Bertelsmann in China: Low Profile, Patient Growth

LOGOS 17.4 crc 17/1/07 3:44 pm Page 173

LOGOS Bertelsmann in China: Low profile, patient growth

Qianqiao Gu Bertelsmann, headquartered in Gutersloh, Germany, is one of the world’s largest media conglomerates. It has operations in sixty-three countries in twenty-two of which it owns book clubs. In 1997 it entered China by establishing a Chinese “Bertelsmann Book Club”. This gave it an initial foothold as a foreign investor in China’s burgeoning book industry, in which all publishing, ten years after Bertelsmann’s arrival, still remains state-owned. Co-owner and president of Castalia Although, beginning in the 1980s, China Publishing Canada and chief executive shifted to a more market-oriented economy, a shift officer of Liaoning Xinhua Book Bureau Co which accelerated after China’s accession to the Ltd, Qianqiao Gu has been working in the World Trade Organization (WTO) in December book and magazine industry for almost ten 2001, publishing remains tightly controlled. How years. In 2002 he moved to Vancouver to this sophisticated multinational has developed and take his masters degree in publishing at survived under restrictive policies has lessons for Simon Fraser University. He was the anyone seeking to enter China’s publishing market. The broad answer is that Bertelsmann has become recipient of the 13th National Bestseller both a participant and pioneer in the reform of Award of China in 2000. In 2003 he China’s publishing industry from a monopoly worked for Bertelsmann Asia Publishing as market to one shared by state-owned enterprises, assistant general manager. In addition to his private domestic enterprises and foreign companies. masters degree in publishing he has two Bertelsmann’s contribution to this tripartite struc- bachelor degrees in engineering. ture has consisted partly of building a powerful book distribution channel. By the time that China Email: [email protected] declared that book distribution, unlike book publishing, was open to foreign investment, Bertels- mann was already well established. Apart from government regulations, establishing a book club business in China required Bertelsmann to cope with formidable market resistance. This included:

1. Low purchasing power of Chinese readers. In order to sell, say, the latest Harry Potter, it had to be priced at one fifth of the price in the West. 2. Chinese book buyers are accustomed to seeing books before they purchase them. Books are bought in bookstores. The book club concept is totally new in China. 3. Credit cards and personal cheques are not widely used in China.

Qianqiao Gu

4. Chinese postal services are inefficient and States began in the 1980s with the acquisitions of unreliable. Bantam Books and Doubleday, leading to its 5. Establishing a retail network, which is part of dramatic acquisition of Random House in 1998, a the Bertelsmann technique, is difficult because move that made the United States Bertelsmann’s of China’s enormous size. biggest market. The establishment of its first book club in China in 1997 can be seen as part of a long- Bertelsmann has been patient, keeping its oper- term global strategy. ating style firm, dovish and at the same time effec- Today’s Chairman and Chief Executive Dr tive. As a result, in ten years it has attained a Gunter Thielen, successor to Thomas Middelhoff, unique position in China’s huge and potentially whose expansionist policies ran counter to the ideas lucrative book market. Bertelsmann’s endeavours of the Mohn family, gives the corporation’s have indeed stimulated welcome changes in subsidiaries a high degree of autonomy. Bertels- Chinese publishing practices. By gaining the mann’s website says: “Decentralization is a key factor respect of both publishing industry and the book- in our success.” Bertelsmann also attaches great buying public, Bertelsmann has set a benchmark importance to synergy between its divisions. It has for its competitors in China. abandoned the vocabulary of publishing. Random House and its other publishing units are “content * * * * * providers”. In its first ten years in China Bertels- Bertelsmann’s ten-year old initiative in China is a mann applied these concepts by patiently estab- product not only of its size and seriousness, but also lishing no fewer than fifteen divisions, grouped of the diversity of its resources. It is a complete under media content providers, media services media conglomerate engaged in book publishing, providers and direct-to-customer distribution. record labels, music and book clubs, newspapers and magazines, television and radio, and print * * * * * services. It has six divisions: The book club remains the core of the business. It purchases its publications from Chinese domestic 1. RTL, Europe’s leading enterprise in television publishers, thus becoming a major distributor, but and radio broadcasting. not originator, of Chinese books, a neat way of 2. Random House, the world’s largest English- satisfying the Chinese government’s requirement language trade book publisher, with more than that the publishing of books should not be in 100 imprints. foreign hands. Before launching its first book club, 3. Grüner and Jahr, one of Europe’s largest maga- Bertelsmann spent two years on market research zine publishers. and obtaining permission from the government for 4. BMG, the parent company of Sony’s music, its start-up. In less than three years, club member- entertainment and publishing businesses. ship exceeded 1.5 million. 5. Arvato, consisting of printer and media services, Bertelsmann has thus skillfully adapted its a leader in media information technology. value chain to Chinese restrictions. In its world 6. DirectGroup, of book and music clubs, with business, the “content providers” are owned by thirty-two million customers. Bertelsmann. In China they do not, but Bertels- mann’s business structure provides for the expecta- Bertelsmann can trace its origins to 1835. During tion that some day it will become, in whole or in World War II it became the largest publisher in part, its own content provider. This could be done Germany. Reinhard Mohn, the fifth generation of through the purchase of Chinese publishing houses the family, resurrected Bertelsmann after the devas- or through start-ups. tation of World War II and laid the foundations for It was not so long ago in China that all the company as it is today. It started its first book publishing was under the control of the Communist club in 1949 in Germany. Over the next thirty years, Party and the government. Publishing was a polit- the company grew at a tremendous rate, mainly by ical tool, especially during the Cultural Revolution. acquisition in Europe. Expansion into the United Since the economic reform in 1978, as publishing