Tapping China's thirst, Monash Magazine article

BEER. The word itself conjures up images of a cold, frothy amber beverage perfect for a hot summer's day, in the minds of most Australian males. But skip over a few continents and offer the man on the street in Beijing a can of Foster's and you would probably get a very different response.

The concept of multinational corporations trying to breach the tricky Chinese market is fraught with danger, according to Dr Mona Chung.

The Monash academic recently completed her PhD on the cultural differences faced by Australian businesses in China, using the original case study of Foster's operations and the challenges faced in its 13-year affair with the country.

Dr Chung completed her PhD titled "The impact of cultural differences: An Australian business in China" under the supervision of Dr Wendy Smith and Pro Vice Chancellor (Research) Professor Max King.

"90 per cent of businesses starting up in China are not making money," Dr Chung explains.

"There are examples of other brewers starting up a business there, pulling out after a few years and then going back. Big business needs to be seen in China these days, but the initial costs seem to drag on tirelessly."

Foster's China strategy was launched in 1993 with two joint venture breweries, one in Shanghai and other in Doumen, Guangdong. In 1995, a third was also established in Tianjin quickly capturing 20 per cent of the Tianjin beer market with its newly established brand Largo.

The success of Largo was considered to have come from a vital aspect of Chinese culture: relationships between suppliers, officials and the target audience. Foster's started discussions with the Ministry of Light Industry and Ministry of Foreign Trade years before the joint venture, opening the way for rapid negotiations to take place.

Dr Chung's project has generated a great deal of interest in the current business environment but also makes a very significant contribution to knowledge in the field of cross-cultural business studies, and will be of use to expatriate managers in handling the very challenging Chinese cultural environment, market entry strategies and marketing strategies.

Being a Chinese immigrant now settled in Australia, Dr Chung was able to interview Foster's management in Chinese and English. She researched the case thoroughly from the late 1980s and covered a broad range of issues in international business, which include: market entry, strategic management, cross-cultural HR, management and marketing. The study focuses at the level of senior executives, expatriates, management, middle management and operational staff in both Australia and China.

Foster's is a recognisable brand in many countries, with operations in Australia, the US, Europe, Middle East and East.

Dr Chung (PhD, MIB, Grad Dip IB, Grad Cert H Ed) has written her thesis on the challenge of combining the social sciences with international business studies and addresses the current most popular market destination - China.

Danish brewer Carlsberg was one of the see-sawing companies who opted out in the early 1990s and then recommenced operations before the end of the decade, costing them millions to regain an initially small market share. But, Dr Chung says, brewers that have a long-term plan for China will be the ones who succeed.

Carlsberg is now involved in four breweries in China and is one of the international brewers with a strong presence in the country.

"People think that China is very cheap because of the cost of products there but a business going into the country has to weigh up whether $200 million is enough to start up an operation, when will it become profitable and how to get local people to buy the product," Dr Chung said.

"The biggest problem facing outside businesses is - who is going to buy their product? Companies need to recognise that the culture is very different and the same marketing techniques will not apply.

"Australian, European and US companies have attempted to tackle the Chinese market with few positive results. One primary reason is that they do not appreciate the important role and impact of Chinese culture."

Dr Chung said only a few European companies were so far making a small profit in China but those who recognised the benefit of a relationship, or guanxi, with the country would be more successful in the long term.

She cited one example at the start of Foster's Shanghai brewery, when the Australian management team decided that all the banquets with external people, suppliers and lower-ranked government officials should be terminated.

Following this action, Foster's Shanghai noticed that every time there was an electricity shortage - which happened frequently - they were the first to lose power. For a brewery, if a brew was half way through and heating was withdrawn a drop in temperature usually meant loss of the brew. This was observed in other areas such as shortage of supply and fines for hygienic issues, which occurred often.

After about a year, this policy was reviewed and management permitted banquets with suppliers and officials. It was noticed that power failure was immediately reduced as well as the other inconvenience and fines. The management review later concluded that the costs of banquets were less than the costs of lost production on a regular basis.