Disney CEO Robert Iger joined a panel entitled “Tapping into China’s Changing Culture: An FGF Town Hall” recently. During this discussion he shared about the growing importance of China as a place of business for the Walt Disney Company. He also talked about lessons learned and some of what he sees for the future of Disney in China.
Afterwards, he was interviewed by CCTV2 where he shared about being a global company that still is focused on local needs as they strive to remain culturally relavent to cultures around the globe.
Here is that interview:
Here is a transcript of the town hall with Disney CEO Robert Iger:
Tapping into China’s Changing Culture: An FGF Town Hall
- Angela Ahrendts, Chief Executive Officer, Burberry
- Robert Iger, President, CEO, and Director, The Walt Disney Co
- Wang Jianlin, Chairman, Dalian Wanda Group
- Janet Yang, President, Janet Yang Productions
- Victor Yuan, Founder and CEO, Horizon
- Joshua Cooper Ramo, Vice Chairman, Kissinger Associates
- Kristie Lu Stout, Anchor, CNN International
June 6, 2013
GEOFF COLVIN: Our next session is called Tapping into China’s Changing Culture. An FGF, that’s Fortune Global Forum, an FGF Town Hall. And we’re going to start with a panel to frame the topic moderated by Joshua Cooper Ramo, who is the Vice Chairman of Kissinger Associates. And then in the second half, Joshua will be helped by our moderator from the floor, CNN Anchor Kristie Lu Stout.
So for starters, please welcome Joshua Cooper Ramo and his panelists. Joshua. (Applause.)
JOSHUA COOPER RAMO: Well, it’s a pleasure to be here with you all today in Chengdu, and to have the chance to talk about the interaction between culture and economics and brands in the future development of China. Particularly great to have the opportunity to do that in Chengdu, in Western China, where development is obviously taking its own path.
Angela, I thought I would start with you a little bit. Can you talk some about the Burberry’s experience in China, your own experience here, how you came to understand the market, develop the market, and how you think of it today?
ANGELA AHRENDTS: Sure. We were quite fortunate. The brand has been in the market for close to 20-some-odd years. We had a partner long before I was with the company. And we acquired our business back about two-and-a-half years ago. We still have 15 percent equity stake with a local gentleman in Beijing. But we could almost start over.
And so what we opted to do, and we were so fortunate because our corporate strategies were actually so aligned with strategically what needed to happen in the market. So out of the UK one of the ways that we transformed the company in the last eight years, we just reinforced our Britishness. That’s our greatest differential advantage up against our big French and Italian peers. We were born from a coat. So we have really just reinvented the outerwear category, if you will. We also strategically, eight years ago, said that we were going to target the millennial consumer.
JOSHUA COOPER RAMO: Including in China.
ANGELA AHRENDTS: Worldwide. It was a part of our initial global strategy. And the rationale for that was, as the high net worth were going up around the world, they were 25 years younger in China, 15 to 20 years younger in India, Latin America than in the developed market. So we felt that was our blind spot. That was our white space against our peers. And then we said if we were going to target a millennial consumer, we needed to do it digitally.
So when we bought the business back here it was really interesting, because we spent quite a bit of time here, and I met with thousands of our associates, et cetera, to retain them with the company as it was transitioning. And one of the things we told them was it’s one of the oldest countries in the world, but it’s got one of the youngest, most digital savvy consumer groups. And the same thing with Burberry. We’re 158 years old. We’re an old company, but we are one of the most innovative when it comes to digital, et cetera.
So we felt that the consumer and the country was very aligned, strategically, where we were. And we simply took what we had done around the rest of the world, applied it here, and the results have been phenomenal. What was that experience like to go and talk to those thousands of your employees here, some of you must resemble your consumers here as opposed to those kind of conversations in other countries?
ANGELA AHRENDTS: It’s a great question. I’ll actually never forget the experience, because we took over a ballroom in a big hotel in Beijing, and I looked out and it was almost like everyone were clones. Everyone had on the perfect uniform, and our prior partner had them almost look alike. And everyone was just perfect. And I almost had to regroup myself to have a conversation with them.
But I was just so authentic, and I will tell you it was probably 90 percent young women in the room. And I shared with them our values, shared with them how we led 9,000 people around the world that worked for the Burberry brand, and they would all be on a bonus program, all have shares in the company. We would care about what they did next. They would have tremendous opportunity if, in fact, they stayed with us. I shared with them that I have three kids, and have been married a long time, and that was very acceptable.
So they felt us. They connected with us. And out of the 800 at that point in time that were in that room, all but three resigned from our partner to us.
JOSHUA COOPER RAMO: Bob, I think that leads to this very interesting question, which is in sort of making that transition across the border internationally to China, authenticity seems to be a watchword of what works. It is in a way different cultures, different development trajectories, different views of the world in some regards, but this seems to be a touchstone. Can you talk some about the Disney experience, which I know has been about this question of how do you both be very Disney and be very relevant locally?
ROBERT IGER: Yes. Well, I think there’s a misconception that exists in the world, because technology and development overall has created access to markets, to territories, to countries that is unprecedented, meaning we’ve never seen it before, that maybe the world is gradually becoming kind of a one world culture. And I think that’s absolutely not the case.
I think you can really trip a company up if they start believing that, because the pride that geographies or countries, or markets have for their own culture, and the desire to own and control it still is quite existent, whether it’s for political reasons, economic reasons, or just nationalistic reasons.
And so if you are a global brand like Disney, and we’re different from a brand perspective because we’re not a consumable, really, even though people consume our products, they buy our product. We’re much ore of an experience brand, whether you’re watching a movie, watching a television show, certainly going to a theme park. And I think because we are an experience brand, we touch culture in a very different way than a typical luxury brand might.
And when that happens I think you have to be very careful. You have to have a very deft hand, because on one hand the Disney brand and what it stands for is of interest to the culture and to the people in the culture. Disney, that’s certainly the case we’re an optimistic brand or an inclusive brand. We’re a brand that is viewed as good for me and good for my family. There are values to the Disney brand and what it stands for that have interested people all over the world. But, it’s very, very important that while we bring Disney to a market we make sure that in that market it feels like, for instance, China’s Disney. It can’t just be the Disney that exists in carbon copy form somewhere else in the world.
JOSHUA COOPER RAMO: So what are the tricks to that, making it feel like China’s Disney?
ROBERT IGER: Where we’re most in tune with this is the development and the design and the construction of Shanghai Disneyland. We spent 11 years negotiating for the ability to bring Disneyland ‑‑
JOSHUA COOPER RAMO: It’s such a signature project it’s worth probably doing 30 seconds of history on it for people, how did you get here. You mentioned 11 years ago, but it’s actually quiet a story behind it.
ROBERT IGER: Sure, Disney has had four parks around the world, two in the United States and California, and in Orlando, one in Paris and one in Tokyo. Tokyo opened 30 years ago. And some time in the ’90s started looking further a field in Asia for other markets. Hong Kong was an obvious one. But, even back in the ’90s China was starting to show signs of emerging. And it’s amazing when you think about what’s happened since then, of course, because it doesn’t look anything like it did then.
And the company made a decision that Hong Kong should come first, that Shanghai, and we looked at other places in China, but it was clear that Shanghai was the number one choice, that Shanghai should come second. So we negotiated a deal to put Disneyland in Hong Kong, started the negotiation in Shanghai, and that lasted 11 years, 11 years. I was involved since 1999, and dealt with multiple entities, all with a desire on the Chinese side to bring Disney here. But, there were some very, very large complications on so many levels, financial and creative and logistical, and you name it.
But, finally we were able to close a deal, break ground in 2011 and the castle is going up as we speak. There will be soon some 14,000 workers living and working on the property, constructing Disneyland Shanghai in Pudong, actually, to open some time late in 2015. Now that can’t be the Disneyland that Walt built in 1955 for all kinds of reasons. But, it can’t be the Disneyland that Walt built in California, because this is China. It has to look, feel, resemble China’s Disneyland. And that has taken a lot of thought, a lot of work. Now, there will be things about it that will look very familiar. It has a castle. And there will be things about it that will not exist, or that don’t exist in any of the parks that we have.
JOSHUA COOPER RAMO: And you mentioned the sensitivity of it, how do you make sure that you’re not stepping on the wrong subjects? How do you make sure that you’ve got a cultural experience that fits the ‑‑
ROBERT IGER: You never know 100 percent until you open it. You listen to a lot of voices and a diversity of opinion about it. And one of the first things that we discovered is that the initial people that we were dealing with were of one generation, had certain ideas, but there were whole other generations, and there were other geographies in China that had different ideas. So we essentially collected a multitude of opinion, and ultimately when you’re creating something you can use all the research in the world that tells you what you’re supposed to make. In the end it comes down to the gut feel of the creator to make what they really felt would they want to make, but what they feel is right, what the audience wants.
In the end this will really be our decision, but based on a lot of time spent in the market and a lot of collaboration, a lot of listening, and we’ll keep our fingers crossed that we’ve done it right and chances are there will be things about it that won’t be perfect, and we’ll learn and adapt quickly. By the way, one of the interesting learnings, I don’t mean to belabor this, but one of the things that we discovered in Hong Kong, which is very different than anywhere else in the world, is that the people who visit Hong Kong Disneyland like to spend twice as much time eating than they do in Florida, or California, or even Paris and Tokyo. We couldn’t figure that out.
So when people take twice as long to eat you’re turning tables over in a restaurant basically at a much lower speed. And we didn’t have enough. We just didn’t build enough eating capacity. Now, we quickly adjusted, but that’s something all the research in the world I don’t believe would have taught us.
JOSHUA COOPER RAMO: I wonder if in Shanghai people eat faster or slower than Hong Kong people.
ROBERT IGER: Maybe, by the way we made sure the menu was right. But, we didn’t get it quite right in terms of how long it would take them to eat the food that we were making.
JOSHUA COOPER RAMO: It’s a great story.
Wang Jianlin, you have a lot of experience building different sorts of properties for Chinese consumers. How should a foreign audience understand the development in recent years of Chinese consumers and the Chinese consumer economy?
WANG JIANLIN: China’s economy starting in 2011 slowed down. The economic growth rates almost dropped to seven or eight percent GDP annual growth. Therefore, some of the Western economies, including domestic economies, thought the Chinese economy had a big problem. It’s for sure China is having big trouble. Some people would even say very quickly China will enter into stagflation, or even like Japan, we had the last two decades. So I think those people are looking, they are standing on all sides of China, looking at China. Now they’re standing inside China looking at China. So personally I feel my company is still rapidly growing, expanding, increasing investment, every year we are going to make investments up to $20 billion U.S. dollars, expanding continuously, because we are confident based on two reasons.
The first one, China’s urbanization process right now 52 percent is the urbanization ratio, but in reality less than 30 percent, because people live in the cities. Over 200 million did not enjoy any residence permit, or social security. They don’t have that. They don’t have the pension. They don’t have the Medicare insurance, and unemployment insurance, et cetera, et cetera. If you deduct all these people, urbanization ratio is only 40 percent in China.
Therefore, we need to embark on a new type of urbanization. All the people entering the city, to live in the city, have to have insurance. By 2020 China’s goal is to reach 70 percent, 80 percent by 2030. Following this objective, even based on 70 percent, which means close to 200 million people, will enter into the city in the future. They need jobs, they need a house, an apartment, they need to go to movies, they need to eat. So it’s a huge market there. Therefore I believe China’s market to be maintained at a high growth rate, 8 percent, slightly slower, slightly higher, I think we still will have about 20 years of this type of 8 percent growth rate, because of urbanization. Secondly, China has not completed its industrialization. In the U.S. you want to build highway, in Europe, now no car will be there, no toll gate. If you want to build a railway no people will take the railway. But, if you look at China, once China makes the investment into high-speed railway, many of them, at an initial beginning people say, it will go bankrupt, not many people will take that service.
But, if you look at all the high speed trains, all the roads are so crowded, Beijing to Shanghai, a full basically 80 percent or 90 percent, which means China has not completed its industrialization. The huge demand it still there. Therefore, urbanization, industrialization two things put together, a mature situation leading to a huge demand, where we determine at least China will have another 15 years or 20 years of high-level economic growth. Right now also the economy slows down, but as long as we have some kind of economic reform to release the vigor and vitality, very quickly we will rebound.
JOSHUA COOPER RAMO: Both of the other panelists raised the question of differences in ages, differences in generations, and differences in taste in a way as a result of that. Angela talked about the so-called millennials, Chinese, the Balinghou, Jolinghou (ph), the people born after 1980 and 1990. How do you see the differences of tastes and habits and ideas changing in the younger generations as opposed to the older generations?
WANG JIANLIN: Right now the young people change very, very greatly, not only in China, but in many other countries, as well, creating a change of their consumption habits. For example, we did not have Internet, but now see how many Netizens we have. We did not have in China karaoke and movies, creating a lot of new demand. I think right now in the Chinese economy, there are two things in terms of consumption. We are focusing 15 years old to 35 years old age groups are shopping malls arranged with the fashionable brands, or more catering, more entertainment. But China has another different segment, huge demand is the senior citizens. Aging in China comes very fast. I think within 20 years people who are about 60 years old, we’re going to have over 200 million about 60 in age. So the pension in China is bigger than what you can imagine. So the government in supporting the patient policies is very good for the land. All the other land, you need to be auctioned. But if you do a senior citizen home, you only need to sign an agreement with the government getting long-term low interest loans from the government.
But in China, we are not only looking at the younger generation, China has a gray hair industry so to speak, the senior citizen industry, which will also grow, have a bigger impact, or stimulation on the future demand that will be equally as strong.
JOSHUA COOPER RAMO: Earlier when we were talking backstage is that the nature of being in a creative brand business is very different, I think, particularly in regards to sort of what we just heard about the nature of change, the scale of the change on so many fronts in China. How does that affect the products that you’re bringing to market here? You said earlier one of your great strengths is your Britishness, but it sounds like also one of your great strengths is a sensitivity to the market.
ANGELA AHRENDTS: I think like was just mentioned, you can’t look at the market in the aggregate. I mean, we basically break it down into three different consumer segments. If you believe anything you read in the typical McKinsey Bain reports that come out every month, will the middle class rise seven-fold in the next three years.
JOSHUA COOPER RAMO: What are the three segments you break it down into?
ANGELA AHRENDTS: We basically say it’s the first-time aspirational luxury customer, that’s the rising middle class. And they might come in and buy one thing a year, their first great. And interesting, don’t even think of it as luxury, they just have a natural affinity for great global brands, because that’s what they’ve been seeing online, and that’s what they long for. So once they’ve made it, now they want those. And I don’t care if it’s a Starbucks or Apple or their first Burberry bag.
But then you do have those that have had money for a little while, and that’s what we call a core luxury customer. They’re coming in. They’re buying a wardrobe. They’re buying many more things. They’re coming in every month. But then you have the fastest growing ultra-high net worth anywhere in the world today, and they want a very different type of service, exclusive products, customization. And so how do you take a historic brand that absolutely has targeted a millennial consumer, but how do you make sure that you have what they need and want, what they need and want, but you still have those core iconic products that satisfy?
And interesting in our sector, I think the other thing that’s so important is we don’t also just look at Mainland China. Yes, it’s 14 percent of our total retail/wholesale revenue. And, yes, we ended the year at 20 percent. Phenomenal market, and we’ll continue to grow. And yes, McKinsey says that it will be half of luxury consumption in the next three-four years.
But the statistic I like better is that 100 million will travel outside of China in 2015. So we’ve armed. We know those 25 flagship markets around the world in order of where they want to travel from Hong Kong to Macao, to London, Paris, et cetera. And those stores have Mandarin speaking sales associates, Mandarin speaking VIP services. And we also know that before they travel, they will go online, and they’ll come into the store with a list, because there’s a huge price delta, and typically when they travel they spend ten times more than if they shopped here. So it’s another huge opportunity, I think.
JOSHUA COOPER RAMO: Do you have a way of measuring what you’re capturing outside of China in addition to that 14 percent of Chinese consumers who are buying?
ANGELA AHRENDTS: Not a perfect science. But we estimate it’s about 25 percent of our global volume catering to a Chinese consumer.
JOSHUA COOPER RAMO: Bob, that suggests some of the incredible upside that’s out there in a wide range of products for Chinese consumers. Wang Jianlin was saying backstage that he had some of your English teaching academies at some of his properties. How do you look at the market, and everybody is obviously focused on a theme park. You’ve got a lot of businesses. How do you think about the scope of the market? Will you ever have 25 percent of your revenues coming from China and China-related?
ROBERT IGER: Well, I don’t rule that out. It has been an incredible growth market, not just for Disney, but for global media companies because of the substantial investment in infrastructure that traditionally delivers or distributes our products. So for instance, movie screens which Wanda has obviously been a big part of. This market has very quickly emerged as one of the most important markets in the world for the movie industry. That was unheard of five years ago.
We just opened Iron Man 3, which I know came up earlier, it’s done $121 million of business in China already.
JOSHUA COOPER RAMO: That’s also such a great case study. People had this view of China that there was going to be no theater market here because there were so many fake DVDs floating around. And it turned out actually the reality of China’s consumers totally defied that.
ROBERT IGER: I think that speaks to something that came up earlier, which is the whole notion of authenticity. People are not only looking for luxury brands, they want them to be authentic. They want them to be real. They want them to be high quality. And when you’re talking about a movie, there’s nothing more authentic, nothing higher in quality than that experience of seeing it in one of Wanda’s great theaters, for instance, a great big screen, great audio quality. And the investment that’s being made in that infrastructure alone has turned this market into an extremely important market for the movie industry, of which obviously we participate.
Television is the same. There’s been great growth there. But there you have restrictions still on international brands, international intellectual property. Yet we’ve managed to increase our presence in the market operating within regulation. This is also a market that is leapfrogging traditional media in many respects. And we’re seeing this dramatic increase in mobile devices. They are really media platforms in so many ways. I know they’re commerce platforms, and communications platforms, social platforms, but they’re phenomenal media platforms.
So the notion of needing to be on television so that we can program on a fixed screen in a household is no longer the case anymore. It’s about getting on mobile platforms, and mobile devices. So that’s all very exciting.
You referenced a retail growth, too. We’re in the retail business. So obviously this is a big market for us. What you mentioned about Disney English, or what was mentioned earlier, we recognize that English was definitely a second language value here in China, and also looking at trends in terms of spendable income particularly on discretionary items, and the desire by parents and grandparents for their children or their grandchildren to be smart and to learn, we felt there was an interesting opportunity to get involved in the English language learning business.
We opened up a pilot school in Shanghai not very long ago, which was a Disney-branded English language learning program, where parents or grandparents take their child to the school weekly for I think it’s two one-hour programs, or one two-hour program a week as a supplemental product. We got the approval of the Shanghai School system fairly early on. We invested a lot in the curriculum. We’re very, very serious about that. And that needed to be effective and real.
And then we decided to start expanding it. And we now have over 45 schools. There are two in Chengdu. And there’s obviously opportunity to grow. It’s also a people intensive business, meaning there are operational challenges because we have to train good teachers to do this all over China, and make sure that the experience that children have when they come to our learning center is a Disney experience. It has to be clean. It has to be safe. It has to be high in quality. And it has to be basically successful from a learning perspective. So it’s not something where you immediately say we’re going to build 250 of them, and you’re there. I know 45 sounds like a lot, but we’re still walking before we run.
JOSHUA COOPER RAMO: Wang Jianlin, one of the issues that you and I have spoken about, and I think you have a lot of insight on, so I thought I might ask you to talk to the audience about it as well, is the role of tradition in contemporary Chinese culture, the role of history. Even though we live in a modernizing period, one of the points you’ve made often is that you make sure that there’s always a historical element of that. And I think the nature of the becoming modern in China, and the nature of becoming modern in the West, these are processes with differences, as we’ve been discussing. I wonder if you could talk a little bit, I’d say particularly for the foreign audience, about this desire to both be very traditional and very modern at the same time?
WANG JIANLIN: I don’t think they are conflicting with each other. For example, in contrast to the U.S. or the UK, China has had a much longer history. We always say 5,000 years of history. So a very important trait of the Chinese DNA is its attachment to traditions, in terms of its ideas and thoughts, and rhetoric, and the philosophies. Everything has to be traced back to history. Yes, we’re learning from the West, we’re introducing new ideas and technologies into China. Those two traits do not conflict with each other and the continuation of the culture is all the more important in China.
Yes, we have so many Western companies in China, but you cannot simply replicate the Western ideas and philosophies in China. They need to adapt to the Chinese realities. The Buddhist, Taoist, and Confucianist traditions were the perfect marriage of the two traditions, or the two schools. Will they be able to win recognition by the government and by the local people to garner support locally? So for Fortune 500 companies in China it’s very important, it’s imperative for them to learn traditional culture in China and how is it interrelated with the modern business culture. So that will be an approach of winning.
JOSHUA COOPER RAMO: Despite the incredible speed of modernization, this deep hold of traditional culture and history matters a great deal. I always say to foreign executives, who sometimes are overwhelmed by the scope of Chinese history, just pick one dynasty and start with that. If you can understand that, then usually it’s a gateway into other things.
Kristie, I think I’m going to throw it over to you.
KRISTIE LU STOUT: Josh, thank you very much for that. A solid discussion just then, really liked hearing Angela’s thoughts on tapping into the digitally savvy nature of China’s consumers, especially the young consumers. Robert’s thoughts on tailoring Disney experiences to China, whether it’s an upcoming Disney park in Shanghai, or the Disney English experience. And Wang Jianlin’s powerful point about the big changes ahead for China, whether it’s pension reform, the urbanization drive is a big one, the statistic is already out there that was 1 billion people, expect 1 billion people in China to live in the cities of China by year 2030 and that’s going to be huge.
Now here on the stage I have two commentators. I’m going to give you a quick intro before we get their two-minute thoughts each. And then we get into a little bit more Q&A. Now to my immediate left is Janet Young. She’s the President of Janet Young productions. She is a cultural ambassador. She is a filmmaker. Her film credits include, we were talking about your working with Steven Spielberg back in the 1980s for Empire of the Sun, The Joy Luck Club, The People Versus Larry Flint, which is such an awesome movie. You also worked on tailoring High School Musical, a Disney franchise, to audiences here in China. And most recently your film Shanghai Calling, which is about an American ex-patriot lawyer from Wall Street coming out to Shanghai, setting up an inaugural office, so any resemblance to persons in this room purely coincidental.
Also joining me on this stage another commentator is Victor Yuan. He’s the founder and CEO of Horizon. Horizon is one of the most prestigious research firms in China. It started in, what 1992. It does research into social issues, into political issues. A recent Horizon bit of research that caught my attention was about mayors in China. And you discovered that the majority of people in China cannot name their own mayor. But, not only that, you also researched popularity levels of various mayors in China. And the mayor who has the highest approval rating is the Mayor of Chengdu, so go figure.
All right. Two minutes each.
Janet, your reaction to what we just heard.
JANET YANG: This is really an honor to be here. And the conversation today is absolutely fascinating and I hope I’m not too staticy. This is the conversation that I’d most like to have, because it’s been a long time coming. This is the moment for China and especially for China’s youth to really stand up and have a voice. It has been ‑‑ every day there are surprises. And the fact that there are three amazing brands, as represented on stage today, all working diligently in the China market I think is fascinating.
And to me that represents something that has never really happened before, which is the number of choices that Chinese youth have today. They can buy a very well known brand like Burberry. They can wear it proudly. They can go to soon a Shanghai Disneyland, something that they dreamed about doing and thought they would have to leave the country to do and then they can be extremely proud to attend a movie at a Wanda Cinema, which is the best that the world has to offer these days. This is phenomenal.
And the fact that it’s all at their doorstep is also extremely encouraging and I think for me what is most gratifying is that now the level of conversation, the level of, I guess, in Chinese sish-yang (ph), or suwai (ph), has come to a level where it’s really about who am I. I think Chinese youth can really ask the question on a very deep level, what are we really going for now? What is my purpose in life? It’s no longer just about getting three square meals a day.
And I think it is empowering to them, perhaps a little bit intimidating at this moment in time to have so many choices and know that the world is watching and that the world is asking them to be part of the conversation. But, I think ultimately it is something that we will see happening on many different levels, the fact that they will have a creative voice. They are no longer just consumers, before maybe they were workers in factories. And then now they’re being looked at as consumers, but I really think starting from today on they will be seen as a creative and innovative force. And will be able to maybe influence the designs of Burberry, will certainly influence the look of Shanghai Disneyland, and obviously will very much affect what Wang is going to do with the Wanda cinemas.
So I think it’s an amazing time. What I’ve been telling friends of mine who are in this group is that they are not only the leaders of China, but leaders of the world.
JOSHUA COOPER RAMO: A good point about this new individualism that is taking root among Chinese consumers today. And that underscored by the catch phrase the Chinese dream. And asking anyone what is your dream? And everyone has a very own individual dream.
All right. Victor, your thoughts on the conversation so far.
VICTOR YUAN: Okay. I’m happy to see all the panelists from the Western company, or from the Chinese company that pay special attention to the special characteristic of Chinese customers’ culture. I basically have two points about it in my personal comments. First, I think now China has a more and more open society, and they gave more space for all kinds of different culture. We’re talking about the new rich. We’re taking middle class. We’re talking about massive, different massive groups, migrants group, and also youngest group.
So the different groups have their own space that could be called coexistence in this culture. And as a culture we are quite open for all kinds of fashions, fashions from Japan, Korea, Finland, Switzerland, France, American, all kinds of fashion can find your space in China, too. So Chinese culture as a definition, the Chinese culture, it’s not only about a kind of a type of culture, as a central place for all kinds of fashion. So it’s quite a target culture to all kinds of different products, service, and fashion.
The second thing I think I should emphasize about the importance of a young culture. When I look at the different companies, for example, Best Buy in China is not a successful case, but a Suning, and Jingdong, that’s a successful case. And Ali Baba is a successful case. But eBay is not one. The reason, the difference is about if you only look at the new rich and the middle class in China as a place to do harvest, and you must agree with the young people. So Ali Baba using the C-to-C strategy has encouraged all the young people to do a web store. So they’re gearing up now. They can start up a store so they could have the big B-to-B web store. But, eBay will come to China, the only folks are in the middle class. So which is most of Western companies, they only look at that good market. But, actually it’s not a sustainable way.
The sustainable is like MSN from Microsoft, compared to QQ from Tencent. And QQ is using a Korean strategy. But, the MSN only looks at business and the middle class. So finally you can see QQ is successful, but MSN is not. So this is assurance that the young culture is not only a type of culture. Young culture is the most influential culture. So actually the young people, the daughter influences the mother, son influences the father. And as a fashionable culture and a juvenization culture is the most important culture.
So that’s why when we look at Mr. Wang he’s talking about the focus on the young people, yes, that’s right. We must focus on the young people. And I’ll tell you a story. There are many luxury brands from the West and they target at China’s middle class, and the new rich, but actually it’s a short-term strategy, because the fashion is overly older. The people look older. You buy it as a gift, but you never wear. Zygna is more using the juvenization strategy. So you can find successfully, people buy and wear. To be frank, when we talk about Disneyland, in China most fashion is not Mickey Mouse and Madonna, Mickey Mouse anymore. Now it’s Xi Yang and Huital Ontai (ph). So the reason is the young people, the focus is shifting. It’s different. So that’s why I think now a days China is not only also a young China. It’s really a young dominated China.
KRISTIE LU STOUT: Victor, I think it’s interesting that you brought up the example of Xi Yang or Happy Lamb. And this question, I’ll pose it back to Robert Iger. I was talking to one of your deputies in China, because I noticed in the Hong Kong Disneyland store there is a lot of merchandise by Xi Yang. And Xi Yang is huge in China. Did Disney buy Xi Yang? Was I not aware of this deal? And it turns out it’s a licensing arrangement. Tell us about the decision making that goes into Disney when you think this is a property we’ll want to buy, like Iron Man, Marvel; Star Wars, Pixar; or something that we want to just have a licensing agreement for?
ROBERT IGER: It has to be a blend, not whether we own or license, but the product and the experience that we’re going to offer in Disneyland Shanghai, and in Hong Kong, is not just about bringing Mickey Mouse to China, it’s about looking at China today and seeing what’s popular and figuring out a way that we can have a commercial relationship with that product, that intellectual property, so that e can offer it to the people who visit. And that’s what we did with Xi Yang.
VICTOR YUAN: That’s it exactly. And Rob talked about that at Disneyland in China is not only the international Disneyland, this is a Chinese Disneyland. So I think the strategy itself, the focus itself, the strategy itself is right.
KRISTIE LU STOUT: It was very key, Robert, that you used the word “experience,” and the “Disney experience.” Now, my next question is for Mr. Wang. I think we all read the great story in the Fortune magazine, we all got copies in our hotel rooms, the profile of you, the profile of Wanda Dalian, and your plans ahead. You are a property tycoon. You’re very interested in the entertainment business. In the Fortune magazine article it said that you planned to open “a Disney-style” theme park. So what does Wanda plan to do in China that Disney can’t?
WANG JIANLIN: Well, in China we’re pressing ahead with the Wanda tourism city. Every project like this will cover several square kilometers of land, what we call Wanda Tourism City. There will be small theme parks within the so-called “cities,” not as big as Disney, and not an open park. It’s covered. It’s roofed like the Terminal 3 off of Beijing International Airport. There will be lots of catering, restaurants, indoor entertainment, high tech movie theaters, karaoke, and bars and hotels. So the theme park is only part of the Tourism City.
We will unveil at least ten of them, but none of them is going to be as big as Disneyland. It will pose no competition to Disney at all.
KRISTIE LU STOUT: Competition. You wanted to say something, Victor? Janet, maybe you wanted in.
VICTOR YUAN: I think this is important because now we are in the time where there’s a fever of commercial real estate. Everybody is coming into this market and developing shopping centers. But a Wanda is quite different because they’re doing very much about accumulated resources. The young people in China, so any good things ought to be interesting things. So that’s why I think there was quite a foresight about ‑‑ (inaudible) ‑‑ and compared with a shopping center, your new building construction. So you counter the competition with so many numbers of new commerce in commercial real estate.
KRISTIE LU STOUT: Janet you’ve been in the experience of translating experiences ‑‑ I’m sorry, you’ve been in the business of translating experiences, not in terms of like property or theme parks, but High School Musical. How did you make High School Musical, which is such a quintessentially American franchise Chinese?
JANET YANG: Well, you know, I very much enjoyed working with Disney on that, and the people on the ground here are extremely experienced, and know the entertainment market very well. And I was very impressed with how flexible they were in taking one of its greatest franchises and adapting it to the Chinese market.
So for instance, everybody told us in high schools across China, it’s nose to the grindstone. Everybody is preparing for the Dao Kao (ph). They wouldn’t be singing and dancing in the hallways. So the Disney executives ‑‑
KRISTIE LU STOUT: And the Dao Kao is happening this weekend.
JANET YANG: Yes. I know. I feel for everyone. So they allowed it to be set in a college, for instance, and they knew that the popular guy who played basketball would not necessarily be the heartthrob in China that would be in America. So we had this character called Poet. And I think just in general I feel that there’s so much two-way exchange now, it’s really kind of an even playing field. Having grew up in America, China was kind of a distant place that really people didn’t pay too much attention. And certainly it didn’t appear to ever be a cultural leader. And I think now, I think Mr. Iger and Mr. Wang have as much to learn form each other one ways as the other, because there is so much impact, and I think America and China make very, very good bedfellows right now. They each have something the other wants. And I see some just wonderful interaction and reaching out and really trying to understand so that together really we can transcend the differences of the past, and really create something that goes beyond what has existed.
KRISTIE LU STOUT: And that is going to come to the fore this weekend, when you have Xi Jinping sitting down with President Barack Obama for a very informal get to know each other talk.
I do have one more question for Angela before we open it up to the audience. You have to take into account the cultural differences, and also China is such a dynamic market. Things are always changing here. One thing that has changed, and probably I wouldn’t even say in the last year, maybe the last seven months, is the austerity campaign launched by Chinese President Xi Jinping, the cutting down on lavish spending by government officials, and by higher up executives and state-owned enterprises. And I know that is hurting the bottom lines of major watchmakers, but is it affecting Burberry at all? And how are you operating around that?
ANGELA AHRENDTS: I think it’s having some impact on every luxury brand depending on your strategy in the market. I think we were fortunate to be less affected because we were just typically less of a gifting business, if you will, and because we’ve, again, only been playing aggressively here for a couple of years, and have been so specific on this younger audience that we’ve been engaging with, and targeting, if you will.
And it’s interesting, not targeting to sell, I think very much to what Bob said, engaging experiencing, educating. We give 1 percent of our profits back to communities where we build stores, et cetera. So we’ve been rolling those programs out, and talk about those programs throughout social media, et cetera, because I think the next generation is not just shallow about what they want. They want great global brands, but they want great global brands that also have a heart and high values, et cetera.
So I think that, again, our strategy has been slightly different. I think this is absolutely the new normal. I think that it is absolutely what a great leadership team does in a market hat’s rapidly developing. So we’ve adjusted everything accordingly. And I think like I’ve said before, we’re so focused on the consumer in general wherever in the world they are.
It’s funny, only 20 percent of Americans have passports, 70 million people, and 100 will travel outside of this country in the next three years. So the numbers are just staggering.
KRISTIE LU STOUT: With that, let’s open it up to the floor. Any questions, I know I’m seeing time is up here, but I’m hoping we can just get in a couple of questions. And if I don’t see anyone, I may point out ‑‑ I see Alan Zeman over there, who is in the experience building business. You’ve got to have a question for Mr. Wang and Mr. Iger. Let’s bring him a mike.
QUESTION: The Chinese consumer, as we all know, is an up and coming consumer, young, aggressive, traveling the world now, really getting to know what the rest of the world is like. And, of course, the world is now coming to China.
When you’re building a brand, how do you go about fitting into what they like? How do you know what they like? How do you try to gear your product to the market that’s changing so quickly? And in looking at China, China is one word, but literally if you know China every city is different. Every city has their own culture, has their own people, their own wants, their own needs. So how do you kind of gear your product to the city or to the market?
KRISTIE LU STOUT: It’s a very good point. And it was a point brought up in an earlier panel I was one with Lei Jun of Xiaomi, and he talked about his use of social media to constantly be on the pulse of what his customers want. So you may be cool and hip and on the scene right now, but there are so many disruptive technologies, and disruptive trends, how do you make sure that you will keep your edge?
ROBERT IGER: I think the first thing you have to do is you have to obviously be aware of what your most significant brand attributes are. What makes your brand your brand? Why is it great? You have to focus on quality and on those attributes that, again, created the value in the first place. You can’t look to cut corners. You can’t look to make something with your brand on it that’s any cheaper simply because it’s going into a market that may not be able to afford it the way another market may have. You can’t compromise in that regard. So it starts with what I’ll call quality and a respect for an allegiance to the very brand attributes that created the value in the first place.
Then I think you have to be, as we talked about earlier, and come up a few times, you have to be incredibly aware, you have to have your ear to the ground, you have to have people on the ground from that market that are essentially teaching you enough about the market, it’s likes and its dislikes, so that the product ultimately feels right for that market. In our case, again, I think because of what I said earlier about pride and local culture, and ownership of local culture, it has to feel like theirs. It has to feel like the markets.
I don’t think it’s necessarily going to work if it feels like it’s some other market’s product, at least in the product that we make. It’s very, very important. What was discussed with high school musical was a successful television franchise in the United States. We could have brought it here and just put a Mandarin language track on it and put it on and I’m sure it would have gotten some consumption. Instead we decided let’s take it to China and let the Chinese make it for themselves, not just with their own language track, but their own characters and then adapting it, as was discussed rather articulately to the market, so that things that may have worked for it in the U.S. didn’t work.
There are so many different components, I think, that go into it. I was also discussed in today’s world social media and the proximity that you can create to your customer base is so incredibly intimate. It didn’t exist before. You’ve got to monitor that very carefully and then adapt very quickly. So that also means that the speed of adaptation has gone up tremendously, too. You can’t simply wait for a market to catch up to you very easily. You’ve got to react to the market pretty quickly.
JOSHUA COOPER RAMO: I think it’s a good point on which to end. And I want to thank all of our panelists, and Kristie thanks for bringing in the commentary. This issue of balancing authenticity, of who you really are, with a country that is deeply authentic, deeply grounded in traditional values, and at the same time modernizing very quickly is a great theme to end on, particularly as we sit here in Western China, which is changing so fast and does combine all of those traditions.
So thank you all very much and I think we’re off to the next panel with Geoff Colvin. (Applause.)
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