CONCICO CO. LTD. Blog

Intranet user in China

China does not have the Internet, they have an Intranet. Household name sites that I use to connect to people worldwide like Twitter and Facebook, to name a few, are blocked by China’s rigorous censors.

Yesterday I attended an interesting lecture about China’s recent wave of innovation held by Kairos Future together with the Sweden China Trade Council. I learned that it apparently takes 24 hours for an idea in Silicon Valley to reach China. This got me thinking…..

The C2C (Copy to China) phenomenon is widespread in China. Smart Chinese entrepreneurs take an idea from the garages and labs of Silicon Valley and make their own slightly altered (and often improved) versions for China. The list of Chinese C2C concepts is long and includes Taobao (Ebay), Weibo (Twitter), Renren (Facebook), QQ (MSN Messenger) etc.

If China had access to Facebook and Twitter and subsequently had exposure to all the smart applications and programs that use these platforms as a login to create new accounts and quickly spread their concept to the friends of the person that logs in, my guess is that a global idea would take only 24 seconds to reach China.

Take a company like Wrapp which makes electronic gift cards.  Smart concept. These Wrappers have intelligently used Facebook for new users of their app to login and create accounts. Once a user has logged in, they are informed which friends have upcoming birthdays and can choose among suitable gift cards. Simple yet powerful. Facebook allows Wrapp to function like a pyramid scheme with one user signing up providing acces to millions of other users.

Chinese companies with smart applications also use Weibo or other external account based platforms for users to log in, but not being able to access Facebook hampers the global reach of these applications. This not only limits  the number of users but also prevents local Chinese applications to become global names.

The Intranet of China protects foreign entrepreneurs from having their beta versions of smart applications instantly copied to and tailored to China. So far there is no C2C version of Wrapp available in China but my guess is that when this application launches in the US, China will be wrapping gift cards like never before and selling them as plugins on Taobao.

In my view, China’s internet censorship hampers Chinese innovation and stifles programming creativity. Luckily it protects the remaining Western knowledge workers (entrepreneurs), whom unlike the manual workers have already lost their jobs to Chinese workers who take double factory shifts.

/Magnus – Chintrepreneur

New Year Firecrackers

We have just entered the year of the dragon! The dragon is considered a powerful and successful zodiac to be born in and hence Chinese couples are speeding up their efforts to bring little dragons to the world. In other words, China is facing a babyboom.

In 2012,  China will experience a statistical peak in an already existing Chinese babyboom. This boom will contine until 2015-18 and represents a fourth and final contemporary Chinese babyboom.

The main reason behind this boom is purely demographic but there will be an extra boost as celibatic couples whom have patiently slept back to back, now finally enter the right zodiac for conceiving dragons.

There is money in Babylon

The statistics vary but an estimated 17-19 million children will be born in 2012, in China. Lets focus on what this means for companies scrambling to profit from the patter of small feet. A baby boom can be profitable but only for companies and brands that focus on the right target groups.

Forget the mass market for baby durables. Competition is fierce and there are few opportunities. Try to compete with a company like Goodbaby that manufactures one baby stroller every five seconds. Last time I visited Toys R Us in China I counted 50 different types of baby bibs at prices so low you might think they are for single use.

For durables, companies that instead target the higher income segments have a great opportunity. But it still wont be easy, this is a totally new generation of Chinese parents. Parents that despite hectic schedules, increasingly will chose to raise their children themselves instead of outsourcing parenting to an “ayi” (maid) or their grandparents.

They need convenience, quality and good style that allows for a fast lifestyle with a baby in tow. Who would want to be seen with a “Hello Kitty” inspired baby stroller without a collapsible frame?

They have also experienced tainted milk powder scandals and are aware of harmful PVCs and chemicals which could affect their babies health. Look at the Taobao parallel importers whom peddle their imported brands, they really know how to market their stuff. Oekotex, no PVC, made in Europe etc…

I am still to find a foreign baby durables brand in China, that has managed to explain to this new generation of parents why they should be the first choice baby product. The ones who manage to do so, will be very successful.

/Magnus – Born in year of the dragon

Sights like this will become more common outside of Shanghai as well.

The CEO of the Ministry of Fashion, H&M was recently interviewed in the Wall Street Journal about coming global store openings. Contrary to my earlier post about another company, Electrolux, H&M was all for China. H&M plans to focus their expansion to China aiming for the growing middle class in China’s Second and Third Tier Cities. These are cities which are often further inland and not as big nor as developed as the larger cities of Shanghai and Beijing.  That’s one Swedish cosumer oriented company that is doing the right thing! The middle class in the middle kingdom is the target for a brand like H&M and this segment is growing fastest in tier 3 and tier 2 cities.

Most CEOs can not even locate Tier 2 cities on a map but Karl-Johan Persson manages to both point out cities like Kunming and hence at the same time the right strategy for sales growth. But there will also be great challenges when opening stores in regions and cities which are very different to the established markets of Shanghai or Beijing.

1. The right expectations

Often when expanding to new cities, management assumes that Nanjing or Kunming will be similar to other Chinese cities, just smaller. Hence sales are based on projections from other Chinese cities. For exampler, one assumes that sales in Kunming will be x% of Shanghai based on the spend of present store visitors in Shanghai. This creates lofty sales expectations.

China is very diverse and the shopping behavior between provinces differ greatly. It took brands like IKEA and Decathlon years to build up brand awareness in Shanghai and Beijing. When entering these new cities retailers need three things. Local competence to understand local tastes and needs, greater  marketing budgets as launching in a new province is almost like launching in a new country and most important lots of patience, as it will take time to build awarness and generate market share.

2. From gawking to shopping
All retailers worldwide have ”gawkers” people who just come for a look and this is especially true for big box retailers. In China, with so many new brands and concepts the gawking phenomenon is even greater. People come to the store to visit and explore but hold their wallets tightly. This is true also in the larger cities. At the IKEA store in Shanghai, free venue and coffee has resulted in an involuntary senior citizen dating service.
Retailers entering China’s inland provinces need to convince gawkers to become shoppers or ensure the target the right customers from the beginning.

3. Competition
Price competition is tough in China and despite fewer competing retailers in the inland provinces, in my view H&M is already a little late. Unless H&M gets their price right and realizes the aspirational aspect of their brand quickly, it will take time for them  to generate meaningful sales. All the brands are heading into China’s interior as well as all major online shopping portals.

4. Operations
Companies that delivery consistency in China are king. In a country as large and diverse as China it is difficult to manage store operations and ensure  a consistent experience. This is especially true when all the retailers are fighting for the same staff which has created salary inflation among experienced shopkeepers.

I have worked on several mystery shopping projects in China where we have checked everything from if a receipt was provided at the cashier to if the staff was able to explain the difference between two t-shirts. The in-store experience often varies greatly between provinces. To succeed in the interior provinces, companies need to implement training and follow up from the start to ensure the visitor experiences the brand correctly and consistently.

/Magnus – Retailtainer