Starting Subway Sandwiches in China

A month ago, I headed out to my favorite pub to hear Kurt Lipson, cofounder of Dash Brands, talk about building the Subway franchise in China. His frank and humorous account gave great insight about doing business in China.

Reintroducing the Sandwich

“What is a sandwich?” That was the first question that Lipson asked himself when he arrived in China and began building Subway. The answer that Lipson received from focus groups and other sources was far from flattering. To the Chinese, a sandwich was a cheap, cold food made out of triangular pieces of bread and mayo that above all was not very good. In order to for Subway to succeed, Dash Brands needed to change Chinese perceptions of the sandwich. Changing the sandwich from a cold food to a hot one was important as Chinese culture prefers hot food to cold. According to Lipson, the solution turned out to be humorously easy because they just put flames on all their marketing collateral, even if it had nothing to do with what they were advertising.

Tomatoes, Lettuce and Pirates

In the beginning, Dash Foods had major problems with their supply chain and pirated stores. The lack of supply infrastructure is a problem that plagues all companies in China. Subway store managers were spending hours calling their tomato and lettuce suppliers trying to secure shipments rather than managing their stores. This problem was eventually solved with the hiring of a logistics company to manage the supply chain of Dash Food’s. Pirated Subway stores was also a huge problem when Dash Foods first entered the region.

Many of these pirated stores were once legitimate stores whose contracts expired but are still operating under the Subway name. These illegitimate stores look like a normal Subway, but they get their supplies outside of the Dash Foods supply chain, often from the local grocery store. Shutting these illegitimate stores down required working Dash Foods to buy the owners out and at times even work with the slow Chinese legal system. Even now, the job is not complete as there is still a pirated Subway in Lujiazui, the financial center of Shanghai.

Learning from Mistakes

Lipson shared a marketing mistake they made three years ago while trying to run a viral online marketing campaign. The campaign generated high amounts of traffic to the website but that traffic did not convert into coupon use and sales. Monetization of internet traffic is still a major issue for companies today and I can only guess at how developed Dash Food’s approach was three years ago. Lipson cites the lack of a key performance indicator and the undeveloped nature of internet marketing for the lack of success.

One business mistake that Lipson mentioned which seems to be a mistake shared by all foreign companies in China is the issue of expansion. Seduced by the size of the market, foreign companies rush to expand in China without properly researching the market, resulting in failures from a lack of demand. Lipson admitted to a lack of due diligence when the Dash Foods was involved in their own fast expansion. He gave one example of a Subway that they set up in Changsha, a second tier city. Dash Foods was struck by the beautiful state of the art mall that they were opening the new Subway. After a few months, it became very clear that the shiny new mall would stay empty for the foreseeable future.

Doing business in China

The most memorable story that Lipson told dealt with the opening of the East Nanjing Road Store, a major tourist destination in Shanghai. Everything was going well up until the health inspector arrived and told Lipson and company that they could not open the store, due to a laundry list of nonsensical reasons, such as the heating unit being too close to the refrigerated food and the need for a clear divide between the customer and food prep section. These reasons had never been a problem at past openings, so Lipson and his partners knew that there was more to what the inspector was saying. What happened next, is what Lipson called the cost of doing business in China. Lipson and his partners took the health inspector out and partied with him all night. No expense was spared to make the inspector happy and in the end the store was allowed open. In addition, the health inspector became a good friend and every Chinese New Year Lipson and his partners are invited over for dinner.

Conclusion

Reading about doing business in China pales in comparison to hearing from someone who has actually done business in China. Though I imagine actually doing it yourself is the most exciting of all.

Chat with Dr. John Fung

Chat with Dr. John Fung

A money saving smartphone application, an Asia Pacific nonprofit umbrella organization and a nonprofit internet service provider in Hong Kong, were all topics covered in my conversation with Dr. Fung.

The world knows Dr. Fung as the head of the Hong Kong Council of Social Services, but to me he is uncle John, my father’s elementary school friend who graciously takes time out of his busy schedule to meet with me every time I am in Hong Kong. The Hong Kong Council of Social Services a nonprofit umbrella organization that represents X number of nonprofits operating in Hong Kong. The council works with both corporations and non profits. The last time I sat in Dr. Fung’s office, I heard of some fascinating social media projects that the council was working on. In my most recent visit, Dr. Fung seemed to have upped the ante, revealing an even more ambitious set of projects.

Dr. Fung shared three stories:

Combatting Inflation with Smartphone applications

In response to Hong Kong facing a wave of inflation, some estimate to be as high as ten percent, Dr. Fung has been in discussion with the Hong Kong Consumer Council to develop a smart phone application that would allow consumers to compare prices of groceries across stores. The application would pull publicly available pricing information from the websites of the supermarket chains, giving the consumer the most up to date grocery prices on their smartphone. Dr. Fung believed that this application has the potential to help struggling Hong Kong families fight rising grocery bills by allowing them to easily find the cheapest groceries.

When I heard about this application, I thought it was a great idea as well as I am all for money saving applications. After a little thought, however, I realized that the people who would be most hurt by inflation are the ones who could not afford a smart phone. The people who stand to benefit most from such an application are the ones need it the least. Perhaps such an application should best be developed by a private corporation as such an application has money making potential written all over it.

Techsoup, an Asia Pacific umbrella organization and a Global NGO Directory

A week after our meeting, Dr. Fung flew to California to attend a conference hosted by Techsoup. Starting as a nonprofit directory, Techsoup boomed in both size and scope when it found its niche by acting as a middleman between charitable corporations and needy nonprofits. Techsoup solves the last mile problem in philanthropy, by connecting corporate donors with organizations that can distribute the donations to those in need.

As one of the most successful partners in the Asia pacific region, the Hong Kong Council of Services was asked to create an Asia Pacific umbrella organization with their Australian counterpart, to better coordinate and distribute resources. It is exciting to see Hong Kong playing such a large role in the region.

Due to his expertise regarding NGOs in China, Dr. Fung has been enlisted in helping Techsoup accomplish its larger goal, the creation of a global NGO directory. However, the way I see it; this goal, while noble, is impossible in China where many NGOs are registered as corporations and many more are not registered at all due to the near impossible nature of getting nonprofit status. Any effort to document NGOs in China would be futile without a complete overhaul of existing Chinese regulations, an overhaul that would have to come from the very top of the government.

Founding a social ISP

The last story that Dr. Fung told me was the most exciting and dare I say feasible? It was also the first time I had heard of a social internet service provider, an idea that I could see being exported to other countries. The Hong Kong government and Hong Kong Council of Services were working together to create a social internet service provider that would serve the “problem” customers that other service providers had. These problem customers are the low income customers who often times would not pay their bills on time, forcing ISPs to defer to collection agencies, who use questionably ethical means of extracting payment. The use of a third party to collect payments, cuts into the already razor thin margins of the industry.

Enter the social ISP, backed by the Hong Kong government and council of social services. The goal of the social ISP is to take these problem customers off the hands of Hong Kong’s 200 ISPs. Renting fiber from the traditional ISPs at a discounted rate, the social ISP would deliver these savings to the problem customers. The competitive advantage of the social ISP would be its close connection with NGOs working in these disadvantaged communities. A trusted presence in these communities would theoretically allow the social ISP to have lower collection costs than its traditional counterparts; this is where the social ISP would earn its margin. In the end it is a win-win situation for the traditional ISP and its problem customers; the traditional ISP would gain a higher margin due to reduced customer service and collection costs, while the problem customer gains access cheaper internet from a more trusted source through the social ISP.

In order to boost the distance learning initiative of the Hong Kong government, the social ISP would sell low cost computers in addition to internet service. Combine this is with the government’s plan to issue cash vouchers for computers to the low income and a solid NGO network in the community, the social ISP could become the leading retailer of computers for the low income, providing another revenue stream. Affordable computers and internet access to those most in need of education could be the keys to the successful adoption of distance learning in Hong Kong.

There are of course still many devils in the details, such as how the social ISP is going to get these problem customers out of their existing contracts, but overall the idea of a social ISP sounds achievable. If this idea succeeds it will be quite the disruptive force in social services and telecommunications in Hong Kong.

Closing thoughts

Conversations with Dr. Fung are always an interesting mental exercise, because I dissect the many stories that he throws at me, trying to find holes in everything, but what I value the most about all these stories is how they reveal the many possibilities nonprofit work. With the projects that Dr. Fung has in store, I can surely say that the nonprofit world is just as exciting and challenging as the corporate one.

Marketing Binder Entry #2

Broadway Star Commercial
There was just too much to hate about this series of commercials commissioned by Hong Kong electronics retailer Broadway. I watched a lot of television while I was at my grandparent’s apartment and every time I saw this commercial, it made me want to gag and here is why.

The ad
Broadway has a series of commercials that build upon each other. The first ad in the series begins with a young rocker girl who reminisces about her old grade school rock band, wondering what happened to the band members. Suddenly, one by one the band members come to the rocker girl’s house and all of them have grown up in unexpected ways. One member has not aged at all and is still as young as her grade school picture, while another has become an old man. Yet another has turned into a rock, literally a boulder. The last band member to arrive has transformed from a Chinese boy to a Spanish heartthrob. The band is remade and together they play around with electronic gadgets and rock out. The ad ends with the message that living like a rockstar starts at Broadway and then sweetens the deal by offering limited Hello Kitty rock dolls with purchases.

The whole series of ads can be seen at http://www.broadway.com.hk/

My Reaction
All the commercials have the same tongue in cheek type of humor that just comes off as very corny and unfunny. The whole ad had an immature feel to it that I do not think would appeal to its audience. Broadway is pushing high end electronics such as 3D televisions and SLRs with television commercials that seem only to appeal to children.

The use of the rock and roll is puzzling since in Hong Kong, pop music has always been king. Children throughout the ages idolize and dream of becoming pop stars, so the use of rock and roll is a bit of a disconnect from the average Hong Kong resident. The rock and roll theme would have worked in a country such as the US with a developed rock culture but in Hong Kong it is simply out of place.

Lastly, using Hello Kitty as a selling point for high end electronics makes no sense. I cannot imagine that any consumer would include the prospect of a free Hello Kitty doll in their decision making process when buying a television or SLR.

Conclusion
Broadway’s rock star themed marketing campaign shows a complete disconnect with the Hong Kong electronics consumer.

First Taste of Leadership

In the summer of 2010, I spent two months in Los Angeles as part of the CASIC internship program run by the Center for Asian Americans United for Self Empowerment. Out of the blue at the second internship meeting, I was nominated by my peers to lead the project of writing a social media handbook. Having always preferred to take a back seat in group work, my sudden and unexpected leadership role was a bit nerve wracking. Suddenly, I found myself directing, organizing and motivating nine other interns. Not knowing quite how to handle the situation, I entered the first project meeting as leader completely unprepared and left feeling defeated. Being a leader during my two months as a CASIC intern was my toughest challenge to date.

During the project meeting, I lacked confidence, spoke vaguely for fear of being wrong and relied on others to make the decisions for me. Feeling defeated after the first meeting was a sobering experience and it made me reflect on my past group work experiences. I cobbled together a basic leadership framework after some reflection and continually tweaked it as my leadership experience developed. By the internship’s end, I ended up with something that was simple and effective but difficult to follow.

Taking a page from the Army commercials, I decided I needed to lead by example, when those deadlines started to get missed or simply ignored. After all, why would I expect my fellow interns to meet their deadlines if I was not meeting them myself? Being the leader of the group meant I was responsible for the short comings of the project as well as its successes. When the chair of the nonprofit grilled the team or a distinguished guest asked about our project, I was the one to step up and answer their questions. This bought me respect and credibility with the other interns which allowed them to trust my judgment.

The most important thing was my respect for the other interns. Friends joked that I would power trip as project leader, but I knew better. The truth was that I did not have any real power and the only way I was going have any authority was through mutual respect. To do this, I needed to be open to suggestions, mindful of others’ opinions, recognize achievements and acknowledge when someone knew more than me. Once the other interns saw that their opinions and suggestions were valued and taken into account, the awkwardness of taking orders evaporated and the formation of a team identity began.

At the end of the eight weeks, the finished social media handbook was a source of pride for the whole team. The smiles and warm embraces during the graduation ceremony meant that I did not burn any bridges during the project. All these were signs indicated to me that I successfully fulfilled my role as project leader.

Fantasy Marketing Strategy for Fantasy Sports in China

A couple of months ago I applied to a conference and one of the questions on the application was:

"You are introducing a good or service into the American or Chinese market. What is this product and how would you market it?"

Conveniently, I had just finished a class where the goal of the whole semester was to write a business plan. Building upon the marketing strategy I had written for the business plan, I wrote this on the conference application:

Many of the current foreign business ventures into China have concentrated on the new rich and expatriate populations in China, leaving much of the Chinese market untapped. An online fantasy sports’ game has broad appeal as well as being accessible to a variety of income and age groups, making it an ideal product to introduce to the Chinese market, where sports like basketball and soccer have boomed in popularity. For online fantasy sports to succeed in China, the marketing strategy needs be as broad as its target audience.

The online marketing strategy will aim to target sports fans across China as accurately as possible. Chinese sites that feature sports content or are popular with Chinese sports fans will be used to promote the product. Advertisements on social media sites such as RenRen, Youku and Tudou, can easily target sports fans because of the open sharing of personal information on these sites. Keyword triggered advertisements on Chinese search engines and ecommerce sites such as Baidu, Souku and Taobao will ensure that those who show an interest in sports hear about fantasy sports.

In order to put fantasy sports into the hearts and minds of Chinese sports fans, it is necessary to create a physical presence as well as an online presence. An additional marketing strategy will be the creation of fantasy sports tournaments and leagues at brick and mortar locations that Chinese sports fans gather at. The best example of such a location, are the many university campuses across China. Reaching out to the competitive college sport fan through the creation of inter and intra university competitions will build a fantasy sports in a large and impressionable audience.

The key to fantasy sports’ success is the intelligent targeting of Chinese sports fans through the creation of an online and physical presence that will put the game into the forefronts of the fans’ minds. The eventual goal of the marketing strategy is to build a self sustaining culture of fantasy sports similar to the one in the United States.

Marketing Binder Entry #1: Funshion

I was very impressed by the two ads that Funshion launched around Chinese New Year.

The Ad
The two pre roll video ads, are virtually identical except for the fact that one features a female actor and the other a male one. One of the ads begins with the actor talking about how much of a hassle it was to buy DVDs for mom and dad every year that they went home for Chinese New Year. Enter Funshion, an easy to use p2p video program that easily allows the actor stream all his favorite television shows and movies straight to his computer. Funshion is so easy to use that this year when the actor visits his parents, he teaches them how to use the program without any hassle. Now the actor is happy and so are his parents, all thanks to Funshion.

Relevance
Part of the brilliance of the ad is how it is targeting a new demographic, through their current audience. P2P programs are rarely associated with the elderly, but that is exactly what Funshion is doing with their ads. The message that Funshion is sending to its young users is that introducing your parents to Funshion will make them happy and your lives easier.

I believe that this message will resonate with Funshion’s users and drive them towards actions because it is culturally relevant. The success of the QQ ad which also plays on the strong sense of family in Chinese society show that this type of advertisement really connects with Chinese audiences. Filial piety is still a big part of Chinese culture and defines the parent-child relationship in China. The Funshion ads tap directly into that, playing up how the actor is being a good son by helping his parents easily access the television shows and movies they love.

Conclusion
The two Funshion ads do a terrific job of targeting a whole new demographic through their core users by capitalizing fully on their culturally reinforced desire to care for their parents.