A (Consumer) Storm in a (Foreign) Coffee Cup

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Starbucks seems to be everywhere is China’s big cities (it has around 200 branches) and locals and expats alike can be found reading, meeting and drinking the high-priced hot stuff. The success of Starbucks in China has been hailed as a victory for a foreign consumer brand, and proof that urban Chinese consumers will spend money for the right product / service / experience.

All well and good, except it is never that simple for that long…

Following a story on the blog of CCTV anchor Rui Chenggang (described by Rebecca McKinnon at RConversation as one of “China’s A-list Journo-bloggers”) , the Chinese blogoshpere recently erupted in a nationalistic attack on the coffee giant, whose outlet in the aptly named Forbidden City was seen to be an unforgivable trespass on China’s sacrosanct cultural turf. The Guardian (h/t Danwei) reported that:

    “According to local media, half a million people have signed [Rui’s] online petition and dozens of newspapers have carried prominent stories about the controversy. “The Starbucks was put here six years ago, but back then, we didn’t have blogs. This campaign is living proof of the power of the web”, said Rui. “The Forbidden City is a symbol of China’s cultural heritage. Starbucks in a symbol of lower middle class culture in the west. We need to embrace the world, but we also need to preserve our cultural identity. There is a fine line between globalisation and contamination.”…. Mr Rui said … “But please don’t interpret this as an act of nationalism. It is just about we Chinese people respecting ourselves. I actually like drinking Starbucks coffee. I am just against having one in the Forbidden City.”

Whether or not this is about cultural or economic nationalism (or just crass commercialism), it is a good example of consumer power turning nasty (see more here), and provides a reminder of the power of the online Chinese community, as well as the need for sensitivity in strategy, flexibility in operations, and speed in PR response.

But Starbucks is not alone in the Forbidden City, American Express is also there (and has been for years) as a relatively high profile sponsor of restoration. So far they have been OK, but the backlash may catch up with them as well.

“Foreign Devils” should set foot on cultural issues with care, but not all cultural exchange is seen in a negative light. Around 10 years ago I managed a project for a famous French luxury goods company that revolved around a major art installation in the front courtyard of the Forbidden City. It was an impressive show by a leading modern artist, and was seen by those local people I spoke to at the time as a reflection of China’s emergence into the international community. The best of China’s ancient culture mixed with the best of the modern Western art. It was a great success – but I don’t think it is something I would recommend repeating today!

Anyway, a consumer backlash is not the only thing the people at Starbucks have had to contend with recently. Last year they restructured their China operations to take back control from joint venture partners. This is part of a common trend among foreign companies who learnt the lessons of the market (at least some of them) while being helped along by established local players, but who now want (and are allowed to have) more control.

They have also had to face the common challenge of protecting their intellectual property rights – but did manage to win a case against a local competitor that was copying the company’s image and Chinese name, “Xinbake”.

Another big issue at the moment is employment (attraction, retention and unionization), and Starbucks are being proactive about this, in a move that may be expected to win praise from their 4,000 mainland Chinese staff. According to the FT they are introducing stock options:

    “Share incentive plans are becoming more important to multinationals in China because of the intensifying battle to keep good staff. Rapid economic growth and heavy investment are allowing employees with strong credentials to change jobs regularly at ever-higher salaries, to the extent that the American Chamber of Commerce says staff retention is one of the biggest challenges facing US companies in China. Yet the market for people with the technical and language skills needed to prosper at a multinational is limited…”

    “The Starbucks plan comes at a time when there is strong interest among Chinese companies in stock option plans. At the start of last year, the government gave preliminary approval to state-owned companies listed on the mainland to issue options to staff. Since then, more than 100 companies, including Baosteel, the country’s largest steel company, and white goods maker Haier have announced incentive plans, subject to final approval by the regulators”

The Starbucks experience shows what can be achieved by foreign brands in China, but in a wonderful Chinese-style contradiction, it also reminds us that foreign businesses are still guests in a complex, rapidly modernizing China that is staking out its place in the world. While the government continues to re-evaluate the role of foreign investment, the People are also updating their view of what may be seen as overly aggressive foreign brands.

Coffee anyone? I think I’ll stick with my (Chinese) tea.

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