Business Beyond the Reef

• Turkey has a new export promotion program that I find kind of interesting.  Turkish companies can apply for a 50% reimbursement for up to three years for their membership fees on electronic commerce websites.  The stated intent is to help sell Turkish products in foreign markets.
• China is trying once again to join the WTO Agreement on Government Procurement.  This was a requirement of China’s accession agreement upon joining the WTO, but in 2007 the existing signatories of the procurement agreement said China’s offer wasn’t good enough.  The new offer from Beijing is better and answers many of the 2007 questions, but insiders say that it still may not be sufficient (meaning that China isn’t offering enough open access to its own government purchases to justify the other members letting China into their procurements).  One of the big sticking points will be that China’s offer doesn’t include their many thousands of state-owned companies.  But it’s a negotiation, and this is only a starting position.
• Asia Times had an article up this week about how the new trade agreement between China and Taiwan is changing how Japanese and South Korea companies do business in China.  Korean firms are pressing Seoul to launch FTA negotiations with China to minimize expected competition from Taiwan firms in the China market.  The Japanese, however, are doubling efforts to do manufacturing joint ventures in Taiwan so that the resulting products will qualify as Taiwanese and enter China under the new agreement.  Interesting to see the Japanese adopt a strategy that many U.S. companies have pursued for years.

Neophytes in international business are often dismayed when they realize that their product, or how they sell their product, often needs to be changed to enter a new market.  This can be anything from physical changes to meet another country’s product standards, to altering labels to meet legal requirements or cultural mores, to the mix of products you offer.

Get yours with Peking duck

Costco has gone through this in learning how to operate in Taiwan, according to the Wall Street Journal.  Their stores in Taiwan look much the same as their U.S. warehouse stores.  They sell many of the same products, but they have localized what’s on offer by adding many Taiwanese and other Asian products to their mix.  “What we’ve done here is reflective of what we do in all of our international markets,” said Richard Chang, Costco’s Taiwan chief.  “We want to make it as authentic as possible, but we also want to localize. It’s proven to be a successful combination.“  Indeed. Costco’s store in the Neihu district of Taipei is now the second most profitable Costco in the world (topped only by a Costco in Korea that has followed the same strategy).  The six Costco stores in Taiwan are helped because they have no direct competition, with no other warehouse store chains having entered the market.  But it is the mix of merchandise that makes the real difference.

Costco is seen as a U.S. store, so they bring in about 40% of their offerings from the United States.  They even bring dough all the way from New York to make their bagels, selling 54,000 bagels every week in the Neihu store.  But they also “localize” their American offerings.  Steaks are thinly sliced, so that the beef is wok-ready.  Fish are sold whole, not filleted, and Costco’s ready-made pizzas may have Peking Duck topping.  Half liter milk cartons weren’t accepted in the market, but Costco discovered that they could sell milk if it was in giant 3.6 liter containers.

I saw K-Mart go part way in this direction with their stores in Singapore and Bratislava in the 1990s, but they didn’t go far enough and eventually sold out.

Japanese food product exporters are learning the localization lesson, too, according to the New York Times.  Companies such as Yakult Honsha, Ezaki Glico and Ajinomoto are attacking foreign markets by altering their products to local tastes.  These are lessons that were learned decades ago by Kraft or Nestlé or Procter & Gamble, but they are always being learned somewhere.  If you have been to Japan or elsewhere in Asia, you have seen the ubiquitous “Pocky” chocolate-dipped cookies.  But Ezaki Glico discovered that the cookies did better in Europe when they were re-branded as “Mikado” cookies.  Simple fix, good sales.  I got used to Yakult yogurt products when I lived in Asia, but the company found that sales rose in Mexico if they used a new “Sofyl” brand.  Different name, same yogurt.  Other Japanese food product companies are seeking to capitalize on Japan’s strengths with soy-based products, modifying products such as tofu to meet the tastes of other markets.  And they are also making use of the world’s current infatuation with cute Japanese animal designs in their labeling.

It all goes to demonstrate that you can export your product, maintaining its identity while still localizing it to maximize sales.  Go for it!

Honolulu has a business problem that afflicts many cities of similar size around the world.  Local trade shows are really rinky-dink.  And few local businesses have a clue about what a truly great trade show is.

Customer Base

I am reminded of that this week as Germany’s huge CeBIT computer and telecom show gets underway.  Located in Hannover, a city in north central Germany with a population a little over half a million, CeBIT is the world’s largest trade show.  Trade shows are the major local industry and the Hannover fairgrounds has two dozen halls, each larger than the New York Colosseum. And Hannover hosts several such shows each year in other industries.  So do the other great German fairgrounds, like Frankfurt, Munich, Cologne and more.  CeBIT is smaller than it used to be, but still attracts more than 700,000 visitors, most of them real business prospects, to a middling town that doesn’t have the hotel rooms to hold them.  The show is also shorter, 5 days when it used to run for nine.  When I worked CeBIT in the 1990s, you made sure to wear comfortable shoes.

If you were in business, you also made sure to take your order book.  One year, the American exhibitors alone did more than $1.5 billion in sales – off the floor of the show!  That doesn’t include the orders that came in after the show closed.  We’re talking real money here.

CeBIT isn’t the only great show out there.  There are wonderful shows in Hong Kong, Singapore, Tokyo, Paris, London, Milan, Las Vegas, New York.  You get the picture.  Whatever industry you are in, there is probably a great trade show.  So is your company going to be there?  Why not?  Is your show experience with smaller, local or regional shows?  No wonder.

In Honolulu (or Denver, for that matter) a big show has maybe 200 exhibitors.  Exhibitors grumble that few business visitors come to the show, and they end up selling retail to customers they can get to in other ways.  Turns out most exhibitors are there because their local competition is there and questions would be raised if they don’t show up.  No wonder they get turned off by shows.

Don’t let the rinky-dink shows put your company off using trade fairs.  If you get the chance, stop in at a truly major trade show.  You won’t believe it.  They can even be fun.  (Nothing’s better than the Nuremburg Toy Show!) But watch out, the international food shows can be bad for your waistline.

How to do Business at International Trade Shows

If you want to learn to use the big shows for your business, take a look at my friend Doug Barry’s series of videos done at Hannover.

As an aside, I once had a conversation with John Dvorak, the tech columnist, about the COMDEX show in Las Vegas.  Most of the U.S. high tech industry thought COMDEX was huge and couldn’t be topped.  Dvorak said COMDEX was too big to do business.  I pointed out to him that CeBIT was twice the size of COMDEX and did more than twice the business.  CeBIT is still the place to be.  COMDEX is history.

Yesterday, I saw an article by Tony Daltorio at Investment U Research about how Google forgot Rule #1 of international marketing: know your market.  Seems obvious, but it often catches companies out when they make a run at a new market.  They don’t stop to think about the market, or they haven’t done the research to get to know a market.

Daltorio’s article points out that Google strode into China with all the hubris of a Greek tragedy.  They knew little about the local competition, like Baidu, which might have enabled Google to pick up on what was driving Baidu’s market share in China – free music downloads, which are not a core expertise for Google.  Google also assumed that their U.S.-style model would automatically work for China, as it had worked in so many other places, but they built no good way to cope with Chinese character searches.  Chinese users want to minimize typing, but do want to be able to merely click on buttons to conduct a search.  (Would a Yahoo-style search by categories work better in China?)  Daltorio says that Chinese internet users are more likely than the rest of us to use the Internet for entertainment, not for the business searches that reign supreme in other markets.  And, says Daltorio, Chinese tend to use blogs more than company websites, preferring to trust word-of-mouth recommendations, which puts a premium on putting blogs high up in search results.  Now, that is not to say that Google didn’t run into all sorts of official and unofficial blockages in China.  Most companies do.

The article got me to thinking about companies I have worked with that did a good job of learning the market – and those that didn’t.  We did some market research in Germany for a firm (that should remain nameless) that wanted to introduce an American consumer product.  Our findings were very negative; in fact, we told the company they would lose their shirts in Germany and probably in much of Europe.  I was a U.S. commercial officer at the time and the company was so angry they complained all the way up to the U.S. Secretary of Commerce.  We stuck by our research.  The company then went to a neighboring European market with their original approach – and promptly lost their shirts.  Never ignore negative market research. It can be the most valuable research you will ever see.  (BTW, the company never apologized.)

I saw KMart fall on its face in Singapore.  They came into the market in a rush and opened up what appeared a magnificent store in downtown Singapore.  What they didn’t realize was that Singapore already had plenty of cheap goods, that they are sold through small stores in the many housing estates on the island, and that – once the flash of the new was over – few Singaporeans would make the trip downtown to buy such things. Why wait for a Blue Light Special when you can get the same thing cheaper from the guy down the street?  (The expat community, which didn’t live in public housing estates, worshiped KMart.  They had that part right.)

Some firms do get it right.  I have worked over the years with a Honolulu architecture firm, Wimberley Allison Tong & Goo, that makes a fetish of getting cultural things right.  When they begin work on a project, say a resort or hotel, they send architects to the site for months or even a year to study the local culture, mores and architecture before they begin to design the project.  The goal is to please the customer, make sure the resort fits with the local culture, and please the visitors to these hotels who want an experience that can’t be replicated in a chain hotel.  WATG has been so successful at this, and has won so many international awards for their work, that now they need to do very little marketing.  International customers come to them.

Doesn't Sell in Germany

Germany was the site of one of the most egregious cases of ignorance of the market I have experienced.  We were helping U.S. companies at a trade fair for costume jewelry in Stuttgart when we found a California company setting up to sell their biker jewelry.  Bikers seem to love old SS-style symbols, swastikas and especially the SS deaths heads.  But Germany, for good historical reasons, has outlawed display of such stuff.  The U.S. company had not thought to ask about selling Nazi paraphernalia in the country that invented it.  We got the deaths heads under cover just before the police arrived.  Phew!