It is Not the Knowing that is Difficult, but the Doing

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1 It is Not the Knowing that is Difficult, but the Doing A Fresh Perspective on Cross-Cultural Branding in China Anne Christine Cecilia Lauritzen Rosa Kirstine Christensen 5 May 2011 Aarhus School of Business and Social Sciences Supervisor: Katrine Vanggaard Madsen

2 Executive Summary The purpose of this thesis is to examine how Western brands can and have executed their branding strategy in China and how culture affects these choices. It is found that limited research has been made within the field of international branding, which is an important reason for investigating the area further. To this comes that globalization has almost coerced Western brands to enter foreign markets in order to keep up their revenue. China is an interesting market for many Western brands to enter since the economy has grown rapidly during the last decade, and will continue to do so. The thesis will therefore investigate how Western companies entering the Chinese market can integrate culture into their branding strategies. To do so, some research questions have been created to help answering the problem statement. It will be looked at what effect the Chinese culture has on Western branding strategies, what the significance of customization and standardization is, and lastly three companies will be analyzed in regards to their communication towards the Chinese consumer and how it was received by the consumer. The thesis works within the philosophical hermeneutics tradition, since culture is an important aspect of the thesis, and this naturally calls for having attention on the receiver. Philosophical hermeneutics is therefore an obvious choice as a theory of science, since this tradition focuses on how receivers may interpret messages differently due to what culture they live in. This is essential to investigate in order for, in this case a Western brand, to carry out their branding strategy on the Chinese market. In order to build up the thesis with relevant theories, a number of primary theorists have been drawn upon. In the chapter on culture, de Mooij, and Beamer and Varner have contributed with key arguments. In relation to the chapter on the Chinese consumer trends, Doctoroff has significant findings from his research carried out in China on the Chinese consumer behaviour. However, before looking further into the world of the specifics on the Chinese consumer, Solomon s theory of consumer behaviour will shortly be presented. The development within branding is showed by the use of several branding scholars, e.g. Aaker and Kapferer. However, the most significant branding perspective is in this thesis given by Cova, Kozinets, and Shankar, who are the authors of the theory of tribal marketing. Monika Alimiené and Rita Kuvykaité are the primary theorists used for the standardization and customization chapter supported by Keller. As we go about the thesis other secondary theorists will be taken into consideration as well. The method used for the thesis, including theory and analysis, is first of all a presentation of relevant theories within the area of culture, consumer trends, and branding. Next, theorists working with globalization, hereunder standardization and customization will be used to discuss the i

3 significance of those approaches. This theory, including deliberations of it, will ensure that enough background knowledge is given before analyzing three case examples from the Chinese luxury market. Furthermore, the theory presented will be used to create a cross-cultural branding model, since it has been found that many existing branding models lack the aspect of culture, which is what this model will take its offset in. The model will be a combination of culture and brands, thus providing one possible solution to integrating the core brand identity with a foreign culture. Lastly the case analysis is connected and discussed in relation to the theory presented and discussed throughout the report, namely in terms of how culture and consumer trends affect the communicative choices made by three luxury brands, and furthermore how the Chinese consumer has perceived those choices. The case analysis carried out, considers three different brands, all of them engaged in the luxury industry. The first brand is a Chinese based luxury brand called Shang Xia, which differentiates itself from the other two brands because of the incorporation of Chinese heritage and culture in everything they do. The next brand is the French brand, Hermés, which has brought Western traditions to China. Lastly, the long-standing British brand Burberry is looked at. Burberry uses a global strategy, implementing almost complete standardization. The brands are chosen in order to give a nuanced picture of different branding strategies executed on the Chinese market. The conclusions and findings of the thesis showed that the branding approaches of Western brands are somewhat different from each other. However, the majority of the companies entering the market are aware, or at least they become so, that culture needs to be taken carefully into consideration when choosing a branding strategy for the Chinese market. Thinking it works at home, so it will work anywhere does not often cut it, especially not on a foreign market that is as different as the Chinese is. Research showed that the Chinese love to display status and love the Western brands because these are associated with values they long for e.g. freedom and individuality. This makes China ideal for Western luxury brands. Nevertheless, the Chinese also have deep respect for own traditions and heritage and thus keeping a low profile is valued. That and more is what this thesis argues should be considered when branding in China as a Western company. Moreover, it is found that there are several disadvantages as well as advantages when it comes to choose a standardization or customization approach. However, as is also found, many theorists do emphasize the very important aspect of considering the local culture, which the theory of glocalization will briefly touch upon. It is argued that this can be done without harming the global brand. ii

4 The purpose of the thesis is not to gather information to provide a recommendation, but instead the purpose is to shed some light on the ways that can be pursued when entering a foreign market. Although, it does offer one cross-cultural branding model based on the findings in the thesis, which can be used as a solution. However, it is not meant as one definitive truth, but leaves room for adaptations and modifications according to the setting. Keywords Culture, China, branding, glocalization, standardization, customization, globalization, cross-cultural branding model, luxury brands, Shang Xia, Hermés, Burberry. List of acronyms/abbreviations RQ: Research Question JWT: J. Walter Thompson (advertising agency) WWD: Women's Wear Daily TA: Target Audience OT Analysis: Opportunities and Threats Analysis iii

5 Table of contents 1. Introduction (All) Context Problem Statement Structure and Method Delimitations Theory of Science Theoretical framework The Work of Merieke de Mooij The Work of Douglas B. Holt The Work of Bernard Cova, Robert V. Kozinets and Avi Shankar The Work of Tom Doctoroff The Work of Alimiené, Monika and, Rita Kuvykaité Cultural theories (RKC) Defining Culture Looking into the Particularity of the Chinese Culture Globalization and China (ACCL) Chinese Consumer Trends and Preferences Status Display Spending Power Aspiration Cultural Trends Branding Theories (RKC) The Chinese Culture and the Western Branding Strategies Employed (RCK) Glocalization (ACCL) A Global Brand The Significance of Standardization and Customization (ACCL) Cross-Cultural Branding Model (RKC) Our Cross-Cultural Branding Model for China (ACCL) Case studies from the luxury industry (RKC) Shang Xia The Chinese Consumer and Shang Xia Hermés The Chinese Consumer and Hermés...41 Page 1 of 99

6 9.5 Comparing Shang Xia and Hermés Burberry (ACCL) The Chinese Consumer and Burberry Comparison Findings (All) Conclusion (All) Works cited Appendices Appendix 1 - The Onion Model Appendix 2-4 key Chinese consumer groups Appendix 3 Aaker s Brand Identity Planning Model Appendix 4 - Boden s 7 P s Appendix 5 The IMC Process Model Appendix 6 Emotional and Viral Branding (Holt, 2004) Appendix 7 Brand visualisation and design elements Appendix 8 Brand website features Appendix 9 The Shang Xia logo Appendix 10 Chinese model from Shang Xia s website Appendix 11 Chinese models from Shang Xia s website Appendix 12 Image from Hermés International website Appendix 13 Image from Hermés Chinese website Appendix 14 The Hermés logo Appendix 15 The Hermés Birkin Bag Appendix 16 Hermés scarf Appendix 17 - Retail presence of the 15 brands as of August 2010 surveyed by Bain & Company Texts from the Internet...68 Number of characters: Anne Christine Cecilia Lauritzen (ACCL): 38,359 Rosa Kirstine Christensen (RKC): 38,788 Total: 98,918 Page 2 of 99

7 1. Introduction (All) 1.1 Context Despite the increased focus on globalization and everything it brings along, branding in an international context has received only limited research attention (Guzman and Paswan, 2009).This view is supported in a recent study conducted by Whitelock and Fastoso, who found only 40 articles on international branding over a span of 31 years across some 20 journals (( ) Guzman et al.) Hollis argues that the world *is+ still a very complex and diverse place (2008, 23). It is thus remarkable that despite of this broad agreement among theorists and practitioners in the field, only a limited number of researchers and theorists have investigated how this diversity affects the world of international branding. Søren Askegaard states that brands and branding are a powerful social and cultural institution and an important vehicle of globalization a process most visible in marketizing economies with embryonic consumer cultures (Schroeder and Salzer-Mörling 2006, 100). He firmly talks about three of the core areas this thesis will investigate namely branding, culture and globalization, arguing that they have an effect on each other, meaning that companies need to acknowledge them as united. In this thesis the focus will be on China, since the Chinese market is by far the world s largest emerging market (Lindstrøm 2008, 36). The Chinese market is a very interesting example of a market and an economy which has gained a lot of attention over the last years. An increasing number of Western based companies expand to China, as the Chinese middle class continues to grow and thereby gets more purchasing power. By 2020, 70 % of China s population will have a middle class status, and in addition both The Economist, Goldman Sachs, and PriceWaterHouseCoopers (Ross 2011) predict that the Chinese economy will overtake the US economy by around 2020, with an expected GDP of around $14trn in 2020 (Goldman Sachs Economic report 2008, 16). Through several examples, the thesis will seek to give an answer to whether or not a branding strategy of standardizing or customizing is preferably pursued in China. The question is if it is better to maintain the same brand consistency, image, values and strategies which are used in the domestic Western country, or if in fact it is better to adapt and customize the brand to the new culture in which the brand is now present. Also, the thesis seeks to show the shift in focus that has been within the field of branding. It is argued that the focus has changed from sender-oriented, to more consumer-oriented branding. This thesis will set out in this new branding paradigm as this is highly relevant to this report s focus on culture. Furthermore, De Mooij acknowledges that in order to build relationships between Page 3 of 99

8 consumers and brands, advertising must reflect people s values (2005, 35), which clearly shows the paradox that global brands face when entering a new market. The thesis will take in three case examples from the luxury industry in order to analyze both how they have approached branding in China and furthermore how the Chinese consumer responds to their choices. When it comes to the market for luxury goods in China, Tom Doctoroff is sure; he states that there are no local luxury brands, meaning no local competition to the Western luxury brands entering the Chinese market. [A] true luxury local brand is a long, long time off. International credibility and international scale is absolutely fundamental to something being a luxury brand (Doctoroff, 2010). With this in mind, the problem statement has been composed. 1.2 Problem Statement How can Western companies entering the Chinese market execute a cross-cultural approach to branding to gain a foothold on the Chinese market? To examine this we will take a consumer oriented angle by applying some of the latest branding strategies, some of which take cultural theory into account, onto case examples from the luxury industry. In order to thoroughly answer the problem statement, some explicit research questions have been outlined below. - What specific role does the Chinese culture have on the branding strategies that various Western companies employ? - What is the significance of customization and standardization? - How have three companies within the luxury industry approached their communication towards the Chinese consumer, and based on our findings in the consumer trends and culture chapter, how was it received? Page 4 of 99

9 1.3 Structure and Method This report will be divided into eight main chapters. Each of the chapters will add important information that will be used for answering the problem statement. In order to analyze the cases, the sources mentioned in the theoretical framework will be used as a foundation. Chapter 1 1 will contain a definition of culture, which is important to have in place in order to consider culture in relation to branding. The chapter will more thoroughly look into the Chinese culture, since this knowledge will be needed further on in the thesis, e.g. when analyzing the three cases. In chapter 2, an introductory paragraph on globalization will emphasize the fact that it is the process of globalization that is the reason for pursuing this topic. The globalization paragraph leads up to the consumer trends paragraph putting it into perspective and thus functioning as a long introduction to this paragraph. The Consumer Trends and Preferences paragraph will at first briefly define general consumer behavior as defined by Solomon. Hereafter, the chapter looks specifically into the Chinese consumer trends and preferences, since they are important to recognize in order to be up to date on how and why the Chinese consumer makes choices. The paragraph is divided into sub-paragraphs of status display, spending power, aspiration and cultural trends. These are chosen because they are key points in the Chinese consumer behavior. Chapter 3 examines the field of branding. The branding theories presented in the chapter are in chronological order starting with the theory by David Aaker and ending with theory by Cova, Kozinets, and Shankar. The chapter seeks to present the development within branding moving from sender-oriented theory to more receiver-oriented theories. Chapter 4 unites the chapter 1, 2, and 3 in order to answer RQ 1. The chapter provides additional important findings found by various theorists, who also have somewhat different views on how to approach branding in new markets. Chapter 5 is on the concept of glocalization, a newer theory on how to unite the local with the global. The next paragraph A Global Brand defines a global brand and functions as introduction and background knowledge for chapter 6. Chapter 6 provides an overview of the approaches of standardization and customization by looking at advantages and disadvantages of both. The chapter ends up with a reconciliation of which approach to apply. Chapter 7 will first explain the need for a new branding model that takes in culture as a parameter. Next a cross-cultural branding model will be put forward, made solely for the Chinese market, since it is found to be a very important market to almost all global companies. 1 Named 2 in the Table of Contents Page 5 of 99

10 Chapter 8 will investigate three luxury brands in detail, namely Shang Xia, Hermés, and Burberry. The case study will partly consider websites and overall branding strategies, along with an analysis of how the Chinese consumer will receive the brands based on the findings from all other chapters. Before a conclusion will be drawn, a chapter on the findings found during the analysis of Western brands on the Chinese market will be presented and discussed shortly. 1.4 Delimitations Even though there within this topic are several voices that criticize the influence that global brands have on the local culture, we will not discuss the topic in this thesis, but primarily look at how global brands adjust their strategy most effectively to the Chinese market. Neither will we therefore take a stand in this debate. We are limited by the fact that we are not able to analyze Chinese texts, since we are not familiar with mandarin. It will imply that the analysis of the cases primarily will focus on visual images, and also a presentation and discussion of sender s choices. However, in order to stay within the realm of philosophical hermeneutics, receiver s perception will be considered as well. We do acknowledge that more traditional philosophical hermeneutics research methods have not been carried out, e.g. interviews and questionnaire, since it was found impossible and irrelevant to translate Chinese into English as meanings and depth is lost in translation. We also acknowledge that globalization with its huge popularity these days could have been a topic for an entire thesis on its own. Nevertheless, it has only to a limited extend been drawn upon to put the scope of our thesis into perspective and to provide a basis for the rest of the thesis. Consumer behaviour is also chosen to only be considered shortly, since it was estimated that for the purpose of this thesis, consumer behaviour in a general term was not necessary to look further into. Moreover, we are aware of the fact that the paragraph on Chinese consumer trends and preferences is only a small scale research done on the topic, as it was beyond the limits of this thesis to go out and collect actual data directly from the consumers in China, even though it would have been in concordance with our philosophical hermeneutics angle. This means that our cultural branding model is also limited as it is based on the consumer trends and preferences paragraph. We further recognize that it is thus also limited to China; though it can be adapted to other cultures as well by putting in different elements in the cultural characteristics and the consumer. What is more is that we in the first steps in the model namely market analysis, industry and identification of target audience have not filled in the research in the same way as we have done with the consumer and cultural characteristics where we have put in some keywords, since doing all this research would also be beyond the limits of this thesis. Page 6 of 99

11 1.5 Theory of Science This thesis will be worked out in the realm of philosophical hermeneutics, devised by Hans Georg Gadamer in the 1970 s. This approach has been chosen since philosophical hermeneutics focuses heavily on the receiver, and this is especially important when it comes to investigate the importance of considering culture in a branding aspect. Within the culture paradigm, most theorists have a philosophical hermeneutics perspective, since it is all about considering the people in that culture, and those theorists highly acknowledges that the same message can be interpreted and received in various ways, only due to the difference in culture. Seen from a philosophical hermeneutics point of view it is obvious that different receivers interpret and understand the communication material sent out differently. This is the case, since they each have their own horizon of understanding. Hans-Georg Gadamer s philosophical hermeneutics is ontological rather than methodological (Gadamer 1976, xi) in opposition to his predecessors Friedrich Schleiermacher and Wilhelm Dilthey. For philosophical hermeneutics, the question is not what we do or what we should do, but what happens beyond our willing and doing (xi). This correlates perfectly with the report s focus on the cultural influence on consumer behaviour in China. Moreover, it is in concurrence with this report s take on branding, where receiver oriented branding strategies will be applied. Thus, in connection to this thesis it means that marketers of Western brands will try to gain insight into how the Chinese consumers (the receivers) will interpret the ad campaigns they send out. In other words the receivers will be considered throughout the entire thesis, and this will be visible in the choice of main theorists. The philosophical hermeneutics tradition believes that the human being ascribes his/her actions and phenomena meaning. Human beings interpret situations based on what we have learned in our lives and everything we carry with us from past experiences and situations. Gadamer thus argues that we do not come into the world as tabula rasa, but with prejudices and preconceptions which he calls horizon of understanding (Nikolaj Kure, class lecture on philosophical hermeneutics). Understanding remains essentially a mediation or translation of past meaning into the present situation (Hans-Georg Gadamar xvi). This means that understanding occurs when a personal horizon is fused with the phenomena. The horizon of understanding is thus not an obstacle to understanding but a condition for understanding (xix). Philosophical hermeneutics does not believe in finding one truth, this report will therefore neither. It will put forth a truth that is only valid in the discourse it is presented in, if one or more circumstances are changed so will the truth and result of this report. This could for example be the case if the culture changes, because that would imply that the people in the culture have changed as Page 7 of 99

12 well. In recent years a debate about the Westernization/Americanization of the world has taken place. If the world really has become Westernized/Americanized, it would, from a philosophical hermeneutics point of view, be valid to argue that people from e.g. the Eastern part of the world are able to identify more with Western companies and products than was the case earlier. In line with the tradition chosen for this thesis, multiple guidelines will be put forth to secure the clarity of the Western culture meets Chinese culture-discourse. These include a definition of globalization, definition of culture, categorization of Chinese consumers, and the progression of branding theories. 1.6 Theoretical framework The theoretical framework will include only the most significant theorists used to build this thesis. However, a much more extensive number of theorists will be included in the concrete chapters in order to give a complete foundation for understanding the topics of this thesis The Work of Merieke de Mooij De Mooij s book Global Marketing and Advertising: understanding cultural paradoxes will serve as a basis for understanding culture in a globalized world. In her book, she takes in Geert Hofstede s Onion Model, which also will be presented and included when relevant. De Mooij works within the philosophical hermeneutics tradition. The reason is that working with culture almost calls for taking this approach, since it demands for acknowledging the different world views that the human beings have due to their respective culture. De Mooij makes no exception, and she argues that the main discourse within the discussion of an emerging global culture is created by Anglo-Americans, giving examples and illustrations from American brands like Coca-Cola and McDonalds (De Mooij 2005, 39). She is highly aware of this perspective and calls for looking at the field from another than the American point of view The Work of Douglas B. Holt In his popular book How brands become Icons: The Principles of Cultural Branding, Holt focuses on both culture and branding, which is highly relevant for this thesis. Therefore, Holt will be applied in several chapters. Holt focuses heavily on the receiver; however, he does not belong within the realm of philosophical hermeneutics tradition, but is more in line with Popper s falcificationist philosophy (Holt 2002, 73). Nonetheless, Holt himself does acknowledge that his research method is premised Page 8 of 99

13 upon hermeneutics, and it is therefore argued that the two traditions do not contradict with each other in any way (73) The Work of Bernard Cova, Robert V. Kozinets and Avi Shankar Consumer Tribes serves as our main theory within the area of new branding theories that this thesis will take in. The concept of consumer tribes will be drawn upon to approach branding with an increased focus on the receiver/consumer, which is argued to be in line with the cultural perspective that this thesis is adding to the field of branding. Therefore, Cova, Kozinets, and Shankar have been selected in order to not only see branding from the perspective of the sender, as both Aaker and Kapferer are argued to have a tendency to do. Cova, Kozinets, and Shankar have taken a philosophical hermeneutics approach to their work. This is so as the whole concept of tribes is built around a basic argument that the tribes are formed within the respective culture, place, time, etc. that they are situated in. In other words, it is the surroundings that determine what the different tribes are concerned with. This does not contradict with Cova, Kozinets, and Shankar s argument that consumers can belong to several tribes due to which crowds they are engaged in, far from, since it is still all about the receivers and how they move around each other, affecting each other The Work of Tom Doctoroff The author of Billions: Selling to the New Chinese Consumer spent 11 years of his life learning about the Chinese consumer psyche. The method used to gain this knowledge was induction by looking objectively at empirical data. Therefore, he must be argued to use a positivist way of gaining knowledge. He states himself that everything in the book is based on observations he has made during these eleven years and that they are merely generalizations and apologizes for this, thus acknowledging the falsifiable nature of positivism. Nevertheless, his observations and generalizations have been used in defining the major trends and preferences of the Chinese as this field is highly unexplored and lacking on insight in the context of cultural branding. Furthermore, Tom Doctoroff s observations do carry some weight as his research has been carried out over a long time span and his work has been used by J. Walter Thompson, one of the largest and most respected advertising agencies in the region, for which he is the company s Northeast Asia Area Director and Greater China CEO The Work of Alimiené, Monika and, Rita Kuvykaité The work by Alimiené & Kuvykaité Standardization/Adaptation of Marketing Solutions in Companies Operating in Foreign Markets: An Integrated Approach provide a clear overview on the polemic about standardization/adaptation in a global frame. Unique views are presented by the authors on the advantages/disadvantages of both standardization and adaptation, and finally conclude by Page 9 of 99

14 stating that a combination of the two is the most effective way to handle international processes. The article is in line with the focus of the thesis: to focus on newer branding theories. Alimiené and Kuvykaité also work within the realm of philosophical hermeneutics as the authors have sought to fuse their own prejudices and preconceptions with that of new research by various scholars to create meaning the combination of standardization and adaptation to perform optimally. It is the goal of hermeneutics to ensure the right practice and change in corporations, which is what Alimiené & Kuvykaité are trying to provide an answer to. Page 10 of 99

15 2. Cultural theories (RKC) The chapter will start off by defining culture. Since this thesis mainly will focus on Western brands within China, it is obvious to put an extra focus on the significance of those two 2 cultures. The reason for considering specific theory on culture is to get a solid understanding of the importance of culture and more important, what the multifarious broad term is defined as in relation to this thesis. It is also essential to examine before turning to the more specific Chinese culture, and Chinese consumer trends and consumer behavior. 2.1 Defining Culture A definition of culture has been put forward by dozens of scholars, even though most of them circulate around some of the same aspects. The reason for including such definition in this thesis is based on Beamer and Varner s argument that *c+ompanies need to know the reasons why people think as they do and value what they do (2008, 2), which basically is affected by the certain cultures that companies are engaged in. When it comes to what culture is, many aspects could be mentioned. Geert Hofstede is one of the oldest and most cited scholars within the field of culture. His work was conducted in 1980 with a positivistic research method, and as the years have passed the criticism of the work has increased. Furthermore, his specific findings on the Chinese people seem to be rather outdated, since the Chinese society has gone through an enormous development in the 40 years that have past; we had to reach 1980 before China opened its doors to foreign investment and since then, the country has undergone immense political and economic change (Winters 2007, 11). What Hofstede is particularly famous for, are the dimensions of femininity/masculinity, individualism/collectivism, power distance, and uncertainty avoidance. Those findings will however not be considered profoundly in the thesis, since the relevancy for our purpose is limited. On the other hand, a specific part of Hofstede s findings are still broadly acknowledged by numerous of scholars, namely the Manifestations of Culture. Those manifestations (see appendix 1), named symbols, heroes, rituals, and values (Hofstede 2005, 7), help determine what culture consists of. Shortly explained, symbols are words, gestures, pictures, or objects that carry a particular meaning only recognized as such by those who share the culture. Heroes are persons, alive or dead, real or imaginary, who possess characteristics that are highly prized in a culture and thus serve as models for behavior. Rituals are collective activities, considered within a culture as socially essential. They are therefore carried out for their own sake. Values are acquired early in our lives. The research of values is difficult, since they are difficult to observe by outsiders, but values are broad tendencies to prefer certain states of affairs 2 It is acknowledged that it is difficult to lump every Western culture together; however for the purpose of this thesis, the many similarities that the West share are in focus. Page 11 of 99

16 over others (Hofstede 6-10). These manifestations work as a good foundation for further research on the Chinese culture. De Mooij finds that especially values are of certain importance when it comes to marketing. Values are used to differentiate and position brands vis-à-vis competitive brands (2005, 77). De Mooij agrees on Hofstede s manifestations, but her determination towards the importance of language is specified even more in her work. Hofstede argues that words [which creates language] is placed within the layer of symbols, meaning the outer circle, which represent*s+ the most superficial manifestation of culture (Hofstede 6). De Mooij argues that language is an expression of culture. It is the language that reflects the manifestations, and the ability to speak is universal for humankind, implicating that which language a person speaks is part of the culture in which she or he grew up (42). This is in accordance with the philosophical hermeneutics tradition, since this tradition considers analysis of e.g. texts to be an important method for understanding others. Slightly different, however still related, terms are presented by Beamer and Varner, who categorize culture into three boxes, namely values, attitude, and behavior. Values underlie attitudes, which determine how we behave within a certain culture (2008, 9-12). These three terms explain what culture does, and give a clear overview of why culture is important, still based on the early work of Geert Hofstede. For the purpose of this thesis, the definition of culture that Beamer and Varner put forward will be set out as the foundation for further analysis: Culture is the coherent, learned, shared view of a group of people about life s concerns, expressed in symbols and activities, that ranks what is important, furnishes attitudes about what things are appropriate, and dictates behavior (6). With a definition of the conception of culture in place, the focus will now be narrowed into focusing more on the Chinese culture itself, since this is of major importance in this thesis. 2.2 Looking into the Particularity of the Chinese Culture Since this thesis will not just address culture in general, a paragraph is devoted to explore the Chinese culture more specifically. This is so because especially, as will be presented soon, Confucianism still has a big impact on the Chinese people this day. As stated in the introduction, China has gone through an amazing development; however, this development does not imply that the Chinese people have put aside all their traditions. Still, four key values are found to be of major importance in the Chinese culture. These will now shortly be explained, emphasizing the more relevant ones in connection to this thesis. Page 12 of 99

17 Mian-zi concerns one s personal pride and is kept high by not loosing face and by not making others lose face. Guanxi is a fundamental aspect of Chinese culture, and helps elaborating relationships by enhancing sincere, supportive relationships based on mutual trust. Keqi means thoughtful courteous and refined behavior, which in practical terms, is performed by demonstrating humility and modesty. The last key value is also of huge importance in Chinese culture, namely ru jia also known as Confucianism. More than a religion, Confucianism is an ethical belief, with a huge emphasis on creating and maintaining relationship on the basis of respect and obligation. Five key relationship dyads were laid out by Confucius in which everyone had strictly defined roles and responsibilities in regards to: father to son, husband to wife, ruler to minister, friend to friend and older brother to younger brother (Tom Doctoroff 2005, p.16). Confucianism helps preserve surface harmony, and has been a very vital cultural factor when creating the new Chinese society (Winters 2007, 12). Confucianism is based on writings by Confucius, and he is an example of what Hofstede calls a hero, because his writings are so deeply respected and followed by so many Chinese. To sum up, this chapter has provided needed background information on the field of culture, which is necessary to gain before analyzing the cases which will be presented later on in this thesis. It is acknowledged that within the field of culture, a lot of work has been carried out. However, in this thesis it has been decided only to present a broad agreed definition of what culture is as well as probing the Chinese culture, which also will be supported with findings throughout the thesis in order to back up the arguments presented. The next chapter will concern globalization, also in relation to China. Then the Chinese consumers will be investigated, and lastly theory of branding will be presented. All with the purpose of uniting the theory from these chapters in order to answer RQ 1. Page 13 of 99

18 3. Globalization and China (ACCL) The term globalization has been described in an abundance of different yet similar ways. In 1990, Anthony Giddens, a British sociologist and one of the founding fathers of globalization, defined it as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa. (64) Though, in 1997 he elaborates his definition: Globalization... is almost not worth naming now: it is less a phenomenon, it is simply the way we live. The spread of instantaneous electronic communication over the past two decades underpins much of it -- making possible the 24-hour global marketplace. This is a global age:... It is much more intimately linked to our lives. It is a shift in relationships, where the global intersects with the private. What leads to an intensifying of global markets can also lead to an intensifying of local and regional cultures. There's an increasing connection between local life and global change. You can forget the word globalization: it's what we are. (qtd. in Lloyd 1997) Other theorists and practitioners state that globalization is the crystallization of the world as a single place (Robertson 1992, 135) or as George Ritzer defined it the compression of the world and the intensification of consciousness of the world as a whole. (2003, 192) Regardless of how the wording of the term is structured it can be seen that the course to go global as a brand is escalating. Habibul Haque Khondker argues that basically all brands and cultures today are involved in some kind of global process (2004, 4) and states that *the+ globalization study addresses itself to the connectivity of broad processes of technological, economic, political, cultural interrelationships (2). Globalization is thus an inevitable part of society today, but what exactly makes a brand global? For a brand to be global, Kapferer argues it is sold everywhere in the world (2008, 459). While theorists have varying definitions of globalization, branding managers also vary in how to actually globalize their brands. Or in other words, create a successful brand anywhere in the world. As mentioned in the introduction, an increasing number of Western companies expand their products to China. However, it is no secret that the Western culture and the Chinese culture are far from the same, which has become even clearer from the culture chapter. When entering the Chinese market as a Western brand, these differences have been considered to various degrees. Creating a global brand can be a tricky business and involves a lot of planning and researching, especially going into a market that is as different from the Western culture as the Chinese is. George F. Seyk concurs stating that *d+oing business in Asia is challenging. The scope of its markets is daunting; the cultural differences among its business people extreme. But when handled correctly, Page 14 of 99

19 those factors are also what make doing business in Asia a wonderful adventure (2002, XI). Countries may have the same brands but that does not necessarily mean they should be marketed the same way in each country. For instance, Danone Group has a *company+ history of utilising multiple brand names (Melewar 2005, 410) E.g. Danone the brand name used extensively in Europe is substituted with Dannon and Danimals (for children) in the USA and with Danonino in Latin America (409). Further, the ingredients in Danone Group s biscuits on the Chinese market have been slightly modified to accommodate for extra iron or seaweed extracts (412). The example shows that people are clearly different and it is thus assumed that what motivates consumers to buy in China is not necessarily why a consumer in England buys the brand. Furthermore, the culture of China is full of history; China s millennia-old dynastic and Confucian culture creates apparent conflict (Doctoroff 13) and the history of China is an ingrained part of the average Chinese consumer. Culture and consumer behaviour therefore plays an important role when it comes to consumption of products. Due to this fact, this thesis includes a paragraph on contemporary Chinese consumer trends and preferences. 3.1 Chinese Consumer Trends and Preferences Before looking into the specifics of Chinese consumer trends and preferences, consumer behaviour will shortly be defined in order to understand how consumers act on a broad scale. According to Solomon et al. consumer behaviour is the study of the processes involved when individuals or groups, select, purchase, use or dispose of products, services, ideas or experiences to satisfy needs and desires (2006, 27). With this definition in place it is now possible to consider the Chinese consumer. In contradiction to the vast array of research done on Chinese culture and globalization, not much research has been done on the Chinese consumer, Li and Xiao state that 20 years ago consumer was a rarely used word (1999, 171). In accord, on the enclosure of the book Billions: Selling to the New Chinese Consumer it is stated that this book is much needed. Author and CEO for JWT, Tom Doctoroff provides an understanding of the relationships between the Chinese culture and how it affects the consumption decision Status Display There is a high conformity among researchers and business people in the field that status is a huge driver and incentive for the Chinese consumer. It is therefore of tremendous importance to consider Page 15 of 99

20 when entering the Chinese market, especially as a luxury brand. And since the thesis will analyse three luxury brands it is highly relevant. As mentioned, the Chinese love to display status. Trompenaars and Woolliams state that the fame of the brand is indicated as the single most important factor that influences Chinese consumers (2004, 112). Doctoroff concurs stating that expensive brands are bought for status, not functionality. Price is used as a surrogate indicator of quality (2005, 27). Evidence for this is given by the contemporary trend of no logo or only a very discreet logo in the luxury brand industry. Brands like Louis Vuitton use a Sans Logo strategy on their European and North American markets with great success and have expanded this strategy to China as well. However, with very little success since the Chinese consumers are logo-obsessed (Avery Booker 2010) Spending Power To consider China s enormous spending power is important as it is a prerequisite for buying goods and it has shown that China is to be reckoned with as the market is hungry for goods and have the capital to back it up. Every brand manager s dream. The Chinese consumers are simply willing to pay a higher price for public consumption. Meaning there are certain categories of products for which Chinese consumers are willing to pay a premium price, these are products that are publicly displayed and thus cater to the Chinese desire to project status (Doctoroff 28). This most likely is why the luxury market in China is booming right now and why handbags, watches and jewellery are among the most popular items on the luxury goods market in China (Adeline Paul Raj 2011, 1). Due to the obsession with status symbols, the Chinese love luxury brands. As it stands, luxury brands already count the Chinese as among their best customers (Adeline Paul Raj 1). She further argues that the trend will only continue as the mainland Chinese millionaires are 15 years younger than their overseas peers (1). In other words, China is a growing power one cannot ignore. The Chinese population has a serious spending power and, as just demonstrated, the mentality to use it Aspiration Doctoroff describes how status is never an end, but a means to an end to the Chinese consumer. *S+tatus must be used as a weapon. It must protect whatever success an everyday warrior has managed to achieve. Business is a battlefield; life is an endurance test (32). In spite of their obsession with status he states that aspiration should be made accessible in order to reach the Chinese consumer. It is thus a fine line to walk on for marketers when creating ads for the Chinese market. Finding the perfect balance between giving the consumers something to aspire to, the things they wish for, and loosing all believability. If aspiration is not taken into consideration, Page 16 of 99

21 what happened to Lux may happen again: when Lux turned their shampoo ads into a passport to the lifestyle of the rich and famous thus implying soft hair will give the consumer wealth and fame, the claim simply became delusional and failed (33). Moreover, Doctoroff explains how it is important for a brand to keep a low profile in China. This might seem to be in direct contrast to the status displays, but the Chinese are Confucian which is two-sided, with opposites in balance (34). Therefore, greatness should be discreetly on display. (34) Cultural Trends In addition, family is vital in Chinese culture. The quintessential picture of mom, dad and baby boy is still the picture of the perfect family. Maternal protection of the child is also key to consider when marketing in China due to the fact that women consider themselves paramount in the home (Doctoroff 154). Yet, Doctoroff states that the differences between rich and poor and young and old are stunning (204). He explains that the older generation (anyone over 40) only want information and aren t seduced by brands and ads that function as identity surrogates (204). The Chinese also highly value being Chinese, and take pride in their heritage and culture (Doctoroff 154) which means that the brands which are interpreted as condescending towards Chinese culture will never be accepted by the consumers. Hereby, not claiming the Chinese consumers do not like e.g. Western brands, because this is not the case. In fact, the younger generation is attracted by the Western products and the values they are associated with (153). The U.S. for instance, is associated with the free world and individuality, which is somewhat of a forbidden fruit for the Chinese, especially for the younger generations. They desire it, but an instinctive anti-individualism back from the 1949 revolution dominates (21). It is crucial to remember that Chinese youth remain deeply Chinese The cultural blueprint of China is etched deeply in the hearts of every citizen. Ten years of economic liberalization will not dust it away (Doctoroff 99). While these were some overall generalities, an article by Women s Wear Daily has defined four key Chinese consumer groups who lead the spending spree in China. These groups are Aspirationalists, Chuppies, Big Stylers, and Parasite Singles (see appendix 2) and are in concurrence with the definitions set forth by Tom Doctoroff. This segmentation of consumers gives an insight into the differences that lie in the Chinese consumers, so to fully tap into the awesome opportunities unleashed by China s rise, any manufacturer foreign or local must come to grips with their behavioural and attitudinal triggers. Only then can effective marketing strategies emerge. (Doctoroff 42) Page 17 of 99

22 The findings in this chapter will be used throughout the report as a basis for achieving a consumer oriented angle and building our analysis on. The four characterizations of spenders provide a great insight into the Chinese consumers and serves as background knowledge to keep in mind while analysing. In sum, the Chinese are pulled in opposite directions by their desire to show status and their cultural ethics of not showing off. As is the case for all countries, not all consumers in the country are alike and therefore do not buy for the same reasons. However, there are some similarities that can be drawn to generalize in China: the display of status, the importance of culture in regards to values such as family and traditions, and the perhaps most important factor, their willingness to spend. Being attentive to what motivates the consumer to buy can create amazing business opportunities for global brands who wish to enter the Chinese market. Page 18 of 99

23 4. Branding Theories (RKC) This chapter will provide a solid foundation for understanding the evolvement within branding. Even though this thesis will take point of departure in new branding strategies, it is still seen as essential to understand theorists like Aaker and Kapferer, since they provide knowledge to the field of branding. Since Aaker really started emphasizing branding as being an important tool for organizations, several other approaches to branding have emerged. Some of them will be presented now. David Aaker has written several books and articles within the field of branding, and has been cited a vast number of times. He was the first to clearly argue that a brand is a strategic asset that is key to long-term performance and should be so managed (Aaker 1996, vii). That was the foundation for creating his model of brand equity 3. Since then he developed further models; one of the things that he looked deeper into was the notion of brand identity, which Aaker argues is essential to develop in order to decide how the brand would like to be perceived by the receivers. It is argued that Aaker s work cannot be considered up-to-date anymore, especially because very little attention has been put on the many issues that can arise when trying to create a cohesive international brand. Also, he mostly takes point of departure in the Western consumer. Since this is the case, this thesis will only draw on his work to a limited degree. Jean-Noël Kapferer looks at brands as strategic assets, and overall he touches upon many of the same aspects as Aaker. However, Kapferer is the author behind several articles that are relevant to this thesis. In general those articles focus more on the international aspect of branding, and how this might influence a company. Furthermore, he devotes an entire chapter in his book The new Strategic Brand Management to how to manage global brands, implying that he does acknowledge that there is a difference between managing a brand in only one country and one culture compared with managing a brand across borders and cultures. What is important to emphasize here is that Kapferer separates from Aaker precisely in this area, because he puts greater focus on the international aspect of branding. Both Aaker and Kapferer are generally seen as belonging to the classical tradition within branding (Heding, Knudtzen, and Bjerre 2009, 4), due to the several similarities they share. Majken Schultz deals with corporate branding and its importance in the global market place. She builds her work on, as she names it, the first wave of corporate branding, which took shape in the mid 1990 s (Schultz 2005, 10). Furthermore, she argues that this wave was a marketing and campaign driven approach based on tactics and visuality (10). However, Schultz s was concerned that 3 Aaker s definition of brand equity: Brand equity is a set of assets (and liabilities) linked to a brand s name and symbol that adds to (or subtracts from) the value provided by a product or service to a firm and/or that firm s customers (1996, p. 7-8). Page 19 of 99

24 if only the tactical aspect was considered, the important strategic and long-term aspect might be forgotten. Therefore, Schultz took corporate branding a step further, and saw it as a way in which an organization could build relationships with its environment in a strategic and more farsighted manner ; in other words she argues that it is essential for an organization to establish a long-term relationship with its multiple internal and external stakeholders (11-12). Schultz s approach is also an example of another and more consumer-oriented approach than is the case with Aaker and Kapferer s. This can for example be seen in her quote: *Corporate branding+ is constrained by a narrow external perspective and a single-minded focus on customers that neglect the special conditions for creating brands based in the organization itself (24). The reason why corporate branding relates to this thesis, is that when we look at some of the most popular global brands, we find Disney, Coca-Cola, Nike, and McDonald s, which are all corporate brands (Schultz 11). Tribal marketing is another approach looking at how branding works. The main thoughts behind tribal marketing have been presented by Bernard Cova, who has written both articles and books within the area. His most popular book, written together with Kozinets and Shankar, named Tribal Consumers from 2007 gives the world of branding a new perspective. Cova, Kozinets, and Shankar argue that consumers are people, yes, but people who live in a specific social and historical situation (4). It is important here to distinguish between the word tribe used within anthropology and the word tribe that Cova, Kozinets, and Shankar use. The argument is that when it comes to this phenomenon, we do not belong to one tribe, but many small tribes, implementing that links (social relationships) are more important than things (5-6). These sorts of tribes are what Michel Maffesoli refers to as postmodern tribes and Cova, Kozinets, and Shankar explain further that: *tribes+ can be held together through shared emotions, styles of life, new moral beliefs and consumption practices (130). What is important to emphasize in relation to this thesis is that tribal identity and cultural identity are closely linked (130). Robbins further explains that we adhere to groups and we adopt the identifying images of social groups... our tastes and our lifestyles have no intrinsic values but to serve and maintain the coherence of the group to which we belong (1991, 174). Furthermore, Bourdieu talks about cultural capital, which he sees as playing a vital role in perpetuating the hegemony of the dominant group, meaning to know the code of the legitimate culture (qtd. in Cava et al. 2007, 131). All in all, countless books and articles have been written within the field of branding, and of course there is more to it, than is presented in this chapter. To sum up on what is included in this chapter on branding, it is evident that branding theories have evolved through time, starting with the more classical, sender oriented approaches such as Aaker and Kapferer, to the more receiver oriented approaches such as corporate branding and tribal marketing presented by respectively Schultz and Page 20 of 99

25 Cova. Askegaard states that *in the 1950 s+, brands were symbolic extensions of products, today products are in an increasing number of cases becoming the material extension of a brand (2006, 89), sums up very well the evolution that branding has gone through. For the purpose of this thesis, we are now able to use this theory and combine it with the theory of culture. It is necessary to do so, since exactly this combination has been poorly analyzed as we will see in the next section. For the purpose of answering the research question, a theorists who belongs both within the realm of culture and branding will be drawn upon, namely Douglas B. Holt. Page 21 of 99

26 5. The Chinese Culture and the Western Branding Strategies Employed (RCK) As a short intro to the answer to RQ 1, it is appropriate to quote Søren Askegaard: *there has not+ traditionally been a lot of research in the role of brands on a global scale.... What characterizes this research is that the brand is not placed in a global cultural context (in Schroeder and Salzer-Mörling 2006, 91). Nevertheless, Askegaard argues that *t+he brand and the consumption of it, however, are not culturally neutral (91), implying that how one views a brand is affected by the eyes that see, and thereby also by the culture one is living in. In order to answer this RQ, it is necessary to further investigate what might be a theoretical stand on global branding, and whether contemporary practitioners take culture into consideration when determining branding strategy. Holt argues that consumers flock to brands that embody the ideals they admire, brands that help them express who they want to be (2004, 4). This statement clearly links culture to branding, and emphasizes the importance of creating a brand that consumers have a connection to, or a possibility at least to create a connection to. Holt further stresses that myths are important: Identity myths are useful fabrications that stitch back together otherwise damaging tears in the cultural fabric of the nation.... Academic research has demonstrated that the extraordinary appeal of the most successful cultural products has been due to their mythic qualities (2004, 8). In connection to the Chinese self-image that where touched upon earlier in this thesis saying that status is crucial to a Chinese, Holt s notion that, the most iconic brands are prescient, addressing the leading edges of cultural changes... [and] myths prod people to reconsider accepted ideas about themselves (2004, 9) is important to consider. In other words brands created on myths can lead to cultural changes. In the 20 th century China was characterized by socialism and Maoism. As stated in the section on Chinese consumer trends and preferences, luxury goods increase in popularity in China, and an explanation to this phenomenon could be that the luxury goods help the Chinese people reconsider the ideas they have about themselves. In addition, *g]reat myths enhance the brand s quality reputation, distinctive benefits, and status value (10). All this shows the importance of Western brands building their branding around myths, especially when it comes to luxury goods, since, as just stated, status is enhanced by great myths. To still keep in mind the broader perspective on Western brands in China, Holt s perspective is analyzed to support the idea that e.g. a Western brand must incorporate some of the Chinese history and Chinese myths into their branding strategy in order to succeed. On the contrary, it is still essential to look at whether the Chinese put value into places-of-origin and whether this can have a positive effect on the brand, even though it is not from the homeland [China]. Keller argues that Page 22 of 99

27 places-of-origin is one of the things that creates value to consumers (qtd. in Schroeder and Salzer- Mörling 2006, 93). Askegaard further argues that there is in each brand a built-in cultural reference that refers to an origin, even for global brands (in Schroeder and Salzer-Mörling 2006, 94). Based on these arguments, it is therefore likely to utter that a Western brand will always bring with them their Western heritage when expanding to China. As seen from the arguments just presented, it is obvious to see that there are different views on how to approach branding in China. Askegaard does get nearer Holt, since he also concludes that *g+lobal brands are not absorbed in local consumer cultural contexts through processes of direct copying and imitation of their culture of origin, neither in transitional societies, nor in other developed consumer societies (in Schroeder and Salzer-Mörling 2006, 96-97). This basically means that even though a Western brand brings to China a culture/place-of-origin, the Chinese will never take in that culture as being their own; no matter how much they try to identify with that culture. Askegaard furthermore shares some of the same ideas and premises that tribal marketing is build around, namely he argues that global brands initiate new transnational communities (96). It agrees with the idea that certain tribes are linked together by means of different shared interests/way of living. This could, as found in the section of tribal marketing, be consumption practices. Taking these similar views into consideration, it would imply that e.g. a luxury brand can be the link that Chinese consumers have with each other and thereby create a tribe. It is therefore argued to be important for Western companies to consider how place-of-origin might affect communities/tribes that the company is targeting when deciding on a branding strategy for China. A somewhat contradictory approach is presented by Zhuang et al., who found that the Chinese like foreign brands from more developed countries represent status, cosmopolitanism, and modernity (2008, 442). This is especially important for luxury goods, given that they heavily are based on creating status for the customer (444). It can of course be confusing to see that some theorists emphasize the importance of including the local myths in the branding strategy, and at the same time others find that the Chinese like foreign brands, simply because they are foreign brands with all it symbolizes. According to Meritxell Guitart, many Chinese still do not understand or speak English. Therefore, an advice is to incorporate the Chinese language in the branding strategies (2011). Some examples from Western companies applying this strategy are given below. Branding strategies using the Chinese language are evidently applied by some Western companies. For example Louis Vuitton has taken a Chinese name called Luyi Weideng, 路易威登, Page 23 of 99

28 meaning a transliterated 4 name that does not bring along any specific Chinese meaning, and the Chinese are able to hear that they buy a foreign brand, since it sounds western (Sang and Zhang 2008, ). Therefore, this strategy is efficient if the company wishes to make the consumer aware of brand-of-origin. It is thus seen as a fully intentional choice that Louis Vuitton has made, since the Chinese consumer will acknowledge the Western heritage in Louis Vuitton. Furthermore, Louis Vuitton has used the very popular Chinese social network platform Sina to post about different topics. A new finding showed that when Louis Vuitton posted about culture the respondents were very positive (Bulman, 2011). What is also interesting to acknowledge about Louis Vuitton is that the company for example offered a range of Lantern Charm accessories based on the traditional Chinese lantern to celebrate the opening of the new Beijing store (Debnam and Svinos, 2008). Thereby, it is argued that Louis Vuitton, at least in this case, base their branding strategy on Holt s findings that it is important for a Western company to include local myths in their branding, meaning a cultural branding strategy. From these two short examples is it obvious that Louis Vuitton is trying to balance between Western and Chinese elements in their branding strategy in China. BMW took a slightly different approach than Louis Vuitton. The Chinese name for BMW is Bao Ma ( 宝马, precious horse ). This name does not focus on the mechanics and quality alone, which is core in the Western promotion. Moreover, the name talks to the feelings of the Chinese, since the Chinese feel comfortable with horses (Sang and Zhang 239). The horse in China can be seen as a representation of what Hofstede calls a symbol, since the connoted meaning that a horse carries in China only can be interpreted if you are very familiar with the Chinese culture. The last example obviously shows that the marketers responsible for this brand have considered this quote: In traditional Chinese culture, business people have always attached importance to choosing a good name for a business. In this deep-rooted tradition, the name chosen should be perceived to be able to bring good luck to the business: a concern that continues to be valid and highly valued (Sang and Zhang, 235). Luck is exactly what Gillette has applied in their choice of brand name. Their Chinese name Ji Lie ( 吉列 ) means lucky and sharp. From here it can be seen that what Gillette wishes to indicate, is that using the blades, which are sharp, is fortunate and lucky (238). All in all, it is of course not possible to generalize on what practitioners as well as theorists do and recommend when it comes to branding on the Chinese market. It is however possible to see what many believe is effective to do, even though there of course are disagreements in this area. The short 4 Transliterate means that the new translated name sounds identical or almost identical with the original name (Sang and Zhang, 2008, p. 234) Page 24 of 99

29 examples from above show how some Western companies approach this challenge, even though it is acknowledged that there is more to it than choosing a brand name. Therefore, more extensive examples are given in the case-analysis later in this thesis. It is acknowledged that examples will never give an entire truth, cf. philosophical hermeneutics; however, they can give an understanding of how certain companies take into account what recent theorists in the area of cultural branding say about the issues and challenges that arise when choosing a branding strategy in the host market. Page 25 of 99

30 6. Glocalization (ACCL) As mentioned, globalization is an absolutely unavoidable concept in the branding business. No matter who coined it first, at the dawn of the 21st century globalization as a concept, as a slogan, as a term is used more frequently than any other terms (Khondker 2004, 1). Now, the term glocalization has gained popularity. The neologism glocalization is a fusion of global and local (Matusitz 2009, 1). Roland Robertson coined the term glocalization and described it as adapting global brand values to local taste values and being increasingly aware of local distinctiveness (Magala 2005, 60). Robertson states that both the term and the meaning stems from Japan and originally meant adapting farming techniques to one s own local condition. In the business world the idea was adopted to refer to global localization (1995, 28). Jonathan Matusitz states that *g+localization refers to both small changes in global products and more important modifications to those products for a specific local market. (2010, 224) Hence, global and local do not have to be contradictory even though *c+urrent thinking about globalization is too often structured by an assumed opposition between the local and the global, where the local is offered as the intellectual and political corrective of the global. This is captured in the popular demand to think globally and act locally (Grossberg qtd. in Andrews and Ritzer 2007, 136). De Duve argues that *t+he word glocal implies the bridging of a hiatus from the particular to the general (2007, 683). Matusitz puts it like this: glocalization is tantamount to relocalization, whereby the practice is to integrate local elements into global themes, products, or services (2009, 2). Glocalization thus means that products that are global in application and reach should be localized that is, they should be suited to local taste and interests. Furthermore, glocalization helps counterfight Western imperialism on the Asian markets or at least it questions the model of Western cultural imperialism because *g+localization theory fuses relationships, balance, and harmony between cultural homogenization and heterogenization, standardization and adaptation, homogenization and tailoring, convergence and divergence, and universalism and particularism (Robertson, 1995). In addition, glocalization also adds accuracy to the present globalization approach among scholars and practitioners according to Svensson qtd.in Matusitz (2009, 2). Given these definitions on glocalization, it seems to be a perfect strategy to follow when branching out across borders. However, using one global strategy has been the way to go about it for many years. A discussion on these two will follow shortly. Page 26 of 99

31 6.1 A Global Brand A growing interest in going global prevails and in more and more product categories, the ability to establish a global profile is becoming virtually a prerequisite for success (Keller 2008, 591). The forces to inflict this interest may be a perception of slow growth and increased competition in domestics markets. Many brands venture out on the international branding scene because of the opportunities overseas. There may also be a need to diversify the risks and finally recognition of global mobility of consumers may exist (Keller 591). Moreover, Kapferer argues that geographic extension is the necessary fate of brands. On it depends the brand s growth and its ability to innovate and to sustain its competitive edge in terms of economies of scale and productivity (2008, 455). Many find these opportunities in China. But it is important to remember that some parts of the world are more similar to our Western culture than others, which might mean that either a standardized or customized approach is best pursued to gain global success. Given those circumstances, the degree of customization might vary. This thesis is exploring Western brands in China. Two fundamentally different cultures, but regardless of the strategy the brand chooses to take, there are advantages and disadvantages to both. The following chapter will look at the significance of standardization and customization in order to answer RQ 2. Page 27 of 99

32 7. The Significance of Standardization and Customization 5 (ACCL) What exactly does a standardized approach mean? Trompenaars and Wooliams define the standardized approach as having an identical product range and associated identical marketing support (2004, 59). Standardization is when the brand uses one global strategy or applies the one they use in the home-country world-wide. In general, the more standardized the marketing program the less it varies from country to country (Keller 591). One of the biggest proponents of standardization is Harvard professor Theodore Levitt; he argued that companies needed to learn how to operate as if the world were one large market, and thus ignore superficial regional and national differences (qtd. in Keller 2008). We have seen standardization applied for many years now, some companies with greater success than others. When some of the world s biggest brands expand beyond their home markets, they are tempted to repeat their tried and tested formula in the new market as well. In fact this has been the path followed by many brands (Roll 2010). For instance, the baby food manufacturer Gerber used the same packaging on its products when they started to sell in Africa. The packaging featured a baby boy on the label, but to their regret the company discovered that in Africa, as most customers can t read English, Western companies generally put pictures on the label of what s inside. So what gives perfect meaning at home, can be a disaster elsewhere. On the other hand, take for instance Burberry; they apply one pure global brand strategy worldwide with raving success (Silverstein 2010). The standardized approach offers economies of scale in production and distribution; lower marketing costs, especially the more uniform the branding strategy adopted across countries is; power and scope in the sense that an admired global brand can signal social status and prestige or it can exude expertise and acceptance, or high quality and convenience of use; consistency in brand image if a common marketing platform is maintained worldwide; ability to leverage good ideas quickly and efficiently from one market to another and between different units within the company (if knowledge transfer systems are put into place); and uniformity of marketing practices as greater attention can be paid to making refinements across markets and over time improve its effectiveness (Keller 2008, ). In resemblance, Alimiené and Kuvykaité state that: For many companies the main aim is to create mass production economy in each country they operate. The acquired competencies would then stimulate the growth of the local market. Moreover, allotment of marketing expenses can become more favourable. Increased sales in separate countries of activities can disintegrate extra 5 Customization, localization, adaptation, transnational, regional, and glocalization are very similar in definitions and are therefore used interchangeably depending on the author quoted. Page 28 of 99

33 administration expenditure and expenses of unit manufacture; the company receives profit also from acquired technological and market knowledge. (39) The incentive for following a standardized approach is thus huge and moreover, the terms globalization and standardization were even used interchangeably in the late 80 s to early 90 s (Alimiené and Kuvykaité 2008, 40). There are however also disadvantages to standardization. The most obvious is that standardization often ignores fundamental differences of various kinds across countries and cultures, as Gerber discovered the hard way. These could be differences in consumer needs, wants, and usage patterns of products; differences in consumer response to marketing mix elements; differences in brand and product development and the competitive environment; differences in the legal environment; differences in marketing institutions; and differences in administrative procedures (Keller 596). Alimiené and Kuvykaité agree with Keller on this matter and state that standardization is often of no use to companies because of differences of language, culture, consumer preferences, laws and rules, marketing infrastructure and competition structure in different countries (37). Many companies have been forced to customize their products and branding strategies to different national markets as a result. There are thus many things to consider when deciding whether or not to apply a standardized approach. Critics even claim that designing one marketing program for all possible markets results in unimaginative and ineffective strategies geared to the lowest common denominator (Keller 597) so the advantages should be weighed against the disadvantages first. However, it is difficult to find any company applying the standardized approach in the strict sense - selling the same brand exactly the same way everywhere (600). Perhaps only huge brands like Coca-Cola and McDonalds come close and they even customize taste to location. Customization on the other hand is the localized approach, which is defined as different products and local based marketing in each destination (Trompenaars and Wooliams 59). Proponents for customization concur and argue that successful brands have been able to adopt their branding strategies in line with the dominant cultural philosophy and weave their brands into the cultural fiber (Roll 2010). Meaning that often new strategies are followed in the host-country; it may be in the form of a different brand name, specialized ingredients, different packaging and so on. It allows the company to accommodate to the local forces at play. A good example of this is Heinz branding strategies in different parts of the world: Page 29 of 99

34 Heins ketchup has a slightly sweet taste in the United States but is spicier in certain European countries, where it is available in hot, Mexican, and curry flavors. In the Philippines, Heinz offers a ketchup made from bananas that is dyed red. Ketchup usage varies by country too. In Greece, ketchup is poured on pasta, eggs, and cuts of meat. In Japan, it is promoted as an ingredient for Western-style foods such as omelets, sausages, and pasta. Heinz has downplayed it s U.S. heritage in certain countries, for example in Sweden, where ketchup is used to accompany traditional meatballs and fishballs. In fact, Swedes thought the brand was German because of the name. In Germany, however, U.S. themes work well and have appeared in advertising. (Keller 600) Heinz is very illustrative of how foreign companies are often mandated to realign their marketing and branding strategies in order to succeed in new marketplaces. Other advantages according to Alimiené and Kuvykaité is that it is at regional level that the world s markets, and even its historical and cultural communities, are at their most permeable, which makes it very attractive for companies to enter the market this way. Adaptation also helps companies to evaluate and effectively use cultural differences of foreign markets as well as separate products, their properties and possibilities of usage (37). Alimiené and Kuvykaité believe that adopted solutions encompass product and strategy adaptations for each country, thus seeking to expand and control local markets efficiently and to attract new segments, such solutions encompass product adaptation as well as creation of new products and brands, i.e. markets are assessed according to development potential and possibilities of realization of scope economy. And finally, having enough potential, having acquired knowledge and experience of international activities, a company may even create better products than leaders of those markets, making smaller investments (39). When it comes to the disadvantages of customization modifying products can lead to production headaches. For example, when Campbell set out to make a spicier version of its nacho cheese soup for the west and southwest United States, the jalapeno peppers added during manufacturing created a gas cloud that factory workers could not overcome (Keller 590). Moreover, regional campaigns may force local producers to become more competitive or they may blur a brand s national identity (590). Alimiené and Kuvykaité argue that complete adaptation of marketing solutions is also not useful because in such case companies cannot use advantages provided by scale economy, marketing knowledge and information acquired in other markets (37). Richard R. Gesteland and George F. Seyk Page 30 of 99

35 agree that it takes a lot of planning and researching when a company should enter a new market and adapt accordingly: selling into the Asia Pacific region can be one of the greatest challenges a company will ever face (2002, 6). They further state that success across cultures requires time and dedication of resources through ongoing learning and research (6) and that the level of preparation directly influences success (37). It seems GAP has taken these words into account, because for their latest campaign Let s GAP Together, GAP invested in extensive market research over several years to prepare for this new, long-term, multi-channel strategy that will eventually result in more stores throughout China (Gap Inc. Staff 2010). The Campaign features portraits of iconic Chinese and American citizens who share a common interest or are within the same field. For instance, The Pop-stars - Usher and Jolin Tsai, The Environmentalists - Zhou Xun and Philippe Cousteau Jr., The Bloggers - Julia Frakes and Wang Momo etc. The campaign is a celebration of the coming together of China and the U.S. and the shared spirit of creativity and individual expression. However, doing such extensive market research can quickly become very expensive. Beyond the expense, other challenges exist in targeting cultural groups. Data on media habits, buying behavior, and so on are difficult to obtain... language problems can make surveys hard to conduct, especially in Asian households where a range of languages and dialects may prevail. One major concern raised... is that some consumers may not like being targeted because they are different, because that only reinforces their image as outsiders or a minority. Moreover, consumers not in the targeted segment may feel more alienated or distanced from the company and brand as a result. (Keller ) There are thus advantages and disadvantages to both standardization and customization, which makes it difficult for brand managers to decide in which direction to go and which global strategy to follow. However Trompenaars and Woolliams argue *t+he dilemma is reconciled through transnational specialization: We continuously integrate best practice and satisfy consumer needs by learning from the diversity of adopting, adapting, and combining the best (59). Thus, suggesting that standardization and customization be combined. Keller furthermore argues that *t+he decision ultimately rests on the costs and benefits of customized marketing efforts versus those of less targeted focus (590). Hereby saying that whatever holds the most benefits for the least amount of money should be the approach to follow. His logic is hard to argue with, however other researchers agree with Trompenaars and Woolliams by stating that: Page 31 of 99

36 [t]he newest research shows that changes of the global market influenced by globalization changed also the solutions of international marketing: seeking for successful international performance companies do not have to choose one extremity, and companies that can combine several alternatives may satisfy needs of consumers of the global market and pursue their aims more effectively. (Alimiené and Kuvykaité 37) It is thus, possible to combine the two approaches and take the most suitable for the specific brand and blend them into a personalized global strategy. In fact, Martin Roll says it quite clearly: *o+ne of the biggest implications of globalization for brands seeking to expand to foreign shores is the task of balancing standardization with customization (2010). Kapferer refers to this as post-global: the most important task is to balance standardization with customization today... it is more appropriate to refer to selective globalization (2008, 458). According to these practitioners and theorists it is therefore possible to customize on a culturally different market while still remaining true to the brand. In sum, a lot has happened within the field of globalization over the years. First there was standardization which has and still leads to many successes, but also at least as many failures. Hereby, customization came to be. It is an effort from marketers to make up for the things standardization lacked. But the two opposites both have disadvantages and advantages that don t make up for each other. Thus a new tendency has appeared, the post-global, a sort of selective globalization, which gives adaptation and consistency the possibility to coexist. This thesis will recommend neither strategy as it follows the tradition of philosophical hermeneutics, which states there is no one truth. Page 32 of 99

37 8. Cross-Cultural Branding Model (RKC) Since it has been found that only a limited number of branding theorists take in culture as a parameter in their branding models it is argued that there is an unsatisfied need for further exploration. It has been apparent in the research of culture and branding that those two areas are rarely combined. That the average company has started to focus on branding in an international aspect only within the recent decade, might have limited the need for any models taking in culture as a parameter. Therefore, it is understandable that there previously was focus on creating a valuable brand in the mind of a Western consumer, since globalization had not reached the point it has today. Nonetheless, D. Holt has placed himself as a theorist with heavy cultural concern when it comes to branding. He states that the aim of his book `How Brands Become Icons is to put forward a cultural branding model with a goal of socializing readers into the genealogical mind-set a view of brands as historical entities whose meaning and value depends on how the brand s myth addresses a particular tension in society (2004, 12). However, Holt focuses heavily on branding in Western markets, giving many examples from there; but failing to give examples from other markets. Still, he does provide the discussion with new perspectives that are still highly appreciated, and applicable to a cultural different market as China. It is still acknowledged that this thesis too deals with Western brands; however, the market investigated is not likewise. Holt is analyzed and argued to be an opponent of standardization. This is found since he states that a *c+ultural brand strategy must identify the most valuable type of myth for the brand... and then provide specific direction... on how to compose the myth (218). Furthermore, Holt finds that when it comes to incorporating a cultural branding strategy it is important to target the most appropriate myth market. With knowledge of the country s most important existing and emerging myth markets and the brand s cultural and political authority, manager look for the best fit (218). This can however be difficult to carry out in practice, since a decision on whether to enter a market has much more to it than analyzing the myths in the country. Also, it would automatically imply that a company cannot use any level of standardization, since the entire branding efforts will have to adjust to the myths existing in that country given that no country has the same myths. Hollis has sincere focus on global branding, and even though he does not propose any certain branding strategy as such, he is assessed to act within the scope of tribal marketing due to his argument that a brand is experiences in a unique and personal way. But without some collective understanding among individuals, can brands have any value at all? (2008, 12) This is in agreement with, as was outlined in the chapter on branding theories, Cova, Kozinets, and Shankar s perspective on branding that a `tribe has some shared beliefs in relation to lifestyle, consumption etc. What is argued here is that the `collective understanding that Hollis talks about is founded within a tribe. An Page 33 of 99

38 example would be that the still massive part of the Chinese population that lives on very limited funds, would not have the same associations, as the population in China who is well off, attached to e.g. a luxury brand when they hear or see it. This is so since they first of all have no foundations of knowing it, and, second of all, may not be able to find out more about it. Based on the notions above, we have found that within the area of branding, and especially branding on the Chinese market, new approaches need to be considered. Since China for most companies, both local and global, is seen as a very interesting market to expand to, a branding model specially designed for the Chinese market is put forward: 8.1 Our Cross-Cultural Branding Model for China (ACCL) The model is constructed through the lens of philosophical hermeneutics, trying to fuse ones own horizon of understanding - experience from past encounters/brand knowledge, which the sender is in possession of with the phenomena - a foreign culture and market. The model will therefore not provide one all-important truth, but will vary according to industry, the results of the market analysis, and target audience. The culture boxes, cultural characteristics and the consumer have already been identified based on findings in chapter 4 and have thus been put into the model as it is a model designed specifically for China to follow the scope of the thesis. The cultural aspect in the model is relevant because: *c+ulture is what we are; our identity, behaviour, and our ways by which we understand and organize reality (Line Skjødt, class lecture on culture). Culture is thus part of the very essence of who we are and how we operate in our daily lives; Page 34 of 99

39 naturally this will then affect how we spend our money. With globalization omnipresent it seems incomplete not to take culture into account when developing a branding model that is to be used in a global context. The model is an attempt to blend cultural branding as defined with emotional branding by segmenting into consumer tribes, which is a form of emotional branding. Tribes are emotionally attached to the brands they buy; Cova, Kozinets, and Shankar argue that consumers hijack and plunder brands because they are in love with them (2007, 14). Brands that capture their hearts are joyfully being plundered. Hence, they form a relationship with these brands but also use them to buttress identity. Furthermore, the thinking of this thesis is followed, namely that adaptations must be made to the brand for each new culture it enters, which is the reason why the model ends up with a brand. Firstly, there must be undertaken a market analysis. By this is meant specific details and relevant information on the industry in question, this could for instance be the luxury industry but other industries can be applied as well. Next, the chosen TA can be indentified and researched in regards to age, gender, marital status etc. Hereby, the consumer is to be defined in regard to trends such as importance of family, traditions, and longing for individuality. From here unmet needs can be deduced, and then sought to fill. Moreover, segmentation into tribes as described by Bernard Cova, Kozinets, and Shankar can be done. Secondly, cultural characteristics are researched and taken into account. We have found in our thesis that Confucianism is a specific cultural characteristic in China. Also, it is important to examine the symbols, rituals, heroes and values that exist in the Chinese culture. These are important when ensuring that the communicative message of a company is in tune with the cultural characteristics. Finally, all this information will be put in relation to the specific brand and sought to be integrated with the core brand identity. This will provide basis for achieving a well adapted brand without compromising the core brand identity. Hereby, we have set up a model for bringing the cultural element into consideration when branding in a foreign and culturally diverse market. The model is meant as an additional help to other branding models such as Aaker s Brand Identity Planning Model, Boden s 7P s, The IMC Process Model, Emotional Branding, and Viral Branding (see appendix ). It will provide them with the extra and much needed cultural dimension, which this thesis shows there is an immense need for. Furthermore, the model is an alternative to previous ways of branding e.g. mind-share branding, emotional branding, viral branding and even traditional cultural branding as e.g. described by Douglas B. Holt. The model is thus also an opposition to Holt s views on cultural branding; *c+ultural knowledge views people holistically, seeking to understand what gives their lives meaning, rather Page 35 of 99

40 than as customers of category benefits (2004, 210). Holt is of the opinion that one must not look at clusters of individuals and use psychographic segmentations but instead use major social categories of class, gender, and ethnicity (210). However, tribal marketing does exactly this as it is believed the model will be better able to adapt the brand to the TA at hand. Page 36 of 99

41 9. Case studies from the luxury industry (RKC) This chapter will answer RQ 3. It will be done by investigating three luxury brands on the Chinese market. Besides theory presented earlier in the thesis, relevant pieces from other analysis-methods will be applied. Before analyzing further, Onkonwo s argument that [l]uxury as a concept is defined within the scope of socio-psychology as a result of its connection to a culture, state of being and lifestyle, whether it is personal or collective. When linked to brands, it is characterized by a recognizable style, strong identity, high awareness, and enhanced emotional and symbolic associations. It evokes uniqueness and exclusivity, and is interpreted in products through high quality, controlled distribution and premium pricing (2009, 287) is relevant to reflect on since it talks about branding strategies in relation to luxury brands, which this case analysis will take its point of departure in. The first two brands that will be exemplified, Shang Xia and Hermés, are rather related since Shang Xia is founded by Hermés as an independent brand, created specifically for the Chinese market. Next Burberry will be analyzed in order to investigate the brand strategy employed by them, also in relation to the Chinese consumer. All of this will end up in a comparison of the three brands on the Chinese market and a discussion of their choices. In order to analyze the websites the models presented in appendix 7 and 8, made by Halliburton and Ziegfeld (2009) will serve as a foundation. 9.1 Shang Xia Shang Xia was founded in 2008, and the first Shang Xia store opened in Shanghai in September Their product range both covers furniture, accessories, and apparel (Shang Xia website). In order to determine what values Shang Xia has been created on, elements from their website will now be analyzed together with statements from the CEO of Shang Xia, Jiang Qiong Er. It should be noted that the visual elements on Shang Xia s website are identical on both the English as well as the Chinese version, and it is very likely that the textual elements are in concurrence as well. When first entering the website, it is obvious that we are dealing with a brand based on Chinese values. An example is their slogan Chinese and Asian Heritage Crafted for Contemporary Lifestyle, and also the subdued Chinese music in the background. The logo itself (see appendix 9), despite its strait lines, resemble a Chinese character, and the logo has also been inspiration for almost all of Shang Xia s jewelries. The models at the website are only Chinese (see appendix 10 and 11), and what is also interesting to notice is that Shang Xia aims at creating an annual limited edition of `cultural objects, with the first edition released in February This cultural object is a box Pass it on, which contains a 332 page book, two pamphlets in English and French, one aluminum aircraft Page 37 of 99

42 model, one red scarf of the Chinese Young Pioneer s League, one classic tin ring, four fantastic crystal beads of the era, one vintage train ring, and a letter from a 21-year-old girl to her earlier self. The box is only produced in 3,000 pieces (Shang Xia website). The red colour recurs on the entire website. According to Kress and van Leeuwen, the red colour remains associated with warmth, energy, and salience, but they also emphasize that the actual context has a lot to say when it comes to interpreting what the choice of red may be based upon (2006, 235). When considering the Chinese society there are some striking linkages to the red colour that Shang Xia has chosen to incorporate. The red colour covers for example the very largest part of the Chinese flag. Also red is the colour of communism, which is still present in China by the Chinese Communist Party that rules People s Republic of China. That Shang Xia has chosen to incorporate red in their messages is a signal that the company acknowledges the Chinese heritage, as they state in their slogan that they do, despite the ongoing discussion, also within China, on communism and its regulations. Also interesting is it that the website shows what materials Shang Xia uses; namely Zitan wood, felt, bamboo, eggshell porcelain, and cashmere, which by several Chinese writers are argued to be traditional Chinese materials. For examples Stephie says that those materials are long associated with the Chinese culture (2011). All in all there is no doubt, when entering Shang Xia s website that we here are dealing with a brand based heavily on Chinese symbols and values. After taking a look at the sender s choices, it will now be examined how the Chinese consumer receives the messages and choices that Shang Xia has made in relation to their website. This will be done on the basis on what is found in the chapters on Chinese consumer trends and Chinese culture, plus additional findings and quotes, and is carried out in order to stay within the realm of philosophical hermeneutics. To focus on the receiver is in line with the philosophical hermeneutics tradition. 9.2 The Chinese Consumer and Shang Xia As mentioned above, Shang Xia has taken in many aspects of China and Chinese culture in their communicative messages, sent through their website. How the Chinese consumer will perceive this will now be examined. According to Paul the release of Shang Xia was received with great skepticism, since it was questioned how it will impact the Hermès brand and also some insist that the Chinese audience desire only Western luxury brands over a brand inspired from China (2011). The last statements put forward by Paul is exactly one of the dilemmas that Shang Xia may face, since it also was found in the chapter on Chinese consumer trends, that the Chinese adore Western Page 38 of 99

43 luxury brands, while such brands add to the status of the buyer. However, what might be an advantage to Shang Xia is another trend/tradition which also was found in the chapter on consumer trends; namely that the Chinese take pride in their heritage and culture, which is exactly what Shang Xia communicates the company is based upon. The reason why the Chinese up to this point are not very fond of Chinese luxury brands that increase one s status, might be because there until now has only been a very limited number of Chinese-based luxury brands that were able to compete with Western brands on price 6 and quality. According to Levy, the Shang Xia brand is lower priced than Hermés (2010), which might, from a perspective of a Chinese consumer wishing to show status, might be a factor speaking against Shang Xia as to being a true luxury brand. According to the art director of Shang Xia, Jiang Qiong Er, the brand tries to preserve and respect tradition, both Eastern and Western (Shang Xia website). Seen from the analysis of the website above, it is very obvious that the Eastern values are highly preserved. But an example of where the Western aspect comes into play, is that the cultural object from Shang Xia 2011, includes two pamphlets in respectively English and French. This is argued to be an interesting choice seen from a Chinese perspective, since Shang Xia in every other aspect has a significant focus on communicating in the Chinese language (at their website) and also their Chinese values. That no pamphlet was printed in Chinese might be connected to the fact that Shang Xia plans to open a store in Paris in 2011 (Stephie, 2010), and in order to not exclude the part of the world that does not speak or understand mandarin, it is seen as an attempt to target a broader audience. However, it is still seen as subtracting some of the Chinese spirit that Shang Xia otherwise has created. A picture emerges of the Chinese having a somewhat contradicting approach to luxury brands. There is no doubt that the Chinese seek status, but as also found they find it important to keep stability with ones surroundings. This was found in one of the values explained in the chapter on Chinese culture; interesting is Kegi, because it emphasizes humility, and not to forget modesty. From a Western (even more from a Danish) perspective those two might oppose each other, since carrying e.g. an expensive bag shows that you are not afraid of showing your success, which is argued not to be very modest. What is interesting to note in this connection is that statistically, 1% [of the Chinese] feel luxury brands have superficial connotations (Lu qtd. in Clarke, 2008). From this quote it is evident that the Chinese do not see the purchasing of luxury goods as contradicting their modesty. Before investigating the Hermés brand further, some quotes from the CEO of Hermés and the CEO of Shang Xia will be put forward, in order to look further into the reason for creating the brand of Shang Xia. Jiang Qiong Er, CEO and Art Director of Shang Xia, realizes that *d+uring last 20 years, 6 When naming pricing as a competition factor, it is obviously important to keep a high price in order to be considered a true luxury brand in China. Page 39 of 99

44 most Chinese luxury consumers prefer the Western brands, as these objects make them dream. But once China s economy develops beyond a certain level, as it is today, more and more Chinese people start to get back to our own cultural roots and lifestyle (qtd. in Young, 2011), which is seen to be a main argument for creating a new luxury brand from the very bottom. Furthermore, CEO of Hermès Patrick Thomas states that the objective of Shang Xia is to bring Hermès s philosophy to China and to create a Chinese Hermès (qtd. in Young, 2011). Seen from these two quotes, there is no doubt that the Shang Xia brand is created in a belief that the Chinese consumers sought after Chinese based luxury brands, despite whatever skepticism the brand has been received with. 9.3 Hermés Hermés is a French luxury brand with French roots established in 1837, creating both bags, handmade scarves and much more. Hermés is so far present in 16 cities in China with their own stores (Hermès website). When taking a look at the viewer sees a hand-drawn - man (see appendix 12), who also recur in other settings, e.g. the Chinese version of the Hermés website. The hand-drawn man is dressed in white tie and tails, with a high hat on his head. The outfit is an example of what Roland Barthes calls objects, since they connote accepted inducers of associations of ideas or veritable symbols (Carmen Meier 2008). This is the exact case in this example, since such clothing, from a Western point of view, traditionally is seen as supreme when it comes to hierarchy of apparel (Sondag 2011, 7-9). Moreover, he is holding a frog with a crown on its head. This stems from a novel by Ed Baker called The Frog Princess, in which a prince has become a frog (Guy, 2010). Also, the man has angel s wings attached. According to Dr. John Bechtle some Bible passages picture angels with wings, for example Isaiah 6:2,6 (2002). Objects, is one of Barthes `six connotators, and what is important to dwell on here is that Connotations are not purely 'personal' meanings - they are determined by the codes to which the interpreter has access. Cultural codes provide a connotational framework since they are organized around key oppositions and equations', each term being 'aligned with a cluster of symbolic attributes. Certain connotations would be widely recognized within a culture (qtd. in Kasch, 2005). Therefore, it is argued to be culturally determined whether you connote the meanings that the objects carry. For example might the story about The Frog Princess not be as well-known in the Eastern part of the world as in the Western part, and they might therefore not be able to connote the meaning fully. Page 40 of 99

45 When entering the Chinese Hermés website, the same drawn man is pictured once again in two positions, still wearing the same clothes (see appendix 13). In one picture he holds a bag from Hermés on which the Hermés logo is printed. The logo is created in an orange colour showing a Duc carriage with a horse, and beneath the name Hermés, Paris is written (see appendix 14). The handdrawn man showed in the website is the same coachman who is pictured in the logo in front of the horse. All in all it is very evident that Hermés, also in their Chinese website, applies several symbols that are based on a Western tradition - both in relation to traditional Western clothing and Christianity. Just as Shang Xia was investigated in relation to the Chinese consumers, the same will now be carried out in relation to Hermés. Again previous chapters in this thesis on culture and consumer trends will serve as a basis for the analysis. 9.4 The Chinese Consumer and Hermés Contrary to Shang Xia, Hermés is Parisian based, implementing that French and Western values are a part of the brand. As seen from the findings above, the Chinese embrace Western luxury brands. Bain & Company's luxury market research report is interesting, since it found that Hermés ranks ninth in the luxury brands that consumers are most likely to buy in China, far behind the top three Louis Vuitton, Gucci and Chanel (Brandsource, 2010). Seen from this, it is argued that the Chinese consumer has not embraced the Hermés brand as much as other Western brands, even though it is also a French brand just like Louis Vuitton and Chanel, which also can be seen in the fact that only 11 % of Hermés total sales are constituted from China (Wheeler, 2011). In 2008 Hermés Executive Vice President Patrick Albaladejo, predicted that China is very likely to become Hermes' major global market in four to five years (HKTDC, 2008), which clearly has not happened. When it comes to the Chinese consumer, they are becoming well traveled, and furthermore the Chinese consumers want to know all about how a Birkin bag is made, Hermès history, and culture (Inside Hermés China Part I) which go in hand with the previous finding that the Chinese has a passion for Western brands with a Western history. Therefore, there is found no evidence that the Chinese refuse the Western history in the creation of luxury brands. According to RedLuxury 7, *t+he Chinese consumers prefer accessories like handbags, silk scarves, and watches because they are symbols of success that can be attained much faster (Part II). Those products are exactly what Hermés has as their core products, maybe except from watches. 7 A website concerned with Chinese lifestyle, brands and trends Page 41 of 99

46 As found in the analysis of the elements on the Hermés website, the logo was named as well. What is interesting about the logo is that a horse is depicted. As found out in chapter 5, the horse connotes good associations among the Chinese, and it therefore argued that a Chinese symbol as the horse, is received well in the subconsciousness of the Chinese consumer. The values that the Chinese carry with them, are analyzed not to contradict any of the values Hermés carries along, since the products are very classic (e.g. the Birkin bag and the famous scarves from Hermés see appendix 15 and 16), and furthermore Forbes has ranked the Hermés Birkin bag as the second most extravagant handbag (Prabhakar, 2007), which from the perspective that status is important to the Chinese, is argued to be an important factor when it comes to gaining status. 9.5 Comparing Shang Xia and Hermés Based on the findings in the above analysis, a comparison of the two brands will now be carried out, based solely on the Chinese market and the Chinese consumer. This will be done through an OTanalysis, which consists of the two external parameters from the SWOT-analysis. Shang Xia Opportunities (external environment) Threats (external environment) The Chinese awake to luxury brands with The Chinese will stick to preferring Chinese heritage Western brands when it comes to luxury Very limited number of pure Chinese- Western luxury brands will keep opening based luxury brands little competition stores in China increased competition in the niche within the market for luxury Rapid market growth for luxury goods in The Chinese will not grasp Shang Xia as China purely Chinese, since it is a Western The Chinese embraces their culture and heritage in general based company that created it credibility decreases Expansion of Shang Xia to other countries Hermés Page 42 of 99

47 Opportunities (external environment) Threats (external environment) The Chinese keep embracing Western Shang Xia becomes a success might based luxury brands take away customers from the The expansion of Hermés stores to other motherbrand tier-cities in China Shang Xia fails Hermés credibility The Communist Party will open up the decreases Chinese economy even more easier to Other Western luxury brands will keep enter the market with new stores expanding to China increased competition All in all, the creation of the Shang Xia brand must be argued to carry along a somewhat huge risk. This is both due to the several findings saying that the Chinese consumer prefers Western brands when it comes to luxury brands, but also because it might damage the motherbrand, Hermés. However, Shang Xia is nearly the only luxury brands with Chinese roots, and so deeply connected to the Chinese heritage and values, and therefore, it is argued that Shang Xia does have a chance on the Chinese market as long as the brand makes sure that their products are made with high-quality materials, using a premium pricing strategy as well, since this creates status for the buyer. When it comes to Hermés it is argued to be in the best position of increasing sales in China compared to Shang Xia, since it has Western roots. However, as was found earlier, Hermés has not gained as good a foothold on the Chinese market as other Western luxury brands. In order to not only compare two luxury brands that have a clear connection to each other, an analysis of Burberry will now be carried out. 9.6 Burberry (ACCL) When the British brand, Burberry was created in 1856 it was producing outerwear garments for the sportsmen of Basingstoke, England. Since then, Burberry has developed a multi-category competency manufacturing womenswear, menswear, childrenswear and non-apparel although they still use outerwear as a solid foundation and the quality, function, and modern classic style is all rooted in the integrity of their outerwear (burberryplc-overview). Burberry has become a leading luxury brand with a global business operating in markets throughout the world, including China, where the brand Page 43 of 99

48 has 57 stores nationwide (Burberry Livestreams Fashion Event From Beijing). Their globally recognized icon portfolio includes the trench coat, trademark check and Prorsum horse logo. Despite of having analyzed the website of Hermés and Shang Xia, it is the global brand strategy of Burberry that will be analyzed as to how the Chinese consumer responds to it and whether it is working for the brand. The reason for this is because Burberry has chosen a remarkably different approach to global branding than Hermes and Shang Xia. Whereas Hermes is well adapted to the Chinese culture and Shang Xia being an attempt of total adaptation, Burberry is pursuing one pure global brand strategy worldwide (Ahrendts qtd. in Silverstein, 2010, 0:39) Burberry CEO Angela Ahrendts said all of the Chinese stores sell Burberry's global collection, and about two-thirds already have been fitted with Burberry's sleek new store concept (Conti 2010, 2). In a short video released by Burberry, she talks about the recent Burberry acquisition of Chinese retail operations in autumn 2010 and how it is the fact that Burberry is made in the UK which is appealing to the Chinese. She argues that the Chinese love heritage, authenticity, and originality (Silverstein 1:43) which is the essence of Burberry and how they profile themselves. Moreover, this is in accordance to the trends this thesis uncovered in the trends chapter. It thus seems to be of priority for Burberry to maintain their brand image of British Heritage and their worldwide recognized global icons. Burberry wants full control of the brand's delivery to consumers in one of the fastest-growing luxury markets (Conti 2). This is one of the main advantages of global marketing programs according to Keller (2008, 591). - To be able to use their already gained resources in an effective and efficient way. Burberry's Asia Pacific team will run the Chinese business and tap into the brand's supply chain, IT and merchandising resources, as well as its digital-marketing strategies (Conti 2). They will also be able to use their management expertise and operation excellence in the China acquisition. Moreover, Ahrendts has stated in an interview that she will travel to China next month to walk the floors of the brand's stores and learn about the needs of the market and how to integrate the Chinese operations into the larger Burberry structure. (Conti 2). But perhaps the wording shows the real difference between what Hermes is doing with Shang Xia and the global brand strategy of Burberry, namely to integrate the Chinese operations into the Burberry structure rather than integrating the Burberry structure into the Chinese operations. In spite the fact that Burberry state they use one pure global brand strategy worldwide and these above mentioned argument seems to agree with this statement, they do take culture into account and adapt on a small scale. The overall importance for Burberry is as mentioned maintaining a consistent brand image which is their British heritage. In this thesis the Chinese s preference for Page 44 of 99

49 Western luxury goods was discovered and this is also what keeps their strong brand momentum going. Burberry is thus trying to give the Chinese what they demand right now an emphasized Western brand. All in all, Burberry is following the standardization approach more so than fusing standardization and adaptation, although they do on some points integrate their brand with the Chinese culture. However, they are clearly more standardised than anything else, for instance the brand has hired additional support in their China operations in the shape of a General Manager (Silverstein 1:06), whom they state has great insight to the luxury market, but what about Chinese culture? They have also sent a team to China to ensure things follow the strict requirements of Burberry. But once again, what about culture? According to Beamer and Varner it is a great idea to sent people over to negotiate in person (2008), but they cannot help to integrate the brand to the culture only to the physical surroundings. Therefore, when Ahrendts states that so far her biggest challenge in China is uncertainty: I've been told that no matter what sort of risk analysis you do for China, something you don't expect will always happen (Conti 2) it might be because culture has not been taken into account in a large enough scale previously. It is true that something unforeseen might always come up, but much can be done to prevent the worst. Our cultural branding model is an inspiration to prevent some of the cultural risks. Burberry knows that the Chinese love Western brands and other market analysis data like it, but what they are missing is the next steps in our model, the crucial ones for Burberry being cultural characteristics and the consumer. 9.7 The Chinese Consumer and Burberry Due to the online popularity of Burberry it must be said their pure global brand strategy/standardization approach is working. Coach, Gucci, Juicy Couture, and Burberry have garnered more Web site traffic than any other luxury fashion brand 68% online share of visits (Coach, Gucci, Juicy, Burberry Have Lion Share of Luxury Web Visits). And *i+nterestingly, Burberry s 6.5 percent market share of site visits is paltry compared to its popularity on Facebook. Burberry has a huge Facebook following with 2 million fans. It took them a year to reach its 1 million mark in April (Coach, Gucci, Juicy, Burberry Have Lion Share of Luxury Web Visits). What further states the popularity of Burberry is the fact that the wealthy Chinese go on major shopping sprees in London. In Burberry s London stores, Chinese shoppers make up a third of its customers... [the Chinese tourists] have edged out Russian, Arab, and Japanese tourists as the top buyers, accounting for 30 percent of the luxury goods market, while British shoppers only account for Page 45 of 99

50 15 percent of the market (Wealthy Chinese on Major Christmas Shopping Spree in London). The Chinese consumers also adore giving their loved ones luxury gifts such as Burberry (Wealthy Chinese on Major Christmas Shopping Spree in London). Even the Chinese men love their luxury purses and bags, whereas it in the Western countries is mostly women who account for the purchases of these. Men now account for a whopping 45 percent of the $1.2 billion market for luxury handbags in China. That is truly huge when you consider that the male handbag trend in United States is only 7 percent (Why Chinese Men Love Their LV, Gucci Purses). If nothing else does, this popularity with both sexes truly attests that the global strategy is working. Burberry also has extremely high brand awareness and is the brand with the third most retail stores in China, right after Dunhill and Hugo Boss (see appendix 13.17). Again, it says a lot about their branding strategy; clearly a standardized approach can be successful, at least this example of Burberry illustrates that it works for a Western luxury brand to advance globalization with a standardized approach in China because of the Chinese s preference for Western brands. It goes to show that even though glocalization has emerged as a substitute for standardization, standardization can still cut it on its own with only moderate adaptations - at least on the Chinese luxury market it can. It varies and therefore there is also a specific box in our cultural branding model industry which allows for such adaptations to be made. Page 46 of 99

51 Opportunities (external environment) The Chinese keep embracing Western based luxury brands Plans to double the number of Burberry stores in China to 100 in the medium term Full control of the brand's delivery to consumers in one of the fastest-growing luxury markets Standalone children's wear stores in China Become a leading luxury brand in China Burberry Threats (external environment) Increased competition: - Other Western luxury brands will keep expanding to China - China will demand and create own luxury brands Uncertainty: the market is moving rapidly The inability to anticipate and respond to changes in consumer demand and product category trends Lack of direct control and transparency 8 As the Group moves into increasingly higher risk locations the operating and reputational risk increases Comparison Finally, a brief comparison of the three brands Burberry, Hermes and Shang Xia will be made to create an overview and emphasize the fact that different global strategies can be used successfully, which is in sync with the philosophical hermeneutics tradition. The comparison is also based on the Chinese market and the Chinese consumer. Burberry and Hermes both use Western heritage to market themselves, whereas Shang Xia is almost exclusively Chinese and thus builds on the Chinese heritage. All three brands try to give the consumers what they demand, but Shang Xia is the only of the three that tries to fill an unmet need, namely a need for a Chinese luxury brand. Burberry runs its global brand strategy, adapting only slightly, while Shang Xia has gone all out for example using only native Chinese models. Burberry and Hermes of course use traditional Western models. Shang Xia is also the only one of the three that produces furniture; this also allows them to use traditional Chinese materials which appeals to the 8 In a number of key emerging markets, Burberry operates through third-party franchisees. In particular, a thirdparty retail operation has been developed in China. The Group largely depends upon the expertise of these franchisees given its relative lack of experience in this region. During the year, the Group has strengthened its emerging markets team, and where appropriate has its own staff based within these operations who work closely with franchisees to further develop operational models to enable greater control and visibility (Burberryplc.com). 9 See above Page 47 of 99

52 Chinese and their fondness of their heritage and love for being Chinese. Hermes adapts much more than Burberry, but by far not to the extend Shang Xia does for example, Hermès is one of the few companies that has no central buyer (Inside Hermès China Part I) and therefore stores around the world carry different product offerings, whereas all of Burberry s Chinese stores sell the same global collection (Conti 2010, 2). But, Burberry and Hermes both have signature products which they have had from the beginning and their long brand history. E.g. the Birkin bag, the Kelly bag and the scarves by Hermes and Burberry s outerwear, especially the trench coat is classically associated with Burberry. Shang Xia on the other hand is still new and in the process of establishing this kind of loyalty with their customers. Therefore, Shang Xia has all the opportunities in the world given the right circumstances, whereas both Burberry and Hermes can hope to expand and dominate the market. The identified competitive threats are more or less the same, but for Shang Xia as a new brand there are naturally greater risks involved. Page 48 of 99

53 10. Findings (All) Even though many theorists say that limited research has been carried out within the field that this thesis is concerned, several interesting findings have been discovered. For example is it found that there seems to be a somewhat disagreement between theorists whether to incorporate country-oforigin in the branding activities, or creating a brand that only communicates values existing from the specific culture, in order for the locals to be able to identify with the brand. It has also been found that the Chinese are highly focused on maintaining and preserving their own heritage and culture, but when it comes to luxury brands the Chinese prefer brands based on a Western heritage and tradition, since it is seen as increasing the owner s status. Further, it became clear that according to several theorists there are numerous advantages and disadvantages to both standardization and customization. For standardization, economies of scale and the opportunity to create a unique brand image across countries is attractive, while it can also risk that brands run into complete failure on foreign markets because the thinking that the brilliance of the product will be enough to make it a success - it isn t always. That is why customization or glocalization came to be and tries to adapt to the culture and blend the global with the local. However, there are disadvantages; it takes a lot of planning and researching when a company enters a new market. In the end, it was found that integrating best practice and learning from experience could be a way to go. Finally, we found that creating a new model that fuses culture and branding was much needed and no other model for this purpose had been created - although Holt has created a model called cultural branding. However, Holt s model was found to concern mostly Western markets, and therefore a cross-cultural branding model specifically made for China was presented. The model shows how it is important both to consider the current consumer behaviour and the culture when it comes to branding. Page 49 of 99

54 11. Conclusion (All) This thesis set out to examine how culture affects branding with focus on the Chinese market. The focal point has been on Western based brands engaged in China. Since philosophical hermeneutics emerged as the natural tradition for this thesis in light of the key authors used and the way the analysis has been carried out, the framework for the report gave itself. The philosophical hermeneutic tradition means that you can interpret perpetually without finding one definitive truth and neither has our thesis. Globalization is, according to several authors, omnipresent - what we are. The world has become very small and globalization has created opportunities one could only dream of just 20 years ago. But it can be tricky managing a global brand, and this thesis argues that it cannot be done without considering the host culture. Therefore, what culture consists of was identified as symbols, rituals, heroes, and values. Next the specifics of the Chinese culture were presented Confucianism was for example found to have major importance in the Chinese culture. Then a number of consumer trends and preferences were indentified, revealing some contradictions; most significantly that the Chinese love to display status yet keeping a low profile is considered a virtue. Also, heritage and traditions are paramount, yet a longing for freedom associated with the Western world is present in especially the younger generations. Lastly, though not contradictory, the Chinese have gained a large spending power over the last years and are willing to use it on especially Western luxury goods. From the chapter on branding, it became evident that culture has not been considered heavily when it comes to creating theory on branding. Since this thesis blends culture and branding, it was seen as necessary to consider newer approaches to branding, and fuse those with theory of culture in order to find out how the Chinese culture affected the branding strategies used by Western companies in China. It was found that it is differs a lot how Western companies have chosen to incorporate the Chinese culture in their branding strategies. Some take in culture and Chinese consumer trends when deciding on a strategy, and others go with a completely global strategy. The theorists quoted throughout the thesis mainly argue that some degree of adaptation is necessary, especially since many Chinese still do not speak or understand English. Moreover, among theorists it is highly recommended to consider the culture, especially in order to e.g. build branding efforts around existing myths, and also in order to avoid offending anyone by communicating messages that contradict with the Chinese symbols, rituals, heroes and values. The thesis also investigated how three different luxury brands have approached the Chinese market. Shang Xia is a solely Chinese-based brand, built on Chinese heritage and culture. There has been some criticism from the Chinese consumers, since there is doubt whether the Chinese are willing to take in a China-based luxury brand. The French brand, Hermés has chosen to bring their Page 50 of 99

55 Western traditions and values to the Chinese market, which is found on their Chinese website. This is argued to work in accordance with the preferences that the Chinese have towards luxury brands. However, it fails to incorporate local myths and values an aspect which several theorists emphasize as important. Nevertheless, Hermés was found to be adapting more culturally than Burberry. Burberry claims to use one pure global brand strategy, having for instance one global collection in all stores around the world. This ensures their core identity is stabile, consistent and recognizable for the consumers no matter where in the world you are. All together, there are some main differences and similarities between the three luxury brands. For one, Hermés and Burberry both emphasize and exploit their Western heritage, while Shang Xia emphasizes their Chinese heritage. Secondly, the two Western brands both build on their long brand history while Shang Xia is still trying to create one. The analysis of the brands shows that various branding strategies have been applied to the Chinese market in order to gain foothold and that no one way is the necessarily the best. Page 51 of 99

56 12. Works cited Aaker, David. Building Strong Brands. London: Simon & Schuster, Alimiené, Monika and, Rita Kuvykaité. Standardization/Adaptation of Marketing Solutions in Companies Operating in Foreign Markets: An Integrated Approach. Engineering Economics 56.1 (2008): Andrews, David L., and George Ritzer. The grobal in the sporting glocal. Global Networks 7.2 (2007): Beamer, Linda, and Iris Varner. Intercultural Communication: in the Global Workplace. 4 th ed. New York: McGraw Hill, Bechtle, John. What does the Bible teach about angels?. Chrisiananswers Apr < Booker, Avery. Will Chinese Shoppers Embrace Luxury Goods Sans Logo? Forbes. 13 Aug Mar < Brandsource. Hermes to make an affordable luxury brand for China. Brandsource 19 Jan Apr < Bulman, Leonie. Louis Vuitton wins over Chinese consumers by resonating with their cultural background. Wave: social media news from WaveMetrix 2 Mar Mar < Burberry. Overview. BurberryPLC. 24 Apr < Burberry. Markets and Risks. BurberryPLC. 24 Apr < Conti, Samantha. Burberry Plans Big China Push. Womens Wear Daily (2010): 2. Cova, Bernard, Robert V. Kozinets, and Avi Shankar. Consumer Tribes. Oxford: Butterworth- Heinemann, Clarke, Charmaine N. Redefining Luxury. China Europe International Business School Apr < Debnam, Nick, and George Svinos. Luxury Brands in China: Part lll: strategies for luxury brands. China Business Success Stories 12 Mar Mar < Duve, de Thierry. The Glocal and the Singuniversal. Third Text 21.6 (2007): Doctoroff, Tom. Billions: Selling to the New Chinese Consumer. New York: Palgrave Macmillan, Page 52 of 99

57 Doctoroff, Tom. The Confucian Consumer and Chinese Luxury: FAQs. Huffington Post on the Web 22 Apr Apr < Gadamer, Hans-Georg. Philosophical Hermeneutics. Ed. David E. Linge. University of California Press, Gap Inc. Staff Gap Enters China With Four Stores And Online Shopping. Gap Inc. 11 Nov Apr < html>. Gesteland, Richard R. and George F. Seyk. Marketing Across Cultures in Asia. Copenhagen: Copenhagen Business School Press, Giddens, Anthony. The Consequence of Modernity. Cambridge: Polity, Goldman Sachs Economic Report. Ten Things for India to Achieve its 2050 Potential. June 16, 2008 Guitart, Meritxell. Building a global brand. The power of transcreation. Aarhus School of Business and Social Sciences, Aarhus. 18 March Guy, Jill. The Frog Princess by Ed Baker a creative fairytale. Enzine Articles 1 Feb Apr 2011 < * Tale&id= >. Guzman, Francisco, and Audhesh K. Paswan. Cultural Brands from Emerging Markets: Brand Image Across Host and Home Countries. Journal of International Marketing 17:3 (2009): Halliburton, Chris, and Agnes Ziegfeld. How do major European companies communicate their corporate identity across countries? An empirical investigation of corporate internet. Journal of Marketing Management (2009): Heding, Tilde, Charlotte F. Knudtzen, and Mogens Bjerre. Brand Management: Research, Theory and Practice. 3 rd ed. New York: Routledge, Hermés Hermès Paris. 14 Apr < HKTDC. Hermés accelerates China expansion. HKTDC 10 Sep Apr < Hollis, Nigel. The Global Brand: how to create and develop lasting brand value in the world market. New York: Millward Brown, Holt, Douglas B. How Brands Become Icons: the principle of cultural branding. Boston: Harvard Business Shool Press, Why Do Brands Cause Trouble? A Dialectical Theory of Consumer Culture and Branding. Journal of Consumer Research 29 (2002): Page 53 of 99

58 Kapferer, Jean-Noël. The New Strategic Brand Management: creating and sustaining brand equity long term. 4 th ed. London: Kogan Page, Kasch, Henrik. Supplementary texts for textual semiotics. ASB, Keller, Kevin Lane. Strategic Brand Management: Building, Measuring, and Managing Brand Equity. 3 rd ed. Upper Saddle River: Pearson Prentice Hall, Khondker, Habibul Haque. Glocalization as Globalization: Evolution of a Sociological Concept. Bangladesh e-journal of Sociology 1.2 (2004): 1-9. Kress, Gunther, and Theo van Leeuwen. Reading Images: the Grammar of Visual Design. 2 nd ed. New York: Routledge, Kure, Nikolaj. Philosophical Hermeneutics. ASB. Class lecture. 2008: Li, Haifeng, and Jing J. Xiao. Chinese consumer types. Consumer Studies & Home Economics 23.3 (1999): Lindstrøm, Martin. Buyology: trues and lies about why we buy. New York: Doubleday, Lloyd, John. Interview: Anthony Giddens. New Statesman: 126: (1997). Magala, Slawomir. Cross-Cultural Competence. London and New York: Routledge, Matusitz, Jonathan. Disney s successful adaptation in Hong Kong: A glocalization perspective. Springer (2009) Disneyland Paris: a case analysis demonstrating how glocalization works. Journal of Strategic Marketing 18.3 (2010): Meier, Carmen. Roland Barthes s six connotators Melewar, T. C., Edgar Badal, and Joseann Small. Danone branding strategy in China. Brand Management 13.6 (2006): Mooij, Marike de. Global Marketing and Advertising: understanding cultural paradoxes. 2 nd ed. London: Sage, Onkonkwo, Uché. The Luxury Brand Strategy Challenge. Journal of Brand Management 16 (2009): Paul. Is Global the New Local? Co-operationblog. 1 Apr Apr < Prabhakar, Hitha. World s Most Extravagant Handbags. Forbes 8 Mar Apr < Raj, Adeline Paul. China set to be world's largest luxury goods mart. New Straits Times 5 Feb 2011: pg. 5+. Page 54 of 99

59 Redluxury. Burberry Livestreams Fashion Event From Beijing. Redluxury. 12 Apr Apr < Redluxury. China Luxury Market 2010: The Omnipresence of Global Brands. Redluxury. 30 Dec Apr < RedLuxury. Coach, Gucci, Juicy, Burberry Have Lion Share of Luxury Web Visits. Redluxury. 27 Oct Apr < RedLuxury. Inside Hermés China Part I. RedLuxury. 8 Nov Apr RedLuxury. Inside Hermés China Part II. RedLuxury. 9 Nov Apr < Redluxury. Wealthy Chinese on Major Christmas Shopping Spree in London. Redluxury. 29 Dec Apr < Redluxury. Why Chinese Men Love Their LV, Gucci Purses. Redluxury. 8 Feb Apr < Ritzer, George. The Globalization of Nothing. SAIS Review 23.2 (Summer-Fall 2003): Robbins, Derek. The Work of Pierre Bourdieu. Milton Keynes: Open University Press, Robertson, Roland. Globalization: Social Theory and Global Culture London: Sage. Google Books. 23 Mar < =da&ei=5iw3te26ei72sgaakujndq&sa=x&oi=book_result&ct=result&resnum=1&ved=0cdgq6ae waa#v=onepage&q=crystallization%20of%20the%20world%20as%20a%20single%20place&f=fals e>. Robertson, Roland. Glocalization: time-space and homogeneity-heterogeneity Ed. M. Featherstone, S. Lash and R. Robertson (eds) Global modernities. London: Sage, Google Books. 26 Apr < 95&source=bl&ots=OeW_Hvbbnd&sig=0VGh8oKJXK00LtMqPct3MSm2qas&hl=da&ei=96u2Tb6pJc vaswbn2- jgdq&sa=x&oi=book_result&ct=result&resnum=8&ved=0cfsq6aewbw#v=onepage&q&f=false>. Roll, Martin. Cross-cultural branding and leadership. Venture Republic. 27 Feb < >. Ross, John. Even Optimists Underestimated China s Growth. China.org 30 Jan Apr < Page 55 of 99

60 Sang, Jian, and Grace Zhang. Communication across languages and cultures: a perspective of brand name translation from English to Chinese. Journal of Asian Pacific Communication 18:2 (2008): Schroeder, Jonathan E., Miriam Salzer-Mörling. Brand Culture. Oxon: Routledge, Schuiling, Isabelle, and Jean-Nöel Kapferer. Executive Insights: Real Differences Between Local and International Brands: Strategic Implications for International Marketers. Journal of International Marketing 12:4 (2004): Schultz, Majken, Yun Mi Antorini, Fabian F. Csaba. Corporate Branding: purpose/people/process. Copenhagen: Copenhagen Business School Press, Silverstein, Barry. Angela Ahrendts on Burberry acquisition of Chinese retail operations. Brandchannel Apr Video: < Partner.aspx>. Silverstein, Barry. Burberry Tightens Grip with China Deal. Brandchannel. 16 July Mar Text:< Partner.aspx>. Shang Xia Shang Xia. 14 Apr < Skjødt, Line. Cultural Theory and Analysis. ASB. Class lecture. 2009: Solomon, Michael, Gary Bamossy, Søren Askegaard, and Margaret K. Hogg. Consumer Behaviour: A European Perspective. 3 rd ed. Harlow: Prentice Hall, Sondag, Glen R. Anything other than naked: a guide for men on how to dress properly for every occasion. Minneapolis: Langdon Street Press, Stephie. Business: Shang Xia, a new label from Hermés. Mondayflying 19 Feb Apr < Trompenaars, Fons and Peter Woolliams. Marketing Across Cultures. Chichester: Capstone Publishing Ltd, Winters, Elaine. Headed for China? Cultural Considerations. Web, January/February, Wheeler, Simone. China to become the world s largest market for luxury goods over the next decade. CLSA 2 Feb Apr < WWD Staff. Four Key Chinese Consumer Groups. Womens Wear Daily (2008): 14. Page 56 of 99

61 Young, Robb. Jiang Qiong Er, Shang Xia s CEO & artistic director. Luxury Society on the Web 5 Jan Apr < > Zhuang, Guijun, et al. Asymmetric effects of brand origin confusion: evidence from the emerging market of China. International Marketing Review 25.4 (2008): Page 57 of 99

62 13. Appendices 13.1 Appendix 1 - The Onion Model Page 58 of 99

63 13.2 Appendix 2-4 key Chinese consumer groups ASPIRATIONALISTS "This is the majority of Chinese consumers," said Luong. "They're both working-class and middle-class and generally very thrifty. They won't often spend too much on high-end products because they don't have the money. But they're very up-to-date on fashions and gadgets and really would like to spend a larger portion of their income on luxury products * +." Favorite brands: Haier, Lenovo, Nike. CHUPPIES "This name stands for " Chinese yuppies and they're really the group at the forefront of China's burgeoning middle class," Luong said. "They're concentrated in the big cities, but are also starting to populate the smaller cities around China. They're professionals, and they're putting much of their savings into things like purchasing homes. They * + tend to have a high interest in Western products." Favorite brands: Apple, Nokia, Chanel. BIG STYLERS "These are the country's big earners and big spenders," Luong said. "They usually work in an office environment they're bankers, doctors and lawyers. They spend money on traveling, clubbing, drinking, eating out and luxury products. They're really all about showing off and consumption. While traditional Chinese society has been about saving, this group is about big spending and living in the moment. They tend to be very brand-conscious and have disposable incomes of at least $500 a month, which in China is very large." Favorite brands: Armani, Prada, Burberry. PARASITE SINGLES * +Many of them live with and are supported by their parents, hence their name. The free rent and low everyday living expenses allow them to spend their disposable income on consumer products, like clothes, cosmetics and accessories. They tend to be fashion-forward and keep up with the latest trends in magazines or on the Internet. You see a lot of women in urban centers in China that fit this profile. Favorite brands: Louis Vuitton, Lancôme, Motorola, Gucci. (WWD, 2008, p.14). Page 59 of 99

64 13.3 Appendix 3 Aaker s Brand Identity Planning Model Page 60 of 99

65 13.4 Appendix 4 - Boden s 7 P s 13.5 Appendix 5 The IMC Process Model Page 61 of 99

66 13.6 Appendix 6 Emotional and Viral Branding (Holt, 2004) Page 62 of 99

67 13.7 Appendix 7 Brand visualisation and design elements 13.8 Appendix 8 Brand website features Page 63 of 99

68 13. 9 Appendix 9 The Shang Xia logo Appendix 10 Chinese model from Shang Xia s website Page 64 of 99

69 13.11 Appendix 11 Chinese models from Shang Xia s website Appendix 12 Image from Hermés International website Page 65 of 99

70 13.13 Appendix 13 Image from Hermés Chinese website Appendix 14 The Hermés logo Page 66 of 99

71 13.15 Appendix 15 The Hermés Birkin Bag Appendix 16 Hermés scarf Appendix 17 - Retail presence of the 15 brands as of August 2010 surveyed by Bain & Company Total Retail Stores in China Dunhill: 93 Hugo Boss: 89 Burberry: 50 Ferragamo: 48 Bally: 46 Gucci: 37 LV: 34 Cartier: 33 Hermes: 20 (+2 more openings in September) Versace: 19 (+1 more opening in December) Dior: 19 Prada: 15 Bulgari: 12 Tiffany: 12 Chanel: 6 Page 67 of 99

72 14. Texts from the Internet Since angels are spirits rather than physical beings, they don't have to be visible at all (Colossians 1:16). Elisha once prayed that his servant would see the armies of angels surrounding the city, and the young man discovered that he had overlooked a lot of invisible beings (2 Kings 6:17)! When angels do appear, they generally appear in the form of men. In Genesis 18, Abraham welcomed three angelic guests who appeared at first to be nothing more than some travellers. In the following chapter, two angels went to Sodom where they were assumed to be simply a pair of human visitors. With the possible exception of one debatable passage in Zechariah 5:9, angels always appear as males rather than females (Mark 16:5). Sometimes an angel appears to be a man with unusual features. Daniel saw an angel with arms and legs resembling polished metal and precious stones, and a face like lightning (Daniel 10:5-6). The angel that rolled back the stone from Christ's tomb was radiating dazzling light (Matthew 28:3; Luke 24:4). The book of Revelation describes some highly unusual beings who may be a variety of angel in Revelation 4:6-8. Angels in the Bible never appear as cute, chubby infants! They are always full-grown adults. When people in the Bible saw an angel, their typical response was to fall on their faces in fear and awe, not to reach out and tickle an adorable baby. Some Bible passages picture angels with wings (Isaiah 6:2,6). Other verses talk about angels flying, and we assume that the wings would be useful for that flight (Daniel 9:21). However, I suspect that angels can move around without having to depend on wings. Most references to angels in the Bible say nothing about wings, and in passages like Genesis 18-19, it is certain that no wings were visible. Author: Dr. John Bechtle. %20%20%20%20%20goods-sans-logo/ Will Chinese Shoppers Embrace Luxury Goods Sans Logo? Aug :46 am This week, Britain s Telegraph reported on the recent luxury industry trend towards subtler, anti-bling collections that minimize conspicuous logos in favor of more low-key designs. According to the article, recent moves by Gucci to downplay its trademark G emblem have paid off, as the company recorded a surge in profits after moving in this direction. As Francois-Henri Pinault, chairman and chief executive of its French parent PPR, said: Our groups are moving toward fewer logos, more discreet luxury. It s a question of adapting our ranges very rapidly to this new perception of luxury, a luxury which is more subtle, more sophisticated. Noting the visible de-logo-ification seen among brands known for over-the-top embellishments in the pre-financial-crisis days, the Telegraph cites a new study by Joseph Nunes, professor of marketing at the University of Southern California, which found that big spenders are willing to pay a premium to have quiet goods without a brand mark. So there we have it: top luxury houses are largely moving away from ostentation and flash and towards more subtlety, sophistication and quiet indulgence. But herein lies a serious point of contention in the luxury world. Although luxury shoppers in established, recession-stung markets may gradually be lured back into stores by understated items bereft of obvious logos, will this trend appeal to potential buyers in emerging and lucrative markets like China, where garish still equals good? This is precisely the question asked by a number of Chinese luxury sites and blogs this week. The author of the New Express article, Will You Still Buy Logo-Free LV? predicts that it will be years for the logo-mad mindset prevalent in the Chinese luxury industry to change, and the ChinaNews article Low-Key Luxury: A Hard Sell For Chinese Consumers notes the cool reaction that many Chinese shoppers have had to understated items. The article also quotes a professor at Shanghai s Page 68 of 99

73 Fudan University who explains the peripheral effect that often dictates a Chinese shopper s choices. From ChinaNews (translation by Jing Daily team): At the Louis Vuitton flagship store at Shanghai s Lippo Plaza, workers showed me that nearly all of the new products in the epi leather collection lack any obvious LV logos,and instead have only a small embossed LV logo in the lower right-hand corner. Nonetheless, considering these pieces all cost more than 10,000 yuan (US$1,476), they still belong to a high-end product line. *As one clerk told me,+ The new classic canvas monogram collection isn t that popular with buyers. The most popular items are still those ones that have a prominent LV logo. A clerk at the Gucci store at Shanghai Times Square explained that the Techno Horsebit series, which doesn t have any obvious logos, hasn t had many buyers either. The industry insider Frederick (no further name given JD) recently said that when Chinese consumers purchase a luxury item, they re not just buying the product but are paying for all of the added value denoted by this object identification of status, display of economic power and so forth. Cheng Shi an, the head of Fudan University s Advertising Department in Shanghai, believes that luxury brands rely on the periphery effect ( 外围效应 ) *in China+. If a luxury buyer s coworkers and friends can t tell the price of the brand, even if this person spent a lot of money on a given item, their satisfaction level will still be low. If this story is accurate and considering the tone of other articles on the subject, it seems to be we can expect to see new understated items receiving a somewhat ambivalent reception from many Chinese luxury shoppers, save for, possibly, the most experienced and brand-savvy. Major brands likely are already anticipating this, and as the Telegraph s fashion director, Hilary Alexander, said, despite the move towards subtlety that s currently sweeping the industry, some tourist markets, such as the Middle East, Japan and China, have still yet to grow out of the logo obsession so there will always be a little of that in the accessories. Whether this simply means we ll see more China-only accessory collections aimed squarely at emerging markets like China or spin-off collections that won t be sold in Western markets is anybody s guess at the moment. If nothing else, major luxury brands have some serious decisions to make. Do they continue to make new collections with European and North American buyers in mind and assume shoppers in other markets keep buying, or do they give important demographics like wealthy mainland Chinese more of a voice? How do you take a new direction without alienating, and potentially turning off, loyal buyers in important but still young markets? Hermes to make an affordable luxury brand for China The Hermes Group plans to launch a new luxury handbag brand, Shang Xia (meaning "up/down or high/low " in Mandarin), in China this coming spring. The collection will be designed, manufactured and sold in China and shipped to some stores in Paris. The line incorporates Chinese raw materials and traditional craftsmanship. Shang Xia is considered to be an affordable luxury collection. Hermes entered China in 1997 and has not performed well in the market so far. According to Bain & Company's luxury market research report, Hermes ranks the ninth in the luxury brands that consumers are most likely to buy in China, far behind the top three Louis Vuitton, Gucci and Chanel. Hermes regards the experiment with affordable luxury as a competitive brand strategy in 2010 to recuperate its slower development in the world s second-largest luxury market. It seems Hermes is trying to differentiate their brand on the basis of being more affordable. But is this a good strategy for the Chinese market? Surveys have shown that when Chinese consumers are going to purchase luxury goods, they want them to be expensive because high prices are associated with high social status, a big motivator for the purchase of luxury goods in China. Some sources have commented that wealthy Chinese consumers want the real, genuine French product, the same one sold in other markets, not a lower-grade sub-brand made for Chinese consumers. Although it is interesting that Hermes has decided to create a China-focused brand, they will need to be careful with their brand positioning to ensure they stay high-end enough for the Chinese luxury goods consumers. Page 69 of 99

74 Louis Vuitton wins over Chinese consumers by resonating with their cultural background by Leonie Bulman on 2nd March 2011 Louis Vuitton s use of a popular Chinese social network, SINA, demonstrates how a premium brand can encourage positive engagement from Chinese consumers online. Louis Vuitton s strategy of posting about charitable campaigns and fashion news generates a highly favourable response compared to posts about Louis Vuitton's products. Louis Vuitton has also succeeded in increasing love for their brand among Chinese users. Louis Vuitton s official brand page on SINA, a popular Chinese social network similar to Twitter, has attracted a strong fan base with over 70,000 followers, more than other premium brands like Chanel or Gucci. Alongside posts about their products and cultural events, Louis Vuitton have recently posted pictures of their charity sponsored panda, named Louis, who acts as an emblem for the brand's supportive actions towards panda protection in China. WaveMetrix analysis shows that the post about Louis the panda generates the most positive response among all topics Louis Vuitton posts about. This suggests that a successful way to engage consumers in emerging markets is to post about topics that will resonate with their cultural background. In addition, Chinese consumers are not only more positive in response to the charity post, but also express more love for the Louis Vuitton brand than they do for product-related posts. Louis Vuitton official posts about fashion and charity generate the most positive response from Chinese consumers: Response to Louis Vuitton s Panda Charity is more positive than for other posts: Chinese consumers commenting on the post about Vuitton s panda sponsorship are more positive than when responding to other post topics. They love the idea and think Louis the panda is so cute, although a few wish he had a Chinese name. Chinese consumers are pleased that a foreign brand is taking action in their country, suggesting this is a successful way to generate consumer engagement in an emerging market Fashion news posts generate an overwhelmingly positive response: Chinese consumers commenting on fashion news are unsurprisingly positive, commenting on the beautiful and wonderful clothes and accessories worn by celebrities Posts about culture lead to conversational comments: Consumers responding to posts about culture share their thoughts on travel and art with other users, leading to conversational threads. Some even say they would love to travel with a Louis Vuitton bag Posts showcasing Louis Vuitton products generate the least positive response: even though two thirds of Chinese consumers respond positively to posts about Louis Vuitton products, this is a lower proportion than responses to other topics. Many consumers say they "love" Louis Vuitton products and think the bags make a "wonderful gift". However, a third of Chinese consumers are more negative, saying they find Louis Vuitton products "ugly" and "pricey" or that they "dislike" the designs of certain bags Consumers express brand love to a great extent in response to the Panda Charity: 60% of responses to Louis Vuitton s panda sponsorship reflect love for the brand, a much higher proportion than for product-related posts. This suggests that market-relevant topics are a successful way to strengthen consumers love for a brand in an emerging market Less than half of users commenting on Louis Vuitton s product-related posts contain brand love: Only 47% of users who respond to posts about Louis Vuitton say they "love" the brand. This is partly because consumers are more focused on discussing the products themselves than the brand. However, it also highlights the positive impact of Louis Vuitton's charitable actions on the brand's image Redefining Luxury Page 70 of 99

75 AS THE RANKS OF CHINA'S MONEYED CLASS SWELL TO 200 MILLION AND TASTES ARE INFLUENCED BY THE RELATIVE YOUTH OF THE NOUVEAU RICH, CHINA'S EUR9 -BILLION LUXURY INDUSTRY IS CONSTANTLY EVOLVING. READ ON FOR HIGHLIGHTS FROM CEIBS' 1ST ANNUAL LUXURY BRANDS FORUM, WHICH TOOK A CLOSE LOOK INTO THIS DYNAMIC & INFLUENTIAL INDUSTRY. THE ACADEMICS OF LUXURY The penultimate session of the forum's first day brought an academic perspective to the discussions, with presentations from Professor Michel Chevalier, the co-author of Luxury Brand Management, and Assistant Professor Pierre Xiao Lu, author of Elite China, Chinese Luxury Consumers. Their discussion of "Luxury Brand Management" provided insight into the size of the Chinese luxury market; today's successful brands; and current attitudes of Chinese consumers towards luxury goods. Mr. Chevalier, Visiting Professor at Paris Dauphine University, is also a consultant with EIM's Paris and Shanghai locations. Mr. Lu is Assistant Professor at both Fudan University in Shanghai and Essec in Paris. Prof. Chevalier told the audience that, while China may only account for 5 percent of the global luxury market, it is not a market that can be ignored. On par with France in the number (345,000) of consumers with disposable income above US$1 million, and having the distinction of being the country with the world's youngest millionaires, China offers huge growth potential for high-end products. Prof. Chevalier explained that, coupled with Japan, China accounts for half the global fashion sales volume. Even more noteworthy: because of China's steadily increasing growth and Japan's slowdown, China's fashion sales volumes will surpass Japan's by 2015 at the latest. That growth is driven by what Prof. Lu described as four categories of Chinese consumers: the status-seeking luxury lovers (15%); those who see luxury items as a way to belong to a social group, the luxury followers (22%); the luxury intellectuals (35%) whose purchases are based on a search for knowledge, heritage and value; and the luxury laggards (28%) who simply follow others' lead. Overall, their data provided good news for the suppliers of high-end products about the general attitude of Chinese consumers. "We can say that 64% of Chinese people think consuming luxury goods is something that can give you a successful image; it's quite positive. And only 1 percent think that [luxury goods] are only very superficial things," explained Prof. Lu. This wider embracing of luxury goods items has translated into big bucks for some middle-class international brands that have seized the opportunity to reposition themselves while entering the China market. This strategy has worked because many Chinese consumers equate high-priced foreign made products with quality. According to Prof. Lu, China's consumers are not the only ones who have a lot to learn about the luxury industry. "For example, the owners of shopping malls classify the brands by using retailing price. So if your merchandise is very expensive, you can stay on the [heavily trafficked] ground floor. In fact, that is not the original luxury concept. It is also not the trend in the world, and so we [in China] need a lot of education about the market," he said. h t t p : / / w w w. b u r b e r r y p l c. c o m / b b r y / c o r p o r a t e p r o f i l e / o v e r v i e w / O v e r v i e w From its founding in 1856 when Thomas Burberry constructed his first outerwear garments for the sportsmen of Basingstoke, England, Burberry has become a leading luxury brand with a global business. The Burberry brand is defined by its: Authentic British heritage Unique democratic positioning within the luxury arena Founding principles of quality, function and modern classic style, rooted in the integrity of its outerwear Globally recognised icon portfolio: the trench coat, trademark check and Prorsum horse logo Page 71 of 99

76 Today, the business built upon this brand is distinguished by: Multi-category competency: womenswear, menswear, non-apparel and childrenswear - with innovative outerwear as the foundation Channel expertise in retail (including e-commerce), wholesale and licensing Global reach: operations in markets throughout the world, with a balance across major geographic regions A unified, passionate and seasoned management team The Group management and their teams are challenged with the responsibility of maintaining the integrity and vitality of this extraordinary brand while continuing to develop a business which remains relevant to ever-evolving markets and consumer tastes. The following pages outline Burberry's strategy under each of its five key strategic themes: Leveraging the franchise Intensifying non-apparel development Accelerating retail-led growth Investing in under-penetrated markets Pursuing operational excellence MARKETS Burberry is a global luxury brand with a distinctive British heritage, core outerwear base and one of the most recognised icons in the world. Burberry designs, sources and markets apparel and accessories, selling through a diversified network of retail, digital commerce, wholesale and licensing channels worldwide. The business is managed by channel, region and product, supported by corporate functions. Company and industry estimates Burberry operates in the global luxury sector which, for Burberry's relevant categories, is estimated to be an approximately 150bn global market. Page 72 of 99

77 Since 2004, the global luxury goods market had grown by around 8% per annum prior to the economic downturn in late In 2009, it is estimated that the global luxury market declined by around 9%, as consumer confidence and spending fell. Industry analysts expect the sector to show some recovery in 2010, although not as high as the 8% seen prior to Burberry competes with a variety of luxury goods companies. Some are large international conglomerates, owning many luxury brands; others are focused on a single brand locally; while others are small, more localised operations. Burberry's relevant peer group differs by product category non-apparel, womenswear, menswear and childrenswear. Retail: includes 131 mainline stores, 262 concessions within department stores and 47 outlets, as well as digital commerce in 27 countries Wholesale: includes sales to prestige department stores and specialty retailers worldwide, as well as sales to its franchisees who operate 97 Burberry stores, mainly in Emerging Markets Licensing: royalty income primarily received from Burberry's licensees in Japan, its global licensees for fragrance, eyewear and timepieces, and from small menswear and European childrenswear licensees Balanced channel mix Burberry sells its products to the end consumer through both the retail (including digital commerce) and wholesale channels. For 2009/10, retail accounted for 58% of revenue and wholesale 34%. Burberry also has selective licensing agreements in Japan and globally, leveraging the local and technical expertise of its licence partners. RISKS The management of the business and the execution of the Group's growth strategies are subject to a number of risks. The risks set out below represent the principal risks and uncertainties which may adversely affect the management of the Group and the execution of its growth strategies The steps the Group takes to address these risks, where they are matters within its control, are also described. Such steps may mitigate but not eliminate these risks. Some of the risks relate to external factors which are outside the Group's control. The order of the risks is in no way an indication of their relative importance, and each of the risks should be considered independently. If more than one of the events contemplated by the risks set out below occurs, it is possible that the combined overall effect of such events may be compounded. Risks are formally reviewed by the Group Risk Committee (the 'Committee') who meet at least three times a year. The membership of the Committee comprises the Chief Executive Officer, Executive Vice President Chief Financial Officer, Executive Vice President of Corporate Resources, Chief Operations Officer, Senior Vice President Commercial Affairs and General Counsel and the Director of Audit and Risk Assurance. At the invitation of the Committee, the Director of Intellectual Property, Director of Corporate Responsibility, Head of Risk Management and representatives from other assurance teams regularly attend Committee meetings. The assessment of the Group's risks and the processes in place for management and mitigation of these risks are reviewed by the Audit Committee on a regular basis. Key business risks are Page 73 of 99

78 also considered by the Audit Committee and are considered generally as part of the Group's strategic development and ongoing business review processes. The global economic downturn affected consumers' purchases of discretionary luxury items which has adversely affected Burberry's sales in certain markets In common with all Burberry's competitors, the global economic downturn affected the level of consumer spending on discretionary luxury items. During a recession, when disposable incomes are lower, a global downturn will adversely affect Burberry's sales in certain markets. A significant proportion of the Group's sales are generated by customers (in particular Middle Eastern, Russian, Japanese, Chinese and other Asian customers) who purchase products while travelling either overseas or domestically. As a result, shifts in travel patterns or a decline in travel volumes could materially affect trading results. Following a further review of Burberry's Spanish business, the Group announced the planned restructuring of its Spanish Operations consistent with its strategy of aligning Burberry in Spain with its global business model. Changes to the political regime or tax and fiscal regulations in the countries in which the Group operates could have an adverse impact on the Group's operations or revenues The Group operates in many countries including the emerging markets. These countries have a variety of legal and regulatory systems which may be changed retrospectively or prospectively and which may not be enforced in a predictable or consistent manner, particularly in times when public sector debt is high and tax revenues are falling. Furthermore, some of these countries have not had stable governments historically and have been subject to political instability. When the Group enters a new market, governance processes are in place to monitor the implementation programme, which includes oversight by the Group's legal, company secretariat, tax and audit and risk assurance departments. The Group uses the services of professional consultants to advise on legal and regulatory issues and to monitor ongoing developments. If Burberry loses key management or is unable to attract and retain the talent required for its business, its operating results could suffer Burberry's performance depends largely on its senior managers and design teams. The resignation of key individuals or the inability to recruit individuals with the relevant talent and experience to enable future business growth could adversely impact Burberry's performance. To mitigate these issues the Remuneration Committee regularly benchmarks the Group's incentive arrangements against Burberry's global competitors and considers the framework in place to recruit, incentivise and retain key individuals. In addition, there are regular ongoing recruitment, talent review and succession planning programmes overseen by the Executive Vice President of Corporate Resources and Chief Executive Officer to ensure that the Group strengthens and develops its senior management team by identifying, developing and nurturing high-potential talent. During the year, the Group introduced a Leadership Council to identify and develop high-potential individuals within the organisation. The cumulative change and significant growth within the business places a significant pressure on resources and its IT systems The combination of the continued development of the Group's IT infrastructure, the focus on maximising the benefits of digital media, combined with the ongoing development of the global supply chain and the implementation of a number of other significant projects combine to exert significant pressure on the business. Governance processes are in place for each major programme to monitor and manage the progress of these initiatives and these are supplemented by monthly operational meetings with senior management to review operational performance. The senior management team has been strengthened and organisational structures realigned to further support these key initiatives and external consultants are used to complement internal skills where required. There is a risk of over-reliance on key trading partners In a number of key product categories Burberry is reliant on a small number of suppliers. During the year, the Group continued to strengthen its supply chain management team to enable the further evolution and development of the manufacturing base and also to mitigate the risk associated with over-reliance on a number of key product suppliers. Where suitable alternatives exist, the Group has reduced volumes with such suppliers and continues to look for suitable additional alternatives where necessary. Page 74 of 99

79 The Group has a number of key customers whose business represents a substantial portion of sales. The Group dedicates resources to these customers and maintains close relationships with such customers to understand and respond to their needs. The Group closely manages its relationships with key suppliers and customers which includes monitoring their financial and non-financial performance. A substantial proportion of the Group's revenue and profits is reliant upon business in Japan and key global licensees A significant source of profit is derived from the royalties received from licensees, specifically the Group's licensees in Japan and the fragrance licensee InterParfums S.A. Burberry relies upon licensees to, among other things, maintain operational and financial control over their businesses. Should these licensees fail to effectively manage their operations, the Group's royalty income would decline. Failure to manage these key relationships effectively could have a material impact on the sales, profitability and reputation of the Group. The Group regularly implements royalty reviews and audits of licensees, but cannot guarantee that they will reveal any noncompliance with the terms of the relevant licence. To minimise the risks in Japan, Burberry has its own offices and operations in Tokyo and closely monitors its relationships with licensees. During the year, the Group amended the terms of its apparel licence with Sanyo Shokai and Mitsui in Japan. The amendment, together with the non-apparel joint venture formed with Sanyo Shokai and Mitsui in November 2008, better positions the Group to optimise its presence in Japan and the high-growth Asian region. Burberry may be unable to control its wholesale and licence distribution channels satisfactorily The Group relies upon the ability to control its distribution networks and licensees to ensure that products are sold in environments consistent with the Group's luxury image. An action by any significant wholesale customer or licensee, such as presenting Burberry products in a manner inconsistent with our preferred positioning, would be damaging to our brand image. If, due to regulatory, legal or other constraints, the Group is in any way unable to control its wholesale distribution networks and licensees, the Burberry brand image, and therefore results and profitability, may be adversely affected. The Group relies upon its licensees, suppliers, franchisees, distributors and agents to comply with relevant legislation The Group expects its licensees, suppliers, franchisees, distributors and agents to comply with employment and other laws relating to their country of operation and to operate to good ethical standards. The Group, however, is unable to guarantee that this is the case, although it continually monitors and improves its processes to gain assurance that its licensees, suppliers, franchisees, distributors and agents comply with its terms and conditions and relevant local legislation and good practice. Burberry could suffer if its supply chain is unable to produce and deliver goods at a competitive price, on time and to its specification If Burberry's suppliers fail to ship product on time, or product quality does not achieve Burberry's standards, this could result in the Group missing delivery dates to its customers, potentially resulting in cancelled orders or price reductions. Further, such a failure could affect wholesale customers' confidence which could adversely affect subsequent seasons' sales. Burberry continues to evolve its supply chain strategy, refining its selection of suppliers to maintain and enhance product quality whilst improving sourcing efficiencies. The Group continues to rationalise its distribution network to minimise unnecessary costs and to improve delivery timeliness and accuracy. The Group's planning and pricing function has continued to improve inventory management processes and effective product flow, facilitated by improved reporting and visibility provided from the new IT infrastructure. Further opportunities exist to improve inventory management processes and these will help ensure that the Group continues to produce merchandise of the right quality, in accordance with its ethical policy and delivered in accordance with its requirements. During the year, the Group announced the restructuring of its Spanish operations consistent with its strategy of aligning Burberry in Spain with its global business model. The inability to anticipate and respond to changes in consumer demand and product category trends on a timely basis could adversely impact sales The Group's business depends, in part, on the ability to shape, stimulate and anticipate consumer demand by producing Page 75 of 99

80 innovative, fashionable and functional products. Categories are cyclical, so it is critical the Group builds responsive product teams to exploit trending categories, launch new categories and balance core apparel and non-apparel categories. The Group has evolved its product hierarchy and design calendar to enable continued brand momentum, product refreshment and replenishment to be more responsive to fashion and consumer trends and to respond more efficiently to changing circumstances. Burberry continues to protect its classic core market by adding innovation to further stimulate sales to current customers, while attracting new customers to the brand. The Group balances and plans all categories and brand icons through a strict product hierarchy. To continue brand momentum, and to protect market share in apparel and non-apparel categories, the Group features outerwear and the Burberry Check icons as part of its marketing initiatives. In response to high demand, the Group introduced the April Showers capsule range in April 2010 to fulfil consumer demand and drive brand momentum. Burberry is dependent on the strength of its trade marks and other intellectual property rights Burberry's trade marks and other proprietary rights are fundamentally important to the success and competitive position of the business and are intrinsic to maintaining brand value. Unauthorised use of the 'Burberry' name, the Burberry Check and the Prorsum horse trade marks, in particular, as well as the distribution of counterfeit products damage the Burberry brand image and profits. If a third-party registers one of the Group's trade marks, or similar trade marks, in a country where the Group does not currently trade, this would create a barrier to commencing trade under those marks in that country. In addition, if a third-party publishes harmful material using our trade marks, Burberry's brand image could suffer. The Group has a dedicated team operating internationally to register, protect and enforce its trade marks and other intellectual property rights. Where infringements are identified, the Group resolves these through a mixture of criminal and civil legal action and negotiated settlement. Nevertheless, it is not possible to guarantee that the actions taken to establish and protect the Group's trade marks and other proprietary rights will be adequate to prevent imitation of Burberry's products by others. Trade marks and intellectual property rights, while subject to international treaties, are largely driven by national law and the protection of intellectual property rights varies from one jurisdiction to another. The Group cannot therefore necessarily be as effective in all jurisdictions in addressing counterfeit products. In many territories the Group is dependent upon the vigilance and responsiveness of law enforcement bodies whose priorities may differ from the Group's. They are also subject to budgetary constraints and prioritise their actions accordingly. Whilst the Group works closely with customs and other law enforcement bodies, ultimately the Group cannot direct their actions. In key emerging markets, including China and the Middle East, Burberry is largely dependent upon third-party operators with the associated lack of direct control and transparency and as the Group moves into increasingly higher risk locations the operating and reputational risk increases In a number of key emerging markets, Burberry operates through third-party franchisees. In particular, a third-party retail operation has been developed in China. The Group largely depends upon the expertise of these franchisees given its relative lack of experience in this region. During the year, the Group has strengthened its emerging markets team, and where appropriate has its own staff based within these operations who work closely with franchisees to further develop operational models to enable greater control and visibility. The Group has established joint ventures in Japan, the Middle East (excluding Saudi Arabia) and India to collaborate with experienced operators in high-growth, under-penetrated markets and improve its ability to ensure the operations are managed in accordance with the Group's global standards. Burberry is exposed to foreign currency fluctuations Burberry derives a significant percentage of its profits from its Japanese licensing arrangements. As a consequence, the Group is exposed to a significant risk associated with the Yen to Sterling exchange rate. In addition, the Group is continuing to expand its operations in the United States and Europe as part of its strategy to accelerate retail expansion in key underpenetrated markets. As the Group's presence in the United States and Europe increases, it is exposed to an increased risk associated with the US Dollar to Sterling exchange rate and Euro to Sterling exchange rate. The Group manages a significant proportion of the foreign currency exposures by the use of forward exchange contracts. Currency fluctuations affecting the Yen, Euro, US Dollar and other currencies will nevertheless affect results and profitability. Page 76 of 99

81 Burberry's operating results are subject to seasonal fluctuations Burberry's business, particularly with respect to apparel, broadly operates on a seasonal basis (Spring/Summer and Autumn/Winter) and the Group has experienced, and expects to continue to experience, substantial seasonal fluctuations in sales and operating results. In particular, results vary based on the weather because of the large proportion of outerwear products Burberry offers and the effect of the weather on retail markets generally. As a result of these fluctuations, comparisons of sales and operating results between different periods within a single financial year are not necessarily meaningful. In addition, these comparisons cannot be relied on as indicators of the Group's future performance. Burberry faces increasingly intense competition Competition in the luxury goods sector has intensified in recent years and Burberry is faced with increasing competition in many of our product categories and markets. The Group competes with international luxury goods groups who control a number of luxury brands and may have greater financial resources and bargaining power with suppliers, wholesale accounts and landlords. If Burberry is unable to compete successfully, operating results and growth may be adversely impacted. A significant incident such as a natural catastrophe, global pandemic or terrorist attack affecting one or more of the Group's key locations could significantly impact the operation of our businesses In such circumstances, the uninterrupted operation of the business cannot be ensured, particularly in the short term. Business continuity plans are in place to mitigate but not eliminate the operational risks. Luxury Brands in China: Part III March 12th, 2008 by China Business Success Stories Strategies for luxury brands By Nick Debnam & George Svinos, KPMG For certain luxury brands, China has already outstripped both Japan and Hong Kong as the largest single market in Asia Pacific. (37) But the growing presence of luxury brands in China is bringing with it greater competition. The country s busiest streets, such as Nanjing Road in Shanghai, are witnessing fierce competition among the world s luxury brands. While some have warned that the China market is becoming saturated, (38) for the time being the environment is still a positive one for potential entrants. Marketing As most Chinese consumers have low levels of brand awareness, they also have low levels of brand loyalty. However this also means that sales staff can be an extremely powerful tool with the ability to not only inform consumers of the benefits of their brand, but sway them towards making a purchase. Luxury brands are investing large sums of money in heavy marketing to not just promote their brand and products but also to inform Chinese consumers about luxury and why they should pay a premium for products offered by luxury brands.brand building is occurring on a massive scale, not only through print and television advertising, but also through luxury events and shows and customised lifestyle publications. Indeed, word-of-mouth luxury promotion and advertising through low circulation print media has not proved effective in China. Luxury events are held with increasing frequency in Beijing and Shanghai and many people attend simply as onlookers. The willingness of the Chinese media to publicise promotional events featuring celebrities means they have proved effective in reaching both aspirational and dedicated luxury purchasers. It is a chance to experience a so-called luxury lifestyle and to see products that are not available in the stores yet. Organisers may even welcome window shoppers as they expect that in the near future these middle-class shoppers will see their disposable income rise. (39) Diffusion strategies Luxury brands are bringing many of the strategies that have worked in more developed markets to China. These include product diffusion lines which entice the less affluent and raise brand recognition among aspiring young shoppers. As China Page 77 of 99

82 is developing, such strategies are not yet central to their success, but as the market becomes more mature and competition intensifies, more luxury brands in China may consider this approach. Local lines Some luxury brands operating in China are seeking a local relevance, creating products that are specifically tailored towards or centred around Chinese consumers. For example, Louis Vuitton offered a range of Lantern Charm accessories based on the traditional Chinese lantern to celebrate the opening of the new Beijing store. (40) Luxury carmakers have also taken the lead in developing models specifically for the Chinese market. Local manufacturing While companies are often wary of the made in China tag, companies such as Coach, Paul Smith and Armani have shifted some of their manufacturing to China in recent years. (41) Other luxury brands are boosting their presence in China to take advantage of cheaper local manufacturing. In addition to its retailing operations, Zegna bought a 50 percent stake in SharMoon in 2003, a Wenzhou-based company that produces men s suits, and have invested in production units outside Italy. (42) French luxury house Hermès has also planned for investment into local production facilities as part of a broader strategy to double sales in mainland China over the next few years. Store formats Most Western luxury brands have made the choice to not alter their formats when operating in China as they believed that even minor adaptations could seriously damage the parent company s brand and global positioning. In China this has been working as Chinese shoppers are embracing international retail concepts. Luxury brands are operating mega-store formats (often the largest stores for the brand) with large ranges that have been shown to educate consumers about a brand and fuel an appetite for spending. (43) As the market expands some luxury brands are moving out of smaller stand-alone outlets and out of hotels to expand and introduce even larger store formats. In the West Gate Mall Shanghai on the west section of Nanjing Road, a landmark boutique of Dior Cosmetic opened in 2003, which was designated as the most luxurious Dior boutique, and made China the third country to have such a Dior boutique. Prior to its upgrading, annual sales of Dior in West Gate Mall were RMB 1 million (about USD 1.4 million).the new boutique was expected to surpass RMB15 million (about USD 1.8 million). (44) Similarly, Louis Vuitton s expanded, three-storey China World store, with an overall area of almost 18,000 square feet and a sales area of 8,470 square feet, is the largest of the brand s stores in China. (45) Rapid expansion Most of the world s leading luxury brands are rapidly expanding their China operations. That push is now extending to smaller Chinese cities such as Qingdao, a northern resort town and Chengdu in Sichuan province. Many of the brands active in China s luxury market have plans to expand with boutiques in second and third tier cities. (46) Generally, the path for luxury brands is to set up shop in the primary cluster cities of Beijing, Shanghai, and Guangzhou, and from there steadily expand. The research of TNS shows that brand awareness and willingness to spend in many second-tier cities is already close to the levels seen in the three primary cities. Using local partners For a well-known name such as Louis Vuitton, entrance to the Chinese market has been aided by access to significant financial resources through its parent, LVMH. However, for smaller or more independent brands, the move to China can entail risk and require immense patience. Many luxury brands are finding a local or regional partner or adviser to help navigate the market. (47) For example, U.S. watch retailer Tourneau has formed a partnership with Hong Kong s Peace Mark Limited and International Watch Group to open stores in China. Under the brand name Tourneau, the new joint company, Peace Mark Tourneau Holdings Ltd., will open high-end stores in mainland China, Hong Kong, Taiwan and Macau. The first two stores will be in Shanghai, with a third in Beijing. Overall, 30 Tourneau stores are set to open in China within the next five years. (48) Another large company that acts as an agent for brands in China is Hong Kong s Dickson Concepts. It represents such brands as Polo Ralph Lauren, Brooks Brothers and ST DuPont. Domestic luxury brands Page 78 of 99

83 In the past few years, local Chinese brands, once fragmented and backward, have been evolving rapidly. Local brands in China have been quick to pickup successful retail strategies from foreign entrants, establishing themselves in good locations and growing at a rapid pace. And, while most Chinese brands have yet to gain global visibility, within China itself, homegrown brands are becoming a source of pride and a badge of the country s emerging self-confidence. (49) Despite the recent success of Chinese consumer brands, very few local luxury brands have yet emerged. There are some brands which are perceived as being luxury on a local scale and have succeeded in portraying themselves as being international even though their main market is a domestic one. Such brands include Goldlion (a once exclusive brand which has become more accessible in recent years), and jewellery brands Chow Tai Fook and Tse Sui Luen. Growing design talent and increased government support mean that many more Chinese luxury brands could emerge in the next few years. One international brand which set up its headquarters in China is Ports International. Ports International s move to China has given the brand a significant advantage in developing its brand and market share in the China market. Originally a Canadian company, it relaunched in the Chinese town of Xiamen and has expanded its product line throughout Asia and North America. Ports clothing has won publicity in fashion magazines such as Elle and In Style. In 2005 the brand was included in TIME magazine s best products for 2005 alongside well-known names such as Tod s, Louis Vuitton and Chanel. It now boasts retail outlets and franchises across Hong Kong and mainland China, Japan, Dubai, Canada and the US. While few truly domestic luxury brands exist, there are two brands which have emerged on a global scale and have been touted as being luxury. These two brands, LaVie and Shanghai Tang, are set apart because they do not principally target local luxury consumers, but rather aim to tap into the tourism industry and consumers around the world who are keen to capture some of the trappings of Chinese luxury. Designed and manufactured in China, LaVie has set up business in Shanghai s Bund area where many of the world s top luxury brands have gathered. Creator Ji Cheng, who studied at Marrogonni, a fashion design school in Milan, said her design idea was Eastern concept and Western cutting. About 60 percent of LaVie s customers are foreigners. (50) Similarly, Shanghai Tang has not specifically targeted local luxury consumers. It is unique in fusing old-china fashion with brave-new-world style and colour clothing. The popularity of the brand, and the fact that it is now partly-owned by the Swiss Richemont Group, helps to illustrate the fact that Chinese brands can emerge and succeed by tapping into a global market for Chinese-inspired luxury products. Nick Debnam & George Svinos, KPMG The Confucian Consumer and Chinese Luxury: FAQs Why is China's luxury population so young compared to economies in other nations? They're very young for one simple reason: China is an incredibly ambitious society. And as a result young people use luxury goods as a marker of their intention to 'play in the game'. I've always believed that Chinese people are unified by the 'Confucian conflict' - on one hand, regimentation and on the other a trenchant ambition to move forward in life. As a result, people are always looking for tools to help them operate within a societally mandated hierarchy or framework. Individualism in China (in the sense of society encouraging individuals to define themselves outside of that society) doesn't really exist here. But on the other hand, ego - the demand for acknowledgement - is very powerful. Which brands do they feel a particular affinity with, and why? There are many, but that affinity is usually developed via a change in the business model. There are two ways to do that; one is through price tiering and sub-brands and the other is through product and portfolio diversification. So Gucci will get most of its sales through belts and mobile phone straps and sunglasses - same with Louis Vuitton. This is what's used to get the luxury brand in the hands of the younger generation. In terms of brands that have specifically targeted the young generation, it's only recently that Coach have made some interesting adverts to start owning a youth-centric segment of luxury business-casual for the so-called 'office girls', but very few brands have youth-centric positioning strategies. Usually they will use the premium, high-end products to build the image and rely on widening their portfolio or sub-tiers to penetrate the youth market. Some are doing it, like Hugo Boss, but they have very Western individualistic messaging and that doesn't work so well. Is this young luxury consumer more responsive to new media campaigns? Any person is going to want to buy a luxury brand regardless of price or product segment because everybody has heard of Page 79 of 99

84 it. So that means that mass media is extremely important. It's very difficult to develop niche luxury brands via digital; it doesn't work. It's got to be big and omnipresent. That said, digital is a tool of deepening engagement and deepening affinity. You have a few brands that have started to have more sophisticated digital platforms but they're relatively few and far between. Most of the luxury marketing in China is very centrally controlled, and that means that very few brands have a local marketing arm. These brands are religions to their creative directors in Paris or New York, and the degree of localisation necessary is much more than what is currently happening. So you don't have a lot of great digital work going on for luxury consumers. I think there are a few who have done digital well. Louis Vuitton had a digital version of its above-the-line global campaign, and 'Soundwalk' where you download music and have an urban tour surrounded by calming, wellness-type music. DeBeers has done interesting stuff through their 'In the Name of Love' competition and also the omnipresent 'Love World', but that's now been scaled back. You've got Chivas Regal's 'Timeless Chivalry' but again that's based on a very global positioning. Overall, it's very scattered, and it should be done much more than it currently is. What makes a brand 'luxury' in China? Is it handicraft? Association with a particular culture? In a nutshell, the benefits always have to be externalised. Luxury is a tool, it's a means to an end and the luxury segmentation in China is quite diverse. You have the guy on the top of the mountain and he's never secure of his position, so he wants to stay on top - [reaching him] is about mastery and connoisseurship. It's about understanding things that other people don't, and being able to demonstrate and manipulate it. An example would be Audi 8, where you're establishing a parallel between the craftsmanship and attention to detail and ancient Chinese art. So again, it's for somebody that has truth and ultimate mastery. Then you have new luxury - men moving forwards, in the middle of their journey. Then you have independent women and then you have youth. And obviously youth is the broadest part of the pyramid, and established is the narrowest part. So for the people on top - and this gets back to the resolution of the Confucian Conflict - it's about a need to tick competitors away who are angling from below to maintain their position at the top. It's a way of subtly exerting power and control. Royal Salute is all about competitive mastery, knowing all the rules to the chess game. Cadillac is about ultimate control. Hennessy XO is about timeless connoisseurship. Breitling and Bentley is a celebration of perfection. So then you move into new luxury, and these are people that need to demonstrate they shine through, but always through substance - because they can never be superficial. Their complex is that they need to move up the hierarchy, but their ambitions can't be too blatant. This is not a space where you crash through gates; rules are sacred. So it's a way of demonstrating progress, a reassurance that new money doesn't need to be uncouth. Added Value did an interesting study where they had two variables which defined where a country was placed in terms of luxury. One axis was from maintaining to transforming lives, and the other was from inner to outer motivation. And in the transforming and inner motivation you have Japan, then you have the UK, which is about maintaining inner motivation, the US is in maintaining and outer motivation, and China in transforming and outer motivation. So Japan is about confidence - 'don't be shown up', the UK is about pleasure and knowing, USA is showing you know/status and China is about showing and status but also moving forward in society. According to TNS, 64% of Chinese think luxury brands denote success, and only 1% think they denote superficiality. Where do people buy luxury in China? Is it online or in shops? This isn't something that anyone knows, but I will say that 50% of luxury goods are purchased outside of China, like in Hong Kong, because the prices are very cheap. There's a 33% tariff in China for luxury goods. I also think that a lot of times the luxury brands are using their retail as image building as much as sales generation. China is now the second largest luxury market in the world so there's a lot of shopping going on. Should you take an 'ageless' (eg values-based) marketing approach with this group, or do they still like youth/popular cultural icons? Is the crossover where the money is? The range of cultural icons here is relatively shallow. So when you think about what an icon is in China, it's somebody that is so big because they've redefined what it means to be Chinese without abandoning Chinese-ness. There are relatively few of those. Liu Xiang, the sprinter, because he defined what a body could you. Yao Ming, because he used Chinese intelligence to invade the NBA, Li Yuchun, the supergirl singer, because she redefined definitions of beauty and talent for women, Jack Ma of Alibaba. That's pretty much it - there are very few people that represent this timeless and deep value that give this Page 80 of 99

85 contemporary twist to luxury goods for youth. I'm not saying you shouldn't be using stars for credibility enhancement, but it's not going to get to the level of timeless issues that appeal to young people. Are there any successful domestic luxury brands? No, it's mathematically impossible. Because one thing known by all is that there's clear internationalism. I'm not saying that there can't be mass premium, but true luxury local brands is a long, long time off. International credibility and international scale is absolutely fundamental to something being a luxury brand. And when I say luxury I don't just mean in terms of price, but price premium versus competitors. That doesn't mean there's not a degree of local luxury experiences. Press Release Gap Enters China With Four Stores And Online Shopping China Entry is a Cornerstone of Gap Inc. s Global Expansion Plan Shanghai November 11, 2010 Gap Inc. (NYSE: GPS) announced today the debut of its first four wholly owned contemporarily designed Gap stores in China, bringing Gap s modern, accessible style to Chinese consumers for the first time. Each store will house all Gap collections: Gap, GapKids, baby gap and Gap Body. An online retail store is also launching today making Gap clothes immediately available to all customers throughout China. Gap is the first American retailer in China to offer a single style destination for the entire family. We are excited to introduce Gap s cool, modern American designs to Chinese consumers. I believe customers will be extremely pleased with fit, quality and the affordable style of our clothes, including our newest and most successful product, the 1969 Premium Jean, said Redmond Yeung, President of Gap China. Shanghai: Gap is opening its first flagship store in Shanghai on November 11. This is a 1,140 square meter space in Hong Kong Plaza on Mid Huaihai Road, one of Shanghai s premier shopping high streets. A second flagship store, occupying two floors in the Venture Tech building on the premier Nanjing West Road, will open in the next several weeks. Beijing: Gap will open two stores in Beijing on November 13. The first is a two-storied flagship store spanning 1,165 square meters in the APM Building on Wanfujing Street, and a second 1,800 square meter store in Chaobei Joy City, located in the eastern part of Beijing. Each store offers customers great service by a team of highly-trained staff. Greeters welcome Gap customers at the entrance and each collection has dedicated specialists to assist shoppers. All four stores offer Denim Fit sessions by appointment, noted Lorenzo Moretti, Managing Director of Gap China. Gap is opening the stores around the theme of Let s Gap Together, celebrating the coming together of China and the U.S., and our shared spirit of creativity and individual expression. To commemorate this special occasion, world-famous photographer, Annie Leibovitz photographed a series of portraits pairing iconic Chinese and American leaders in their fields such as Zhou Xun, a Chinese actress who is devoted to sustainable development and Philippe Cousteau Jr., an environmentalist and grandson of Jacques Cousteau. These images can be seen in the stores and on outdoor advertising in each city. For images: The arrival of Gap stores in China, the most populous country in the world, is a cornerstone of Gap Inc. s global expansion strategy. Gap invested in extensive, multi-year market research and this entry marks the beginning of a long-term, multichannel strategy that will eventually result in more stores throughout the country. About Gap Inc. Gap Inc. is a leading global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta brands. Fiscal 2009 sales were $14.2 Page 81 of 99

86 billion. Gap Inc. operates about 3,100 stores in the United States, Canada, the United Kingdom, France, Ireland, Japan and China. In addition, Gap Inc. is expanding its global presence with franchise agreements in Asia, Australia, Europe, Latin America, and the Middle East. For more information, please visit *Tale&id= The Frog Princess By ED Baker - A Creative Fairy Tale By Jill Guy In this book, Princess Emeralda (who prefers to be called Emma) spends a day walking in the swamp to avoid her critical mother and a visit from snobby Prince Jorge. She has always thought of the swamp as a magical place and in this case it is true. She meets a frog there who is desperate that she kiss him in order to help him regain his human prince form. After much discussion she does kiss the frog, but then she turns into a frog as well. Though you may recognize such a story line from a recent movie, this 2002 book by E D Baker is a much different tale. Emma's frog prince has to rescue her from a hungry heron and a snake, and also introduce her to eating mosquitoes. However, when they try to meet the witch who enchanted him into a frog they find she is happy to see them. She is searching for ingredients needed for a potion, and frog toes are part of the recipe. She closes them up in a small cage in her cottage while she looks for the rest of the ingredients. Emma's aunt is a capable witch. Emma knows she herself has some budding magical talent but her spells up until then have gone wrong. Now if they are to escape she not only needs to search a large and heavy spell book (a difficult task for a small frog) but also invoke a spell successfully. This book is great fun to read and has many engaging personalities in it. One of the best things about the story is that it is book one in the Tales of the Frog Princess series. Though each book can be read alone it is satisfying to know that more adventures with the main characters are ahead. Jill Guy lives in Southern California with her family Sept 2008 Hermes accelerates China expansion French luxury group Hermes intends to set up three to four stores in China each year in the following three years to meet the growing needs of the wealthy Chinese consumers, according to a report by Reuters on Tuesday. Currently, the company operated 12 stores in China. Hermes' Executive Vice president Patrick Albaladejo said that it would be difficult to keep the previous expansion pace as the group doubled its sales in China every year for three consecutive years. Hermes revealed at the end of last month that its net profit in the first half of this year surged 5.3% to EUR million, boosted by the strong performance in Europe, Americans and China. China is very likely to become Hermes' major global market in four to five years, as the number of millionaires in the country has exceeded 415,000 as of end 2007, according to Albaladejo. The Paris-based group has entered into an agreement with the Monaco-based yacht maker Wally to conceive and Page 82 of 99

87 develop innovative projects. Is Local the new Global? As the economy in China booms, and consumer spending power increases, we are seeing more demand for luxury and mid market brands. Western brands are being seduced by the opportunities in China and if they haven t already, they are actively putting together expansion plans for the east. The two most interesting trends in expansion strategy are new brands for the new market and re-design of products. 1. New Brands For the New Market. Rather than re-purpose their brand for the Chinese consumer, some brands are going the extra mile to create new brands that would better connect with the audience. Leading this trend are Hermes with Shang Xia and Levis with Denizen. Shang Xia: Hermes decision to launch Shang Xia, a lower priced (when compared to Hermes) Chinese brand that incorporates local design in furniture, dish ware and apparel, has been received with great skepticism. Some question how it will impact the Hermes brand, some question why it s priced lower and some insist that Chinese audience desire only Western luxury brands over a brand inspired from China. But really, this is the first time we are seeing a luxury brand that embraces the Chinese culture and aesthetic sensibility. cx_hp_0327handbags_slide_2.html Burberry Livestreams Fashion Event From Beijing 12 April 2011 Page 83 of 99

88 Brands & Retail, Fashion Scene 0 Comment On April 13 at 20:30 Beijing time, 13:30 London time and 8:30am New York time, techno-savvy Burberry is hosting another livestream fashion bash this time from Beijing. Burberry has become the go-to brand for inspiring, cutting-edge fashion technology. Now the company is unveiling some spectacular fashion first events for the launch of their new Beijing flagship store at Sparkle Roll Plaza, a 12,500 square foot megastore. The iconic British luxury brand will celebrate all things British: Music, Technology and Fashion. Held at the 2,000 square meter stage at Beijing Television Center, it is expected to be the brand s most innovated event to date with a live performance by British band Keane plus virtual image technology of live models, animations, and life-like holograms combined with immersive audio to create an awesome visual and sensory experience. I love the creativity, vibrancy and history of China with its exciting and dynamic energy and it is a huge privilege to be flying the flag for Britain in the magnificent city of Beijing connecting all of our global communities to celebrate everything Burberry represents today from music, to heritage and innovation, said Burberry s chief creative officer Christopher Bailey. The entire event will be broadcast on Burberry.com and in 50 retail theaters at Burberry stores worldwide. Burberry has 57 stores in China including the new Sparkle Roll Plaza store in Beijing. Page 84 of 99

89 China Luxury Market 2010: The Omnipresence of Global Brands 30 December 2010 The Chinese luxury market has evolved rapidly, but one thing that characterizes 2010 is the sheer number of global brands opening stores or ramping up their China presence thanks to the rising disposable incomes of the Chinese and their desire for designer brands. Bain & Company estimated the Chinese luxury market at around RMB 84.3 billion for 2010, up from RMB 68.4 billion. New customers account for RMB 10.7 billion of the projected increase. The Chinese market is supply driven and new store openings create new demand. For the 15 brands surveyed by Bain through August 2010, a combined 80 new stores were opened in Retail presence of the 15 brands as of August 2010: Total Retail Stores in China Dunhill: 93 Hugo Boss: 89 Burberry: 50 Ferragamo: 48 Bally: 46 Gucci: 37 LV: 34 Cartier: 33 Hermes: 20 (+2 more openings in September) Versace: 19 (+1 more opening in December) Dior: 19 Prada: 15 Bulgari: 12 Tiffany: 12 Chanel: 6 Without question, western luxury brands have invaded China this year, some additional highlights: Versace: (20 retail stores) Opened its first dedicated jewelry boutique in Beijing in December. Versace is planning to launch another store in China in Village North, a shopping complex in affluent Sanlitun. Versace will open another flagship in Shanghai s Plaza 66 shopping center and another store in Zhengzhou, in Henan Province, sometime in Salvatore Ferragamo: (50 retail stores) The Florence-based company has 50 stores in 32 mainland cities in China. The company plans to open seven to nine stores in lower-tier cities in Ermenegildo Zegna: (62 retail stores) China now comprises of one fourth of the company s sales, and within 15 years, may account for almost 50 percent according to company CEO Ermenegildo Zegna. Corneliani: (16 retail stores) The high-end Italian menswear label will have a total number of 16 boutiques in China in Ten of the stores were opened in 2010 alone. Armani: (16 retail stores) Armani debuted an online store in China this November. The company has one of the most innovative expansion strategy with two Giorgio Armani stores, one Armani Collezioni boutique, five Emporio Armani stores, six Armani Exchange stores, two Armani Casa boutiques, as well as two Armani cafes, an Armani Libri bar, two Armani Dolci chocolate shops, and two Armani Fiori florist shops in China. Van Cleef & Arpels: (8 retail stores) The French jeweler opened four new stores in China this past year. Additionally, Ralph Lauren, Tory Burch, Comme des Garçons, Cerruti, Diane von Furstenberg, Coach, ESCADA, and Moschino, among others, have all launched stores in China this year. Page 85 of 99

90 Coach, Gucci, Juicy, Burberry Have Lion Share of Luxury Web Visits 27 October 2010 Coach, Gucci, Juicy Couture, and Burberry have garnered more Web site traffic than any other luxury fashion brand 68% online share of visits according to a recent online trend report by digital marketing agency, PM Digital, which surveyed 20 luxury brands. Coach led by a wide margin at 39 percent, followed by Gucci with 13 percent, Juicy Couture at 9.2 percent, Burberry with 6.5 percent, BCBG Max Azria at 4.7 percent and Michael Kors with 3.9 percent. According to the report: Search traffic dominates referrals to luxury and designer retail sites, mainly Google. After search, visitors most often come from other retail sites. This is typical, indicating shoppers tendency to visit a variety of similar sites. Among social media websites, Facebook is the leading referral site. Facebook even edged out Yahoo! search. Traffic from social media sites to luxury brand sites is growing, as brands such as Lacoste and Dolce & Gabbana link to their Facebook pages from their homepages. A brand s social media popularity does not correlate with market share of site visits. and social media traffic to luxury brand sites is comparable, and both sources have recently experienced growth. Kate Spade and Tory Burch have among the largest share of high income visitors. Interestingly, Burberry s 6.5 percent market share of site visits is paltry compared to its popularity on Facebook. Burberry has a huge Facebook following with 2 million fans. It took them a year to reached its 1 million mark in April. Burberry continues to pursue an aggressive social media strategy by finding innovative ways to engage with customers in their brand voice. The Company regularly posts campaign images and videos on its page, along with acoustic performances by musical artists. Christopher Bailey, its chief creative officer, also posts video messages, including video answering questions about the label that fans have asked on Burberry s Facebook wall. Burberry is making luxury accessible accessibility is one key attribute of social media. It s betting that growth in site visits will follow. Inside Hermès China Part I One of the earlier luxury companies in China, Hermès came to the Chinese market in 1997 and now has 19 stores in the country. The brand plans to launch a fifth Hermès global store on Huai Hai Road in Shanghai in Hermès sales has been stellar with a 20% sales increase in the first half of 2010, mainly driven by China sales where sales have increased 100% year-on-year in the past several years. Leo Lui, President of Hermès China, reveals why Hermès is succeeding in China and how they plan to capitalize on the soaring Chinese luxury market. Stellar Profits China is one of the three largest luxury markets in the world and Hermès is very profitable there. China was relatively spared by the global financial crisis in 2008, Hermès China sales remain stellar with strong double-digit growth. Page 86 of 99

91 Largely due to the Chinese government who have made many improvements, Beijing is now the most modern capital in the world after the Olympics, with greenery. There are 25 cities with modern airports and high-speed trains. It s amazing, which is why all the luxury companies are rushing to China these days, according to Lui. Lui expects the company to continue with very strong double digit growth every year. This is all due to the rapid growth of the Chinese economy in the last ten years. So many Chinese have made money in property and on the stock market. Growing Chinese Customer Sophistication Chinese consumers are becoming well traveled. Hermès China s customers buy worldwide buying an Hermès jacket in Paris, a suit in New York and shoes in Shanghai. While this may concern some luxury brands, Hermès does not see this as a threat. Hermès stores around the world carry different product offerings. In fact, it appears Hermès merchandising model encourages the global shopper. Hermès is one of the few companies that has no central buyer. The manager at each one of our 300 stores selects the two seasonal collections for spring/summer and autumn/winter. So no two stores carry the exact same selection, according to Lui. What they expect when they buy in China is more customer service, more personalized offers, more advice and recommendations. Hermès works hard to deliver this personal service while using the opportunity to communicate its craftsmanship and heritage. Chinese consumers want to know all about how a Birkin bag is made, Hermès history, and culture. We explain to them it takes 18 hours to make one bag and four years to train one leather craftsman to make one. They want to know why they have to wait a few years for a crocodile bag. This is the case for Hermès locations everywhere. Well, crocodile bags require so many years because we take the best part of the crocodile, the belly, and we have to use three different crocodiles and it takes four years to raise one crocodile. Like other Hermès customers, Chinese consumers are patient and will wait for their coveted Birkin bags. The company is a champion of slow fashion and stays away from selling trendy fashion. Hermès products don t become passé. The company is still selling the 1984 Birkin bag, the 1956 Grace Kelly bag, Hermès silk scarves created 70 years ago. Typically, Hermès scarf takes two years to make the first year to create the story of the scarf, and the second year to print it in 30 different colors, said Lui. Best Performing Locations Shanghai, Beijing and Guangzhou remains the most important markets for Hermès with potential from second tier cities. Best Performing Products Leather bags, silk scarves, ties, and watches are Hermès best-selling products. Unique to China, men s ready-to-wear is a top seller as well because China is more traditional and is still a men s market. Generally, women s ready-to-wear is the top seller in most other markets for Hermès. Inside Hermès China Part II Hermès success in China is driven by strong market dynamics and a carefully crafted strategy that promote superior customer attention and brand education which we covered in Part I. We continue our look inside Hermès China s competition, growth strategy and views on China luxury trends. Competition Competition among luxury brands in China is becoming fierce. Hermès differentiates itself from other luxury goods brands such as Gucci and LVMH by its size. Hermès is much smaller, focus much more on customer service and brand image, and of course their top-notch products. They started with 100 staff in China in 2006 and now they have 300 people. Page 87 of 99

92 Much have been speculated about competition from rising local brands. Leo Lui, President of Hermès China, doesn t see their impact on Hermès sales in the near future. He thinks it will take some time before that happens. The cake is too big. Many people can share it. One difficulty we have is that since the market has been growing so rapidly, finding good sales staff has been a real challenge. It s very difficult to find the right store managers and sales associates. I m proud to say that Hermès has a very low turnover rate, about 10%. Human resources are the most important asset and we treat our employees very well. China Luxury Market Trends China s luxury market has been growing rapidly. Many Chinese are successful with their own business and usually want to show-off their success. According to Lui, the first luxury item is a watch. Also one of the biggest changes is that, say ten years ago, 80% of the buyers in China were male. Now it s More and more taitais and successful career women have entered the market, making up those 50%. Many young women, professional university graduates who work for multinational companies as middle managers, are buying Hermès. They want to show that they have good taste. Right now Hermès two biggest consumers are university graduates and entrepreneurs. The Chinese consumers prefer accessories like handbags, silk scarves, and watches because they are symbols of success that can be attained much faster. While the customer demographic will change, the main trends should remain intact. Another trend is that most successful stores in China are in the malls and this trend is not expected to change much. Choosing the best location or mall is still key to a store s success. Some luxury brands are grappling with shoppers going abroad because of price, taking business away from the home market. It is estimated that over 150 million Chinese travel and shop every year, be it Hong Kong or Paris. Hermès is not particularly alarmed by Chinese shoppers going abroad. Lui noted that generally the Hermès costumers don t care about the price difference. Some do look for a better price, but others just want the convenience of shopping in China. Here they can talk in Chinese with our store associates. They can get better service from staff who recognize our VIPs. Customer service is very important in China. More and more second and third-tier city residents are shopping in Beijing and Shanghai for convenience. Growth Strategy and Expansion Hermès marketing strategy in China is less about direct advertising and more about building a deeply loyal customer base and a carefully crafted image. Its 3,800 square meters global store in Shanghai, expected to open in 2012, will focus on selling the brand heritage sharing Hermès culture than just selling products. The company will have more cultural activities, including art galleries and museums, and provide more tailor-made services for VIP customers. Three years ago, we had an exhibition on silk in Beijing and Shanghai. We had a men s ready-to-wear show in Shanghai. We organize concerts and dances to enhance cultural experience. We hosted an exhibition on horses in the Forbidden City in 2007, noted Lui. Hermès eyes organic growth. It will expand existing store including in Plaza 66, where the store will increase to 700 square meters from 200 square meter. They are adding a fifth global store in Shanghai. For the past four years, Hermès has been expanding fast in China. With initial stores in Beijing, Shanghai, Guangzhou, Dalian and Hangzhou, Hermès is heading into the second-tier cities like Harbin, Nanjing, Chengdu and Kunming. They will open three to four new stores a year in second tier cities. They ll open in Suzhou next month and then Shenyang next year. Hermès select cities based on the purchasing power and the location, that it has a good shopping mall. What is striking is that Hermès is very comfortable and confident in its brand identity, sophisticated in its marketing strategy and measure in its growth and expansion. Hermès success in China so far is largely due to its ability to navigate the Chinese market more on its terms than the dictates of the market momentum. Page 88 of 99

93 Wealthy Chinese on Major Christmas Shopping Spree in London 29 December 2010 Wealthy Chinese tourists have gone on a major Christmas shopping spree in London and have been dubbed Peking Pound by the Daily Mail. The Chinese are expected to spend a billion pounds on luxury goods during the sales and have accounted for almost a third of post-christmas purchases of high end goods such as Burberry, Mulberry, Louis Vuitton and Gucci, reports the Mail. Generally part of organized tours, wealthy Chinese tourists are a huge market for stores in London s West End (Mayfair, Knightsbridge and Piccadilly). Chinese shoppers have edged out Russian, Arab, and Japanese tourists as the top buyers, accounting for 30 percent of the luxury goods market, while British shoppers only account for 15 percent of the market. To accommodate the upsurge of Chinese travelers, many West End stores have Mandarin speaking assistants and Selfridges even started accepting China UnionPay cards, China s only domestic credit card. Selfridges processed 10,000 transactions an hour with the department store looking like the Great Mall of China, according to an onlooker. Almost 2.5 million Chinese visited Europe this year, up 20% from 2009 and their spending doubled according to consulting firm Tourism Economics and shopping specialists Global Blue. Britain is attractive as the pound has fallen by around 30 percent against the Chinese yuan. In Burberry s London stores, Chinese shoppers make up a third of its customers and they are the fastest-growing group of customers for luxury label Mulberry. Why Chinese Men Love Their LV, Gucci Purses 08 February 2011 Call them power purses. High-end mailbags. Luxury totes. A-list clutches. Whatever the size or shape, in China, they represent a hot retail trend in luxury men s handbags. Luxury handbag makers have struck gold among China s macho business class. Serving as easy status symbols, Chinese men are in hot pursuit of top brand-name bags like Hermes, Burberry, Prada, Coach, Louis Vuitton, Dunhill and Gucci. Men now account for a whopping 45 percent of the $1.2 billion market for luxury handbags in China. That is truly huge when you consider that the male handbag trend in United States is only 7 percent. The reasons have less to do with just wanting to look cool and more to do with serious business-ladder climbing. A recent canvassing of Beijingers reveals that being seen with the right luxury handbag is serious business. One source said it was crucial because it showed he had good taste. Another was even more direct and said, It s a way of representing where you stand. It makes people think you could potentially work for a big company. To make sure they are not left behind in China s soaring economy, Chinese men are using designer handbags to tell other high-flyers that they are smart enough to soar too. That dynamic seems perfectly clear to Shanghai-based retail analyst Paul French. He likens the Chinese male handbagcarriers to a tribe. They need to be able to recognize each other across the banquet table. They re the guys that built modern China. Luxury handbag design retailers are happily riding the trend. As the world s number-two economy, China is poised to overstep Japan and the U.S. as the world s top consumer of luxury goods by Seeing double-digit growth and the level of luxury taste in an increasingly affluent Chinese population, companies like Coach saw the opportunity in China and set about creating market share. Page 89 of 99

94 Coach plans to open 12 locations by June which would bring its total stores in China to 53. Coach sees its sales in China tripling to $500 million in three years. Louis Vuitton s store in Taiyuan is doing nicely; Hermes has expanded in China and opened an outlet in Harbin last year. What styles attract Chinese males? King-sized wallets with wraparound zippers are big, as they hold business cards, wads of cash and smart phones. Bigger messenger-type bags are also popular. Overall, the finer the leather and fabric and the more status-wielding the trinkets and monograms, the better. Plaid, solid brown, black and gray are all in style. Cross-cultural branding and leadership Globalization has had a tremendous impact on businesses in general. Many theories have been proposed to highlight the good, the bad and the ugly of globalization. Over the last decade a number of countries from Asia, Middle East, Scandinavia and South America have opened their economies and have taken the first step towards open market economy. The changes, as expected, have been profound. On one hand the integration of these developing/emerging economies into the main stream global economy has created amazing business opportunities for global brands. On the other hand, this very phenomenon has made the global market place a highly complex and highly competitive battleground for companies vying for supremacy. Further, the sheer diversity of people, their practices, beliefs, consumption patterns, spending capabilities and so on has made this global market an extremely complicated place to do business in. Globalization and its side effects have had a very profound effect on branding. As markets have integrated, brands have found themselves traveling beyond national borders. Whenever any brand, which was restricted till then to a national audience, enters a new country, it faces a barrage of challenges. Culture becomes a very crucial factor that determines the brand s success. Many global brands have dealt with cultural issues very well and have adopted their brands to suit the diverse cultural demands of different regions in which they operate. Coca-Cola, McDonald s, Disney are some the more successful brands that have treaded the path of adapting to cultural demands very well. This article looks at the impact of culture on brands and how global brands can effectively handle the challenges posed by diverse cultures in different markets. Impact of culture on branding Culture is the cumulative concept that encompasses knowledge, belief, customs, practices and any other habits acquired by people as members of society. A culture operates primarily by setting loose boundaries for individual behavior. Culture, in effect, provides the framework within which individuals and households function. A major consequence of culture is its impact on consumption patterns of individuals and institutions. Depending on the underlying cultural philosophy consumers tend to follow certain consumption patterns. Successful brands have been able to adopt their branding strategies in line with this dominant cultural philosophy and weave their brands into the cultural fiber. One of the underlying premises of branding is its ability to reduce customers search cost and perceived risk by standardization of images, messages, communications, attributes and features. As such brands generally strive to maintain their defining brand identity, brand personality, brand images and brand elements across markets. This standardization which forms the fundamental building block of a brand itself poses the first challenge in cross cultural situations. Many a times, brands will need to adopt their offerings to different cultures and this violates the standardization principle. Therefore deftly handling the standardization and adoption issue become extremely crucial. One of the biggest implications of globalization for brands seeking to expand to foreign shores is the task of balancing standardization with customization. When some of the world s biggest brands expand beyond their home markets, they are tempted to repeat their tried and tested formula in the new market as well. In fact this has been the path followed by many brands. The assumption in such a case is that customers would be too eager to consume the great brand because of its authenticity, heritage and associations. But this tendency is gradually changing as global companies are learning about the unique needs of the customers in different markets along with the pressures of lifestyle, economic and cultural conditions. Consider this example: A case in point is the success of global brands in the Indian market. One of the booming economies in Asia, India offers tremendous opportunities to global companies. A brief look at the Indian landscape would prove why an estimated 1.2 million affluent households that is expanding at 20% a year, 40 million middle income households Page 90 of 99

95 (earnings of US$20,000 to US$45,000 adjusted for PPP) growing at 10% a year, more than 110 million households with earnings of US$7,500 to US$20,000 (adjusted for PPP) and more than 70% of the population below the age of 36. It is no wonder then, that global brands are making a bee line to the Indian market to grab a share of the growing pie. This alluring face of the Indian business landscape has another facet to it and that is the highly discerning and demanding customers. In spite of the booming economy and the increasing disposable income, Indian consumers are very cautious and clear in their priorities. Consumers are still not ready to splurge on branded goods at premium prices. Added to this is a growing number of Indian brands that offer superior quality at affordable prices. In such a scenario, global brands can win only if they attune themselves to the local conditions. Unilever is a classic example of a global brand which has pioneered serving the locals with products that address the local sensitivities. Unilever s Indian subsidiary Hindustan Level Limited (HLL) has been the leader in recognizing the tremendous opportunity lying at the bottom of the pyramid customer base that aspires to consume products but in smaller quantities and at lesser prices. HLL literally invented the shampoo sachets small plastic packets of shampoo for as less as INR 1 (USD0.022). This became such a rage among the rural consumers that many other brands started offering products such as detergent, coffee and tea powder, coconut oil and tooth paste in sachets. Even though the unit price was higher, rural consumers were able to afford to purchase the smaller quantity at their convenience. Another example is of the leading mobile brand Nokia. Nokia also recognized the growing importance of rural customers in the Indian mobile telephone market which grew from a mere 300,000 subscribers in 1996 to a whopping 55 million subscribers in Nokia introduced its dust-resistant keypad, antislip grip and an inbuilt flash light. These features, albeit small, appealed to a specific target of truck drivers initially and then to a broader segment of rural consumers. These features endeared Nokia to the Indian consumer as Nokia displayed a genuine commitment in responding to local customer needs. Now look at Euro Disney s example. Disneyland launched the Euro Disney and maintained its standard tried and tested formula with the assumption that customers would seek the authentic Disney experience. But shortly into the launch, Euro Disney was declared a failure. Of the many reasons that were attributed to Euro Disney s failure, the one that stood out clearly was Euro Disney s lack of localizing the brand experience. Euro Disney followed the brand policies to the word English-only instructions, no wine consumption on park grounds, high ticket prices, and standardized merchandise and food items. This resulted in wide spread dissatisfaction among the customers. But Euro Disney was just following the golden rule of branding consistency in its brand elements. These examples illustrate the consequences of culture on brands. In all the three examples, the brands were global brands with operations in multiple markets. Nokia and Unilever recognized the different customer needs and adopted the brand to the preferences of customers. Disney on the other hand followed the classic branding rule of maintaining consistency across markets. As can be seen from these examples, cultural differences mandate that brands be sensitive to different cultural facets. Further, these cases offer some very important points that should be fully appreciated by any brand manager that aspires to be successful in cross cultural settings. Cultural differences impact branding: Cultural differences are indeed a major factor that has an impact on the success or failure of a brand. As brands enter different cultures, it becomes imperative for them to carefully tread the standardizationcustomization continuum wherein they not only manage to retain the inherent brand identity which is the very reason for their acceptance across markets, but also adopt the brand elements (images, advertising, channels, and others) to appeal to the local tastes and preference of customers. Weave the brand into the cultural fiber: The increasing popularity of the Internet offers brands a very powerful tool to involve customers and bring the brands closer to the local culture by providing them a platform to interact with the brand in their (customer s ) terms. Creation of online discussion groups, and online brand communities is a firm step towards cocreating brand value with the customers. By weaving the brand essence into the societal fiber, brands can leverage cultural differences to their advantage. Understand the consumption patterns: Individualistic and collectivistic cultures tend to be the two ends of a continuum. Individualistic cultures supports customers to make consumption decision based on their personal choice, at an individual level. On the other hand, collectivistic cultures supports customers to make consumption decisions on a group level (family, extended family, network of friends and even community). These differences hold the key to many a branding strategies when entering new markets. Conclusion Page 91 of 99

96 Even though globalization and integrated markets offer brands a very lucrative deal in terms of untapped market potential, greater number of customers, and broader reach, it also poses certain challenges such as cultural differences and the resulting consumption patterns. To maximize the opportunities brands should be sensitive to the cultural subtleties and adopt accordingly. Cultural differences can be morphed from a challenge to an opportunity when brands learn from the many best practices in the industry and adopt their branding strategies to adequately reflect the consumer preferences. Even optimists underestimated China's growth By John Ross China was at the center of attention at this year's Davos World Economic Forum. The annual survey of CEO's by PwC, published ahead of the forum, found 39 percent believe China is the world economy's leading growth driver - compared to 21 percent naming the US. Developing markets in general were seen as growing more rapidly than developed economies. This trend is in line with the famous BRIC (Brazil, Russia, India, China) hypothesis developed by Goldman Sach's former chief economist Jim O'Neill. O'Neill coined the term BRIC in 2001 when he projected the rapid growth of these economies. In 2003, Goldman Sachs prediction that China's economy would be larger than that of the US by 2041 was greeted with incredulity. But it is not generally realized that Goldmans made modest assumptions. Its prediction was based projecting that China's GDP would increase at 8.1 percent a year in nominal dollar terms. In fact from , the most recent 10 year period for which data is available, China's annual nominal dollar GDP growth was 17.3 percent. As O'Neill noted in 2009, replying to critics: 'What many... observers of our BRIC projections never realized is that we used extremely conservative assumptions.' Looking back, the original Goldman Sachs predictions now seem quaintly conservative. In 2001 it was only predicting: 'If the 2001/2002 outlook were to be repeated for the next 10 years, then by 2011 China will actually be as big as Germany on a current PPP basis.' In 2011 China's GDP is in fact larger than every country in the world except the US. Given these trends, Goldman Sachs regularly revised upwards its projections for China's growth. In 2008 they brought forward the date China would overtake the US to This is not intended as a criticism of Goldman Sachs' BRIC view. On the contrary, Jim O'Neill's was a brilliant case of getting the fundamental trends right. Goldman Sachs was on the right playing field and critics of its views on BRIC were shown to be quite wrong. If, in 2001, Goldman Sachs had projected China's economy would be larger than the US by 2027 few would have taken them seriously. But far from Goldman Sachs being too optimistic regarding the potential growth of China's economy they underestimated its growth. Times have changed. Excessively optimistic projections regarding China's growth relative to the US have become rather the fashion. Arvind Subramanian of the Peterson Institute of International Economics argues that in parity purchasing power (PPP) terms, China has already overtaken the US a view that has not received much support. The respected consultancy The Conference Board, estimates China's GDP, again in PPP terms, may overtake the US in 2012 again a view not generally endorsed. The conservative IMF estimates in its latest World Economic Outlook that China's GDP, again in PPP terms, will be larger than that of the US sometime after China's media, in contrast, has tended to take a very cautious approach to the issue - insisting comparisons only be made in current exchange rate terms and comparing optimistic projections of US growth with pessimistic predictions regarding China's. This echoes the Chinese media's approach to comparisons with Japan. Calculations made in terms of PPP by the IMF showed that China overtook Japan to become the world's second largest economy in China, however, only acknowledged that it was the world's second largest economy in 2010, when it overtook Japan in current exchange rate terms. Research carried out by the present author in the research group "China in the International Financial Crisis" at Antai College of Economics and Management, Shanghai Jiao Tong University, over the last two years, points to China's GDP Page 92 of 99

97 overtaking that of the US in This is the midpoint of a range from 2017, if the most optimistic assumptions are made, and 2021 if the most pessimistic assumptions are made. Similar conclusions have been arrived at by The Economist, which now projects China overtaking the US in 2019, PwC, which conclude China's GDP should overtake the US before 2020 and Standard Chartered bank - which also predicts China will overtake the US by No one can put precise dates on such processes, but the fundamental qualitative reality might simply be put that 'in approximately ten years China's economy will be approximately the same size as the US'. That, of course represents a gigantic change in world economic history although it must not be forgotten that, even at that point, China's GDP per capita will still only be one quarter that of the US Goldman Sachs has not revised its own BRIC forecasts since Even then, as we have seen, its assumptions tended to underestimate China's growth rate - and since then the US has lost momentum due to the international financial crisis, while China has not. It is fairly certain that when Goldman Sachs next revises its forecast it will bring forward the date it expects China's economy to match America's. Those following the debates at Davos are right to recall that BRIC was a brilliant insight by Jim O'Neill and Goldman Sachs. But the facts show that even they underestimated the speed of China's economic development. Burberry Tightens Grip with China Deal Posted by Barry Silverstein on July 16, :00 PM British luxury brand Burberry, still known for its signature black, red and tan check, is hell-bent on protecting its image. The best way to do that is to tightly control the brand, wherever it appears in the world. That explains Burberry's purchase of 50 stores in 30 cities from Chinese trading partner Kwok Hang Holdings for 70 million pounds. Burberry CEO Angela Ahrendts, who discusses the China acquisition and the brand's growth strategy in the video above, told the Guardian that Burberry was looking to continue "unifying the brand" by taking control of operations in China, a "high-growth luxury region." Burberry will open at least 10 more stores in China this year. Ahrendts is following in the footsteps of predecessor Rose Marie Bravo, who began buying out Burberry's license holders around the globe years ago. Page 93 of 99

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