Chinese are queuing to buy the “American Dream”
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A month ago in Beijing, China the Apple store had to cancel the launch of it iphone 4s product. Yes it might have come to the middle Kingdom after 4 months but still Chinese consumers will do their utmost to get their hands on one of them.
What happened in Bejing that Friday is a normality for China’s increased status conscious consumers. A foreign product comes to the market and loyal consumers line up to splash their newly acquired wealth on this new status associated product. There were also middlemen who just want to get the product and then resell to the highest bidder. These middlemen pay money to migrant workers to wait in lines of 20/30 and then resell the gadgets to others who cannot or do not want to wait in lines at freezing temperatures.
For example according to the AP Buyers included 500 older people from neighboring Jiangsu province who were hired by the boss of a cellphone market, the newspaper Oriental Morning Post said. They arrived aboard an 11-bus convoy and were paid 150 yuan ($23) each. Do the math to calculate the potential profit per phone for the middlemen.
The Chinese who had gathered outside the store, didn’t take lightly to the unexpected turn of events and showed their appreciation to the Apple employees by throwing eggs at them ( a sign of respect in the Chinese culture). The funny part of the story is that iphone 4s is available through other resellers, through Apple’s online store and Apple’s local partner: China Unicom.
Customers began gathering Thursday afternoon outside the Sanlitun store. People in the crowd said the number grew to as many as 2,000 overnight but many left when word spread the store would not open. About 350 people remained when the protest erupted after 7 a.m.
What the above story illustrates is how China is turning into a Status-consumer nation. All nations who see a sudden burst of wealth start to spend this wealth in ostentatious ways. Japan did that in the 80s, Arabs did too. Russians have a flair for it and now the Chinese have joined the fray.
Europeans and Americans see the current onslaught of Made in China products. China has become the workshop for the world. Factories are sprouting all over China in every little village (cities now are too expensive). But here is the catch most of these factories are either owned by a foreigner or doing work for a foreign company. Chinese do end up with only a small part of the value in the chain.
Look no further than Apple. Apple has outsourced all of its production to Chinese factories (owned by Foxconn). The manufacturing cost of an iphone 4 ( the material costs, what it pays its suppliers) was estimated to be around $187. Iphone 4 was retailing for over 500 USD (both in China and in the USA). The Gross margin on it is astronomical. The same example can be applied to LV bags, Prada shoes, and all other products Chinese (and not only) clamor for.
Chinese products on the other hand tend to be very value driven and consumers are not willing to pay a premium for them. For example the Brand of China products is associated with the words: Cheap, plain, copycat. While the Brand of Europe( France, Germany, Italy) is associated with the words: high level of design, premium, quality, stylish and etc. While Chinese products have flooded the world the same has not been applied to Chinese brands. There have been few notable truly multinational successes like Hair and Lenovo but still these companies have to brag about how cheaper they are than their competitors.
Chinese who enter the middle class have lots of aspirations and they want to stand out from the crowd. Chinese do live in a cutthroat society which is not bound by any organized religion (like the ones known to the western world). The meaning of a society with close bonds and solidarity doesn’t exist. It is a society where either you make it or fail. The Chinese society believes in prosperity and wealth. In that setting the accumulation of wealth is not frowned upon and neither is the boastful display of it. Whereas in Europe (mostly) suffer from a guilt factor when they show off their luxuries, in Asia (and especially in China) it is congratulated. Success is measured by how
It is no wonder that the consumers in China are willing to pay a premium for many products. Here is an interesting twist though. Surveys have shown that the Chinese consumer is almost one of the most frugal and value driven consumer in the world. Where is the catch? This bipolarity can be explained by dividing the consumption in 2 categories: Products which are used in a social setting and convey status and products whose consumption or use are not used in a social setting.
Here are 2 examples which can illustrate the above point. For example watches. Watches globally are a powerful status symbol. Chinese are now the biggest market (along with Russians) for brands like Cartier, Jaeger–LeCoultre, Audemars Piguet. Most people would only buy one piece of expensive jewelry to make a statement, Chinese on the other hand tend to buy a lot of watches when they visit Europe. Why? First of all it is a stronger statement to show off 2 expensive watches than one. Secondly Chinese do not always want to buy items in Mainland China. To be able to travel to Europe for shopping is another powerful statement. The other example is the DIY home improvement market. In China not many people can show off their wealth through inviting others at their home. There even Ikea has not managed to become a force in the market. It is too difficult and Chinese are not willing to spend money on improving their home since it is not easy to showcase their habitat.
Cars, clothes, watches, mobile phones, gadgets and fashion accessories are a way for people to show off. Showing off doesn’t carry the negative connotations it does in other parts of the world. I personally know people who purchase the iphone just to show they can afford it. They will even upgrade to the newest model in order to prove that they are able to do it. It is like a tit-for-tat battle.
The Chinese have become consumers, consumers of items that lets them enhance their life. They will gladly pay a premium for brands that they can be associated with. Unfortunately for them they might end up with a conundrum. China will remain the world’s workshop (for a decade at least), incomes will rise (a lot), but most of the value creation will remain in the hands of foreign companies. If Chinese do not embrace their national companies, they risk losing a true chance to transform their country and society the way Americans, Germans and Japanese did. If Chinese do not love the Made-in-China tag, nobody will in the end…