On May 23, Wharton marketing professor Eric Bradlow made his first trip to China as a guest of the K.P. Chao family, whose business — Hongkong-based Novel Group — is one of the world’s leading vertically-integrated textile and apparel manufacturers. The two-week trip included visits to Hongkong, Shanghai, Hangzhou, Xian and Beijing. Bradlow has done research on such topics as bidding behavior in Internet auctions, and shopping patterns in grocery stores. He is also the academic director of the Wharton Small Business Development Center, which assigns Wharton students to consulting projects with small enterprises in the Philadelphia area. In an interview with China Knowledge at Wharton, Bradlow shared his impressions of China.
CKW: How have your views of China changed now that you have actually visited the country? What surprised you most as toured the different areas?
Bradlow: I clearly was not expecting the technological infrastructure that I saw. In many ways, China is further ahead of the United States in its major cities. Of course, this is likely because China is “new,” and U.S. [infrastructure] is now 20 to 30 years old in many places. China is on a great path and I am glad I have been able to see it in its nascent stages.
CKW: You have done research on customer behavior with regard to online auction websites and some specific retail industries. What kinds of data analysis are American companies doing to make their business more competitive?
Bradlow: The biggest thing that American companies are doing … is they are mining their data for customer insights. The big change between the present and 20 years ago is technology and the ability to track the behavior of individual customers. Now that firms can do that, they can target customers with products, which will increase short-term profits and loyalty. Follow the data! That is always my advice. Finally, with that data, make sure you have a unique value proposition. Companies are easy to start, and are “easy to fail”. Make sure you understand the demands of your target market.
CKW: What other research have you done that could be relevant to Chinese companies?
Bradlow: I have written a paper with my colleagues Maurice Schweitzer and Jack Hershey, both of Wharton’s operations and information management department (OPIM), on trust recovery. What we show in that paper, essentially, is that trust is fragile, but can restored following a break. Furthermore, promises of better behavior and apologies for past actions can help restore trust, only when the customer has not been deceived and lied to. My advice therefore is when companies make mistakes, they should admit them, apologize and then act in a way consistent with that behavior.
I have also read about and talked about, during the Wharton Hongkong forum, the ways in which internet games and shopping is exploding in China. I give the same advice to Chinese companies that I gave to U.S. companies seven years ago before the bubble burst – get repeat purchase! I suggest that all internet companies not only track new sales, but most importantly repeat sales. Beware of any company that expects a growing customer base indefinitely.
CKW: As the academic director of the Wharton Small Business Development Center, can you give me an example of how the students were able to improve a small business’s performance? Do you have any thoughts on how to train students for entrepreneurship?
Bradlow: Sure, one of my favorite companies that we worked with is a company called First Flavor. They are a company that can put essentially any flavor or medicine on a dissolvable taste strip. We worked with them to help them figure out some attractive target markets. It was very exciting because they have a great concept.
In terms of training students in entrepreneurship, there are two basic musts. First, get the “numbers training.” Once one can crunch the numbers, one goes from a “gut feel” business to a numbers oriented business. Businesses need to be able to “learn,” and tracking business metrics (e.g. awareness, sales, etc.) are the key to that success. Second, get out there and open your business. Get it started. There is no greater training than struggling through it yourself.
CKW: What do you see as the main challenges for small business owners in China? Are there ways the Chinese government can help small businesses?
Bradlow: I think the key to any business, whether in China or elsewhere, is that you must have a unique value proposition. That is, you must have a differentiated product, serving an appropriate target market, with a product that satisfies some basic need. The challenge in China is to find that differentiated product and have the means to deliver it to the segment of customers it is appropriate for. I believe that the distribution infrastructure can use improvement, and anything that the Chinese government could do to enable the distribution of products freely would be a benefit to businesses.
CKW: Chinese companies are famous for their manufacturing capability and low labor costs. Will this change in the future? What are the main challenges for Chinese businessman in their efforts to compete in a global environment?
Bradlow: As with all developing countries as they emerge, wages will rise and China will no longer be the world’s low cost provider. This is already beginning to happen as people are starting to re-locate to India and Vietnam. This will require China to continue its growth in non-manufacturing sectors, and continue the education of great scientists and scholars, so that China’s industrial base can broaden. From the five Universities I visited in China, China is well on its way.
CKW: If I want to start a tourism company in a small city near Hangzhou, where there are some traditional Chinese hotels and resorts that are very nice but are unknown to the outside world, what marketing advice would you give to attract more visitors?
Bradlow: Use the Internet. Use word of mouth. Use loyalty programs. There are many people who use the “power of the people” to make decisions. Start there! Secondly, start advertising Hangzhou more in other tourist cities (Beijing, Shanghai, Xian, etc…) and most importantly, find that “sweet spot”: Who is the prototypical person that loves Hangzhou?” Once you find that out, then target as many of those people as you can.
CKW: In a globalized world, how do you value the local element? Does a business have to go global if it wants to be successful?
Bradlow: With the Wharton SBDC, I work with tons of local businesses. A great global business typically has to start out locally. I always advise clients to get a successful local business first; many businesses have the ability to scale. Businesses that fail typically do not have a loyal core. Develop that first.
CKW: What advice would you give a U.S. company that wanted to market its product here in a large Chinese city, like Shanghai or Beijing?
Bradlow: Get to know the people! People are people, but culture is not culture. My visit suggests that China is very proud of its culture. It is deep consumer insights that will enable a global firm to succeed in China. Everything in China has its unique and wonderful Chinese spin on it. If a company just comes in and launches its brand, it will have a tough time. With China as one of the great emerging markets, the investment is worth it.
CKW: You have traveled to one of the most dynamic cities in the world (Hongkong), one of the biggest metropolitan cities inside China (Shanghai), and one of the hottest travel destinations (Hangzhou), as well as to Xian and Beijing. What are your impressions of these places?
Bradlow: Hongkong was shockingly great. I was born and raised in the middle of New York City and I have seen nothing like Hongkong. I can see why people call it one of the great cities of the world. I enjoyed visiting the Peak, Repulse Bay, Stanley Market and all of the other sites. Hangzhou was beautiful, too, including West Lake…
My great memories of Shanghai will be about the walks I took in local markets and along the water and my visit to Fudan University. Clearly Xian and the Terracota soldiers have earned their reputation as one of the great tourist attractions of the world. It did not disappoint. I was awestruck by the magnitude of the place, the dome that houses the soldiers and the beauty of the area.
Finally, and last but not least, Beijing. I could see myself living in Beijing. I loved the juxtaposition of the “old” and historic with the new. It is a city that will really be ready for the Olympics. As a huge sports fan, I wish I could come back then. It will be “crazy crowded,” but it will be a lot of fun.