CAPITALIZING ON THE CHINESE CENTURY – IS THE MEGA-NATION’S DOMESTIC MARKET ACTION SPORTS’ NEW FRONTIER?

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ILLUSTRATIONS: KEEGAN CALLAHAN

A high-profile spat between Google and Chinese government Internet regulators hit the international business and political stage this January when the American-based search engine giant refused to comply with Chinese Internet censorship laws. The argument reached an impasse, and three months later, on March 22, Google announced the official closure of its search business in China.

Although Google’s censorship case dominated headlines around the globe, the company’s situation is not unique. China’s Internet restrictions are ranked among the strictest in the world and nearly all American-based social media networks like Facebook, Twitter, MySpace, and YouTube, as well as informational sites like Wikipedia, are restricted. Video and photo content on Western blogs and media sites is also heavily regulated. For U.S. brands looking to do business in China, the country’s continued online censorship stands as a gloomy reminder of a country whose political climate is still very much tied to a Communist value system.

Yet, despite the barriers to business, the stakes are extremely high. China’s consuming power alone is staggering. The mega-nation of 1.3 billion just surpassed the United States in automobile purchases, and today more than 1,000 new cars hit the motorways of Beijing every day. China is also home to the world’s fastest growing retail sector that crested the 800-billion-dollar mark last year. With the American economy in a slow recovery, U.S. boardsports brands are now more than ever looking to make real moves in China, whose economy and culture according to many economists is in hyperdrive. But is the modern China really the gold rush it’s hyped to be, or is the climate there still unprepared for Western brands looking to cash in?

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A CULTURE IN OVERDRIVE

Under the Communist rule of Chairman Mao Tse Tung, China was locked in a cultural embargo for the better part of the twentieth century. But all that has rapidly changed over the last two decades. According to Glenn Brumage, who operates a China specific boardsports consultancy called Wabsono International, the time is now for people to begin to seriously consider the viability of Chinese consumers. "China is the largest emerging market in the world," says Brumage. "Their middle class is larger than the entire U.S. population and it's growing."
China's consumer population, however, isn't the same as America's. According to Eli Kislevitz, cofounder of Brandkee, a Chinese boardsports industry consultancy who works with Woodward and is the brand manager for The Source, a Shanghai and Beijing street culture and action sports retailer, who's been living in China's capital city of Beijing for more than a decade, it's vital for American businesses to understand the fundamentals of China's recent political history before approaching the market there.
"This country was primarily cut off from the world during some of the greatest developmental periods in history," he says. "Everything has now been put into fifth gear. The economy, real estate, transportation, urban frameworks, and all other aspects of society are doing in twenty years what more or less happened in the West over a period of 100 years."
The Chinese government is also evolving and morphing into a hybrid political system with elements of both socialism and free market capitalism. The result is what Brumage describes as a game of cultural catchup. "The middle class is just beginning to figure out what to do with free time and expendable income," he says. "This concept is pretty foreign to someone growing up in a Communist society."

The rapid evolution of the Chinese middle class is creating a new consumer and a huge opportunity for brands that speak to their aspirations. "You have to be in tune with the culture and you have to understand how it's different than Western societies," says Flat Fitty Director Of Production And Commercialization Noel Rix, a twenty-year Chinese industry veteran who helped build Coach, Timberland, and Nike's Chinese operations. "That doesn't mean it's hostile, you just have to go in and truly assimilate what it takes to be successful here."

BARRIERS TO SUCCESS

The New York Times recently featured an article covering the Chinese government’s efforts to hide the rampant sale of bootleg DVDs, video games, and music in street markets all over Shanghai in preparation for the arrival of Expo 2010, The World Fair-esque gathering descending on the mega-city this summer. The solution, the article reported, was for merchants to simply hide their bootleg merchandise in secret back rooms for customers. The Chinese government, the article concluded, acknowledges the problem of bootlegging but still does very little to actually stop it.

There are plenty of horror stories of brands being ripped off, black-marketed, backdoored to retail, and straight up counterfeited. Tales are rampant of people finding Frankenstein skate shoes with one brand’s patented sole pattern on the upper of a completely different brand covered in bizarre logo appliqué that applies to neither company.

Raphel Cooper, who owns and operates Beijing based skateboard brand Society Skateboards and cofounded BrandKee, has a unique take on the implications of China’s black market and counterfeiting practices. “Brands will get ripped off here,” says Cooper. “If you’re manufacturing stuff here and marketing it on a global scale, it’s going to happen.” But rather than fight it, Cooper suggests companies begin looking at China’s black market as simply an inevitability of business. “In a sense, it’s kind of like free marketing for the real thing,” he says.

Cooper sites the success of other major global brands whose products are heavily black-marketed in China. While it’s definitely irritating for businesspeople, he says the production of fake goods can create a greater demand and value association for the real thing. “Just like anywhere else, rocking fake stuff is tacky,” he says. “There will always be a strong market for the real deal.”

Of course, simply accepting that your brand will be ripped off isn’t exactly an easy pill to swallow for American companies who sometimes have a hard enough time coming to grips with licensing. But Brumage says that while black-marketing is still rampant, the government is beginning to go after people running counterfeiting operations-especially when there’s big business dollars behind it. “The biggest change has been the government’s recognition of intellectual property and the legal changes to support the foreign companies building product in China,” he says. “There have been recent court victories and crackdowns on pirated trademarks, designs, and artistic content.” The key to getting the government protection he says is to partner with an existing Chinese entity. “The government will always keep a greater vigil over the on-goings on a Chinese-based company versus one operated by a foreigner.”

Kislevitz echoes Brumage’s sentiment. “There are definitely some practices that need to be halted,” he says. “Retailing factory leaks, telling your customer it’s the real thing when it’s not, and misrepresenting information to increase sales or relations are all things that do happen. And yes, people and companies do get screwed on occasion. But what brands and companies can do is go in prepared with good intelligence and real achievables. There are great people in this market doing great things both foreign and local. Find them and support them. You will come out ahead in the end.”

Aside from the black market and the specter of counterfeiters, the language and cultural differences of China are significantly higher than many other foreign nations. Although China is projected to be the largest English-speaking country in the world in the next decade, you’d never know it. The inability for Americans to communicate verbally combined with vast cultural differences is a tremendous blockade to business-a barrier Kislevitz says often prevents U.S. companies from reaching their goals there. “Obtaining real deal intelligence and finding and teaming up with an entity, whether it be a partner, distributor, or licensee, is a huge challenge. Most of these brands are simply choosing the wrong platform to start off on.”

Another major barrier to entry is a basic lack of well-managed retail shops that offer a good fit for American action sports brands. “The retail scene is a mess, consisting mostly of youth-opened skate shops selling black-market softgoods, or shops in the mall selling Nike SB, OBEY, FUCT, and Carhartt,” says Cooper. “The retail section of the skate market in China is like the Wild West.”

TRAILBLAZERS AND THE RISE OF LING LEI

There’s a word in the Chinese language that didn’t exist until recently-Ling Lei. Ling Lei is a relatively new pop culture slang term used to describe the emerging Chinese youth counterculture. “As in all progressing cultures, the young, especially students, will always question the way things have been done and the authority that controls them,” says Brumage. “Now in China there is a growing but quiet group called the Ling Lei. They are China’s disaffected youth and like those in the West, they are artistic, philosophical and many of them have found skateboarding as an athletic outlet. The question is, with the Chinese culture itself being so radically different than the West, will the Ling Lei lead the skateboard charge or is there a newer, more “Chinese” group of youth that will present itself as the most prominent and important skate subculture?”

Brands seem to agree that the rise of the Ling Lei is a great sign that there’s a future for the lifestyle surrounding boardsports culture in China, and there are several Western brands looking to build inroads to reach this new and growing subset.

Camp Woodward‘s recent foray into the Chinese market is a huge indicator that there will be generations of action sports enthusiasts in the coming years. Gary Ream, Woodward’s owner and director, believes the Chinese just need an outlet to participate and the sports, as well as the business and culture that surround them, will evolve naturally. “They need opportunities, they need to be inspired, and they need world-class facilities-all of which Woodward Beijing hopes to start,” says Ream. “But more importantly, they need to discover the passion behind these lifestyle sports in the streets and neighborhoods of China.”

THE TAKEAWAY

Many Western brands dependent on net neutrality for marketing look at China’s Internet censorship and Google’s departure as leaving the country in a state of informational darkness. While China may be deprived of Western content, it’s important to remember that the country has its own set of inner-country search engines, social networks, and media outlets. They may not be able to easily access American content, but the more skateboarding and other boardsprorts grow in country, the more content and awareness will be drawn toward them via the Chinese Internet.

By many measures, China is looking to be the next global superpower, but Kislevitz says China isn’t quite ready yet to be the goldmine it’s expected to be-at least for boardsports. He does say, however, that China is definitely beginning to adopt and follow Western trends-a good indicator that business opportunities are on the way. But entrepreneurs beware, China isn’t an easy market to corner. “There are some things you can read up on and be ready to execute decisions on the spot,” says Kislevitz. “Pursuing business in China is not one of them.”

5 THINGS BRANDS MUST KNOW BEFORE ENTERING THE CHINESE MARKET

picture-411. KNOW YOUR PARTNER

Really knowing your Chinese partners is essential. Learn about them from other sources—a little research in the beginning makes life a lot easier down the road.

2. FOCUS ON A SPECIFIC REGION

China is big. There are over 55 minorities, 22 provinces, and more than 160 cities with upwards of one million inhabitants. Things are handled very differently in each region. Stay focused on your strongest market where you have the best team.

3. TAKE THE FIRST STEPS NOW

Just because you are not ready to become the next Starbucks in China doesn’t mean you can’t get involved and begin building a base for your brand. Find a group or entity that best represents who you are and start up flow programs, sponsor a band, or get involved with local action sports clubs. Having a presence in the market, no matter how minute it may seem, will make things a lot easier to build off when you’re ready to take the next step.

4. WHAT YOU THINK WORKS PROBABLY DOESN’T

The way one might assume it “should” work in China will not fly. This is not the U.S., Canada, Europe, or Japan. There is no standardized conduct. Find the people that will help you take the strengths from your brand and integrate it into the “now” China market.

5. FOCUS RESOURCES ON TARGET GOALS

As this is still a young market, achievables are very important-set a standard moving ahead. Case studies are available.