Economists, politicians, and shoppers focus so much on the massive flood of Chinese imports that we end up paying too little attention to the products, services, and business concepts exported from the United States to China. The vast differential in income between the United States and China has precluded a rampant growth in U.S. exports to China. U.S.-made cars, American doctors, and steakhouses remain far too expensive to appeal to the typical Chinese consumer. (Click here to follow Daniel Gross).
But plenty of U.S. brands have found China to be fertile ground, especially down-market brands that are able to position themselves as aspirational, premium (but not too premium), somewhat affordable products for China's vast and growing middle class. In America, interest in direct-selling tends to decline among higher-income consumers. But the experience of Mary Kay, the iconic, middle-American direct-sales cosmetics firm, proves that an American direct-sales firm with Chinese characteristics can do quite nicely.
Mary Kay was the brainchild of Mary Kay Ash, a Texas housewife who started her own business in the 1960s and built an empire of sales by and for women at a time when women had few outlets for entrepreneurship or management. It's part down-home faith (service to God is one of the firm's key tenets), part New Agey, Oprah-esque self-realization, and part good old American hucksterism/optimism. Associates can move up the ladder by recruiting other sellers, and they aim for totems of performance recognition, such as diamond bumble bee pins or pink Cadillacs.
The pink-themed company is a big deal in what Americans used to call Red China. Mary Kay China's headquarters occupy four stories in Tower 2 in Plaza 66 Shanghai's fancy mixed-use complex with high-end stores such as Fendi. The spotless, high-gloss offices are filled with images of the bejeweled, heavily made-up Ash and her many maxims in both English and Mandarin, as well as information about the company and its history, beliefs, and values. (There are a few slight changes. A reference to God is changed in Chinese to a more anodyne statement about faith, for example.)
The uplifting talk and homilies strike a lot of Americans as hokey. But in Shanghai, aspirational phrases are part of the lingua franca. We heard the motto for Shanghai's upcoming Expo 2010
repeated for us several times yesterday: "Better Life, Better City." (Given the torrential downpour that greeted President Obama, I'm wondering whether "Wetter Life, Wetter City" might not be more apropos.)
Mary Kay did not have any easy transplant to China upon its arrival in the mid-1990s. Direct-selling didn't catch on rapidly in a country where knocks on the door could signal something far less benign than the offer of a new moisturizer. And in the Wild West days of early Chinese capitalism, pyramid schemes and Ponzi schemes thrived. When direct-selling was banned in 1998, May Kay retrenched and changed its model. It set up showrooms around the country, paid agents to represent the products, and maintained corporate control of the inventory. In 2006, however, a new law permitted direct-selling. Sales directors must have fixed locations and licenses. And selling in homes is still frowned upon. The company maintains 35 showrooms around the country.
Mary Kay China has emerged as a juggernaut. It has 200,000 sellers, and sales grew 50 percent in 2008. "This year, even with the economic situation, we're about 20 percent growth over last year," said Paul Mak, president of Mary Kay China. China now accounts for 25 percent of Mary Kay's overall sales.
Mak showed us around the high-gloss, spotless offices with great pride. Four floors, two of them connected by a curving pink staircase. There's a break room with foosball and a pool table and a room for women—70 percent of the corporate arm's employees are women—to bring small children. In the spirit of Mary Kay, who viewed her efforts as equal parts business and social work, the company makes interest-free loans to businesswomen. Mak points to photos of top-producing sellers, women whose ages range from 27 to 62. Women whose accounts bring in 100,000 renminbi per month for a year (about $170,000 in sales per annum) have the right to use a company pink Chevrolet.
The feel is as much Madison Avenue as it is Main Street. And like many brands coming to China—Avon and KFC, among them—Mary Kay has adjusted its products for local tastes. Chinese women aren't big users of makeup. Mary Kay's Chinese product line is heavier on skin care, anti-aging, and whitening creams, some of which can be quite expensive. A four-week supply of one cream Mak showed us goes for about $120. Mary Kay isn't a super-premium luxury brand in China. "We're like Häagen-Daz or Starbucks," said Mak.
Things seem to be Mary Kay's way, even the traffic. When you look at the window onto the broad expanse of Shanghai's traffic-clogged skyline, you can clearly make out a huge sign in the distance. It flashes Mary Kay in English and in Chinese characters. Mak notes that it looks over an elevated expressway that is frequently jammed with traffic. "When people drive, they have to look at it for two or three minutes."