Localization the key to entering China's market

Localization plays an essential role in driving business expansion, both for multinational companies present in China and for Chinese giants going global, said experts and business leaders at a workshop held by the Cheung Kong Graduate School of Business on Wednesday.

Teng Bingsheng, an professor of strategic management, associate dean for strategic research at CKGSB, pointed out at the event that multinational corporations and brands in China are facing challenges. However, some of them are actually achieving greater success, among which is the Swedish oat milk producer Oatly.

By 2022, Oatly's total global revenue reached $722.3 million (5.1 billion yuan), of which Asia contributed $152.8 million, with China making up 88 percent ($134 million), according to the company's fiscal report.

David Zhang president of Oatly Greater China, at the event attributed the success - which has not come easily — to its localization strategies.

He pointed out that Oatly had met many challenges when it first entered into the Chinese market six years ago. For instance, oat milk — as a plant-based drink — gains its popularity as an alternative of milk in the West. However, Chinese consumers are no strangers to plant-based foods, with records of soy milk being consumed from nearly 2,000 years ago. They tend to regard oat milk as a variation of soy milk, which is widely available at much lower prices.

After the initial sales flop, Oatly saw its turning point come in a different approach — to make oat milk as a "coffee mate".

In 2018, coffee culture was quickly expanding in China's major cities. Zhang's team saw an opportunity to capitalize on this trend with Oatly's top-selling product, the Barista oat drink.

"Coffee is something crossing the borders between the West and the East. Especially in Shanghai, we saw a large number of coffee consumers such as expats, employees in foreign-funded companies and overseas returnees. Moreover, despite latte being the most popular coffee product in China, most Chinese consumers suffer from lactose intolerance, making oat milk stand out as an ideal dairy alternative," Zhang explained.

Following its expansion in the coffee sector, Oatly continued to deepen cooperation with local partners. In addition to developing a new product category as "plant protein", it also differentiates its product promotional strategies in different regions across China. That is, to make oat milk a coffee mate in eastern China, a tea mate in western China, a drink in southern China, and a meal drink in northern China.

"We would not have achieved such success in the Chinese market, if we did not develop a unique localization strategy based on the Chinese mindset and culture," said Zhang.

Not only the MNCs in China are demonstrating the significance of localization, but also Chinese business leaders seeking for global reach, such as the dairy giant Yili Group.

In 2018, Yili set up an international business department to focus on developing its presence in overseas markets. From 2018 to 2021, the group's international revenue grew at a compound annual growth rate of 56 percent. Last year, the group's international businesses saw sales increase 52 percent year-on-year.

According to the research led by Tao Zhigang, a professor of strategy and economics, and associate dean for global programs at CKGSB, three key factors contributing to Yili's overseas success are identifying targets for takeover, localizing overseas operations and choosing the right markets.

"Consumers, especially food consumers, care more about each aspect of the product, including the taste and the color. We have 15 innovation centers across the world, and expert teams to learn about the favorable tastes of the locals to meet their demands," said Shang Zhihu, general manager of the digital technology center at Yili Group, explaining on their product adjustment on ice cream in Southeast Asia and Africa.

As the group is striving to become a global leader in the dairy industry, Yili is making continuous efforts in localization as well.

"We must go deep in the global market, working with colleagues in various countries around the world to better serve local consumers. So generally, we prefer to have more local insights, fit better with local cultural concepts and develop more local management teams," he added.