success of new products in china
TRANSCRIPT
Success of new products in China
The cultural influence on the success of new product introduction in China
Author: Jin-Wah Chan
Student ID: 894269
Supervisor: drs. A.M. van Gool MBA
Bachelor thesis marketing
Academic year 2009-2010
Tilburg University
Bachelor thesis
11 June 2010
Success of new products in China
The cultural influence on the success of new product introduction in China
Author: Jin-Wah Chan
Student ID: 894269
E-mail : [email protected]
Study Program: premaster Marketing Management 2009 / 2010
Faculty: Economics and Business Administration, Tilburg University
Supervisor: drs. A.M. van Gool MBA
Language: American English
Number of words: 7783
Date: 11 June 2010
Bachelor thesis
11 June 2010
Preface
This bachelor thesis is about the cultural importance of doing business in China for U.S.
foreign companies. The idea for this topic comes from my own interest. Born in Holland with
my roots in China, I am especially interested in the cultural differences and what these mean
for doing business. Little research is done about doing business in China with the culture as
the determining factor.
This thesis consists of a literature research which I conducted with pleasure. The hardest part
was to find a relevant and interesting topic, where sufficient literature about it can be found.
Our supervisor supplied us with literature about international marketing, which is our „starting
point‟. From here on I found literature about doing business in China. Like a snowball effect,
a lot of literature is found regarding this topic. Another hard part is to select the appropriate
literature. In the end all the pieces fell into their place and my first academic literature review
is finished.
I would like to take this opportunity to thank Annemieke van Gool for taking the time to give
me valuable feedback, tips and support. I also would like to show my gratitude to Albin
Meijer, Antoon Mulders, Eveline van Deursen, Lianzhi Zhang and Sandra van Overveld for
the valuable feedback and all the help. At last but not least, I would like to thank my dear
friend Garry Chan for providing a second opinion about the content.
Roermond, June 2010
Jin-Wah Chan
Bachelor thesis
11 June 2010
Management summary
In the globalization of the world market, the focus is on Asia. China is one of the emerging
markets of this continent (Ueltschy et al., 2009). Globalization means dealing with different
consumer needs and wants across different cultures (Steenkamp & Ter Hofstede, 2002).
This study has the aim to review the factors of success of new products introduced in China
by foreign U.S. companies, with the role of the Chinese culture as the determining factor.
Scholars, like Hofstede (1980, 2001), have developed their own cultural model to
conceptualize and to operationalize culture as an construct for international marketing studies
(Soares et al., 2007). Although, there are a lot of different cultural frameworks, the choice is
made to use Hofstede‟s study (1980, 2001) as it is widely applied in international marketing
studies, acknowledged by many fellow researchers and it is still the most comprehensive
cultural study that is ever done (Smith et al., 1996; Soares et al., 2007).
When comparing the Chinese culture and the U.S. culture with Hofstede‟s cultural framework
(1980, 2001), the largest differences are found on the power distance, individualism and the
long-term orientation dimensions. As a result, the Chinese consumers are more likely to be
influenced by reference groups, whereas the U.S. counterpart believes that the choices
individually made are right (Doran, 2002). The Chinese consumers have less to spend in
purchases, thus more risk is involved (Li et al., 2004). This makes the Chinese consumers
more conservative when it comes to spending money on expensive products and are more
critical in their decision making (Burnstein & De Keizer, 1998; Doran, 2002). Due to the
critical evaluation and comparisons of products in several stores, the persuasion of the
Chinese consumers to buy products are more challenging (Li et al., 2004).
When a U.S. company decide to introduce a new product in China, it should use a localized
strategy. The aim is to establish a long-term relationship with reference group concepts as a
persuasion tool. Knowing, understanding and respecting the cultural characteristics of China
should be valued by the U.S. companies. It shows the importance of culture for doing
business in China.
Keywords: China, consumers, culture, Hofstede, U.S.
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Table of contents
Chapter 1. Introduction ................................................................................................................................. 1
1.1 The problem indication .......................................................................................................................... 2
1.2 The problem statement .......................................................................................................................... 2
1.3 The research questions........................................................................................................................... 2
1.4 Relevance .............................................................................................................................................. 3
1.5 Structure of report .................................................................................................................................. 4
Chapter 2. The culture .................................................................................................................................. 5
2.1 The definition of culture ........................................................................................................................ 5
2.2 Cultural frameworks .............................................................................................................................. 6
2.3 Discussion of the cultural frameworks .................................................................................................. 7
2.4 Conclusion ............................................................................................................................................. 9
Chapter 3. Chinese and U.S. culture .......................................................................................................... 10
3.1 Power distance ..................................................................................................................................... 10
3.2 Individualism ....................................................................................................................................... 11
3.3 Masculinity .......................................................................................................................................... 12
3.4 Uncertainty avoidance ......................................................................................................................... 12
3.5 Long-term orientation .......................................................................................................................... 13
3.6 Conclusion ........................................................................................................................................... 14
Chapter 4. Consumer behavior ................................................................................................................... 15
4.1 Cultural behavior ................................................................................................................................. 15
4.2 Shopping values ................................................................................................................................... 16
4.3 Decision making .................................................................................................................................. 18
4.4 Conclusion ........................................................................................................................................... 19
Chapter 5. The strategy ............................................................................................................................... 20
5.1 Hofstede‟s implication ......................................................................................................................... 20
5.2 Relationship marketing ........................................................................................................................ 21
5.3 Reference group ................................................................................................................................... 22
5.4 Brand positioning ................................................................................................................................ 22
5.5 Conclusion ........................................................................................................................................... 24
Chapter 6. Conclusions ................................................................................................................................ 25
6.1 Conclusion ........................................................................................................................................... 25
6.2 Managerial implications ...................................................................................................................... 25
6.3 Limitations and recommendations ....................................................................................................... 26
References ............................................................................................................................................................ 27
Appendices ........................................................................................................................................................... 32
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Chapter 1. Introduction
In chapter 1 an introduction will be given about the challenges firms could face when entering
China. An example is illustrated below. Furthermore the problem statement and the research
questions will be highlighted. The relevance and the structure of this thesis are also described.
From here on the research questions will be answered one by one in order to find the answer
to the problem statement.
Starbucks Coffee
In 1998, Starbucks Coffee decided to launch franchise outlets in Beijing and the rest of China.
But the company faced two major challenges. First of all the biggest challenge was that most
of the 1.3 billion people that live in China like tea and not coffee! The second challenge was
to find managers that are suitable to run the Starbucks outlets with the Starbucks culture and
structure maintained.
How did they face the two major challenges? To begin with, they started a survey. They asked
Chinese customers to sum up the reasons why they visit cafés. A total of 20 reasons was
summed up. While drinking coffee is only ranked number six, having a place to gather and to
be seen was the number one reason to visit a café. This led to managerial decisions to make
Starbucks an attention-grabbing experience for the customer, with taste tests, mini lectures
and contests.
The solution for the second challenge is that they approached young managers that are
experienced in running American-style restaurants like the Hard Rock Café. Once they
persuaded the managers to work for them, they sent them to Seattle for a training of three
months to absorb the culture and lifestyle of Starbucks and the west coast.
Nowadays, there are nearly 450 Starbucks Coffee outlets in mainland China (Olijnyk, 2001).
The Starbucks case shows the importance of understanding the Chinese culture for doing
business. It is a good example of an U.S. company that has successfully introduced its
products in this Asian country. With a survey the reasons and values are measured. To
maintain the culture and structure of the Starbucks outlets, young managers are trained to
absorb the U.S. culture.
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1.1 The problem indication
In the globalization of the world market, the focus is on Asia. During the mid 90‟s, countries
like Taiwan, South-Korea, Singapore and China expanded significantly in economic growth
(Whelan, 2000). Of these „roaring Asian Tigers‟, China is the country on which the focus is
and it enjoys large interest from the world market (Ueltschy et al., 2009). Companies start the
globalization of their strategies in order to gain benefits from advantages such as cost
reductions through economies of scale and increased bargaining and competitive power in
countries like China (Levitt, 1983; Yip, 1995).
Large enterprises like Coca-Cola, McDonald‟s and Starbucks have successfully taken
advantages of globalizing their strategies in China and in the rest of the world (Steenkamp &
Ter Hofstede, 2002). But what are the strategies of these large U.S. enterprises? What is the
role of the Chinese culture on their strategic choice? What are the adaptations that are carried
through in their product portfolio before introducing it in China?
Past research has given insights about the aspects that are important in whole Asia. Hall (1997)
and Hofstede (1980, 2001) classify all Asian cultures as the same and treated them as
homogenous. Thus, the managerial implications of these success factors for China as a single
country are not mentioned explicitly.
This study has the aim to review the factors of success of new products introduced in China
by foreign U.S. companies, with the role of the Chinese culture as the determining factor.
1.2 The problem statement
The problem statement is formulated as follow:
What is the role of culture on the success of new products introduced by U.S. companies in
China?
1.3 The research questions
To find an answer for the problem definition, the following research questions should be
answered.
What is culture?
What are the differences of the Chinese culture compared with U.S. culture?
What kind of effect do these differences have on the consumer behavior in China?
What strategy should be used by U.S. companies regarding these cultural differences?
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1.4 Relevance
This study can be relevant from an academic and a practical view.
Academic relevance
From an academic view it can be said that there is a vast amount of knowledge readily
available around cross-cultural studies (E.G., Hall, 1976; Hofstede, 1980, 2001), but the
information is scattered. From this view it is interesting to relate these past studies together
and gain new insights around this topic.
Another contribution is that past research mostly gave insights for whole Asia. The
Confucianism of China has a large influence on the country and also on the neighboring
countries like Japan and Korea (Chang, 1997). Also Hall (1997) and Hofstede (1980, 2001)
categorize all Asian culture as similar. But there is a certain heterogeneity between these
Asian countries (Ueltschy et al., 2009). So at first impression a local positioning strategy is
more suited than a global positioning strategy (Alden, Steenkamp & Batra, 1999).
Despite the fact that China is one of the largest developing economies, little cross-cultural
research is done in this East Asian country (Doran, 2002). These and other issues are
academically interesting to take into account.
Practical relevance
From a practical view, this study can be interesting for foreign companies that would like to
introduce their products in China. This East Asian country is one of the interesting markets
with its 1.3 billion inhabitants and rich cultural history (Ueltschy et al., 2002).
In the globalization of the world market, many companies globalize their strategies to expand
their business. To deal with heterogeneity in consumer needs and wants across borders is a
key challenge for managers of companies that would like to globalize their strategies.
(Steenkamp & Ter Hofstede, 2002).
Almost ten percent of the published articles in prominent journals used culture as an
independent variable from 1996 till 2000 (Lenartowicz & Roth, 2001). So special interest to
the cultural aspect should be given, because this can have an influence on the economic
success. These and other issues are practical relevant to take into account.
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1.5 Structure of report
The data collection of this report consists of a literature review. The information will be
mainly attained from scientific papers. Due to the fact that culture, consumer behavior and
strategy plays an important role in this research, a large quantity of information comes from
journals in the field of cross-cultural psychology, consumer research and marketing.
The first research question is to define culture. Literature regarding culture and suitable
cultural frameworks will be added to define culture. The findings will be reported in chapter 2.
The second research question is about identifying the cultural differences between Chinese
culture and U.S. culture. The U.S. companies should understand the values and norms of
China before introducing new products. This will be reported in chapter 3.
The third research question is about identifying what these cultural differences mean for the
buying behavior of consumers in China. This will be described in chapter 4.
The last research question is about identifying the strategy that should be used regarding the
outcomes of the past three research questions. This will be reported in chapter 5.
Chapter 6 will give a conclusion and managerial implications of the different factors that
foreign companies have to take into account before launching new products in this Asian
country. The limitations and recommendations for future research will also be discussed in
chapter 6. The conceptual framework of this thesis can be found in appendix I.
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Chapter 2. The culture
Culture is an important aspect in the globalization of the world market. Doing business with
different people in different parts of the world is dealing with different values and attitudes.
This chapter will define what culture is, and what cultural models can be used to define the
Chinese culture and the U.S. culture.
2.1 The definition of culture
Culture has influence on human behavior in every way. It encompasses every part of human‟s
life and it develops with the individual‟s experiences. This makes it difficult to define culture
specifically (McCort & Malhotra, 1993).
There are different meanings of culture defined by scientists. McCort and Malhotra (1993: 97)
defined culture as “the complex whole which includes knowledge, belief, art, morals, custom
and any other capabilities and habit acquired by man as a member of society”. Sekaran
(1983:68) defined it as “culturally patterned behaviors are thus distinct from the economic,
political, legal, religious, linguistic, educational, technological and industrial environment in
which people find themselves”. Hofstede (1994:21) defined culture as “the collective
programming of the mind which distinguishes the members of one category of people from
another”. As these definitions suggest, culture comprises the values, beliefs and norms that
are shared by specific groups in both tangible as intangible components. A group can refer to
a nation, a region, a social class, an occupation, a profession or a family (Hofstede, 1994). But
still it is difficult to define culture specifically, as illustrated below.
Sojka & Tansuhaj (1995: 4) explain that although, an intangible component like language
offers “an interpretative code or schema for organizing and presenting the world”, it is not
suitable as an indicator of ethnicity or to describe different behavior across groups. Tangible
components like material goods give a more concrete view of cultural differences, as goods
represent observable evidence of cultural significance (Soares, Farhangmehr & Shoham,
2007). Although these definitions, like the one of Hofstede, give a good view about culture,
they are just a small grasp of the many definitions of culture. The authors Kroeber and
Kluckholm (1967) have gathered 164 different descriptions of culture in their study. But still,
there is not a universally accepted definition. However in the next paragraph it can be seen
that scholars have been discussing about the most appropriate cultural framework to use for
conceptualizing culture.
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2.2 Cultural frameworks
Throughout the years several cultural pioneers such as Trompenaars (1997), Schwartz (1994)
and Hofstede (1980, 2001) have done cultural studies in the field of business and organization.
The researchers developed their own cultural framework with the purpose to operationalize
and to classify cultures. Culture is not a single variable, thus different dimensions of different
frameworks have been introduced to synthesize different aspects of culture (Soares et al.,
2007). A small overview of the cultural frameworks of the mentioned cultural pioneers will
be given.
Trompenaars’ cultural framework
Trompenaars‟ cultural framework consists of seven dimensions for understanding cultural
diversity in business. The dimensions are found in an empirical study that consists of 15.000
respondents (Trompenaars, 1997). The seven dimensions are:
1. Universalism – particularism, what is more important, rules or relationships?
2. Individualism – collectivism, do we function in a group or as individuals?
3. Neutral – emotional, do we display our emotions?
4. Specific – diffuse, how separate do we keep our private and working lives?
5. Achievement – ascription, do we have to prove ourselves to receive status or is it given?
6. Sequential – synchronic, do we do things one at a time or several things at once?
7. Internal – external control, do we control our environment or are we controlled by it?
Schwartz’ cultural framework
Schwartz‟ cultural framework consists of seven dimensions for describing cultures. Schwartz
used a sample of 87, divided from 41 cultural groups in 38 nations (Schwartz, 1994). The
seven dimensions are:
1. Conservatism, social relationships, security, conformity and tradition are priorities.
2. Hierarchy, emphasis in the legitimacy of the hierarchical roles such as authority.
3. Intellectual autonomy, the pursue of goals and intellectual interests.
4. Affective autonomy, promoting and protecting the positive experiences such as pleasure.
5. Competency, value priority to the dominance of the surroundings through self-affirmation.
6. Harmony, harmonious fit with nature as well with the environment.
7. Egalitarian compromise, typifies societies that share a concern for the well-being of others.
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Hofstede’s cultural framework
Hofstede used a survey that consists of 116.000 questionnaires from over 60.000 respondents
in seventy countries in his empirical study (Hofstede, 1980, 2001). The five dimensions are:
1. Power distance, it reflects the consequences of power inequality.
2. Individualism – collectivism, it describes the relationship between people in a society.
3. Masculinity – femininity, it describes achievement and success versus caring for each other.
4. Uncertainty avoidance, the extent to which people feel threatened by uncertainty.
5. Long-term orientation, the attitude of persevering, such as overcoming obstacles with time.
Although there are many more cultural frameworks than the three described frameworks, the
dimensions of the three scholars belong to the most known cultural dimensions (Zakour,
2004). For other well known cultural dimensions, refer to appendix II.
2.3 Discussion of the cultural frameworks
In the scientific world, scholars have been discussing about the most appropriate cultural
framework to use for conceptualizing and operationalizing culture (Bond, 1987; Steenkamp,
2001).
Trompenaars‟ cultural model has been shown to be quite useful to describe successful and
failed cross-cultural business transactions of multinational organizations. It offers techniques
that managers can use for dealing with cultural diversity in international management and
how different cultures respond to various management approaches (Trompenaars, 1997).
Schwartz' cultural framework is useful for identifying universal psychological values and the
structure of these values and has shown its worth in international marketing (Steenkamp,
2001).
Hofstede‟s five cultural dimensions made a great contribution to the cultural research of the
last century. Hofstede‟s cultural framework is integrated in intercultural programs, textbooks
and readers in the field of psychology, management and communication (Hofstede, 2002).
Hofstede’s cultural framework
Although, the cultural frameworks have shown their own added value in conceptualizing
culture, Hofstede‟s work has shown quite an impact in international marketing studies (Soares
et al., 2007). A lot of researchers acknowledged Hofstede‟s cultural framework (1980, 2001).
It is still the most comprehensive cultural study that is ever done, and as a result five
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dimensions were created (Smith, Dugan & Trompenaars, 1996). In the period of 1980 till
1993, Hofstede‟s work had been quoted 1036 times in different journals (Sondergaard, 1994).
Several scholars used Hofstede‟s framework as an example to develop their own models. This
is also the case for Trompenaars‟ and Schwartz‟ cultural frameworks. The first five
dimensions of Trompenaars (1997), which describes how human beings treat each other, are
derived from the „General theory of action‟ by Parsons and Shils (1951) and from Hofstede‟s
study (Hofstede, 1996). The last two dimensions are derived from the work of Kluckhohn and
Strodtbeck (1961).
Schwartz felt that Hofstede‟s dimension individualism versus collectivism showed that people
values both individual interest and group interest (Gouveia & Ros, 2000). Therefore he
developed an alternative theory to the theory that was developed by Hofstede (1980, 2001).
Soares et al. (2007) did a comparison between Hofstede‟s cultural framework and other
models. The findings of this research can be found in appendix III. This research shows that
there is some overlap between the model of Hofstede and the other models. For example,
Trompenaars neutral/emotional dimension falls under the same category as Hofstede‟s
masculinity/femininity dimension. It supports the importance of Hofstede‟s framework as an
example.
Hall’s cultural concept
Another scholar that made a great contribution in cultural studies is Hall (Gudykunst &
Nishida, 1986). Hall (1976) developed a cultural concept that consists of high-context versus
low-context cultures. The division in the two paradigms is based on how the communication
is: explicitly or in the context (Soares et al. 2007). It is therefore not accommodated as a
cultural framework with several dimensions to describe culture, and was therefore left out of
the discussion about the cultural frameworks.
The paradigms are closely associated with the individualism versus collectivism dimension of
Hofstede and some aspects like „face‟ saving and group orientation are quite useful in
describing the Chinese culture and will be used in later chapters (Kim, 2005; Tse, Lee,
Vertinsky & Wehrung, 1988).
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2.4 Conclusion
Culture is an abstract conception, which is difficult to define (McCort & Malhotra, 1993).
Different scholars have given a definition to culture and developed their own cultural model
to describe different aspects of culture, but still there is not a universally accepted definition.
Although there are a lot of researchers with their own cultural model that can be used to
define culture, Hofstede‟s cultural framework (1980, 2001) will be used to define the Chinese
and the U.S. culture. The choice for this framework is because of the widely application in
international marketing studies, acknowledgment by many fellow researchers and it is still the
most comprehensive cultural study that is ever done (Smith et al., 1996; Soares et al., 2007).
Another interesting cultural concept is Hall‟s cultural study (1976). It shows close association
with the individualism dimension of Hofstede and aspects like „face‟ and group orientation
are interesting to take into account (Kim, 2005; Tse et al., 1988).
Therefore, Hofstede‟s cultural framework will be used in combination with some aspects of
Hall to describe the Chinese and the U.S. culture in the next chapter.
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Chapter 3. Chinese and U.S. culture
The Chinese and the U.S. culture will be defined using Hofstede‟s five cultural dimensions.
For each dimension, a world average score and a score for the country will be given. The
cultural characteristics will also be described. The Hofstede scores are relative to each other.
3.1 Power distance
This dimension indicates the degree of inequality between people in physical and educational
terms. It describes the extent to which employees on the work floor accept that superiors have
more influence and authority than they have. Furthermore it describes the degree of
acceptance of opinions and decisions of higher powers. The world average score is 55
(Hofstede, 2001).
China
China has a score of 80, which is high compared with the world average of 55. This is an
indication that there is a high level of inequality of power and wealth within the Chinese
society (Hofstede, 2001). It is in line with the Chinese values such as; interpersonal harmony,
relational hierarchy and conservatism (Ueltschy et al., 2009).
In China, children are taught at a young age to be respectful and to be obedient towards
parents. Parents and teachers are treated like superiors. It is expected that they have a lot of
knowledge and personal „wisdom‟. As a result, the education is centered around the teacher.
For the work environment, it is expected that the employees are told what to do (Hofstede,
1994).
The U.S.
The U.S. has a score of 40, which is lower when compared with the world average of 55. This
is an indication that there is a greater equality between people within the U.S. society
(Hofstede, 2001).
In the U.S., children are taught to have a will of their own. Parents and teachers are treated as
equals. At school, the education is centered around the students where it is expected that they
have their own opinions.
For the work environment, it is expected that the employees are to be consulted within the
decision-making process (Hofstede, 1994).
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3.2 Individualism
This dimension indicates the degree to which people act as individuals instead as group
members. In an individualistic culture, the interest in the individual and their immediate
family is the most important. In a collectivistic culture, the individuals belong to one or more
close „in-groups‟ and are therefore interested in the group. The world average score is 43
(Hofstede, 2001).
China
China has a score of 20, which is lower than the world average of 43. China can be defined as
a collectivistic country. It means that the Chinese society is more group oriented than
individual oriented (Hofstede, 2001).
The Chinese people are deeply involved with each other and adapt to their family, good
friends and close colleagues. They are loyal and generous to both their family as well as
people outside the family. As a result of this group orientation, a structure of social hierarchy
is possible (Hunter & Sexton, 1999).
A good introduction by an insider, a member of a group, is of utmost importance for doing
business in China (Kim, Pan & Park, 1998). It is important that a positive social image is
preserved, so that prestige and admission to connections can be achieved (Oetzel & Ting-
Toomey, 2003). It is in line with the cultural concept of „face‟, which refers to the standing of
a person before his or her equals (Hall, 1976).
The U.S.
The U.S. has a score of 91, which is the highest rating of all countries on this dimension. The
U.S. can be typified as an individualistic culture. Individual success, self-actualization and
self-respect are characteristics of an individualistic culture (Hofstede, 1994, 2001).
In the U.S., climbing up the hierarchy ladder is something very common. The tie with other
people is fragile. If things are not going well, people are more intended to leave (Kim et al.,
1998).
At the work floor, the exchange of information mostly consists of just the necessary so that
work can be done. The improvement of the connections is not to establish a good relationship
but to gain advantages. As a result, it rarely occurs that personal information is exchanged
between colleagues (Hofstede, 2001).
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3.3 Masculinity
This dimension indicates the degree to which a country can be divided into an assertive pole
called masculine, or in the caring pole called feminine. Masculine cultures are more assertive
and competitive, feminine cultures care more about the health and solidarity in society. The
world average score is 50 (Hofstede, 1984, 2001).
China
China has a score of 66, which is higher than the world average of 50. China is more of a
masculine country than a feminine country.
A masculine culture is more of a competitive culture. This means that to achieve success is
important. At school there is a system which rewards student‟s academic performance and at
the work place assertiveness is appreciated. A student‟s failure at school is seen as a disaster
and at the work place decisiveness is appreciated.
Another characteristic of masculinity is that resolutions of conflicts are fought out, this in
contrast with a feminine culture where conflicts are solved by compromise and negotiation
(Hofstede, 1994, 2001).
The U.S.
The U.S. has a score of 62, which is a similar score compared to China. Both the U.S. and
China are typified as a masculine culture (Hofstede, 2001).
3.4 Uncertainty avoidance
This dimension indicates the degree of a society‟s preference for formal rules and fixed
patterns of life. Societies with high uncertainty avoidance strive for tolerance of uncertainty
and ambiguity. This ultimately means; the search for truth. On the opposite, uncertainty
accepting societies are more open of opinions that differ from their own. The world average
score is 64 (Hofstede, 1984, 2001).
China
China has a score of 40, which is lower than the world average of 64. It is an indication that
China has fewer rules and does not attempt to control all outcomes. China can be stated as an
uncertainty accepting culture (Hofstede, 2001). The Chinese people value the interpersonal
hierarchy, not showing aggression and emotions suit this value (Ueltschy et al., 2009).
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At the school environment, students feel comfortable with unstructured learning situations
and vague objectives. It is expected that the students are independent and make their own time
schedules.
For the work environment it means that there is less formalization and standardization, where
broad assignments and vague objectives are accepted (Hofstede, 1994).
The U.S.
The U.S. has a score of 46, which is a similar score compared to China. Both the U.S. and
China are typified as an uncertainty accepting culture (Hofstede, 2001).
3.5 Long-term orientation
A fifth dimension was found in a study among students using a questionnaire designed by
Chinese scholars (The Chinese Culture Connection, 1987). It is an indication of a society‟s
time perspective and how to deal with difficulties in life. It also describes the attitude of
persevering, such as overcoming obstacles with time or with will and strength. The world
average score is 45 (Hofstede, 1994, 2001).
China
China has a score of 118, which is the highest-ranking factor. The world average is 45. China
has an extraordinary long-term orientation. One of the characteristics is persistence. This
describes the degree of pursuing goals. Ordering relationships by status and observing this
order is another characteristic. This is done because of the deep sense for interpersonal
harmony, which also makes it easier for doing business.
Saving money for the future is important in China, as well as taking care for others and being
loyal (Hofstede, 1994, 2001).
The U.S.
In contrast with China, the U.S. has the score of 29, which is low compared to the world
average of 45. Personal steadiness and stability are required for doing business. If the
emphasis is too much on protecting someone‟s face, it can hinder the business flow. If too
much respect is shown for the tradition, it can be an obstacle for being innovative.
Greetings, favors and gifts are more related to social habits, with the purpose to increase
consumption (Hofstede, 1994, 2001).
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3.6 Conclusion
When comparing both cultures, the largest differences are found on the power distance,
individualism and the long-term orientation as can be seen on the table below.
PDI IDV MAS UAI LTO
China 80 20 66 40 118
The U.S. 40 91 62 46 29
World average 55 43 50 64 45 Table 1. Comparison cultures. Source: based on Hofstede, 2001.
China is a country which values high levels of interpersonal harmony, relational hierarchy and
conservatism where employees at the work floor are told what to do (Ueltschy et al., 2009).
This is in contrast with the U.S., where they teach children to have a will of their own and
where individuals are encouraged to have their own opinion (Hofstede, 1994).
In the U.S. the interest in the individual and their immediate family is the most important,
whereas in China the interest in people both inside as well as outside the family is important
(Hunter & Sexton, 1999).
In China it is essential to preserve a good „face‟, which is easier for doing business. In the U.S.
relationships are established to gain advantages (Hofstede, 1994). This is just a small grasp of
the cultural differences that are described in this chapter. But as can be seen, the cultural
differences are apparent. In the next chapter, the differences in consumer behavior will be
described with the cultural differences in mind.
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Chapter 4. Consumer behavior
As in the prior chapter is concluded, the largest cultural differences are found in the
dimensions: power distance, individualism and the long-term orientation. The differences in
consumer behavior derived from the cultural dimensions will be described. The shopping
values and decision making will also be portrayed.
4.1 Cultural behavior
As the globalization of the world is in full motion, understanding differences in consumer
behavior in different cultures is essential. Understanding the differences help to make
successful product launches possible (Doran, 2002). Cultural orientation has an effect at the
attitude and behavior of the consumers (Aaker & Maheswaran, 1997).
According to the American Marketing Association, consumer behavior is “the dynamic
interaction of affect and cognition, behavior, and the environment by which human beings
conduct the exchange aspects of their lives” (Bennett, 1995). With the environment, the place,
the country or the culture is meant.
Thus, cultural differences play a role in different cultural consumer behavior. It will be
described in the following.
Search for information
Cultures with high power distance are more opinion seekers than cultures with low power
distance. Chinese consumers are more likely to be influenced by reference groups, close
family and opinion leaders in their buying behavior. They rely heavily on personal sources.
Chinese consumers do not prefer to shop alone, so that they can get advice from their
companion. This in contrary to the U.S consumers, where the reference groups, close family
and opinion leaders are less influential. They rely more on their own personal knowledge
(Jung & Kau, 2004).
The U.S. consumers prefer to shop alone or with a friend, where the purchase decision is
made solely, while the friend only gives suggestions (Doran, 2002).
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Cognitions
The U.S. culture can be defined as an individualistic culture and one of the characteristics is
that the aim is centered on the individualist and it can also be seen in the consumer behavior.
U.S. Consumers lay the emphasis on the distinctiveness of the individual and the preferences
are more of a personal nature. The contrary is true in China, where the emphasis is on
maintaining connections and the preferences are more of a collective nature (Triandis, 1989).
This is in line with the individualism versus collectivism dimension of the study from
Hofstede (1980, 2001).
The above is also supported by an empirical study done by Trafimow, Triandis and Goto
(1991). The study results are that U.S. respondents think more in private cognitions like „I am‟
and that Chinese respondents think more in collective cognitions like „we are‟.
Money saving
Consumers in China are driven by an instrumental purpose, this means that the primary
concern for shopping is to buy something (Tse, Belk & Zhou, 1989). The Chinese consumers
are more conservative when it comes to spending money in buying expensive products. They
compare similar products in different stores and make their decision depending on the utility,
functionality and the price of a product (Burstein & De Keizer, 1998). This can be explained
due to the fact that in general, the Chinese consumers have less to spend in comparison with
for instance U.S. consumers (Li et al., 2004). This is in line with the money saving aspect,
which belongs to the Long-term Orientation dimension from the study of Hofstede (1994,
2001). As a result, Chinese consumers are more likely to visit several stores to compare and
evaluate products, and makes it more challenging to persuade consumers to buy products (Li
et al., 2004).
4.2 Shopping values
Before initiating business in China, a close rapport with the Chinese local people should be
established (McGuinness, Campbell & Leontiades, 1991). To establish a good relationship,
the cultural concepts of „face‟ and „guanxi‟ should be understand (Jung, 2004).
Friendship
As in chapter 3 is defined „face‟ describes the standing of a person before his or her equals
(Hall, 1976). As a result of the concept of „face‟, a well-known brand name or a brand name
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with a good reputation have more chance of success, because consumers do not want to lose
„face‟ because of buying a product that is less eminent. The switch to another provider can
also cause the loss of „face‟ of the provider (Wong, 1986).
The other concept is „guanxi‟ and it describes the interpersonal connection between two
people (Xin & Pearce, 1996). As the social network will be expanded, keeping a good „face‟
preserved and establish good „guanxi‟ are important to initiate a long-term business
relationship (Zhu, Nel & Bhat, 2006). It can ultimately turns into „friendship‟. This
„friendship‟ is not only a good and pleasant relationship between two people. In China, it goes
further, it means a long-term relationship where trust and loyalty are central definitions. In
business, when an agreement is reached, it means another step of building a good friendship
instead of another transaction (McGuinness et al., 1991). As a result of this interpersonal
communication, it is rewarding in intrinsic ways and is a good starting point for building a
relationship (Jung, 2004).
Shopping atmosphere
Another value that is reported in a study from Li et al. (2004) is that shopping atmosphere is a
very important aspect for Chinese consumers to visit a store. This is in line with the
introductory Starbucks case in chapter 1, where the respondents stated that a place to gather
and to be seen was the number one reason to visit a café (Olijnyk, 2001).
Material goods
One example that illustrates different values regarding material goods in China and the U.S. is
the purchase of a television. The purchase involvement of a television in China is very high
and is comparable with the high involvement purchase of an automobile in the U.S. Although,
a television is one of the more expensive products in China, the high involvement is not only
expressed in the monetary worth, but it also has a symbolic meaning (Doran, 1997). The
symbolic meaning is that it stands for political freedom and is a statement of modern life for
the rural area in China (Doran, 2002).
Some aesthetic values in China are: complexity, decoration, balance, harmony and naturalism
(Schmitt & Pan, 1994).
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4.3 Decision making
In this paragraph the differences in
decision making will be described.
U.S. consumers
First a need for a product is recognized.
The budgetary decisions are made prior
to the product search. The use of
experience-based knowledge, called
heuristics, is to limit the search. After the
search and evaluation, the purchase will
be done and the post-purchase evaluation
will start (Doran, 2002). It is graphically
displayed in figure 1.
Figure 1. North American decision-making process. Source: Doran, 2002: 827
Chinese consumers
The first step is also that a need for a
product is recognized. From here on,
differences in decision making can be
derived from figure 2. The Chinese
Consumers first chose a product and
then set a budget after a conscious search.
They save money for the product. When
they reached the amount of money, they
start another conscious search for
information, because considerable time
may have passed. After the final
evaluation the purchase will be done and
the post-purchase evaluation will start
(Doran, 2002).
Figure 2. Decision-making process for Chinese. Source: Doran, 2002: 827
Directed
Information
Search
Ongoing
Non-
directed
Information
Search Evaluation of
Alternatives
Problem
Recognition
Budgeting
Decision
Purchase
Post-purchase
Process
Use of
heuristics
Product
Category &
Budget Decision
Ongoing
Non-
directed
Information
Search
Save for
Purchase
Problem
Recognition
Initial
Information
Search
Final
Information
Search
Final Evaluation
Conscious
Search:
-General
-Longer
-Duration
Purchase
Post-purchase
Process
Conscious
Search:
-Specific
-Short
duration
-Intense
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4.4 Conclusion
As a result of the cultural differences, the Chinese consumers are more group oriented. They
are more likely to be influenced by reference groups, whereas the U.S. counterpart believes
that the choices individually made are right (Doran, 2002).
The Chinese consumers have less to spend in purchases, thus more risk is involved (Li et al.,
2004). This makes the Chinese consumers more conservative when it comes to spend money
on expensive products and are more critical in the decision making (Burnstein & De Keizer,
1998; Doran, 2002). As a result, the persuasion of the Chinese consumers in buying products
is more challenging, due to the critical evaluation and comparisons of products in several
stores (Li et al., 2004).
Retailers should keep in mind that a good shopping atmosphere should be preserved and an
outstanding service can be provided (Li et al., 2004). All of this can contribute to the
relationship between consumer and provider.
The Chinese consumers value long-term relationships, where a good „face‟ is preserved and
„guanxi‟ can be created (Jung, 2004). This can eventually, lead to „friendship‟ where the
consumer is more likely to stay with the provider. Because a switch will mean the loss of
„face‟ of the provider (Wong, 1986). These and other cultural consumer behavioral
differences should be taken into account in the strategy, which will be described in the next
chapter.
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Chapter 5. The strategy
As it is a cross-cultural study, this chapter will devote to the strategic implications. A strategy
should be formulated before entering the Chinese market. Although, strategy can be
duplicated in many ways, in this chapter the strategic implications will be formulated
regarding the cultural characteristics.
5.1 Hofstede’s implication
Both countries are defined using Hofstede‟s cultural framework (1980, 2001). In this
paragraph, the negotiation implications regarding the cultural differences will be described.
Power distance
As it is implied in chapter 3, the power distance dimension is where the differences between
both cultures are apparent. The U.S. culture can be defined as a culture with low power
distance, whereas the Chinese culture can be regarded as a large power distance culture
(Hofstede, 1994).
Honors, titles and status are very important in a large power distance culture. During a
negotiation, it is not appropriate to address your counterpart with the first name, but address
by their proper title. Use the indirect way to communicate, unless you know the person very
well (Rowden, 2001).
Individualism and long-term orientation
An individualistic culture like the U.S. values independence, professional career and self-
actualization, whereas a collectivistic culture like China values interpersonal harmony and are
group oriented (Hofstede, 1984).
During a negotiation, an individualist from China is more likely to focus on stable
relationship with a long-term orientation. When negotiating about business, the collectivistic
manager is more likely to show concern for the needs of the counterpart by focusing on a win-
win situation (Rowden, 2001).
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Masculinity
Both countries can be typified as masculine cultures. Assertiveness, task orientation and
competition are some characteristics of a masculine culture (Hofstede, 1984).
The negotiation is usually of a competitive kind, where conflicts are fought out rather than
compromising, resulting in an ego-boosting manner (Hofstede, 1994). When negotiating, the
individuals are more likely to focus on the specifics of the agreement (Rowden, 2001).
Uncertainty avoidance
The Chinese culture is similar to the U.S. culture when it comes to the dimension of
uncertainty acceptance. Both can be classified as uncertainty accepting cultures with
characteristics as; working in an informal work setting with flexibility regarding the structure
and guidelines (Hofstede, 1994).
Negotiation with individuals of this culture is likely that the individual is comfortable with
constantly changing requirements, time and volume (Rowden, 2001).
5.2 Relationship marketing
As the name implies, relationship marketing is a strategy with a strong emphasis on building
business relationships with consumers (Zhu et al., 2006). As it is clarified in the prior chapters,
China is one of the collectivistic societies where building a strong relationship is very
important (McGuinness et al., 1991). The cultural concepts „face‟ and „guanxi‟ are central for
doing business and for initiating and maintaining a long-term relationship (Wong, 1986).
The first step for initiating a business relationship is to understand the Chinese cultural
concept „guanxi‟. This concept is described by Zhu et al. (2006: 332) as “the more you help
others, the more you will get connected with people”. It involves the contribution to the
development of a relationship and social networks.
In the initial stage, the introduction is often through a third person, which already established
„guanxi‟ with both persons. It can be seen that the social network will be expanded and
„guanxi‟ will be established when doing business. When „guanxi‟ is established and two
persons have a deep interpersonal relationship, the social distance will decrease and a more
direct communication style will be used (Zhu et al., 2006).
Initiating a relationship is important, but maintaining a relationship is even more important
and is the second step (Zhu et al., 2006).
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5.3 Reference group
As in the prior chapter is mentioned, the Chinese culture rely heavily on personal sources like
close family and opinion leaders. They are also allocated as the reference group (Jung & Kau,
2004). When people orient themselves to others in shaping their behaviors and evaluations,
they consult the reference group (Bearden & Etzel, 1982).
Consumers can use reference groups with different reasons. A consumer can gain information
about a product or service in his or her social environment. This information can take away
the uncertainty about a product or a service.
It can be rewarding for a consumer to listen to the reference group, like when a child should
go to the hairdresser or else the child won‟t receive pocket-money from the parents.
Confirmation can be found when a consumer reflects to an appealing reference group
(Nederstigt & Poiesz, 2003).
Reference group concepts are used in commercial themes in China, where the focus is on
family values and tradition. On the contrary in the U.S., themes are surrounded on making fun,
cost savings and are focused at individualistic expressions (Cheng & Schweitzer, 1996).
5.4 Brand positioning
Brand positioning plays an important role in global consumer culture. As the world
globalization emerges, the importance of globally shared meanings, such as brands and
product categories, becomes apparent (Terpstra & David, 1991). These globally shared
meanings are labeled as the Global Consumer Culture Positioning, which is created as an
construct for international managers that have decided to go on a globalization tour (Alden et
al., 1999).
The Global Consumer Culture Positioning can be divided into the Local Consumer Culture
Positioning and the Foreign Consumer Culture Positioning.
A Local Consumer Culture Positioning is that the brand is positioned in a way that the
association with the local consumer culture can be made. An example is the association with a
small-town American culture by Budweiser.
A Foreign Consumer Culture Positioning is that the brand is positioned in a way that the
association with a specific foreign culture can be made. An example is the association with
Singapore by Singapore Airlines, which uses a Singapore girl in its global program (Alden et
al., 1999).
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Local Consumer Culture Positioning
The Chinese people attach importance to the opinion of personal sources like members of a
collectivistic group (Jung & Kau, 2004). Reference groups are consulted to shape their
behaviors and evaluations (Bearden & Etzel, 1982).
Chinese consumers are also likely to visit several stores to compare and evaluate products and
have at least two conscious searches for information before making the final decision (Doran,
2002; Li et al., 2004). All these characteristics of consumer behavior in China leads to the
indication that Chinese consumers are looking for certainty and recognizability. When
looking at these cultural aspects, a Local Consumer Culture Positioning of a brand is more
suitable. The adaptation to the Chinese language and the use of Chinese idols in their
promotional campaign is a small grasp of the possibilities of this positioning strategy to create
certainty and recognizability (Alden et al., 1999).
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5.5 Conclusion
As it is said in the introduction of this chapter, strategies can be duplicated in many ways. An
attempt is made to find the proper strategic implications regarding the cultural aspects and
consumer behavior.
With Hofstede‟s cultural framework (1980, 2001), the both countries are described and
negotiation implications are derived (Rowden, 2001). Knowing, understanding and respecting
the cultural characteristics of China should be valued by the U.S. companies.
The Chinese people attach importance to a long-term relationship (McGuinness et al., 1991).
The use of relationship marketing contributes to this aspect (Zhu et al., 2006).
The Chinese people rely heavily on personal sources is another important aspect that should
be taken into account (Jung & Kau, 2004). As some commercial themes in China are focused
on family values and tradition, reference group concepts should be used as a persuasion tool
(Cheng & Schweitzer, 1996).
As the Chinese consumers attach importance to certainty and recognizability, a Local
Consumer Culture Positioning seems a suitable strategy for the positioning of a brand (Alden
et al., 1999). These strategic implications are displayed in the figure below.
Figure 3. The strategy
Hofstede‟s implication Relationship marketing Reference group Brand positioning
The strategy
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Chapter 6. Conclusions
In this last chapter, the conclusion and the managerial implications will be described in order
to answer the problem statement. Furthermore, the limitations and recommendations for
future research are also described.
6.1 Conclusion
Culture is an important aspect for companies that decide to globalize their strategies to expand
their business. It means that companies deal with different consumer needs and wants across
different cultures (Steenkamp & Ter Hofstede, 2002). This is also supported by the fact that
different scholars, like Trompenaars (1997), Schwartz (1994) and Hofstede (1980, 2001),
have developed their own cultural model to conceptualize and to operationalize culture as an
construct for international marketing studies.
With Hofstede‟s cultural framework (1980, 2001), the cultural characteristics of China and
the U.S. are described. As a result of the analysis with Hofstede‟s cultural framework, it can
be said that the Chinese consumers:
are more likely to be influenced by reference groups (Doran, 2002).
are conservative when it comes on expensive products (Burnstein & De Keizer, 1998).
are more critical in the decision making (Doran, 2002).
are more challenging to be persuaded to buy products (Li et al., 2004).
value long-term relationships where „face‟ and „guanxi‟ are preserved (Jung, 2004).
are more loyal to a provider when „friendship‟ is created (Wong, 1986).
The managerial implications will be elaborated in the next paragraph.
6.2 Managerial implications
The managerial implications are derived from the findings of this thesis. It is important for
U.S. managers to embrace the Chinese cultural aspects. It is therefore important to:
understand the negotiation and cultural differences that are derived from Hofstede‟s
work (Hofstede, 1980, 2001; Rowden, 2001).
effectively use relationship marketing (Zhu et al., 2006).
use reference group concepts as a persuasion tool (Cheng & Schweitzer, 1996).
use a Local Consumer Culture Positioning (Alden, et al., 1999).
It all shows the importance of understanding culture for doing business in China.
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6.3 Limitations and recommendations
It has to be kept in mind that, only using Hofstede‟s cultural framework (1980, 2001) has its
drawbacks. As in chapter 1 is described, Hofstede classify all Asian cultures as the same.
They are all countries with a large power distance, collectivistic and long-term oriented. This
means that cultures like Japan, Korea and China all have the same cultural characteristics such
as the maintenance of the social hierarchy, money saving and group orientation (Hofstede,
2001). Ueltschy et al. (2009) concluded that there is still a significant dissimilarity of doing
business in these countries. As it is exemplified by the fact that Chinese people express their
opinions faster than the Korean and Japanese people. They feel that their opinions matter, so
they generously express their feelings, whether they are content or not. This is an indication to
doubt the generalizability of Hofstede‟s work.
China, is such a large country with its 1.3 billion inhabitants, it is recommended to be aware
that not every region fits to the cultural descriptions of Hofstede‟s work and is therefore, only
suitable as a guideline for understanding the cultural differences.
It can be useful to use different cultural frameworks to analyze the cultural characteristics and
derive the similarities from the frameworks.
Although, the cultural frameworks that are discussed belong to the most well known cultural
frameworks, they are just a small grasp of the available theories (Soares et al., 2007; Zakour,
2004). For future research, it can be useful to discuss more cultural frameworks.
Another limitation is that the strategy is formulated with only the cultural aspects taken into
account. When introducing a new product in China, other important factors can play a role
like the marketing mix.
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Appendices Appendix I. Conceptual framework
Figure 4. Conceptual framework
Role culture on success of new
products
The culture
Difference between Chinese and U.S.
culture
Effect difference on consumer behavior
The strategy
Definition of culture
Cultural models
Choice cultural model
The Chinese culture defined by cultural
model
The U.S. culture defined by cultural
model
Comparison between both cultures
Consumer behavior in China
Consumer behavior in the U.S.
Comparison consumer behavior between
China and the U.S.
Strategic implications
Formulation strategy
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Appendix II. Overview of the most known cultural dimensions
Table 2. Overview of the most known cultural dimensions. Source: Zakour, 2004: 157
Cultural dimensions Authors
Power Distance Hofstede (1997)
Individualism/Collectivism Hofstede (1997)
Masculinity/Femininity Hofstede (1997)
Uncertainty Avoidance Hofstede (1997)
Long-term Orientation Hofstede, Bond (1997)
Confucian Work Dynamism Chinese Culture Connection (1987)
Conservatism Schwartz (1994)
Intellectual autonomy Schwartz (1994)
Affective autonomy Schwartz (1994)
Hierarchy Schwartz (1994)
Egalitarianism Schwartz (1994)
Mastery Schwartz (1994)
Harmony Schwartz (1994)
Universalism/Particularism Trompenaars, Hampden-Turner (1998)
Individualism/Communitarianism Trompenaars, Hampden-Turner (1998)
Neutral/Emotional Trompenaars, Hampden-Turner (1998)
Specific/Diffuse Trompenaars, Hampden-Turner (1998)
Achievement/Ascription Trompenaars, Hampden-Turner (1998)
Attitudes to time Trompenaars, Hampden-Turner (1998)
Attitudes to environment Trompenaars, Hampden-Turner (1998)
Communication context Hall (1989), Hall, Hall (1987)
Perception of space Hall, Hall (1987), Hall (1989)
Monochronic and polychronic time Hall (1989)
Nature of people Kluckhohn, Strodtbeck (1961)
Person‟s relationship to nature Kluckhohn, Strodtbeck (1961)
Person‟s relationship to other people Kluckhohn, Strodtbeck (1961)
Primary mode of activity Kluckhohn, Strodtbeck (1961)
Conception of space Kluckhohn, Strodtbeck (1961)
Person‟s temporal orientation Kluckhohn, Strodtbeck (1961)
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Appendix III. Comparison of Hofstede’s cultural framework
Masculinity/Femininity Individualism/collectivism Power distance Uncertainty avoidance Long-term orientation Other
Hofstede (1984)
Hofstede (1991, 2001)
Inkeles and Levinson
(1969)*
Conceptions of self Relation to authority Primary dilemmas or
conflicts
Triandis (1995)
Chinese Cultural
Connection (1987)
Human heartedness Integration Confucian work
dynamism
Moral discipline
Clark (1990)* Relations to self Relation to authority Relation to risk
Trompenaars (1997) Neutral/emotional Universalism/particularism
Individualism/
communitarianism
Attitudes to time Specific/diffuse
Achievement/ascription
Attitudes to the environment
Dorfman and Howell
(1988)
Paternalism
Schwartz (1994) Mastery/harmony Autonomy/conservatism Hierarchy/egalitarianism
Smith et al. (1996) Loyal involvement/utilitarian
involvement
Conservatism/egalitarianism Discussion of a third dimension
3 deferred
Keillor and Hult
(1999)
National heritage/culture
Homogeneity/belief
system/consumer ethnocentrism
Steenkamp (2001)* Autonomy/collectivism Egalitarianism/hierarchy Uncertainty avoidance Mastery/nurturance
*Refers to theoretical contributions. The remainders are empirical studies.
Table 3. Comparison of Hofstede‟s cultural framework with other models. Source: Soares et al, 2007: 280