Chapter 18 Sino-US relations viewed from the perspective of Avon

Avon is a typical company among Western companies that brought changes to China and changed with China's changes.We can see the changes in China itself and the relationship between China and the United States from the changes of Avon in China in the 1990s.Frankly speaking, at that time, Avon's senior management was not very clear about the international trends outside the company's business.When the leaders of Avon (or the leaders of Mary Kay, Amway, and Tupperware) get into the details of negotiating with Chinese local governments, they tend to lose their sharp judgment on the big picture.

In the 1990s, the history of Avon's development in China was a history of foreign companies' unremitting efforts to gain a firm foothold in the new market.From the perspective of "Central America", the story of Avon is also a story of a multinational company seeking a new life in the Chinese market and contributing to China's economic development and the continuous integration of China and the United States.China has been discussing some topics in the process of development, for example, how far should China keep from the global market and the global economic system?At what speed should it move forward?Are Western enterprises and market economy beneficial or harmful to China's development?What is China's position in the world economy?Avon's footsteps have been led by such discussions.Avon's leaders are thinking about how to sell more lip balm and facial cleanser every day, and they care as little about these discussions as they care about the direction of US government policy after the "Cold War".But the Chinese government's focus means a lot to Avon.

Since Deng Xiaoping proposed reform and opening up, China experienced a period of rapid development in the 1980s. After Deng Xiaoping's speech in the South in 1992, China ushered in a new round of rapid development.Over the past decade or so, China's consumption level has increased significantly, and families and individuals are scrambling to buy commodities that were in short supply in the past.As a result, waves of consumption in China have been rising one after another.First, people snapped up washing machines, refrigerators, and television sets, and by the early 1990s, almost middle-income families already owned these appliances.Next is the telephone, video recorder, stereo, camera into the family of ordinary people.People also use their wages to do things they like to do, such as buying cosmetics, going to restaurants or having some entertainment. In the late 1990s, when these material desires were basically satisfied, China’s financial system encountered difficulties, because it was unable to provide credit and liquidity guarantees for people’s large-scale consumption activities, which led to a period of economic downturn in China. The development of time stagnates.

Recognizing that a problem exists in the banking system is far less complex than fixing it.There are four major state-owned banks in China: one provides financial services for agricultural development, one provides support for the development of small and medium-sized enterprises, and the other two have a very wide range of businesses.As traditional banks, these banks have never operated in a free market environment.They usually only accept deposits and issue loans. Until the end of the 1980s, most of the people who came to these banks to handle business were state-owned enterprises.After the loan is disbursed, the terms of repayment are not clear, and there are no mandatory repayment measures.Personal customers have never been valued by banks. Banks only provide individuals with a place to save money, and do not provide them with more services.

A thriving consumer economy demands that the banking system provide individuals and retail businesses with the services they need.Therefore, China's banking system is facing reform, especially the loan business of local banks must be reformed.Responsibility is not clear when there is a problem with the transfer of funds between banks and businesses. Zhu Rongji regarded the reform of the banking system as one of the main tasks during his term of office.Only when bank capital can support those meaningful projects and not provide them to projects that may cause waste, can the Chinese economy avoid repeated cycles of development and regression.Zhu Rongji realized that he could not blindly cater to international financial institutions, nor could he adopt shock therapy to solve the problems of China's banking system.The decline of Russia in the early 1990s and the outbreak of the Asian financial crisis in 1997 sounded the alarm for the reform of China's banking system.At that time, after a large amount of foreign capital withdrew from Thailand, the Thai economy suffered a heavy blow, which then caused a chain reaction internationally.Not only Thailand, but even the Asian "Four Tigers" (Hong Kong, Singapore, South Korea, and Taiwan), which had been developing rapidly before, were also severely affected by the financial crisis.The global financial community has reached out to Southeast Asia to prevent a general decline in global trade.The above lessons provide China with valuable experience: reform must be carried out at its own pace and in its own way, and should not be too much influenced by foreign countries.

The occurrence of the Asian financial crisis is also an important reason for the weakening of consumer demand in China, which also affects the business activities of Avon and other foreign companies in China.Avon's leaders recognized that the financial crisis would have a profound impact on the Asian economy, but they did not know how the Chinese government viewed the crisis.The Chinese government is focused on one thing at this point: implementing policies that will make China more prosperous and stable.This attitude may mean looser restrictions on foreign companies' investment and business activities in China, or it may mean the implementation of stricter control measures. These two completely different policy trends will affect the fate of foreign companies in China. is completely different.

When China's economy was accelerating its transformation, the influence of the original planned economy has not been completely eliminated.Taking the economic development data of the late 1990s as a reference, the Chinese government plans to push forward the reform process at a faster speed and with greater strides, while sticking to the road of socialism.In American party politics, the "five-year plan" seems to be an incredible thing.The purpose of the Chinese government to take such measures is to stabilize the direction of national development.With tens of millions of rural people flocking to the cities to improve their lives, putting enormous pressure on social stability, China's leaders want to see the country's economy grow robustly rather than chaotically.

There is no country that does not experience ups and downs and crises on the road to development.The United States became an important force in the world at the end of the 19th century, and it experienced an economic recession every 15 to 20 years.In the economic cycle, during the boom period, there will be gold rush, territorial expansion, land development rights grabbing, and railway construction blooming everywhere, while in the depression period, there will be bank bankruptcy, a large number of unemployed workers, and labor protests and demonstrations.The national development of the United States has also been accompanied by violent struggles between workers and capitalists, between whites and blacks, between whites and Indians, between whites and Chinese Americans, and within various classes and races.What the United States pursues is freedom and equality for all, but the reality is determined by great ideals and human nature.

China's progress in the 1990s is equivalent to the development achievements of Western European countries in a century and the United States in 50 years.China's decree prohibiting pyramid schemes has had a considerable impact on the business activities of Avon and several other companies. China avoids social chaos, so as to continue to develop on the road with Chinese characteristics. There have also been voices of opposition during China's transition to a market economy.Chinese intellectuals and party leaders have been discussing the extent to which the market should be opened without sacrificing the socialist road—one side wants more free market and less planned economy, and the other wants more common Get rich and less materialistic.

In the mid-1990s, the prospects for development in the United States were bright. The huge investment of Americans during the "Cold War" brought about the rapid development of the "New Economy" in the 1990s.Traditional companies such as Avon were slow to move during this period, and managers felt the pressure to keep up with the digital age. In 1998, Avon's leaders believed that the company had corrected the detour it took in the 1980s and was on the right track of development.Its success lies in the fact that under the background of the "new economy", it maintains close contact with the vast number of consumers by establishing a reliable business model, and does not rely entirely on high-tech means to win customers.Avon's products are sold directly to the American middle class.

But in China, Avon is still a newcomer.Its success is mainly due to the strong demand for Avon products among Chinese consumers.After the promulgation of China's decree prohibiting pyramid schemes, Avon adjusted its development thinking and opened up a new way.To the amazement of Avon executives, the new approach was an immediate success.Different from mainly serving the middle class in the United States, Avon has opened fashionable retail stores in China to provide Chinese consumers with a place to show their individuality and high-end consumption.Avon opens independent retail stores or leases special counters in shopping malls, which makes Avon a brand that consumers can see and feel.Undoubtedly, this approach has achieved obvious results in China. In 2006, after China joined the World Trade Organization and Avon established a clear brand image in the minds of Chinese people, the Chinese government began to allow Avon to adopt the business model of direct sales. In the 1990s, the development of "Central America" ​​was difficult, but at the beginning of the 21st century, Avon resumed the traditional sales model to add to the already dazzling Avon retail stores.Like KFC, Avon's entry into China aroused people's great enthusiasm and desire to buy.But unlike KFC, Avon found that these enthusiasms took a toll and led to difficulties for the company for a while.At a time when Americans see themselves and their businesses as envoys of free market institutions and consumerism, China seems reluctant to easily become another market for American goods.Even if China needs foreign capital, foreign enterprises, and foreign experience to help China develop, China still wants to hold its own destiny in its own hands. As China's consumer demand continues to grow and more and more foreign companies want to enter the Chinese market, the Chinese government is facing another challenge: not only to manage and control the fast-growing market, but also to control products from production to product sales every aspect of the management. In the 1990s, China's commodity economy developed rapidly, but the transportation of commodities from one place to another was a problem.What China needs is not just a better banking system, but also planes, trains and cars.China's development needs the construction of transportation hubs and logistics centers, as well as the help of foreign companies such as FedEx.