Chinese resist international finance brands

Consumer researcher Darryl Andrew

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SHANGHAI--Chinese consumers embraced the Audi, VW and Buick while the Red Flag and Zhonghua seem stuck in first gear. They opened their wallets for premium-priced Motorolas and Nokias. Meanwhile Bird (a Chinese cell phone) has had its wings clipped. They are leaving the 'Mom and Pop' stores in droves to do their grocery shopping in Carrefour and Wal-Mart. And in these hypermarkets, they are buying Coke, Colgate, Dove and Rejoice. Local brands are hard pushed to match this success.

But just how well will the international finance brands do?

Like everyone else, they are very bullish on China ? you would not be pouring in billions of dollars if you weren't. And certainly, there are several indicators that suggest the people here will welcome the foreign financiers with open arms.

As with other controlled sectors in other countries, the highly protected local banks have been living in a very cozy cocoon. You may think this is a disadvantage for newcomers. But this tightly regulated banking sector may inadvertently give the foreigners an easier road once the structural barriers are removed in the coming few years. There has simply been no need to extend a helping hand to customers, because the customers are well and truly caught.

Irrespective of whether you talk to an office clerk or a business owner, dissatisfaction is rife with the relationship with their main bank. A recent Synovate survey showed fewer than 50% of customers were satisfied with their main bank. And how about these quotes from two different business owners about the intriguing relationship they (and their family members) have with their bank:

"I need to buy my bank manager regular meals to guarantee prompt and efficient service from the bank."

"Family members can withdraw money from my account if they know the bank staff well."

Indeed, one would expect that Amex, MasterCard, Citibank, Royal Bank of Scotland and HSBC will have potential customers battering down their (or their joint-venture's) main street bank's front doors in due course.
But (as with most other things in China, there is a but) it will not be an easy job. And like other categories in China, you can expect one or two of these vastly experienced foreign marketers to get burned.

Some may adopt tried and trusted entry strategies from other markets for their foray into China—specifically, the credit card. But the market conditions and consumer experience that heralded the success of the credit card in other countries are not present in China. Personal loans, personal checks, rent-to-buy and layaway are payment methods that most of us are familiar with; and in most markets, the general public was eased into the credit card concept via these other financial tools.

Not so in China. When the vast majority want to buy a big ticket item (homes excluded), they drop a wad of cash on the counter to pay for it. Buying on credit is something very alien to most China consumers. (Then again, many also likened Coca-Cola's taste to medicine when they first sampled it, but now Coke is the biggest-selling soft drink brand in China.)

So, the banking institutions need to carefully evaluate what they want from their credit card business, or at least temper their ambitions. Sure, it will help their account acquisition strategy, but it is doubtful they will earn bucketfuls of revenue from the practice of roll-over credit or annual fees.

The leaner and hungrier smaller local banks abolished annual fees long ago to grow their account base and so have created that expectation among the more sophisticated banking public.

Meanwhile, the cautious lending practices of the local banks have educated the general public to think a "plastic" card is a debit card—meaning you can't spend what you ain't got.

But there is a sophisticated banking public out there who do represent an attractive target. They are typically in their late 20s or early 30s, attended university, work in white collar positions at a multinational company, carry a passport and take annual trips to foreign destinations. The more ambitious are targeting exotic France and Italy rather than the passé locations of Southeast Asia.

But they are a very small percent of the population. The majority are like the person, as reported in an April 2006 story from the Shanghai Daily News, who would rather hide their $1,200 savings under the fridge than open a savings account in a bank, but then lose the money when their kitchen floods.

The key to success is unlocking customer satisfaction. This will move deposits out of hiding places in mattresses and fridges and into the banks.

Darryl Andrew is the Shanghai-based managing director of Synovate, an Aegis-owned market research company based in Hong Kong.
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