Should You Localize Your Product for the Chinese Market?
While there are a number of factors that determine whether a company will be successful when attempting to enter a new market, the product itself is a key component. Especially when it comes to the Chinese market, many multinational companies have invested heavily in localizing their product offerings to align more closely with customers’ expectations. However, new research based on a series of over 100 interviews with executives and managers suggests that localization isn’t always effective — and in some cases, it can seriously backfire. Why is this? Many brands’ main selling point in the Chinese market is their sense of foreignness, and so product strategies in which foreign elements are replaced with more familiar features often end up eliminating the very thing that customers appreciated about the product. Furthermore, while a localization strategy can be effective in some cases, it’s critical to carefully consider which components of the business will benefit most from localization — whether that’s a specific product feature, a customer service policy, or even a sales structure — and which would be more marketable and/or cost-effective to leave as a global standard.
As China’s consumer base grows larger and more enticing to international brands, many global companies have begun investing heavily in localizing their products to meet the needs of the Chinese market. KFCs in China sell soy milk, fried dough sticks, and congee; Volkswagen launched a whole series of new models designed specifically for China; Starbucks added several types of teas to their menu to better serve Chinese customers, many of whom don’t drink coffee. This strategy is understandable, and often effective — but in some cases, it can seriously backfire.
We conducted a series of in-depth interviews with over 100 executives and managers at multinational corporations based all around the world to explore when and how localization works, and when it doesn’t. Of course, there are many factors that drive brands’ success or failure in penetrating a new market, including the company’s level of commitment to the initiative, governance structure, leadership, strategy, and more. But the product offering itself is a key component, and our research found that not all products benefit from a traditional approach to localization. Rather, some products don’t need to be localized at all, and many others are best served by a partial localization strategy, in which some components of the product or related business operations remain the same, while a select few elements are adapted for the new market environment.
For some brands, localization can completely backfire.
Specifically, when it comes to products for whom a sense of foreignness is a key draw of the brand, eliminating foreign elements in favor of more familiar, local options can unintentionally cannibalize the appeal of the product. For example, in 2017, global cruise giant Norwegian Cruise Line launched a new ship, the Joy, in the Chinese market. The company incorporated many obvious Chinese characteristics on the ship, including traditional Chinese interior design, Chinese restaurants, teahouses, karaoke rooms, mahjong games, and even a Tai Chi park on the deck. The company invested heavily into crafting a thoroughly customized local experience, and yet the return on this investment was so disappointing that the ship’s China route was decommissioned after less than two years.
What happened? There were a number of factors at play, but one of the main issues was that the Chinese tourists who chose to pay for an international cruise were looking for a distinctly international experience. The Chinese-style trappings of the Joy were too familiar to these customers, who saw cruising as an exotic Western luxury. They wanted unfamiliar experiences, such as the British-style afternoon tea offered by a competing cruise line, Carnival, where white-gloved waiters served tea and crumpets in an unmistakably Western style. Thanks to Norwegian Cruise Line’s miscalculation, the company ended up spending $50 million to remove all the Chinese elements from its ship, not to mention the opportunity costs associated with losing out in a major potential market.
Moreover, localizing luxury products can not only lessen their appeal as distinctly foreign, but in many cases, a clumsy adaptation into the Chinese context can further damage the brand. When Italian luxury menswear brand Zegna rolled out a new collection in China, for instance, they attempted to appeal to local buyers by prominently embroidering the Chinese character “寿” — meaning “longevity” — on each item. Unbeknownst to the designers, however, it is customary in China for that character to be embroidered only on the funeral clothes of the dead, and a shirt bearing that character was equivalent to cursing people to die. The collection was itself short lived.
For some brands, adapting business processes is more important than localizing products.
Despite this unfortunate mishap, however, Zegna still serves as a strong model for successfully penetrating the Chinese market, with its 80 stores in China accounting for a third of the company’s global revenue. What’s the secret to its success? For the most part, Zegna keeps products standardized in order to achieve economies of scale (and avoid embarrassing themselves with poorly-translated clothing lines), and the company instead focuses its localization efforts on creating a customer service experience that’s tailored to Chinese customers. For example, in Zegna’s Chinese stores, staff members offer gifts to customers during traditional Chinese festivals, and the company has even provided VIP customers with red-carpet tickets to the Cannes film festival, one of the most well-known western events among these high-end clientele. Zegna staff members will also travel to customers who don’t live near a store to take their measurements in person and hand-deliver suits, providing an experience that resonates with many Chinese buyers’ expectations for VIP treatment.
Similarly, when Indian mobile advertising company InMobi first entered China, they had a hard time attracting Chinese customers. Nevertheless, the company didn’t touch the product, opting to stick with a standard global offering, and instead simply changed its sales compensation policy from a fixed-salary system to one that was commission-based. After just one year, InMobi China’s revenue jumped substantially.
In both cases, it would have been possible for these companies to attempt to localize their actual products. But tweaking business processes such as sales structures or customer service policies was faster, more cost-effective, and didn’t run the risk of eliminating the very things that customers valued in these international products.
Sometimes localization does work — but it must be done strategically.
Of course, this isn’t meant to suggest that localization is never a good idea. There are countless examples of brands that have successfully adapted their international products to meet local tastes in new markets. However, our research suggests that a strategic approach is critical to ensure localizations are implemented effectively.
In some cases, Chinese customers’ preferences and behaviors will differ from other markets enough that the product itself must be tailored for China. In these situations, companies must carefully consider which elements should be localized, and which should remain standard around the world. To do this, firms should ask themselves two key questions:
- For each element of the product, how much do Chinese customers’ needs differ from those of other markets?
- For each element of the product, how much cost and effort would localization require?
Importantly, just because you’ve identified a legitimate difference in customer needs or expectations doesn’t mean a comprehensive localization effort is justified. For example, in 2015, LinkedIn correctly determined that the Chinese internet ecosystem differed significantly from that of the rest of the world. Baidu, Alibaba, and Tencent dominated the market; Chinese consumers were more likely to access the internet via mobile devices than consumers in any other country; and as such their behavior differed in important ways, such as using phone numbers rather than email addresses to register for apps.
In response to these genuine differences in user preferences and behavior, LinkedIn decided to launch an entirely new standalone app, called Chitu, just a year after launching its flagship LinkedIn product in China. The app was similar in functionality to LinkedIn, but included features that catered to Chinese consumers, such as mobile registration and QR-code scanning for adding new connections.
Unfortunately, because Chitu was an entirely new product, its customers were cut off from LinkedIn’s global network, which had been the number one feature that set LinkedIn apart from its Chinese competitors. The project was also extremely expensive, since Chitu didn’t reuse any of LinkedIn’s existing technical elements and required an entirely separate development team. As a result, although some of the product tweaks LinkedIn introduced did in fact better meet the needs of local customers, the loss of the global network represented a major change for the worse — and high costs were the final nail in the coffin, leading Chitu to be discontinued after four years.
As the Chinese market grows, many global companies are increasingly willing to go the extra mile to customize their offerings for China. But while localization can be effective in some cases, in others, those good intentions can seriously backfire, leading businesses to lose the very elements of their brands that made them appealing in the first place (as well as a whole lot of time and money). To succeed in a new market, brands must carefully consider which elements of their products and business processes would most benefit from incorporating local characteristics — and when it’s best to stick with a global standard.