Marketing American Western Art in China

Lewis Clark State College
Business 482-7501

Introduction

Specializing in American Western and wildlife art, the idea of penetrating the Chinese art market is very intriguing, and it has been on the mind of art dealers of all genres for years. The first section of this paper will analyze China and the business experience including GDP, etiquette, negotiating, business attire, and banquet dinners. The next section will discuss China's market structure and direct foreign investors. Third, discusses China's demographics followed by advertising regulations. Finally, the Chinese art market will be introduced and in section two, a marketing strategy will be proposed to enter China's art market, create demand for American Western and wildlife art, and discuss strategic partnerships and co-branding opportunities.
China And The Business Experience

For centuries, China stood as a leading civilization, outpacing the rest of the world in the arts and sciences, but in the 19th and early 20th centuries, the country was beset by civil unrest, major famines, military defeats, and foreign occupation. After World War II, the communists under MAO Zedong established an autocratic socialist system that, while ensuring China's sovereignty, imposed strict controls over everyday life and cost the lives of tens of millions of people. After 1978, MAO's successor DENG Xiaoping and other leaders focused on market-oriented economic development and by 2000 output had quadrupled. As of October of 2014, according to the International Monetary Fund, China has overtaken the United States as the world's largest economy according to IMF's method in determining purchase power parity. The IMF measures both GDP in market-exchange terms and in terms of purchasing power. However, the United States is well ahead of China in terms of raw market value of China's currency. (Bird, 2014, p. 1) For much of the population, living standards have improved dramatically and the room for personal choice has expanded, yet political controls remain tight. Since the early 1990s, China has increased its global outreach and participation in international organizations. The nation now outstrips Japan as the second-largest economy in the world after the US, and the value of its industrial and agricultural output now exceeds that of its chief competitor. However, in the process, China has become highly dependent on exports, making the nation vulnerable to fluctuating demand. China continues to grow, so understanding the business experience is vital to entering the market. The Chinese generally value relationships that demonstrate mutual respect, an aversion to conflict, and the maintenance of proper demeanor, and these beliefs extend into the business world as well. Business relationships are generally very formal, and the Chinese place great importance on the collective good of the company, as well as saving face, or defending and building a positive professional reputation. Business relationships and business deals mover much slower in China than the United States. Respect and honor are extremely important in Chinese business relationships. (A to Z World Trade, Business Experience) The Chinese are very well known to be tough negotiators with the primary goal of convincing the other side to make concessions; however, Chinese businesspeople also make decisions based on Confucianism, which strives to preserve, respect, harmony and honor. The Chinese usually see negotiations as a fun challenge, and simply figuring out what each side really wants will take up most of the time. In the end, the Chinese make decisions based on both general principles and specific relationships. Chinese businesses are formed in strict hierarchies, and almost all decisions are made by senior leaders. Patience is very important, because proposals will need to work their way up the hierarchal ranks of the company. Whether it's a dinner banquet or a business meeting, all attire and behavior is more formal. Conservative business suits in dark colors and light shirts with ties are required, and visitors should avoid bright and loud colors. Women should also dress modestly that include shirts that are not sleeveless or short sleeve, and the necklines should not be too low. Women's skirts should fall below the knees, and women should not wear high heels. While business lunches are becoming more prevalent, it's very common to attend a dinner banquet after a long day of business and negotiating. Dinners are usually held between 7 and 10pm. It's important to be punctual and arrive at the stated time, and tipping is not commonplace in China. All visitors should learn how to use chopsticks before going to China. The guest of honor will usually tell you where to sit, and you should wait for the host to eat first. Try everything you are offered, but never eat the last item on the serving tray. Return the chopsticks to the chopstick rest between bites, while you drink, and while you speak. Do not stand your chopsticks upright in a bowl of rice, as this is a gesture reserved for funerals. Hold the rice bowl close to your mouth while eating, and place all bones on the table or in a special bone bowl. It is common for Chinese diners to belch or slurp, as these are not considered rude table manners, but rather signs of enjoying the meal. Be prepared to be around people clearing their throats loudly, spitting in public, and smoking cigarettes. It's an honor to be invited to a Chinese counterpart's home for dinner. (A to Z Business World)

China's Market Structure

China’s transformation from a centrally planned economy to a market-oriented one has encouraged private enterprise, resulting in one of the globe’s fastest-growing economies and highest reductions in poverty over the last two decades. The government’s pragmatic shift toward a market economy has led to China’s current ranking as the world’s second-largest economy in terms of GDP and the world's largest in purchasing power according to IMF. However, per capita income remains low, and the nation faces significant challenges, including environmental degradation, corruption, low domestic demand and the need to sustain adequate job growth for an urban-migrating populace. (A to Z Business World) Manufacturing is the country's most important industry. China manufactures machines; textiles and apparel; armaments; consumer products such as footwear, toys, and electronics; cars, locomotives, ships, and aircraft; telecommunication devices such as telephones; and satellites, plus the commercial space vehicles that launch them. China's top trade partner is Hong Kong who purchases 17 percent of China's exports. The United States, Japan, and South Korea are also significant consumers of China's exports. China's leading import partner is South Korea, followed by the Japan, Taiwan, United States, Germany and Australia. China purchases fuels, metal ores, medical and optical equipment, soybeans, and automobiles. Since China opened its doors to foreign investors, China's national economy has been significantly impacted by foreign capital. Since the early 2000s, China has been the premier destination for foreign direct investments. Major foreign investors include South Korea, Taiwan, Hong Kong, Japan, United States, Britain, France and Luxemburg. Foreign Direct Investments are normally directed to the manufacturing, forestry, fishery, and agricultural sectors. According to Transparency International’s Corruption Perceptions Index, China scored 40 out of 100 with an overall ranking of 80th out of 177 countries. Problematic industries include finance, government procurement, construction, and banking. Transparency is lacking in government and the private sector, and foreigners find little aid from the court system. China ranks 96th out of 189 nations in the World Bank’s Ease of Doing Business Index. There are many barriers to trade in China. Import and export licensing, import and export restrictions and bans, complex regulations and standards, and service market restrictions add to the cost of trade with China. Protection of intellectual property rights remains limited. Land is state-owned but may be leased, subject to numerous restrictions. Since joining the World Trade Organization (WTO) in 2001, the country has made important strides in lowering tariffs, although taxes on imports remain high. While the nation has removed barriers to foreign banks, capital requirements still exist and access to financial services continues to be a major challenge.
China's Demographics

The population of China is 1.35 billion people. Approximately 31% of China's population is between the ages of 0-24. 47% of China's population is between the ages of 25-54, and 11% is 55-64 years of age. Ideal art collectors are typically between the age of 40-70 because they're usually more affluent and appreciate the arts more. Beijing is the capital with a population of 15.244 million people. Shanghai with a population of 18,150,000 is the most populous city in China. Other major cities include Chongqing, Wuhan, and Xian with populations over 4 million each. Chengdu, Tianjin, Shenyang, Harbin, Nanjing and Guangzhou each have between 3-4 million people. The ratio of men to women is 1.06:1.
Advertising Regulations

In China, advertising laws are regulated by the Advertising Law enacted by the National People's Congress, the Regulations of Administration on Advertising and the Detailed Implementation Rules of Regulations of Administration on Advertising. The primary regulatory agency is the State Administration of Industry and Commerce or SAIC. Advertising of medical services, medicine, legal services, cosmetics, food, tobacco, and alcohol are subject to specific administrative rules. Tobacco is banned from advertising in public places like radio, film, newspapers and periodicals to protect the public's health. Anesthetics, narcotics, medicines containing poisons and radioactive medicines are also banned. Gambling is also banned from advertising as it's illegal in China. There are no advertising restrictions on nonprofit fundraising, toys, religion, or even products related to sexuality. There are also no restrictions regarding celebrity endorsements or sponsorships. When it comes to regulations regarding media channels, there are no regulations on online advertising, although regulators are in the process of identifying how to regulate the rapidly growing media channel. Direct mail advertising is lightly regulated but are subject to registration at the provincial level. Email advertisements must include the words "ad" in the subject line and the recipient has to have given consent. To advertise in newspapers and periodicals, the advertising business must obtain a permit from the SAIC at the provincial level and the law dictates a 15% fee per advertisement of the cost for running the ad In marketing for the art world, the most commonly used mediums are direct mailers, periodicals, email campaigns, and digital media advertising, so other than the 15% fee and permits, it appears that there are not too many restrictions in advertising for the art business. One restriction that doesn't have anything to do with advertising, but affects the art world, is the law banning exports of paintings and artifacts created before 1949. (Peterson, 2004)
Chinese Art Market

In 2013, the Chinese art market topped out at $8.5 billion. In 2013, 95% of all works sold at auction were less than $77,500, and works sold for over $1.5 million made up less than 1% of transactions. (McAndrew, 2014) Many Chinese citizens don't trust the Chinese stock market as an investment vehicle, so a large percentage of wealthy Chinese have turned to the Chinese art market as an alternative for investing their money. China has identified culture as a core area for economic growth, and a vibrant art market as a useful tool of soft power, promoting a view of Chinese society as a center of aesthetics and beauty and deflecting the international focus from political and human rights issues. (Barboza/Bowley, 2013)
“A majority of Chinese people do not trust the Chinese stock market,” said Melanie Ouyang Lum, a consultant on Chinese art. “The housing boom has slowed tremendously. A lot of people are looking to art for investment.” (Barboza/Bowley,2013)

There are over 3,500 auction houses in China and countless more galleries and dealers. The two biggest auction houses in China are Poly International Auction Company and China Guardian. China currently has 4,000 museums, and since 2012, nearly 1,000 museums have opened across China. That's more than one a day. (Errera, 2014) The two major auction houses in the United States are Sotheby's and Christies. The Coeur d'Alene Art Auction is the largest and most successful auction house specializing in American Western art, and they net over $30 million per year. There are 358 billionaires in China compared to 481 in the United States. (Errera, 2014) However, just about everyone is getting in on the art market in China in hopes of making a profit by flipping works of Chinese art. Many people will take out high interest loans or even use their homes as collateral. Like any investment, there are risks, and China is loaded with risks involving inflated art values, a huge market of forgeries and fakes, and a growing number of bidders who don't pay for their purchases at auction. It's also very common for people to use art as a way to bribe government officials. People will give public officials art and tell them to sell it at auction where the person who gave the gift will buy that piece of art at a premium so the official makes a huge profit. (Barboza/Bowley, 2013) However, there is still an enormous market for art because of the sheer size of the population and rapidly growing wealth in China.
My Product and Plan

Because of my extensive knowledge and expertise in the American Western art genre, I aim to introduce the American Western art genre to the Chinese people and their art market. Although the American Western art genre is still growing in the United States, it would be very new to Chinese art collectors. The Chinese have a deep appreciation for aesthetic beauty and historical significance to works of art. The American Western genre introduces a significant part of the United States' history and the "cowboy" has been romanticized all over the world, especially in movies. I would introduce American Western bronze sculptures and historical paintings that range in value from $3,000 - $5,000,000. The first step in raising awareness and creating a demand for a specific genre of art would be to get as many Chinese collectors to view the works, and view them on a repetitive basis at reputable museums, galleries, and in auctions.
"People don't know what they like, but they like what they know." -Len Spanierman, well-known NY art dealer.

I met Len Spanierman in New York when I first got started in the art business and his quote above has always stuck with me. Tastes in art is so subjective, that I often hear people say, "I don't know anything about art." Or "I don't know if it's a good painting or not." There isn't a right or wrong answer when it comes to good or bad art. You either like the work of art or you don't, and your feelings about the painting or sculpture is all that matters. As people see art on a regular basis, their eyes become trained on what is good and what isn't because they develop benchmarks in which they can compare different works. Also, as people learn about the artists, the artists' process, and gain more confidence in their knowledge base of art, they are able to identify what they like or don't like. By introducing American Western art to the Chinese through museums like the Beijing Capitcal Museum, Shanghai Museum, Nanjing Museum, and the Shaanxi History Museum, and through reputable galleries like the James Cohan Gallery in Shanghai, Shanghai Gallery of Art, The Red Gate Gallery in Beijing, and 798 Space Gallery, then those institutions lend credibility to the American Western art. An exhibition curated by the Metropolitan Museum of Art and the Denver Art Museum titled The American West in Bronze, 1850-1925, opened on September 28, 2014 at the Nanjing Museum and is on display until January 15, 2015. Exhibitions like The American West in Bronze, 1850-1925, is an incredible opportunity to introduce the Chinese to American Western art. As more and more Chinese are exposed to American Western art, and as they learn the importance of specific artists, the more comfortable they will feel in purchasing works to add to their collections. Also, because the Chinese market is rife with fakes and forgeries, and the Chinese auction world is rumored to have extremely inflated values because auction houses and artists and their dealers are bidding up works to make it appear like the works are more valuable, Chinese collectors may feel more secure in investing their money in American Western art and even participate in sales not only in China, but in the United States. Education of collectors is a vital component in selling high valued works of art. I've developed a strong reputation in the American Western art world here in the United States, so if I can develop the same reputation in China and help educate Chinese collectors on blue chip Western artists and how and where to acquire rare works, then through referrals and repeat business, sales will grow. In my opinion, the key to success in entering the Chinese art market is similar to being successful in the United States. I will need to earn collectors' trust through education and developing relationships with key people from Chinese museums, major galleries, and most importantly, major collectors.
S.W.O.T. Analysis

The established resale market and history of American Western art are strengths, because it makes it easy to show collectors resale records and patterns and to substantiate the values of rare works by blue chip artists like Frederic Remington, Charles Russell, Thomas Moran and Albert Bierstadt. The widely held belief that investing in the art market is a terrific alternative to the Chinese stock market, and the number of museums, galleries and auction houses, make China a very intriguing and strong destination to sell American Western art. The major weakness for American Western art is the lack of notoriety and appreciation for the subject matter. Chinese art collectors have a deep appreciation for historical Chinese art more than American Western art, so it may prove difficult to change their tastes in art. However, American Western art revolves around authenticity of subject matter and pure aesthetic beauty of the vast landscapes of America. The Chinese share that love for aesthetic beauty. The incredible size of the Chinese art market, the rapid growth of their economy and growth in affluent citizens of China make for wonderful opportunities to sell art in China. Christies recently became the first independently run American auction house in China, and Sotheby's has developed strategic partnerships with Chinese auction houses, so the doors have been opened for American companies to operate in China. The biggest threat to operating in China would be navigating government regulations, and dealing with the enormous amounts of fakes and forgeries that are produced in China. If Chinese forgers started mass producing fakes of American Western art, it could really deal a blow to establishing it as a legitimate genre in China and maintaining its value.
Conclusion

With over 1 billion people, one of the fastest and largest economies in the world, and a deep appreciation for the arts and the desire to invest in high quality works, China is a prime country to target for promoting American Western art. While there are numerous risks in entering the Chinese art market like inflated values, numerous forgeries, and a government that could shut you down at any time, the opportunities and blue sky may be too good to pass up. With 358 billionaires and thousands of millionaires, the target market for selling art is ideal in China. The biggest obstacle in entering the Chinese art market would be overcoming the Chinese's taste of art and preference for historical Chinese relics and works of art. Only a sliver of the $8 billion pie that is the Chinese art market is necessary to be successful and I think the rewards outweigh the risks.

Works Cited

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AtoZ World Trade. China: The Business Experience. Retrieved November 28, 2014, from http://www.atozworldtrade.com/content.php?cat=grw
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Barboza, David; Bowley, Graham; Cox, Amanda. October 28, 2013. Forging An Art Market In China. NY Times. Retrieved from http://www.nytimes.com/projects/2013/china-art-fraud/
Barboza, David; Bowley, Graham. December 16, 2013. An Art Power Rises in China, Posing Issue For Reform. NY Times. Retrieved from http://www.nytimes.com/projects/2013/china-poly-auction/
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Errera, Alexandre, (February 27, 2014). How China Is Changing The Balance Of Power In The Art World. Forbes. Retrieved from http://www.forbes.com/sites/alexandreerrera/2014/02/27/how-china-is-quietly-changing-the-balance-of-power-in-the-art-world/
McAndrew, Clare, September 17, 2014. Chinese Art Market Rebounds to $8.5 Billion in 2013. Artnet News. Retrieved from http://news.artnet.com/market/chinese-art-market-rebounds-to-85-billion-in-2013-83531
Peterson, T. (2004). Why Collectors Are Crazy For Chinese Art. Businessweek, (3914), 114-115.