Is Alibaba Up or Down?

Alibaba up & down

Alibaba’s value is down $70 billion since its high in November of last year.  A Bloomberg Business analysis says that the reason is mainly that the Chinese economy has slowed and the Alibaba strategy for growth has not yet gotten its footing.  The combination of expansion into China’s hinterlands and into foreign markets is in play, but has not borne much fruit to now; meanwhile, these market expansion strategies costs are here now and they are expensive.

Alibaba is caught in the same twisted logic that China, as a whole, finds itself; both are growing faster than everybody else, but the growth is slowing, which turns a positive story into a negative.  Example: The Company’s revenue for the fourth quarter of 2014 is expected to rise by 41% to US$ 2.7 billion – not bad.  However, the past seven quarters averaged 50% growth, hence the negative story.  Source: BloombergBusiness

The Chinese Investor Class Grew by 10.1%



According to the 2015 Chinese Mass Affluent Report compiled by Forbes China and CreditEase, 11.8% of the Chinese population or 15.3 million people make up the country’s investment class – up 10.1 percent over a year ago.  They have investable assets of between US$100,000 and $1,000,000.

The question is, where are they looking to invest?  The graph tells the story.

Notably, this survey did not include assets in the country’s shadow banking system.

Source: Shanghai

The Evolving Chinese Middle Class

$300 Million

We have been very vocal about the growth of the Chinese middle-class, but words from Boston Consulting Group’s Jeff Walters, the company’s partner and managing director and an expert on China’s consumer goods sector, remind us to keep an eye on the ball because the ball is in motion.  He describes an emerging upper-middle class, which is defined by a minimum monthly salary of US$1,960.  That the broad middle class is segmenting has implications for sellers because this emerging upper middle class is susceptible to an up-sell to products of higher quality.

Walters’ points out that people won’t buy more shampoo, but they will buy a higher quality shampoo.  The approach to the consumer becomes more emotional – if you buy our ‘better’ product you will feel better about yourself.

Walters goes on to note that movement is possible because the Chinese are not as brand-loyal as are the folks in more mature consumer cultures.  Further, e-commerce has eliminated one of the great advantages established companies have had.  They had distribution to thousands of stores that put their products in front of consumers.  eCommece makes it possible for small companies to have the same reach as their larger competitors.

But small has its limitations too.  Walters says, “If your annual sales are less than $300 million in China, very few companies make money. Once you cross the threshold, it is much easier to make money.”

Source: China Daily

The Hammer Falls

Carrier Data-April 2015

April 2015 was the first reporting month in memory where the growth of new 3G/4G subscribers has fallen below 10 million – growth was a mere 7.5 million.  Though it will take a few months to understand whether this is a new pattern, one that is following the economy down to a new normal of slower growth, we have to note the distinct change.  By comparison, March saw 16 million new subscribers making April’s decrease of more than half significant.

We have noted before that the total number of mobile subscribers including both feature and smartphones has not changed in a year.  It sits at about 1.3 billion.  What is changing as new generations of the phones are introduced and people move toward smart.  April’s slow down could signal that the replacement market is in full swing and that it is approaching maturation.  We will have to wait to fully understand if this thesis is true.  It could be that the effect of Apple’s deal with China Mobile and the introduction of the Apple 6 has run its course.  The next sales spike might come with the next big hardware release….or not.  Sources: China Mobile, China Telecom, China Unicom

Changing Values

Buying Behavior


Evidence of a maturing purchase process among Chinese consumers can be seen in recent polling by two separate companies. In both, product quality and authenticity are beating out price as the most influential factor in buying decisions.  To support the wider conclusion, iResearch’s survey found that a website’s account safety and reputation were the third and fourth most influential factors behind quality and price. Price still counts, but it isn’t as influential as it once was.  Source: Jing Daily


Retail in China



  • Estee Lauder’s net sales were up 14% last quarter making China one of the company’s strongest markets. They sell Clinique, MAC, Jo Malone and Bobbi Brown brands.  On an earnings conference call reported by TheStreet, CEO and President Fabrizio Freda said, “We believe that China could [account for] 20 per cent of our business in the long term. We are the beginning of the journey in China where we are very well advanced in the US.”
  • Gross merchandise volume (GMV) for Alibaba’s two e-commerce malls, Tmall and Taobao, rose 40% quarter-on-quarter and the number of active buyers rose 37 per cent to 350 million.
  • Luxottica teams with to sell its sunglass brands Ray-Ban, Oakley and Vogue.

Source: InsideRetail.Asia


Downloads Follow Handset Sales


Media Post reports that iOS downloads in China have surpassed those in the US.  Downloads there have increased 30% in year-over-year quarters. That is not surprising given Apple’s full-on entry into the market happened last fall when Apple and China Mobile got together.  The combination was a rousing success with many new phones entering the arena. It shouldn’t be too surprising that downloads would follow.  Also logical is that the US retains its lead in the revenue derived from iOS downloads.  The Chinese are very reluctant to pay even modest upfront fees for apps.

Mobile commerce is at the center of the growth.  Example: Seventeen of the top twenty lifestyle apps in China’s iOS download world are related to m-commerce in some way.  They are shopping guides, service ordering, daily deals, local business reviews or classifieds.  Source: Media Post

Five Mistakes to Avoid in China


  • Five Mistakes to Avoid in ChinaLack of cultural and historical understanding.  When Amazon came to China, they assigned a Japanese employee to supervise the Chinese book division without remembering the centuries-old disputes between the two countries.
  • Applying what works in the U.S. to China.  Wal-Mart came to China and tried to be the low-cost supplier. The Chinese undercut them and forced the strategy to change.
  • Failure to resolve conflicts effectively.  Personal relationships go a long way in China.  Trying pressure to get cooperation will have little effect in resolving issues compared to negotiating with a known person.
  • Not knowing how to make the Chinese government a friend.  Working with Chinese officials can be difficult, but showing a concern for China’s good reputation in the world can help resolve issues.
  • Failure to realize that change starts from the top.  Doing business in China has to be taken seriously at the top of the company.  Chinese people respect leadership and leaders who demonstrate respect of the Chinese culture have a better chance of success.

Source: Entrepreneur

China’s Urban Population Even More Concentrated than Thought



Data compiled by the Organization for Economic Cooperation & Development (OECD) shows that the reality of Chinese urbanization is even more concentrated than the official numbers suggest.  Official population numbers as of 2010 list six cities with a population of more than 10 million.  But OECD analyzed Functional Urban Areas (FUAs) that include suburban areas adjacent to large cities. Their data shows there are really 15 cities that support populations greater than 10 million.

The lesson for Western companies that are exploring opportunities in China, is that there are large cities beyond the top 3 or 4 that are both dense and fertile.  Source: Bloomberg Business; OECD Urban Policy Review – China

TripAdvisor Landed Firmly in China



Joost Schreve, VP of TripAdvisor’s mobile product commented in a South China Morning Post article that half of his company’s global  users plan their travelling via mobile phone. If that is the average, we can speculate that the experience is even higher in mobile-savvy  China.

The Chinese surely travel according to China National Tourism Administration, which reports that Chinese people took 110 million trips  aboard and spent US$ 500 million doing it in 2014.  TripAdvisor data show the most popular travel destination for Chinese folks were Japan, Thailand, Australia, and South Korea.

The company launched its Chinese website in 2009 with a staff of150, mostly based in Beijing.  It provides information on 20,000 hotels.  Being in-country makes a strategic difference.  Source: South China Morning Post