I was invited to be on CCTV-America, the America bureau for China Central Television, to discuss China’s middle class and what it means to Western brands. Here is a clip:

Apparently, CCTV-America was launched last February in the United States. It broadcasts a daily program from its Washington DC production center.

Eight years after Burger King first entered the China market in 2005, the world’s second largest burger chain restaurant has only 63 restaurants in the country, falling far short of its own plan of opening 250 to 300 restaurants by 2012.

Many analysts pointed to Burger King’s uphill battle with its competitors. Both Yum! Brands and McDonald’s entered China much earlier and both have established significant presence in the country. Yum! China has more than 4,000 KFCs and 750 Pizza Huts, in addition to its China-based units East Dawning and Little Sheep. McDonald’s China division has more than 1,500 locations.

However, there is plenty of demand for more than two big American restaurant chains in China’s $29 billion fast food market, thanks to a growing Chinese middle class. Here are a few things Burger King can do to catch up:

Myth that Chinese Don’t Eat Beef

Burger King has failed to play up the advantages of its traditional beef dishes. Instead, it added chicken burgers, believing Chinese prefer chicken to beef. The reason many Chinese consume more pork and chicken is because they are more affordable and readily available. Chinese farmers typically raise pigs and chickens to sell in the market, while cows are used mainly for farming.

The truth is that Chinese consumers consider beef a quality meat because it has less fat. Many associate beef dishes with upscale and luxury dining experiences. For example, ox tail soup is very popular and usually hard to find. Beef tendon dishes are known for beautifying and maintaining youthful skin for women. With overwhelming concerns about food safety, Chinese consumers are willing to pay premium prices for quality beef dishes.

Burger King could re-invent its Chinese menu with smaller burgers, such as a tapas-sized burger, and with more dish varieties to include crab, fish, or even tofu burgers. It could also add beef tendon dishes and ox tail soups. With some sensitivity, Burger King could also introduce cheese burgers as a western dining experience. Although Chinese eat very little dairy products, the ones who have tried it usually like it. This would set Burger King apart from McDonald’s, and attract young and trendy, as well as sophisticated, diners.

Individualistic Youth? But Not So Much

Burger King’s targeted demographics are younger, more individualistic diners in big cities. They believe these restaurant-goers would want to set themselves apart from their family members or colleagues. Its Beijing restaurant features an MP3 music corner that offers the latest music hits from the West, and an art gallery wall to display works by Sino-American artists.

This is where Western companies often get it wrong. Yes, younger Chinese are becoming more individualistic. But they are not becoming as individualistic as their Western counterparts. Chinese culture is more collective. The pressure of fitting-in is extremely high. Many people I talked to dine out at least three times a week – with their friends, colleagues and families. They would not want to set themselves apart from their friends and colleagues.

Understanding Chinese culture and its changing dynamics is a difficult task. It goes deeper than normal market research and requires an open mind and an attitude of learning and appreciation.  Western companies do have an advantage in positioning themselves as aspiration brands for younger Chinese. Sometimes, by simply keeping the locations clean, brightly lit, and air-conditioned, they can set themselves apart from competitors. This is one of the major reasons that many young Chinese have their first dates at Starbucks and hold their weddings at KFCs.

Don’t Run the China Operation from Outside China

When it first entered China in 2005, Burger King hired former McDonald’s president of greater China Peter Tan as senior vice president and president of Asia Pacific. This was a good choice as Tan has extensive experience growing McDonald’s to over 1,000 restaurants. However, there was one problem: Tan was based in Singapore. Headquartering the China operation in Singapore was a mistake that could be detrimental to Burger King’s China strategy. As the time of this writing, Tan is no longer with Burger King. His position has been replaced by Elías Díaz Sesé, who is responsible for all operating decisions and the overall growth strategy for the Asia Pacific region.

China is an extremely complex market with diverse conditions. One thing companies must absolutely avoid is to run the China operation from outside of China. You can’t even run the China operation in Hong Kong or Macau. The management team must be on the ground to understand local customers and the fast-changing business landscape. When Sam Su was hired by Yum! Brands as the president of its Asia Pacific operation, he voluntarily demoted himself to be the president of China. Su understood that the China market needs special focused attention. The result was exponential growth of Yum! in China.

Last year, Burger King announced a joint venture with Cartesian Capital Group and Turkey’s Kurdolu family, which runs Istanbul-based TAB Gida Industry and Trade Co., to expand its brand in China. This move may be the best bet Burger King has as TAB Gida is a long time franchisee and operates more than 450 Burger King restaurants in Turkey. But it sends a mixed signal as to how involved Burger King is in the China market. According to Burger King, the joint venture hired Mr. Xiao Li as the CEO of BK (Shanghai) Foods Company. The joint venture plans to open 1,000 new locations in the next five to seven years.

The Chinese middle class is now approaching half a billion. Four-fifths of Burger King’s new restaurants are opening outside America. The Miami-based US fast-food giant needs to recoup its China strategy, and execute its Go Forward Plan with speed and focus in order to succeed in the world’s most populous country.

China’s incoming president Xi Jinping has struck a new tone: “the Chinese Dream.” In a visit to the “Road to Revival” exhibit at the National Museum in Beijing, Xi delivered a speech, calling for the revival of China into a strong nation.

“Everyone has their own ideals, pursuits, and dreams,” he said. “The greatest Chinese dream, I think, is to achieve great rejuvenation of the Chinese nation.”  He then went on to say that his generation of Communists should continue to build the Party and forge ahead with the goal of the rejuvenation of the Chinese nation.

Since then, the term “the Chinese Dream” has been repeatedly discussed by media and on Weibo, a Chinese social media site with over 300 million users.  Both Chinese and foreigners are asking the question: what is the Chinese Dream? After all, the Chinese middle class is now approaching half a billion. What is the Chinese Dream that can inspire their aspirations for a better life?

Clearly, it is not Xi Jinping’s version of the Chinese Dream.

Chinese People’s Reaction

On February 1, the Chinese government newspaper People’s Daily published an article to further explain Xi’s Chinese dream, “Power Source of the Chinese Dream.” The article says: “The American Dream is this: regardless of one’s background, with hard work and determination, one can achieve whatever one aspires. The Chinese Dream promotes the concept that what’s good for the country will be good for individuals. It reflects the Eastern culture of collectivism and believes as long as the country is strong people will be rightfully benefitted.”

Soon after the article appeared online, hundreds of people commented on Weibo:

“Brainwashing! They got the order wrong. Unless people are benefited, the country cannot be strong.”

“Whether the country is strong or not, I don’t know. All I know is that some officials are very rich – they even bid up real estate in Canada.”

“If there are no personal dreams, how can we have a China dream?”

“[They] used collectivism to fool us for many years. How long do [they] want to continue lying to us?”

“Only leaders have dreams. We don’t even have rights to dream.”

“The American Dream is American people’s dream [thumbs up]; The Chinese Dream is the Chinese government’s dream [thumbs down].

“Realistically, the only Chinese Dream is to go to America to chase the American Dream.”

“The essence of the American Dream is freedom and democracy. The essence of the Chinese dream is grandiose and worshipping.”

“Don’t ever read this bullshit newspaper!”

“As long as this system of dictatorship doesn’t change, the country will never be strong and people will never be benefited.”

“I know a Chinese nightmare: the country is strong, corrupted officials are benefited, and average people have nightmares.”

“If this is what the Chinese dream is about, I’d rather not dream.”

“I only have one dream: I don’t need to get on to Weibo to read the truth.”

And many more….

Among nearly 700 comments, almost none of them bought into the party line. An overwhelming number of them appeared angry and sarcastic.

In the past, middle class Chinese tended to not talk about politics. They were more interested in getting on with their lives and improving their economic conditions. Now, they are beginning to speak up and voicing their opinions. They are also beginning to think more individualistically and think for themselves. They are clearly frustrated with the direction the country is heading – corruption, and a lack of the rule of law and political reform.

Xi Jinping had better listen seriously to the voices of the Chinese people!

Conversation about The Chinese Dream

Xi’s Chinese Dream statement is uninspiring, to say the least. Today, China is the second largest economy in the world, and soon to be the largest. In many people’s view, China is already a strong nation. The skylines of Shanghai, Chongqing, and other cities are much more impressive than those of New York or London. Such a call for nation-building would have made sense 100 years ago when China was at its knees. But today, average people are more concerned with their individual rights and opportunities for upward mobility.

To his credit, though, Xi Jinping helped to start a long over-due conversation: what is the Chinese Dream? When my book The Chinese Dream was translated into Chinese in 2011, I wrote in the Foreword that China doesn’t have a Chinese Dream. This is a crisis because it is like a country without a soul, a computer without software, or a ship without navigation.

The Chinese middle class is now more than 450 million strong. To ensure that the middle class continues to grow, China needs to have an environment where people can feel safe and secure to pursue their dreams and aspirations, and a system that is fair, just, and provides opportunities for all, not just for the privileged and connected few. This requires reform of China’s current political system, which is at the root of corruption and a lack of enforcement of the rule of law.

As one person pointed out sharply on Weibo, “The country belongs to the people. People make history. Only when everyone has freedom of speech, elections, migration, and equal rights, will they really care about the country – that is everybody’s dream.”

A Chinese saying says, he who goes with The Way thrives; he who goes against The Way perishes. In the past 30 years, the legitimacy of the Communist Party was due to its economic reforms. In the next 30 years, the legitimacy of the Party will depend on whether it will initiate political reforms. Otherwise, Xi Jinping’s grand Chinese Dream will turn out to be a Chinese nightmare.

Whatever the outcome, I am confident that the Chinese people will define their Chinese Dream.

Happy Chinese New Year! May the Year of Snake bring you joy, love and peace, and wish you good luck and great success in the coming New Year!

As 2012 comes to an end, pundits and analysts alike are making predictions for 2013. Many things could happen in 2013, but one thing is almost certain: China will be the largest e-commerce market in the world. Already, the country has the largest population of online shoppers. In June 2012, people who shopped online in China reached 210 million, compared 179 million in the United States.

Chinese consumers have always been a mystery to many Western companies. Little is known about their spending behavior and buying habits. As they come of age, certain characteristics are starting to emerge. Here are five new trends of Chinese consumers:

Value Seekers

A quintessential trait of Chinese consumers is that they are value seekers. They will search hard for the best deals, to make sure they get good value for their money. That means they will spend a lot of time researching products and comparing prices. They tend to resist impulse buying (despite some conspicuous spending), and are more likely to get cues from their friends as to which products to buy.

This trait actually applies to both high- and low-income groups, although it is more apparent in consumers with lower incomes. I know this intuitively, and from first-hand experience. Having lived in the West for over 20 years, I am still “good at saving money” (as my husband put it) when it comes to a purchase. For example, I eyed a giclee painting from ZGallerie for several months before I bought it on sale. I searched on the Internet for comparable paintings, and was willing to wait for holiday sales to make the purchase.

I am not the most frugal person you can find in the world, but like most Chinese, I am naturally good at finding good deals.

Sophisticated High Earners

Only a few years ago, the Chinese were novices in the world of consumption. They were either looking for big logos to show off their status, or seeking basic functional benefits in products. Now, however, millions of consumers are adopting spending behaviors and patterns that are very similar to those in the West.

For example, emotional needs and individuality are beginning to speak to consumers who live in wealthier cities such as Beijing and Shanghai. In McKinsey’s 2012 Chinese Consumer Report, 21 percent of people surveyed said “showing my unique taste” is one of the key factors influencing their buying decisions, compared with only 7% to 11% in other cities. These consumers are also more interested in products with attractive designs, rather than focusing on the “durability” and “functionality” of the products.

This explains why many Chinese consumers are willing to pay premium prices for quality products and services. Instead of showing off big brands, they are beginning to enjoy fine things for personal indulgence. This shift in attitude happened in a remarkably short period of time, marking the increasing sophistication of Chinese consumers.

Loyal Brand Enjoyers

Chinese consumers have been bombarded with overwhelming choices of brands – all within a short period of time. They tend to hop from one brand to another to try out different things. But this is changing quickly. As they gain more knowledge about brands and what makes them distinctive, Chinese consumers are becoming more discerning in choosing their favorite brands and sticking with them.

The same McKinsey report indicates that brand loyalty has increased dramatically among Chinese consumers. In personal care products, 43 percent of people surveyed this year said they tend to purchase the same brand, compared to only 26 percent who said so last year. Among consumers of chocolate, 33 percent of those surveyed this year agreed with the statement “I only buy my favorite brand,” whereas only one-fifth said so in 2009.

The brand loyalty levels among sophisticated Chinese consumers are on par with those in the United States and Europe. Again, all this happened in a matter of a few years.

Pragmatic Masses

Almost 400 million emerging middle class consumers reside in smaller cities in inland areas. These new consumers have just gotten beyond the basics such as food and shelter. Their attitude towards consumption is more traditional than those in coastal areas. They are more price-sensitive and focused on basic functional benefits in products. For example, in apparel, they wanted comfort; in food and beverage, they craved taste; in consumer electronics they prized durability.

In the 2012 McKinsey Chinese consumer report, 52 percent of people surveyed in inland cities cited “importance of reliable brand” as the top buying factor, whereas only 26 percent of consumers in coastal cities agreed with the statement. By contrast, only 6 percent of consumers in smaller cities considered “emotional needs” as important in their purchasing decisions, compared to 36 percent of consumers in coastal cities who believed so.

What’s more interesting is that the difference in attitude between consumers in inland and coastal areas remains significant even though their income levels are similar. For example, barely one-third of consumers in inland cities “are willing to spend money to reward themselves,” whereas nearly half of the consumers in coastal cities with similar incomes agree with the statement.

This means that in order to reach the mass consumers in inland areas, companies need to diversify their product portfolios and design products with fewer fancy features but stronger basic functions.

Self-indulging Youths

Younger Chinese consumers are distinctive in their own right. They are more self-indulgent in their purchasing, more individualistic in their wants, and more loyal to their favorite brands. They are acting more like their developed country counterparts.

For example, 45 percent of consumers under age thirty-four surveyed in the McKinsey report said they spend on personal care products purely for their own enjoyment, compared with 37% of consumers aged 35-65 who said so. Unsurprisingly, younger consumers are also more Internet savvy. 44 percent of them said they need the Internet to help make purchasing decisions, while only 16 percent in the older age group depend on the Internet in their purchases.

2013 will be a big year. Not only will it be the largest e-commerce market, China will also likely to be the largest retail market in the world. In order to succeed in this must-win battleground, companies need to think out of the box, develop innovative products that are relevant to Chinese consumers’ tastes, and adjust their marketing strategies to reach diverse groups of customers.

(A version of this article was originally published on Forbes.)

And how American companies can seize the opportunities…

The Chinese middle class is expanding rapidly, reaching 474 million this year, according to my latest calculation.

Many people may challenge this number. But it’s just arithmetic. In a recent report “Consuming China,” McKinsey indicates that 83 % of households in China’s mega cities (cities with population of over 10 million: Beijing, Chongqing, Guangzhou, Shanghai, Shenzhen, and Tianjin) and 66 % in the rest of the cities are middle class families.

By the end of 2011, China’s urban population reached 691 million. Do the simple math, and you will get the same number I got: the population of the Chinese middle class was 474 million, with 88 million living in mega cities, and 386 million in smaller cities.

This means the Chinese middle class accounts for 68 percent of urban population, which is believable to me. Assuming two percent are super rich, still about 30 percent of the people in urban areas are poor.

Some would argue that there are different criteria to measure the size of the Chinese middle class. A simple and important rule of thumb, as stated in my book The Chinese Dream, is that of a household with a third of its income for discretionary spending. These people have passed the threshold of survival and have disposable income to spend on leisure items. As I travel around China, it’s very clear to me that the majority of people in urban areas have reached this stage.

Chinese Consumers Love “Made in USA” Products

The rising Chinese middle class is the biggest story of our time. However, many US companies are missing the opportunity. US exports to China account for only 6 percent of China’s total imports. The major categories of US exports to are in industrial sectors such as power generation equipment, aircraft, and medical equipment.

The biggest opportunity, however, is in the consumer sector. On November 11, China’s “Single Day” shopping festival, online retailers Tmall (B2C) and Taobao Marketplace (C2C) generated a record revenue of $3.1 billion, more than the total sales in the U. S. on Black Friday and Cyber Monday combined. Before long, China will become the world’s largest consumer market, and its consumption could reach $13 to $16 trillion by 2020.

Better yet, Chinese consumers love American goods and are willing to pay more for them. A recent study by Boston Consulting Group indicates that more than half of Chinese consumers prefer American products to Chinese products. Over 60 percent of them are willing to pay more for products that are “Made in USA.” That’s why Foxconn, a Taiwanese manufacturer that produce electronic parts for companies like Apple and Dell, is looking to the U.S. to open manufacturing plants.

Research also shows that the premium that Chinese consumers are willing to pay ranges from 10 percent to 80 percent or more. For example, Chinese consumers pay a 30 % higher premium price for iPhones despite their relatively lower incomes compared to American consumers. Colgate Total Oral Care premium toothpaste costs approximately 200 percent more than local brands.

Leverage Ecommerce Portals such as Tmall and Alibaba

While multinationals have made inroads into China, small and medium sized companies face challenges in accessing the China market. The good news is that the Internet has helped reduce entry barriers and allowed companies to sell into China without a significant upfront investment. Here are a few tips for companies to export to China by leveraging ecommerce sites:

• To sell to Chinese consumers, you can open a shop on Tmall.com, China’s most popular B2C shopping destination, owned by Alibaba Group. Businesses have the option to either opt to handle their own e-commerce operations, or partner with third-party companies like Export Now to help them set up a storefront on Tmall.com and handle all the back-end logistics during the exporting process.
• To sell worldwide, you can register as a “supplier” on Alibaba.com, a B2B online marketplace that has 29.4 million registered users in more than 240 countries and regions. Recently, Alibaba.com has introduced a free Verified Membership in the U.S.. Verified members enjoy the benefit of premium programs, which allow them to gain higher rankings for product listings and have greater visibility than regular members.

The Little Yoga Mat’s Success

An example is The Little Yoga Mat, a small start-up based in New York. It plans to sell children’s yoga mats to China at a 60 % higher premium price. How does it do it? Through Alibaba.com and Tmall, and with the help of Export Now.

Jensen Wheeler Wolfe, founder of The Little Yoga Mat, is a former researcher at Glamour Magazine. She stumbled into this business two years ago while teaching her 5-year-old daughter’s yoga class in her preschool. Realizing small children didn’t have mats that fit their size, Jensen cut her own yoga mat into four pieces to give to the kids. The children were thrilled.

That simple solution became a business idea. Jensen soon discovered an unmet market need. With encouragement from her husband, Jensen quit her job at Glamour and started The Little Yoga Mat. First, she brought in an artist friend to help her design the mats. Then, she used Alibaba.com to find manufacturers that could produce quality mats with eco-friendly materials. One year later, Jensen’s little yoga mats found their way into toy stores, eco-friendly shops, spas, and even pediatrician’s offices. This year, the company’s profits tripled.

Jensen’s next goal is to sell her little yoga mats to China. She is working with Export Now to set up a shop on Tmall. The retail price for her yoga mat is $25 in the U.S. But in China, the same mat can sell for $40. Jensen is excited about the opportunity of reaching out to a new market. She has started to develop new product lines such as children’s backpacks and a book to illustrate basic postures for children. She is getting very busy because inquiries from Sweden, Denmark, England and France have begun to pour in.

The Little Yoga Mat is an excellent example of how small businesses can leverage ecommerce portals to sell into China. The rising Chinese middle class, now approaching half a billion, has created enormous opportunities for U.S. companies. American companies must seize these opportunities and be more proactive in exporting to China. This will help create jobs, improve trade relationships, and perhaps even help with our fiscal cliff.

(A version of this article was originally published on Forbes.com)

The Chinese Communist Party began its once in a decade leadership transition as the 18^th National Congress opened on Thursday. I was interviewed by the Canadian TV News Channel and a German newspaper, Sueddeutche.de, regarding the change of power in China and how members of the Chinese middle class view the leadership transition. Below are the questions and my answers:

Q: What do members of the Chinese middle-class think about the last ten years and the leadership of Hu Jintao?

A: Members of the Chinese middle class think that the country has made a lot of progress economically in the last ten years under the leadership of Hu Jintao. They feel that their lives have improved tremendously. Many of them now own homes and drive cars. This compares to thirty years ago when their parents lived in slums and could hardly afford bicycles.

While many of them approve what the government has done, they are also under extreme anxiety. This anxiety has become increasingly intense in recent years due to political uncertainties. During my visit to China this September, people told me that the downfall of Bo Xilai is a result of political power struggles (which is no surprise to me). Many complained about corruption, the increasing income gap between the rich and poor, and were fearful about possible internal turmoil due to increasing crime and protests.

Overall, people don’t trust the system because it lacks the rule of law. They don’t trust that the Chinese government will provide security and protect their wealth. That’s why many members of the Chinese middle class are leaving the country – getting foreign passports, investing their money overseas, and sending their children to colleges in the West.

Q: Are we at a point yet where the middle-class can make a difference, as far as how the elite are running the country?

A: The Chinese middle class, although over 300 million strong, is only about 25 percent of China’s entire population. At this time, they are not yet a significant force to influence policies in terms of how to run the country.

However, they are beginning to push back. In October, weeklong protests involving thousands of people in an eastern city, Ningbo, forced a chemical plant to suspend its expansion plans. Such large-scale protests are happening more frequently all over the country, from Shifeng in the southwest to Dalian in northeast China.

In the past, most protesters were farmers who fought for their land. Recently, however, an increasing number of protesters are urban middle class people who are angered by environmental hazards that harm their health. Some use social media to coordinate street protests against construction or expansion of factories and mines.

The Internet is playing an important role in facilitating average people to voice their opinions. Weibo, a Twitter-like Chinese social media with 300 million users, is a major platform for people to express their views on issues from pollution to corruption.

On November 6^th, in the midst of the US presidential election, Chinese Internet users flocked to Weibo to follow the news. Some commented pointedly on the lack of input they have in choosing their leaders. One blogger wrote, “We are perfectly clear about how the US presidential election works but utterly ignorant about China’s.”

Evidence from other countries, such as South Korea and Taiwan, suggests that when countries advance economically, they begin to democratize when their median income reaches somewhere between $5,000 and $10,000. Last time I checked, China’s per capita GDP was around $8,000 in 2011. If this rule applies to China, a change in China’s political system may be imminent, if not inevitable.

Q: Which factors and topics do matter most for the Chinese middle-class in the next ten years?

A: The Chinese middle class wants to feel secure in their financial situation, their health, and their well being. Like members of the middle class in the West, they want to have a better life and give their children an even better life. They want to see continuing and stable economic growth and opportunities for upward mobility.

The things that concern them the most are corruption and a lack of the rule of law. Clearly, the Chinese government has proved to be ineffective in addressing these problems. Corruption has gone out of control. People’s trust in authority is at an all time low.

In order for the Chinese middle class to continue to grow, China’s new leaders must tackle these problems in a fundamental way. As a young entrepreneur in Beijing told me, the main reason for corruption and a lack of the rule of law is the Communist Party – there are no checks and balances on power.

I believe that China has reached a point that political reform has become a necessity for China’s continuing economic growth and stability. In fact, some people in China are already exploring the possibility of factions or competition within the Communist Party as the first steps toward a democratic reform.

In writing my book The Chinese Dream, I interviewed over 100 people. Many told me that “only when we have economic freedom, will we have political freedom.” While they may not see a Western style of democracy as an answer for China, they do believe that “the trend of democracy is unstoppable.”

I hope China’s new leaders want to be on the right side of history.

Last March, American toy maker Mattel closed its first flagship Barbie store – the House of Barbie – in Shanghai after two years struggling since opening in 2009. Mattel invested over $30 million in the House of Barbie in celebration of the American iconic doll’s 50^thanniversary.

The concept was that Barbie is not just a fashion forward doll, she would also be a lifestyle symbol and cultural icon for girls and young women. The six-story building had the world’s largest collection of Barbie dolls and affiliated products such as children’s bedroom furniture and young women’s clothes. It also features a fashion runway, a design studio, a stunning spiral staircase decorated with 800 Barbie dolls, and a café on the top floor.

Many analysts pointed to the fact that Barbie is a Western doll and is “too sexy” for Chinese girls. The reality is, however, that Chinese girls actually like the blond Barbie better than the localized Chinese Barbie called “Ling.” Before the House of Barbie was launched, Barbie dolls had been sold in China and were relatively well received by Chinese girls. When I first bought a Barbie doll for my niece about ten years ago, I was surprised to find out that she already had a couple of them.

So, what are the real reasons that the House of Barbie failed to live up to its expectation? Recently, I spoke to the general manager of Barbie Shanghai, Gar Crispell, about what went wrong with the House of Barbie and what lessons can be drawn from that experience.

The first mistake Mattel made, in my opinion, is to have a standalone store before establishing Barbie as a strong brand in China. In America, Barbie is an iconic symbol of “femininity” for young girls. Over a period of fifty years, the brand has taken on a life of its own as Barbie assumed many roles of women. In China, Barbie is simply a doll. She is not associated with any cultural significance for Chinese girls or young women.

Since Barbie is not a cultural icon in China as she is in America, Chinese consumers couldn’t care less about Barbie-branded products. “The concept of the store is wrong,” as Crispell pointed out. The Barbie fashion clothes for young women would only make sense if Barbie is a cultural icon and established lifestyle brand.

Second, Mattel didn’t quite understand what Chinese girls and young women want. The Chinese concept of “femininity” is very different from that of American. In China, “feminine” is more about sweet and soft rather than smart and strong, more about gentle and loving rather than dazzling and fashion-forward.  Although it has created a Chinese Barbie Ling with black hair who wears Chinese attire, Mattel failed to understand what Ling would represent in order to appeal to Chinese girls.

Instead of making Barbie a fashion and lifestyle brand, Mattel should have made Barbie an aspirational brand to empower Chinese girls. The idea of “I can be” is not encouraged in Chinese society, but is exactly what Chinese girls need. If Barbie, or Ling for that matter, could become a role model for Chinese girls, she would have re-invented herself and Mattel would have had a better chance to succeed in China.

Third, Mattel tried to bring a 50-year-old brand to a new market that had just gotten to know Barbie. Chinese consumers are new consumers. They are not yet as sophisticated as their counterparts in the West. Although China has changed significantly, it hasn’t changed to the point that 6-year-old girls would want to have their own fashion runway. I grew up with only one doll. Many women of my age didn’t even have dolls when they grew up. Although my niece now has many dolls, I am afraid that having a design studio to design her own dolls is too much of a luxury for her. The market was simply not ready for that.

In addition, the merchandise in the store was expensive since Mattel did not source in China. A pair of jeans cost as much as 1,000 yuan ($156). No one would spend that amount of money for a brand that doesn’t have significant recognition. Barbie dolls sold in other department stores were much less expensive. “We ended up competing with ourselves,” Crispell said.

To make matters worse, there are countless knock-off Barbie dolls on the market. Today, Chinese consumers might not buy a counterfeit Luis Vuitton bag. But a 6-year-old girl would not care about whether her Barbie dolls are authentic or not.

It is not a surprise that the House of Barbie could not keep its doors open any longer. “The overhead of a single store is huge,” Crispell said. “We couldn’t generate enough revenue to justify that.”

It’s often said that failure is the stepping stone to success. Unfortunately, failures like this cost companies tens of millions or even billions of dollars. That is why I have created a new program The Secret of Succeeding in China to help companies avoid mistakes like this. As Chinese consumers are coming of age, companies need to better understand the Chinese market, deploy smart strategies, and work with the right people when launching new products to China.

Last month, I was honored to be invited to a private dinner with Tom Friedman in Shanghai. The dinner was hosted by Peggy Liu, founder of US-China Collaboration on Clean Energy (JUCCCE) to help Friedman get an insider’s view on China.

At the dinner, we (about twelve of us) discussed many challenges as well as opportunities China faces. Some cited the low trust in the Chinese society, others talked about entrepreneurial activities on the ground. I had a chance to give Friedman a copy of my book The Chinese Dream: The Rise of the World’s Largest Middle Class and What It Means to You.

In his recent column “China Needs Its Own Dream,” Friedman pointed out that China needs to define its own dream rather than blindly follow American’s  “We all need to be rethinking how we sustain rising middle classes with rising incomes in a warming world, otherwise the convergence of warming, consuming and crowding will mean we grow ourselves to death.”

I am glad he used the size of the Chinese middle class from my book – 300 million people expected to grow to 800 million by 2025.

Luxury retailer Shanghai Tang CEO Raphael le Masne de Chermont told the Wall Street Journal that its Chinese customers spend an average of 500-600 euro per year, which is about twice as much as their counterparts in New York and London.

Chermont also said that Chinese consumers are getting more sophisticated, meaning they are now less about big brand names to show off their status, but more about consuming the luxury.

However, Chinese consumers still want to be re-assured that Shanghai Tang is not just a Chinese brand, but a brand with stores in Paris and New York.

As Chermont pointed out, even though Chinese economy may slow down a little in the coming years, there are still a lot of potentials for growths.