08 Nov

What Now? Listen!!

What now? Listen!!

We have waited for the election of Mr. Xi to his third term. Apart from a small amount of drama with the public humiliation and removal of former leader Hu Jintao nothing unexpected took place among the consensus of China watchers.

Mr. Xi now has his people in place. The surveillance apparatus has been tested and proven by the impressive ability to control 1.4 billion Chinese in enforcing the zero-tolerance Covid mandate.

The emphasis upon Sinicization has been promoted down through the ranks in virtually every sphere of Chinese life from business to religious practice.

The China dream which surely includes Chinese hegemony is now activated. For 30 years the counsel of a previous leader to keep a low profile, hiding capabilities and waiting your time is now past. Mr. Xi and the Party now are prepared to offer the world a choice between traditional Western democracy/capitalism and modern Marxism with modern socialist Xi thought.

In the next 10-20 years the world will choose. Which is most beneficial, advantageous to the masses and to be preferred?

Those of you who have followed W4A for the past 25 years know that we are restrained whenever it comes to political matters and international relationships. We have advocated leaving that to those who live in that space and to keep ourselves focused on building bridges and not walls. In other words “stay in your lane.”

My article here is no change of position. I believe that my opening assessment is fair, accurate and helpful. Each sentence above can be backed up with direct quotes from Mr. Xi and the Party leaders.

One thing I have learned and benefited from over the past 20 plus years is we should listen to what the Party says and believe them. While the Chinese take great pride in their cleverness, they most often do not hide their ultimate agenda. When the leaders say Socialism with Chinese characteristics is the wave of the future, they probably believe what they said.

Those of us who wish to have standing in China for the sake of our work need to not only listen to what we are told but believe what we are being told regarding direction, desired out-comes and red lines whether we agree or not we need to listen.

Let me give two illustrations.

Back in 2006 I was honored to chair the first Chinese Bible Exhibition held in the USA. While waiting for the national leaders to arrive at LAX and preparing to load them into waiting limousines I kept company with the Los Angeles Chinese Ambassador. A few hours later we shared a table at the welcome banquet.

A full month after that event the Ambassador sent me a personal hand written note. It was replete with appreciation for our work and love shown to his country. He made it clear that should we ever have any problems we could count on his office to assist. At the close he added “I noticed that on your business card our rooster only had one foot (when colored in one is Hainan and the other Taiwan) I know you love us to much for us to have a crippled rooster.”

For a busy official to take time write such a note one month following an event spoke volumes. In the minds of Chinese leaders there is zero question as to the ultimate outcome of unification with Taiwan.

Agree? Disagree? We need not question what the agenda of Beijing is!

In 2017 we were enjoying lunch hosted at the offices of United Front in Beijing.

Somewhere between cold dishes and soup our host casually stated “we are hoping all the house churches will apply to register. We know where they are. If they don’t, we are going to shut them down in two years…how is your soup?”

For those who follow such matters you know 2019 was not a pleasant year for many unregistered churches.

Agree? Disagree? My point here is simple. Listen, listen, listen. There are fewer surprises for those who do so.

One of the most essential keys to building bridges is to listen to what we are being told. May be why we have two ears and one mouth.

05 Sep

Opportunity in the Midst of Adversity

by Gene Wood

Opportunity In the Midst of Adversity

If you look hard enough, there’s often a silver lining in many adversities. So is the case
with regard to E-Commerce sales in the People’s Republic of China. In 2022,
ecommerce sales reached 15.5 CNY trillion (more than $2 Trillion). This made China the largest e-commerce market in the world. When Covid-19 literally froze daily life and factory
production in its tracks, Chinese consumers found a way to continue their shopping activities while avoiding physical shopping. The result was a major lift in annual e-commerce sales. The industry grew to $2 Trillion per year. Chinese consumers increasingly shopped online for their favorite foreign fashion, accessories, and beauty products.

China’s E-commerce industry is currently growing at annual growth rate of 12.4%. In the next three years (by 2025), there will be 1.2 billion e-commerce shoppers in China. This growth is fueled by very strong growth in household internet penetration, which presently stands at 65.2%. While impressive, there’s still significant opportunity for growth left for household internet penetration, and e-commerce sales. There is one other thing that has investors in Chinese e-commerce companies anticipating great returns: cross border markets and the ability of Chinese e-tailers to reach them.

The Perfect Storm and the World’s Largest E-Commerce Market

In the presence of a few other factors, the Covid-19 pandemic yielded the world’s largest e-commerce market. These other factors included:

a) Alternative payment solutions, including Alipay and WeChat Pay. These two systems
accounted for 57.6% of total e-commerce value in 2021.

b) Market penetration of new technology, including internet, e-commerce platforms, and smartphones. China currently has more than 800 million internet users, more than the combined populations of the United States, Indonesia, and Brazil. 98% of the country’s total internet users shop online using their Smartphones. That’s twice the rate as in the United States.

c) Increasing consumer confidence in e-commerce companies and technology.

d) A huge migrant labor workforce employed by companies like Alibaba and JD.com enabling same-day delivery anywhere in China. Same-day delivery was hugely attractive to first time buyers and encouraged early adoption. For example, Alibaba manages a cross-country network of third-party delivery firms that can process up to 30 million items per day.

e) Nearly one-third of Chinese citizens now have a middle-class standard of living.
However, those who live in second-tier cities are faced with a lack of retail shopping locations, with limited options, consumers in lower-tier cities go online for more variety and options than they could ever have on their doorstep. E-commerce solutions have grown by meeting this previously unmet demand.

Shopping Patterns

Even as in our domestic (U.S.) economy, e-commerce is still largely a consumer product distribution strategy. The following provides a 2020 v. 2021 summary of the leading product categories and their growth. Note the growth across most categories.

One lesson that Word4Asia can take away from this is that adversity creates opportunity, if
businesses are prepared to see the signs, follow the trends, and take decisive action. We’ve
been helping clients with that perspective for over twenty years.
Perhaps this is your organization’s time for such action. If China is in your sights, we hope that you will consider us as a potential resource. We would be happy to open the conversation, share from our deep well of prior success, and work with you to achieve your objections. You can start that conversation with us by contacting Dr. Gene Wood at gene@word4asia.com.

All the best,

Gene

Sources

https://tenbagroup.com/12-china-e-commerce-market-trends/

https://www.asiapacdigital.com/digital-marketing-insight/china-ecommerce-2022

https://www.adchina.io/china-ecommerce-market/

https://www.business.hsbc.com/navigator/made-for-china/five-reasons-why-china-is-
dominating-e-commerce

01 Jul

Understanding Chinese Entrepreneurs

by Gene Wood

Word4Asia is in the business of helping US based organizations achieve their growth objectives in mainland China. Our blogs frequently discuss changes in China’s competitive landscape and what the implications for our US based clients might be. We thought it could be just as revealing to study what Chinese entrepreneurs and Chinese Americans are achieving here at home. We hope you’ll enjoy this somewhat different approach!

Who is the Chinese Entrepreneur?

One way to understand the type of Chinese people who become entrepreneurs is to compare them with their American counterparts. In America, age is not a predictor of whom may become an entrepreneur, age is spread evenly across an under 30 to over 60 age span.

Chinese entrepreneurs tend to have more technical degrees than American entrepreneurs do. Chinese entrepreneurs skew more toward the natural sciences whereas we Americans tend to come out of business schools. Interestingly, there is an equal proportion of engineers in both groups.

Understanding the Differences

In preparing this blog, Word4Asia had access to a research paper that studied how economics, culture and policy influenced the formation of established successful entrepreneurs, prepared by researchers from two universities: the School of Management at the University of Science and Technology of China, and Siena Heights University, Adrian, Michigan. This combined research team surveyed 279 Chinese and American entrepreneurs. Data collection took place at two different times and in two different geographic locations.

Summary of Research Findings

Americans tend to choose an entrepreneurial route because they believe their compensation will, in the long run, be better compared to working for someone else. Before China’s economic reform, there were limits on what workers were capable of earning, so fewer Chinese would have given better earnings as a driver for becoming entrepreneurs. Both Americans and Chinese place a premium on the value of hard work. However, the survey results indicated that Americans are likely to work more hours than their Chinese counterparts; it’s likely that they feel more strongly than the Chinese that the number of hours worked will directly impact their success. Chinese entrepreneurs tend to be more disciplined in their approach; more of them write and follow detailed business plans. In both cultures, business networking is seen to be an important requirement for success. However, American entrepreneurs demonstrate more trust of the people in their social networks compared to Chinese entrepreneurs. Americans, coming from an individualistic culture, are more likely to seek public speaking opportunities to promote their businesses. There also seems to be a difference in long-term outlook; American entrepreneurs are more positive about the long-term outlook for achieving success whereas fewer Chinese entrepreneurs responded in that way to the survey question. American has always been an important source for important new technologies. It’s not surprising that more Americans than Chinese entrepreneurs listed ‘unique technology’ as a driver for the start of their businesses.

In other blogs, we have discussed how the Chinese government aggressively supports their nation’s start-up companies with economic incentives. American entrepreneurs don’t feel as positive about the amount of assistance they receive from Federally sponsored programs.

Chinese entrepreneurs are more likely to feel that state and local government sponsored programs make starting a business easier; however, the study also revealed a perception that China’s large government might make everything difficult for the entrepreneur during the start-up phase of a venture. Conversely, in the USA, policy might encourage entrepreneurial start-ups but an overregulated environment might create more limits to the entrepreneur’s potential.

Let’s Meet A Few

Jack Ma

Reportedly, Jack Ma is the richest man in China, with a net worth more than $54.1 billion. Net Worth: $54.1 billion. Ma founded Alibaba Group in 1999, following in the general footsteps of Jeff Bezos and his company Amazon.com. Alibaba, however, has differentiated itself from Amazon by pursuing more of an industrial business model, becoming the place for Chinese factories to offer their products in bulk worldwide.

Ma’s Top 5 Rules for Success:

Get Used to Rejection

Ma’s dedication to resiliency is a major contributor to his success.

He failed his college entrance examination twice before getting accepted on the third try. After graduating, he was rejected by the first 30 potential employers he applied to, even the police wouldn’t hire him. Neither would KFC who hired the first 23 applicants in front of him. Even Harvard University rejected him – a total of ten times!

Keep Your Dream Alive

This is the company motto that Ma insists all his employees commit to.

Focus on Culture

Ma grew his company from 18 people to more than 20,000 young employees by steadfast focus on the company’s mission, values, and culture of helping the company.

Ignore the Nay Sayers.

Alipay is an important part of Alibaba, with over 500 million users. However, in the early stages, Ma received a lot of negative criticism about this part of the business – which he simply ignored.

Seek to Inspire

Jack Ma drew a lot from his personal experiences watching great performances like the films, The Bodyguard, The Godfather, and Forrest Gump. He was inspired by the natural, from the heart performances delivered by great actors and he, himself, has sought to inspire others in the same way.

Wang Jianlin

Wang Jianlin is a giant in the real estate world, and the owner of Dalian Wanda Group. This company includes luxury hotel properties, commercial real estate, and e-commerce ventures. At one time, he also owned a big share in the European soccer club Atletico Madrid. His net worth is estimated at $14 billion.

Five Management Tips from Wang Jianlin

Army Discipline

As a teenager in the early 1970’s, Wang spent several years serving in China’s military. The experience taught him toughness, sacrifice, and a desire to fight to victory. He points to a direct relationship between a military background and success, pointing out that many top Chinese entrepreneurs previously served in the military.

Innovate and Differentiate

Wang takes important lessons from the successes won by such American companies as Starbucks, McDonald’s, and. YUM! brands. Each of these companies have succeeded because of their ability to create outstanding consumer value in unique ways. He believes that this is something any great company must do, regardless of industry.

Stay close to the Chinese leadership

Wang has forged a very close relationship with the Chinese Communist Party. The initiatives that they pursue are the areas where he focuses his business. For example, overseas investments; after the State Council in 2014 released specifications urging private Chinese companies to go global, he pointed his businesses in the same direction.

To Be Number One, Instill a Distinctive Corporate Culture.

To create this corporate culture, Wanda has created an internal website and monthly company magazine that is “the core media for spreading Wanda’s corporate culture.” Each month, this internal media publishes touching success stories about Wanda employees that embody aspects of corporate culture. Also, Wang selects one book each year for all employees to read.

Outstanding employees get a bonus paid vacation and an invite to a splashy annual conference to rub elbows with Wanda company executives.

Don’t read books on corporate philosophy

Each company must define its own essence and create a unique culture that is right for its goals, industry, leadership. Simply borrowing a culture from another company will not achieve the desired end.

Word4Asia has been dedicated to helping our clients achieve their goals in China for over twenty years. We hope this quick look at successful Chinese corporate leaders helps you as you consider your own tactical options to growth mainland China. If you are currently in a similar planning mode, we invite you to reach out to us. We’d love to visit with you about your goals and possibly provide some assistance. The easiest way is to email Dr. Gene Wood at gene@word4asia.com

Sources:

https://contributingacrossamerica.economist.com/downloads/ContributingAcrossAmerica_EntrepreneurshipBusinessLeadership.pdf

https://www.academia.edu/6557687/Factors_influencing_the_formation_of_Chinese_and_American_entrepreneurs

https://www.google.com/amp/s/greyjournal.net/hustle/inspire/7-great-first-generation-asian-american-entrepreneurs/

https://www.researchgate.net/publication/349310127_Chinese_Immigrant_Entrepreneurs

https://www.census.gov/newsroom/blogs/random-samplings/2016/07/asian-owned-businesses-nearing-two-million.html

https://www.investopedia.com/articles/personal-finance/020415/top-10-chinese-entrepreneurs.asp

https://money.cnn.com/2016/02/22/news/wang-jianlin-book-advice/

https://project-management.com/jack-ma-top-10-rules-for-success/

01 Jun

Consultant’s Corner

by Gene Wood

Growing Your Business in China

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When it comes to pursuing a growth strategy in China, the “right” strategy for your company really depends on the perspective of your foreign partner. This includes company values, business culture, negotiation style, networking, and socioeconomics. In this month’s blog, Word4Asia shares some of the strategies we’ve seen successful companies employ in China.

To appreciate how challenging it is to build a successful business in China, one need only consider the list of companies who have tried and failed there. For instance, Amazon, after slogging through for nearly 15 years, pulled the plug in July 2019. Home Depot lasted nearly six years before calling it quits in September 2012. Most companies who failed there had not fully realized the competitive barriers they would face, nor the difficult, and subtle nuances of the Chinese culture. Misunderstanding the significant cultural differences has been a common problem, in no small part because American companies are geared for speedy execution. But this approach does not support a bottom-up approach, and this is a violation of what the Chinese call “guanxi”.

Guanxi is best translated as “network” or “relationship.” Developing personal relationships leads to trust; without trust, American businesses fail in China. It is essential to build a network of friends and supporters at many more layers than is necessary in America. The process of establishing trust usually means negotiators will be conducting many more personal meeting and conversations.

It’s only been in recent years that China’s economy has become more consumer driven. Traditionally, the Chinese were more apt to invest their money in stocks, land, and other assets to pass wealth to their children. So, the Chinese don’t demand the same product selection that American consumers do. A conservative and successful American strategy has been to introduce older models from the US market to Chinese consumers. Apple did this in 2012 when they introduced an older model of the iPhone, and by 2015, they saw a 71% increase in quarterly profit.

Food and business services have achieved success in China by way of Chinese franchising. KFC, Starbucks, and McDonalds are just three American mega-brands that have established a massive global presence, which also includes China.

Of course, lots of American companies have pursued foreign markets purely from a sales goal perspective – a sheer drive to steal market share from domestic competitors. At times, American brands that have tried this strategy have failed in this strategy, because the local consumers decide to protect their country’s home-grown brands. To win in this game, your brand must have an important competitive difference – either quality, or functionality or price.

One final option is to buy one’s way into the market. Various companies have attempted this through acquisition of channel members (retailers, wholesalers). Likewise, it’s possible that a foreign market entrant may purchase its direct competition. For instance, eBay did with EachNet (a Chinese e-commerce company and online trading community like eBay).

Given that trade relations with China have been difficult, and remain so, pursuing a growth strategy that includes one or a combination of these preceding strategies requires a determined business philosophy. At least three have been identified, including:

China is just too big a market to ignore.
China has too much to offer the rest of the world, especially exciting models, new products, and lucrative market segments.
China provides an opportunity for the advantages your company uniquely delivers.

The Chinese philosopher Sun Tzu said, “In the midst of chaos, there is also opportunity.”

With that in mind, here are a few additional points of advice.

Instead of introducing American products into China, develop unique products for the Chinese market.

Many companies have done this already, in fact there are now over 2,000 multinational R&D centers in China. For example, since 2008, Nestlé China pioneered a direction that other food and beverage companies followed when they opened their Beijing R&D center in 2008. Nestle’s food scientists conduct basic research and applied product development work at the center.

Possible Business Models

Manage From Within China

This is what the most successful multinationals already do. There are five building-blocks to this. It starts with local management. As an example, Coke has made Coke Greater China and Mongolia one of nine global zones that report directly to the company’s chief operation officer. Empower local management to manage the business without having to pass most decisions through global headquarters. Chinese executives now head the China units of Nestlé, Procter & Gamble, and other large multinationals.

Speed to Market

It’s impossible to overstate how important speed to market is in China. Competition is fierce.

In low-tech markets like food and beverages, it’s common for competitors to develop knock-off products and launch them in under three months. In more complicated/ tech-intensive categories, it’s been done in as little time as a year.

Embrace Online Business Models

Chinese shoppers have embraced online shopping more than any other consumers in the world. E-commerce sales made up more than 40% of total retail sales in 2020. About 40% of all food is ordered online. Chinese smartphone users spend four hours and 34 minutes per day on their smartphone, 48 minutes more than US adult smartphone users spend. If your company is going to sell products or services to these consumers, having a convenient, attractive, and uniquely better online business model will be among your top priorities.

A few examples will paint the picture. Pinduoduo is a mobile-only marketplace that sells produce items to Chinese consumers across China. It is one of China’s top social media platforms although it did not exist five years ago. Today, it is one of China’s leading platforms in terms of monthly users. Tiktok is known as Douyin in China and it has been the fastest-growing platform by gross merchandise volume, representing a new content-based e-commerce model.

Kimberly-Clark has grasped the importance of speed to market. They’ve grown in China by engaging online with millions of new Chinese moms every year. They are heavily investing in digital media (including e-commerce, social media, short videos, and vertical apps) to convert new consumers and they use state of the art analytics tools to continuously measure campaign and media effectiveness.

Our objective at Word4Asia is to help our clients succeed in mainland China. We’re proud to have been doing this for over twenty years, even in challenging times like we’ve seen since 2020. Is your organization thinking of China as a new focus area, or are you thinking of a new approach to work you’ve already been engaged in? We’d love to talk with you about it. Contact me, Gene Wood, at gene@word4asia.com. I’m happy to share the insights I’ve gained, and the ways we’ve helped our clients succeed!

https://baysourceglobal.com/the-beginners-guide-to-doing-business-in-china/

https://fortune.com/2021/01/28/china-strategy-multinationals-chinese-decoupling-market-consumers-trade-manufacturing/amp/

https://www.bain.com/insights/how-to-behave-like-a-chinese-brand/

https://nhglobalpartners.com/starting-a-business-in-china/

https://www.visualcapitalist.com/american-companies-that-failed-in-china/

https://www.brookings.edu/blog/order-from-chaos/2021/08/12/the-new-normal-in-us-china-relations-hardening-competition-and-deep-interdependence/