Businesses Who Do Well in China, Even Without Being in the Government's Good Books

The Chinese Government have a dream, and businesses that align with that dream are well placed to prosper.

For a prospering business, we only need to look to online shopping and specifically Alibaba.  eCommerce is one of the key pillars of China's 12th Five Year Plan, aiding China's transition from an investment-led to a consumption-led economy.  But the Government's support spans deeper than that.  Beijing's official line on its much-publicised "Chinese Dream" is first and foremost about national "rejuvenation" (民族的伟大复兴) and the development of a "comprehensive national power" (综合国力的发展). Nothing represents a strong and rejuvenated China more than its ecommerce sector.

Alibaba competed head to head with hugely-resourced and experienced foreign giants such as eBay, and more recently Amazon, in one of the few online categories that wasn't regulated to handicap foreign players. Despite heavy investment from its foreign competitors, Alibaba has dominated the industry and is a metaphor for a confident China: a world leader, poised to be the largest ever tech IPO, innovating global firsts and increasingly setting its sights to expand abroad. The value of merchandise sold on its platforms surpassed eBay and Amazon combined in 2012.

Whilst Government support has assisted with the spectacular rise of eCommerce, those industries and companies that aren't in the good books often face an equally extreme path.  Just ask most luxury fashion and accessory brands, or importers of high end spirits and wines about how changes in Government policy can change fortunes overnight.

Yet just because the Government isn't on-side, we shouldn't all pack up our bags and return home.  Companies such as Volkswagen and Apple are great examples that even if you are disadvantaged by negative coverage in state media or policy changes, there are smart ways of addressing the issues.  Volkswagen, who were singled out for faulty gear boxes early last year, present a case study for dealing with Government concerns and still coming out on top.  Likewise, Apple who were recently targeted by the state as a security risk, have adapted swiftly to address the issue.

Any business in China, foreign or local, is at risk from a shift in favour from the Chinese Government.  Fortunately we have the luxury of learning from businesses who have addressed state issues and still come out on top. 

Here are this week's news and highlights for China:

 Chinese Consumers

How Volkswagen Overcame a Crisis in China, in Three Lessons: Volkswagen was slammed by Chinese media in early 2013 for faulty gearboxes, but reacted in a way that saw them grow sales 16.2% in the year to take the top spot in China. What they did well was apologise sincerely, ensured they remained down to earth, and understood that product recalls aren't always viewed negatively in China as they demonstrate a company is up front and proactive.

Apple Adds China Telecom to Host User Data Amid Security Concern: Apple has learned that it is best to cooperate with the Chinese Government, addressing recent unease about data security swiftly by storing Mainland user data on China Telecom's servers.

Consumers Swayed By ‘Trusted Recommendations’: There were 210,000 new product launches in China last year, down from 300,000 in 2011. They accounted for 6% of companies' growth, down from 8% in 2011, due to a saturated market and businesses not fulfilling consumers' needs with new products.

Growing China GDP Makes Chinese Consumers Ripe for Consumer Packaged Goods Companies: 47 of the 73 major Chinese cities have a GDP per capita higher than the average GDP per capita of upper-middle income countries.

Chinese Dreamers: Insightful 21 minute short film illustrating the Chinese Dream not as a slogan, but as the possession of the ordinary young men and women who will determine China’s future, and how social mobility is affecting that dream.

The Allure and Challenges of China's Changing Consumer Market: 62% of Chinese consumers are willing to spend on products that reflect one's identity. 69% are willing to try new brands and 73% are online every day according to Accenture.

 Internet, Mobile, Social Media & eCommerce

Alibaba Cooperates With Kering After Fakes Suit Withdrawn: Gucci's parent company Kering SA has withdrawn a lawsuit that alleged Alibaba participated in violating trademarks.

Death of the Daigou, Dusk for China’s Gray Market: Daigou agents generally charge around a 5% margin for luxury goods ordered on Taobao, and brought in from overseas without high tariffs.  But Daigous are increasingly at risk, as new laws now classify them as smugglers. Cross border eCommerce jumped from $2 billion to $12 billion between 2010 and 2013.

China Leads Global Mobile Commerce: 82% of Chinese consumers are more likely to buy products from brands they follow on social media. 78% have shared their purchases on social media.

WeChat Reaches 438 Million Monthly Active Users as Growth Slows: WeChat's active monthly user base grew 10.6% from Q1 to Q2 this year, and almost doubled from a year ago.

 Food & Beverage

5 Ways Starbucks Is Different In China: Starbucks is planning to open in 500 more locations in China by the end of the year. The restaurant has localised to Chinese conditions by 1) creating bigger stores with more seating space; 2) making the coffee more expensive; 3) creating menu items that appeal to unique Chinese tastes; 4) labelling food with country of origin; and 5) looking after employees and families.

An Online Duck Restaurant Makes a Splash in Beijing: Call a Duck, an online restaurant selling duck meals averaging ¥140 ($23) is selling 200 ducks a day, three months after opening. The restaurant has an innovative recipe, slick packaging and Google Glass-donning delivery men in Mini Coopers. Chinese consumers spent ¥62 billion ($10 billion) ordering food online last year, up 61% from 2012.

Bordeaux in Beijing? China Hopes to Build Must-See Destination For Wine Lovers: The International Grape Exhibition Garden will soon be opening in China's capital. For $10, visitors can frolic amongst more than 750,000 square metres of vineyards and glass houses hosting more than 1,000 grape varieties from 40 countries, a grape museum and Italian-designed grape sculptures. If nothing else, hopefully it will help falling imported wine volume and value.

Chinese Tourists

'Paris Syndrome' Drives Chinese Tourists Away: 900,000 Chinese tourists visited Paris last year, but 2014 growth rates are less than half of 2013, partly due to Chinese tourists becoming prime targets for pick pockets and other petty crimes.

 Health

The Driving Force Behind China’s Beauty Boom: White collar women in China spend an average of 30% of their incomes on cosmetics products and treatments, seeing it as an investment in their career, private life and social success. Consumers spend $25.9 billion on beauty products in 2013, with eCommerce accounting for 20% of all sales.

That's The Skinny for the week!  We'd love to discuss how we could help with your marketing, online initiatives or research to take advantage of China's opportunities.  Just email us at info@chinaskinny.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.If you've missed earlier news or need to learn more, there's a library of information about Chinese consumers in prior China Skinny Weekly's right here. You can have this delivered to your inbox each week by subscribing for email updates, or if social media is more your thing, please follow us on Twitter, Facebook, Linked In or Google+, or subscribe to our RSS feed.  If you have any feedback or suggestions for future articles, please let us know.