Tuesday, February 22, 2011

From Best Buy to Five Star Appliance, a culture conflict

February 22, 2011, Best Buy China (百思买) announced that it shut down its own retail stores in China but "to consolidate its China business operations under its wholly-owned Five Star brand." This announcement is not a big hit in today's news. I am, however, interested in it since it reveals something that is critical for not only Best Buy, but any successful western companies that want to expand their business in China.

One needs to apply different models to run the same business in China and in United States. Although this idea is not new at all, many people still do not truly get it until they fail. The business is the same; but the culture where the business runs is very different.

Let's take a look at Best Buy China. First of all, "百思买" (the Chinese translation of the Best Buy brand) is a dumb brand name to native Chinese. When the first time I saw the name, I was wondering who the hell suggested such a dumb name. Straightforward translation, "百思买" in plain Chinese means to buy it after a hundred times of rethinking. The meaning in Chinese translation is exactly the opposite to the Best Buy in native English, which means "no-brainer, this is simply the best buy". If I were the translator, I would recommend "最佳电", which is much better than the current translation and with exactly the same intention the Best Buy brand in English wants to broadcast. Some people may say that it is just a name. But it shows how little the Best Buy executives had known Chinese and the Chinese culture. A bad brand name often leads to a business failure; and it is proved again.

For any business, the first thing of success is to correctly identify the group of its customers. Best Buy certainly has no problem on the answer in United States, and in many other countries too. But it does not recognize the answer correctly in China. In United States, the Best Buy customers are typically the middle class. And it is the same in many other nations too. In China, however, there is no real middle class despite many politicians or economists claim its existence. In China, there are only two classes among people in history and till now---the elite class and the rest. A business can either serve the elite class or serve the rest. Trying to serve in the middle is simply an illusion to a grand-size business!

The Chinese society is divided by a magic word---官(Chinese pronunciation "Guan", which means Official). One is either a 官 or he is not. If he is, he belongs to the elite class basically. Otherwise, he belongs to the rest. Any ranks, including the pure academic titles in the western society such as professor or the technological titles such as engineer, is evaluated in China with certain equivalent to a level of 官. For example, a mayor-level professor versus a governor-level professor. To the people living in the western countries, it must be really hard to think of a distinction between a mayor-level professor and a governor-level professor. What does it mean? Isn't he just a professor? No, he isn't. In China one's social rank is generally determined by the equivalence of their professional title to the level of 官. So a governor-level professor is certainly superior to a mayor-level professor, discarding their real academic achievement, indeed, most of the time.

Any business, especially the retail business, that does not understand the former distinction may unlikely sustain in China. This is the essence behind Best Buy China's failure.

Best Buy wants to sell its product to the middle-class Chinese. But who are they? The elite class people generally expect more superior service than Best Buy normally provides in the western nations, which addresses the ordinary western middle-class people. To the rest of Chinese, however, the Best Buy service is an overhead since it increases the "unnecessary" cost that they do not want to pay at all. Between the two classes there is a niche, which might be named "middle class". But their number is limited even in the big cities such as Shanghai. A small start-up business may fit into the niche. It is, however, definitely too narrow to sustain a super-size business like Best Buy.

From now on Best Buy hands its business execution to the wholly-owned local business Five Star Appliance. May it solve the problem? I am cautiously optimistic to it. Fully localize a global business into China is a right step. But the step by itself is not enough to secure success. Until the Best Buy administration in United States truly understands the Chinese society, Best Buy will not succeed in China.

Again, the message is not just for Best Buy.


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