books on Chinese consumers, the recently published What Chinese Want: Culture, Communism and the Modern Chinese Consumer, and Billions: Selling to the New Chinese Consumer.
Doctoroff started his advertising career at Leo Burnett in Chicago but jumped ship to JWT, then relocated to Hong Kong in 1994 as regional business director for clients including Pepsi, Philip Morris/Kraft and Citibank. Four years later he landed in China as managing director of JWT Shanghai. In his current post, Doctoroff oversees JWT’s operations in China, Taiwan, Hong Kong, Korea and Japan. He discussed his thoughts on China’s next generation of management, the role of brands in fostering cultural traditions and whether Chinese corporations will successfully embrace corporate social responsibility.
You’re pessimistic about the ability of today’s managers to successfully push Chinese brands onto the global stage. Are you at all optimistic about the next generation?
Am I more optimistic now? Yes. My big question, though, is how fixed is Chinese psychology and culture as it translates into a managerial ethos? And whether the forces of that are going to make the next generation, which is increasingly worldly and also conceptually adventurous, regress to the mean when they are confronted with structure. If you consider society and culture to be the relationship between individuals and how they establish productivity for society that’s mutually beneficial, then the forces of corporate culture are strong. They don’t just get transformed.
Even now if you take a look at some of the new-generation Internet companies—Renren.com, Baidu, even some of the newer fashion brands—all of which are relatively innovative and free from the shackles of the state, you still tend to get very conventional management. They’re run as quintessentially Chinese companies.
What is a quintessentially Chinese company?
In terms of management style, the management tends to be very protective. He encourages factionalism. Then he tends to issue nonvisionary but slightly ambiguous instructions, so there’s always an undercurrent of anxiety. Employees in response are encouraged to take refuge in both the structure and the concrete, and the concrete translates to sales. I have not yet seen—even in these nontraditional, entrepreneurial private companies—any leader that has truly embraced a Western management ethos, regardless of whether you talk about obedience to corporate governance, marketing over sales, leadership that is nondefensive, however you define it.
That said, there are going to be pressures that encourage Chinese companies to reform. You’re already seeing, for example, in the most dynamic sectors, a commoditization that’s run its course. If you take a look at the tennis shoes in sports apparel—Anta, Li-Ning, etc., all these very dynamic Fujianese-type companies—they’ve reached the limit of their growth in terms of profitability, and their margins are going down. So the model of non-innovation, or the model of non-investing in the experience of the brand as opposed to a very famous trademark, has run its course. There are profit pressures that are going to force reconfiguration of the model.
There is also the new generation. This new generation will never become individualistic like Westerners, but at least they’ll become much more worldly. Whether or not they will ever have the power to become the leaders of these companies and then implement the new vision and a new structure that supports that vision is yet to be seen.
The reason I’m still on balance not optimistic is, these second generation, or foreign-born, Chinese don’t get absorbed well into the bloodstream of China’s corporations, because they’re too different. Local mainland Chinese people are suspicious of them. So foreign-born people that look Chinese but don’t act Chinese are frightening, because they look the same but they’re not the same. At least for somebody like me and you, we’re aliens, so people feel a certain safety because we’re so different; they know what’s expected or who we should probably be. I was just going around YouTube, and there’s this video of American-born Chinese talking about the prejudices they face. So these are the unquantifiable elements that keep things pretty much status quo.
What are some other factors contributing to the maintenance of the status quo?
The geographic expansion can’t go on forever in the lower-tier cities. You’re going to have pressures of value added, of P/E ratios, and these things cannot just continue to grow by scale. So all these things would say yes, they have no choice but to develop brands. But on the other hand, there are other cultural and structural forces that keep things pretty much stagnant.
And there’s another reason why I’m not optimistic. There’s a whole emerging world out there in which Chinese brands can do perfectly fine, thank you very much. Recently there was a New York Times article discussing how cheap Chinese cars are penetrating the first-time emerging markets. I mean, they have pretty good price/value equations, you know?
So then you have to question, does China really need to build brands abroad in developed markets, competing with developed-market brands at a price premium—or at a price parity at least—not just going in as the cheap brands? There’s a big world out there to conquer before they really have to set their sights on competing with Nike.
Although in developed markets, many people are seeking out cheaper price points thanks to the fiscal woes of the West. Is there an opportunity for brands that create products for Tier 2 cities in China to take those goods overseas? An example would be the netbook, which was originally made for emerging markets.
Talking about frugal innovation, I don’t know. That is a very important development, which people have not really studied enough here. What I mean by frugal innovation is providing people more value for less money. So all the Chinese companies and Indian companies too, the way they can have scale is to develop a new price/value equation downwards. It’s very impressive, and I think it’ll be a huge force of productivity enhancement in China.
This is an old story in the West. Every single recession, generics, for example, gain several percentage points, and then when the recession ends, it goes down a little bit. There’s always a segment of society that just wants basic, good, reliable value. So the question is, can Chinese brands compete in that segment? I’m not sure. I’m not sure that the price/value equation they offer is the same reliability that American consumers demand.
Maybe there are segments this can work for, but if you just take a look at the basic quality of Chinese goods—the issue of whether they’re going to be able to reassure Westerners that it’s good enough—I’m not sure. I don’t think “no bells and whistles” equals a reassurance to Chinese brands; I think there’s big concern about Chinese brands. If an international brand can charge a 20 percent price premium [in China] just because it’s not Chinese, the battle abroad is pretty serious.
If a Chinese brand were to make it big in the more developed markets, do you think that would raise its perception here?
Definitely, but when will that happen? I can’t even think of one brand that is on the launching pad.
Huawei is a brand that’s worth keeping an eye on. Huawei has had tremendous success in telecoms, components, penetrating developed markets. But that’s B2B, and that’s really a question of price/value and not brand, other than reassurance; not the experience in brand, the cachet of the brand, the cool of the brand. But right now they’re working on building up their mobile phone brand. Whether or not it can be absorbed into the bloodstream of Huawei will be an interesting question. I do think this is a very important test case to look at and see how it does.
There’s a cohort of people in China today that feels the country is steamrolling toward commercialism, a drive for money, and forgetting traditional values. What, if any, is the role of brands in reconciling these opposing threads?
It’s absolutely true that there are a lot of people who say China’s facing a spiritual crisis of materialism and they have no beliefs. You see that all the time, and it’s not just a small fringe of people. This fear of materialistic emptiness and crisis, it’s cliché by now. China has enduring values which kept its civilization intact for 5,000 years.
So the question you ask is, What can brands do to bridge this gap? One is that brands have to become vessels of Chinese culture. So no matter what we do, a brand has to help people achieve their goals in Chinese circumstances, and that is always connected to Chinese culture, directly or indirectly.
My view is that materialism in China is not just about showing off for the sake of showing off. Materialism in some ways is very Chinese because materialism is used as a way of (a) having security and (b) projecting status in a society that has always been and will always be hierarchical, if you assume that the basic productive unit in China is not the individual. The individual does not exist independent of his responsibility and obligations to others in a hierarchical context, or you can say a family context, which itself is an intricate hierarchy. And the family can be immediate family, a clan, the company, the nation.
Then you have to start asking, How much of a gulf is there really? How much of a crisis is there really? Materialism can be hope for the future, and it’s a productive way of demonstrating that you’re making progress through what has always been a very secular society. What I think has happened is that it’s gone too far, it’s turned into a rat race.
The materialism encouraged by Deng Xiaoping has basically been defined as the new success standard. As he said, to get rich is glorious. He wasn’t saying you become wealthy; he was saying you have the obligation to generate capital for the benefit of the great and glorious motherland. But that has gone too much into the self-centered realm. It’s a very insecure society. People are really money-hungry, no question.
But money itself or materialism itself is not inherently un-Chinese. So what you’re seeing right now is a movement back, I think, a rebalancing toward traditional values that have never been extinguished. And brands can help create the link between the commercial expression and material expression of traditional values.
The long way around it, yes, brands can help. That’s why luxury brands, for example, are at the top of the pyramid. What do luxury brands talk about? They talk about connoisseurship. They talk about mastery of detail. They talk about wisdom. They talk about nobility. These are all values that since time immemorial have represented enlightenment, iconic stature for Chinese people. What well-positioned brands are doing is completing the circle rather than closing the gap.
And these are all Western brands right now, or is there a mix?
I’d have to say they’re Western. The Chinese aren’t ones to pay a price premium for domestic brands. But when you start getting into values of a brand, that’s pretty sophisticated marketing stuff. When you talk about certain product categories where domestic brands have a natural advantage of projection of identity—for example, cigarettes, white spirits, Chinese spirits—then you do see a lot of these values. You also see a lot of these values for local real estate projects. Liquors are popular, because they’re consumed by local men for trust facilitation in business. And local men being very insecure, they need to have a lot of trust before they go into business together. One way men strengthen their identity and trust is by looking for people from the same place. So these liquor and tobacco brands that also have a very long heritage—specific geographies or a specific person, like Deng Xiaoping, who smoked Panda cigarettes—it’s one way of establishing commonality.
But by and large, the most powerful vessels of Chinese culture in the commercial realm are, ironically, global brands or Western brands. That’s why you never want to talk about them as foreign brands. You talk about them as global brands, and then you bring them into alignment with the Chinese worldview.
That’s been the biggest observation for me personally, seeing global brands adopted locally and watching everyone striving for them.
Not just striving. Brands can also be tools. They open doors. They help a woman, for example, project her elegance, because Chinese women need to be iron flowers. Chinese women are much stronger than Chinese men, in a way. They’re much stronger of heart. Men have this total control complex, they don’t feel like they’re in control of much. Big burdens, you know?
But women, their primary challenge is to balance the two. There’s their role as economic producers, which Mao mandated, but also the traditional Confucian imperative of a woman using love to protect the family, so she’s got to be kind, gentle, feminine, but strong. And then there’s this new, Western ideal of individualism.
They’re pulled between pillars of identity, and ultimately they need to reconcile that. So women need to be moving forward and achieving, but they need to do so gracefully with understatement. So elegance is wheels for the women to glide forward. So it’s not just about showing off. My point is, it’s not so superficial.
Some are saying that Chinese brands will embrace CSR because the Chinese are pragmatic, and it’s going to help the bottom line, whereas in the West it’s generally an afterthought. Do you agree?
They will never be Body Shop, Green World. It will always have to do with helping things on the ground. The government has a mandate of social stability. The people will follow that mandate, at least in terms of an idea in a corporate setting. So I think it will happen, but what you’re going to see is a much more pragmatic corporate responsibility. The question is going to be, however, whether they will ever do this in a sustaining way, given the fact that it can’t be directly linked to profit. That’s going to be interesting, but I do think pressures will make the role of corporations patriarchic and the CEO as having a patriarchic responsibility—just like the heads of government—to manage its people and corporate entity. I do think it will be friendly territory for a distinctly Chinese version of corporate responsibility: pragmatic, on the ground.