More: American Chamber in Shanghai Report (2 of 3)

AMcham logo

The Chamber’s report outlines three key challenges facing business in China based on a survey of members.

Productivity and Efficiencies:  As competition from native businesses grows and the economy slows to more realistic, long term growth patterns, the pressure to increase profit will come more and more from increased productivity.

Breakthrough Innovation:  Another area on which growth will depend is innovation in business models, products and services.  Focusing on these aspects of business will help maintain market leadership.

Compliance:  Companies are preparing for a tighter regulatory environment coming from the Chinese government.  Fraud and corruption are getting increased attention from authorities.  As a result companies are intending to spend more capitol on government affairs and stakeholder management.

Source: AMCHAM, American Chamber of Commerce in Shanghai, 2015 China Business Report

American Chamber of Commerce in Shanghai Report (1 of 3)

AMCHAM report

The 2015 China Business Report by The American Chamber of Commerce in Shanghai (AMCHAM) reveals a generally optimistic view that US companies have of their business future in China.  The key numbers from the 377 respondent companies are that 96% of companies reported they maintained or increased their investment in China in 2014 and that 95% intend to continue what they had done as they move into 2015.  That is compelling.  Source: AMCHAM, American Chamber of Commerce in Shanghai, 2015 China Business Report

Likely Results from National People’s Congress

Smoke Stacks

The most important word coming from the National People’s Congress is reform.  As the Chinese government tries to manage its transition to a consumer economy, there are reforms needed to keep things steady in the face of change.  The biggest challenge is the reformation of State Owned Enterprises (SOEs).  Like most very large, entrenched organizations they don’t move easily – the analogy to turning a giant ship comes to mind.

There are many rumors, some more educated than others, about what will come from the National People’s Congress.  Here are two efficiency reforms expected to emerge:

  • SOEs will be taxed at higher rates – up from the current 15% to 30% by 2020.
  • 112 State-owned Asset Supervision and Administration Commission (Sasac) enterprises will be merged into between 30 and 50 entities over five to seven years.  Industries such as oil, telecommunications and energy will be forced to consolidate into giant sector –based entities.  Leading the rumor mill is a combination that would put PetroChina and China Petroleum & Chemical Corp, or Sinopec together.

Source: South China Morning Post

China Still Leads with India Closing Fast

Asia-Mobile Shoppers

Results from the MasterCard Online Shopping Survey 2014 that interviewed 7,000 respondents in 14 Asia Pacific countries showed China still leads with the highest percentage of online shoppers making their purchases via mobile, but it is being challenged by strong mobile shopping advances in India. Mobile purchases have risen there from 30.3% in 2012 to 62.9% in 2014.  India has the same infrastructure issues that encouraged the Chinese to leapfrog wired technologies and go directly to mobile.  These numbers indicate that the remaining barrier to India’s mobile expansion, low-cost smartphones, is being overcome.  Source: Warc; YoloBlog

Alibaba Invests $445 million in Start-ups

AlibabaLogo

Alibaba is expanding its investments in start-ups.  After having set aside a $129 million fund dedicated to building Hong Kong’s entrepreneurs, the company is now creating a $316 million fund to support start-ups in Taiwan.  The focus in both cases is on companies that are developing mobile e-commerce products based on the Alibaba’s platforms.  Smart.  Rather than treating start-ups as a threat, Alibaba chooses to lure them into the fold.  Source: Insider Money via Wall Street Journal

China’s Smartphone Subscribers Double the Entire US Population

Carrier Data-Feb15

We use smartphone subscriptions as an easy way to count China’s consumer class.  So it is impressive that as of February’s subscription figures, China now has twice the number smartphone subscribers as the US has in its entire population.  And since phone carriers in China do not subsidize smartphone purchases, the numbers are even more impressive.  Source: China Mobile, China Telecom, China Unicom

 

Adjusting as the Market Changes

Nestle products

Nestle’s, the Switzerland-based food company, saw that 2014 sales remained flat compared to the prior year.   What to do?  Analysis revealed that “there are many China’s” according to Nandu Nandkishore, Nestle’s head of Asia, Oceania and Africa.  He went on to say, “We have to continue to cater products for the old China while we innovate and renovate products for the new China.”

Hence, a strategy.  Based on data showing that younger Chinese consumers are buying higher end products, those that are more nutritious and higher quality, the company will introduce products that meet those changes.  In addition, the data show that one third of pet food, infant nutrition and coffee were purchased online resulting in a push to increase the company’s e-commerce capability.

Lesson: Listen to the market and adjust.  Source: Bloomberg

Chinese New Year Explodes Box Office

February Films

For the first time ever, Chinese box office receipts out-distanced the US.  Thanks to Chinese New Year movie-going, February churned $650 million at the box office compared to $640 million in the US according to Entgroup data.

This comes after a banner 2014 for film in China.  Revenues grew 36% as China added 1,015 cinemas and 5,397 screens taking its total to 23,600 screens verses the US at 39,600.  Domestic films accounted for 54.5 percent of the $4.76 billion box office last year.  Source: Hollywood Reporter; Charts Bin

Regulation is coming to eCommerce in China…and it’s a Good Thing

ShoppingCart

Our friends at Alibaba are having a running spat with the State Administration for Industry and Commerce (SAIC) about the authenticity of the products sold on its Taobao.com shopping platform.  In the short term, below standard quality of local merchandise has been a good thing for Western products because it has sent Chinese consumers to more trustworthy overseas products.  But, for the long term growth of e-commerce, a trusting environment is crucial.

Zhang Mao, minister of the SAIC, recognizes this and has pledged to be more active in regulating e-commerce and protecting online consumers.  He has urged e-commerce platforms to take “key responsibilities” for promoting “credibility and integrity.”  About the regulations he added, “The reason why there are so many market violations is that the cost of breaking rules is too low.” He promised that in the process of regulating e-commerce shopping platforms, the SAIC would, “Listen to them, provide guidance for them and demand their self-discipline.”

Online shopping is a fast growing sector, but it remains only 10% of retail sales in China.  More trust will promote even faster growth and that is good for all marketers, local and overseas. Source:  Shanghai Daily

For Chinese Trust Must Be Earned

Hand shake

A recent Harvard Business Review article focused on the need for building the trust required for successfully doing business in China.  It makes the point that the two cultures look at trust differently.  In China the default is to distrust, whereas, in the US it is to trust.  We trust until you demonstrate you cannot be trusted.  Chinese people do not give a benefit of the doubt.  This is best expressed by comparing two phrases.  In China they say, “Early birds get shot.”  In the US it’s, “The early bird gets the worm.”  China is pessimistic while the US is optimistic, at least about birds.

What does that mean for business?  It means that before business will get done, a personal relationship must be established.  A Chinese business person must believe they can trust you before you can move onto substance.  Building the foundation can take some time and even be frustrating, but once established, the relationship can last for a long time.  Source: Harvard Business Review