The fast-growing local emerging brands are increasingly threatening the business of multinational consumer goods companies in China, and many multinational companies are still able to gain a firm foothold and stand out.
In this fierce competition, more and more multinational companies are promoting their business growth in China with the “4D rule”, which has become the key to the success of multinational FMCG companies in China.
The so-called 4D rules are Design for Chinese consumers, Decide in China by Chinese teams, Deliver at China speed, and Deliver in a Digital way.
The 4D rule is not only a magic weapon for these companies to compete with other multinational companies and local counterparts, but also their core competitiveness against Chinese newcomer brands.
Various facts show that if multinational companies do not become bigger and stronger in China, they often have to leave the market sadly. If there is a fifth D, it is Dare to be big. The economy has slowed recently, but China remains the world’s largest and hottest consumer market. It is no exaggeration to say that the second half of the Chinese miracle is still in China.
Designed for Chinese consumers
In the past few years, multinational companies have made the greatest progress in this area.
China has become a global innovation center, attracting more and more multinational companies to establish R&D centers. Currently, there are more than 2,000 multinational R&D centers in China. For example, Nestlé China has built a new China R&D center and technology center in Beijing and Shenzhen respectively; while Shiseido has established an innovation office in Hangzhou to deepen cooperation with Alibaba.
The design content of these innovation centers mainly involves three areas:
○Product Innovation
For example, Kimberly-Clark’s Curious Diapers apply thin and light designs to four series of silver, gold, platinum and heart diamonds. It is worth mentioning that many of Kimberly-Clark’s new Chinese products have been developed locally.
Similarly, L’Oreal Paris developed Purple Iron Full Face Eye Cream in 2018 with its insights into Chinese consumers, which has become an important business pillar of L’Oreal Paris in China. Today, all the innovations of L’Oreal Paris in China, whether it is pure formulation innovation and packaging innovation, or the combined innovation of formulation and packaging, are developed locally based on Chinese consumer insights.
○Packaging innovation
The Chinese market is full of creative packaging, especially during the Spring Festival and other festivals. Localized packaging has also set off a wave of personalized packaging, sweeping across many categories.
○Marketing innovation
The localized design also extends to the level of consumer operations and marketing activities, with the Chinese marketing calendar and large-scale festivals as the main line, landing on China-specific digital platforms. These marketing campaigns leveraged celebrity influencers to launch targeted flashpoints and copywriting, while also aligning with the global brand image.
Even the design and creative center that is firmly controlled by the global headquarters of luxury brands will inevitably develop from the east to the west: the trendy brands and sports and leisure styles that luxury brands are blowing this year come from China, and the main consumer group in China is 15 to 20 years younger than the western market. age.
Some multinational companies and local mature companies have made progress, but many still rely on the traditional stage-node development process, and strive for perfect innovation through layers of screening.
In contrast, local emerging brands such as Yuanqi Forest and Babycare use agile sprints to develop multiple minimum viable products (MVPs) and quickly test in the market to obtain consumer feedback. They also outsource manufacturing and design on demand, partnering with digital platforms to accelerate innovation.
The Chinese team makes independent decisions
One of the biggest advantages of local companies is the ability to avoid layers of approvals from global or regional headquarters. It is for this reason that successful multinational companies have established a China-centric operating model. In this regard, multinational companies need to improve five modules.
○Governance is streamlined and organization is effective
By deploying a series of organizational models, enterprises can realize local decision-making, speed up decision-making, and increase the presence and influence of Chinese teams in global headquarters. For example, Coca-Cola lists Greater China and Mongolia as one of the nine regions in the world, reporting directly to the COO at the headquarters.
Many MNCs have streamlined the three-level decision-making process (HQ, Asia Pacific and China) into two. For example, the head of L’Oreal North Asia is also the head of the China business, based in Shanghai, and has served on the company’s executive committee for several years.
○Local authorization, independent decision-making
In the Chinese market, the success and failure of products and the rise and fall of trends are often fast-changing. Therefore, the speed of decision-making and action is the key to becoming bigger and stronger in China.
It is for this reason that successful multinational companies try to avoid interference from their global headquarters in their Chinese operations. Through the established authorization mechanism, the Chinese team is fully delegated. In addition, the global headquarters provides support for China operations, rather than approval on a case-by-case basis.
○Breed and keep for use, adjust measures to local conditions
The war for talent in China is different from other regions, and multinationals are losing ground. According to a report jointly released by Bain and LinkedIn in 2018, in the previous five years, the proportion of leaders who switched from multinational companies to local companies was five times higher than from local to multinational companies. The gap may have widened further since then.
4D Model Essentials for Multinational Corporations
Source: Bain & Company
To fill the talent gap and attract domestic employees, multinational companies need to consider the following factors in their incentives: dedicated grant programs, loyalty-based incentive programs, and training and education support programs.
The multinational company Anheuser-Busch InBev, for example, is moving in this direction, listing on the Hong Kong Stock Exchange in 2019, laying the groundwork for a more attractive incentive design: employee compensation is linked to the company’s Asia-Pacific performance rather than global performance. prevail.
○Individual assessment, custom indicators
In terms of KPIs (Key Performance Indicators), excellent multinational companies regard Chinese businesses as start-ups, and put capacity building and investment layout first, and financial performance second.
This is obviously different from the traditional practice of multinational companies playing a global game of chess. Like successful Innovators, their KPIs don’t focus on short-term profits, but instead focus on growth and innovation.
○ Pilot iteration, trial and error culture
How do successful companies in China quickly break through? They start from a small-scale pilot, effectively promote it from point to surface, and cultivate internal skills in the process to continuously optimize the solution. Through this micro-battle method, companies learn and test selected problems while running small steps, implanting agile working methods into the organization.
China’s digital ecosystem provides an extremely fast closed-loop consumer feedback loop for marketing activities or new product launches, which helps brands to quickly try and make adjustments. Adopting an agile approach to product innovation and consumer operations is at the forefront of digital upstart brands.
Execute at Chinese speed
Real-life cases of speed in China are everywhere, and the importance of speed in the Chinese market is unquestionable.
Chinese consumers can quickly adopt new products and embrace new channels or platforms. Chinese competitors can replicate star competitors just as quickly. In the case of beer, it takes only three months for a local company to replicate an innovation, while other markets can take a year or even fail.
For example, Yuanqi Forest integrates consumer feedback data into product development and new product development. Rapid decision-making and product iteration allowed the young company to surpass mature companies in terms of R&D cycles and new product launches.
China’s speed also benefits from the ecosystem organization model and win-win cooperation among enterprises. Each company only focuses on its own areas of expertise, with a clear division of labor, mutual exchange of needs, and a win-win cooperation model.
In China, local companies have introduced a new competitive paradigm, posing a major challenge to multinationals: local speed is crucial, and it is important to seize the opportunity to become large. Global scale does not naturally lead to local scale, and even at certain times, global scale will slow down the speed and become a constraint on local scale.
Global scale is a competitive advantage for multinational corporations in many international markets, but it is a stumbling block for them to adapt to China’s speed.
As the CEO of a leading multinational company put it: “In China, we don’t need to spend time explaining what we want to do. We do it first and then explain what we do. So it’s imperative to ensure organizational trust and build an empowerment framework. But Under this framework, there is also sufficient freedom to deal with the continued disruption of the Chinese market.”
Digitizing business in China
By any measure, China is the most digitized consumer market in the world.
China’s e-commerce market is the largest in the world, with e-commerce sales accounting for about 30% of total retail sales in 2020, and one-third of the Chinese population has used social e-commerce. Nearly 30% of e-commerce buyers make purchases through live broadcasts, and about 40% of food purchases are made online.
According to research by QuestMobile, as of the third quarter of 2021, Chinese smartphone users spend an average of 6.6 hours a day on their phones.
There are two main reasons why China’s digital ecosystem is so unique and advanced: First, it is rich in data, and companies can use massive amounts of consumer data to enable marketing or promotional activities; second, changes are rapid, and consumer-centric changes have never been Stop.
For example, Pinduoduo, which did not exist seven years ago, is now the e-commerce platform with the most monthly users. In addition, Douyin has been the fastest growing platform for GMV in the past two years, and a new content e-commerce model has emerged.
Brands that are invincible are often masters at leveraging emerging digital ecosystems.
For example, Kimberly-Clark’s China business is highly digitized. Kimberly-Clark focuses on online customer acquisition and customer operation, and reaches millions of new mothers digitally every year. They also promote new customers through vigorous deployment of digital media (including e-commerce, social media, short videos and vertical APPs), and use tools Measure the effectiveness of different marketing campaigns and ad placements.
Kimberly-Clark is also known for its innovative marketing and sales channels, with live broadcasts to achieve product-efficiency integration.
Their emphasis on digital is paying off, with 70% of baby diapers and 30% of feminine care sales coming online. Digital outcomes require agile ways of working and the ability to test and iterate quickly.
Inspiring the world with Chinese experience
The 4D rule is not only a winning weapon in the Chinese market, but can also further feed back global organizations. For efficient multinational companies, China is not only a battleground, but also a precious test field. From product design to market access methods, after being tested in the Chinese market, it can be promoted to other parts of the world.
In 2018, L’Oreal Paris launched a new hyaluronic acid moisturizing hair product in China, which innovatively incorporated hyaluronic acid into the formulation of hair products. The product sharply captured the consumers’ problem of “oily scalp plus dry hair”, a problem that no shampoo at the time could solve. L’Oreal thus launched the hyaluronic acid moisturizing care series, and successfully introduced to the European and Latin American markets.
The new products of Curiosity diapers developed in China have also entered the Australian and New Zealand markets and become the key to Curiosity’s success in these markets.
Through the model of feeding back the headquarters, multinational companies can replicate the successful experience of the world’s largest market, and the Chinese team can continue to win the trust of the global headquarters. In this regard, enterprises have also shown their magic powers, inspiring the world with China’s experience (China for the world).
Anheuser-Busch InBev has set a benchmark for exporting China’s successful experience. The beer company’s China business experience has influenced its global digital transformation strategy. In 2019, Anheuser-Busch InBev’s global leadership team visited Shenzhen for a week to gain an in-depth understanding of China’s digitalization process, and based on this, formulate a global digital transformation plan. In addition, Anheuser-Busch InBev is also actively exporting its native business model in China.
One of the main reasons why China has become a testing ground for brands is that China’s advertising landscape is constantly changing and fragmented, a trend that will surely spread to other markets.
In China, consumer goods companies can improve their capabilities, strengthen cooperation with KOLs, optimize budget allocation between different platforms and digital marketing types, get ahead of competitors, and seize opportunities before platforms such as Douyin emerge.
These consumer goods companies and retailers entered China as multinational companies, and achieved a magnificent turn by borrowing the 4D rules, becoming an aircraft carrier of new forces with both speed and scale, rooted in China and winning the world.
