How China’s Super Consumers Can Help Your Business Grow
In the not-so-distant future, middle class people in China and other developing economies will approach the standard of living of average Americans. Meanwhile, for many Americans, the average lifestyle will decline, as automation and globalization replace middle-class jobs—unless more of us find new sources of income.
That is creating a lot of fear. The percentage of Americans who see China’s economic power as a critical threat to U.S. interests has dipped to from 52% in 2014 to 40% this year, according to Gallup–but that’s still a large percentage.
It is hard for any one individual to influence massive global trends so why not make them work in your favor by turning Chinese consumers into your customers? In China, McKinsey and Co. has found that while 82% of the urban population only earned enough to cover basic needs in 2010, that demographic group will shrink to 36% in 2020. As these folks enter the middle class, the share of “mainstream” consumers with some disposable income in urban areas will rise from 6% to 51%, McKinsey found. And affluent consumers will increase from 2% of the urban population to 6%. Given that China’s urban population will hit 328 million by 2020, according to McKinsey, we’re talking about a lot of consumers. The affluent urban consumers will total about 21 million households or 60 million people.
So how do you tap into this market? It does take some prep work but it is possible for even for a tiny business to pull it off–sometimes without leaving the U.S., according to Michael Zakkour, co-author with Savio Chan, of China’s Super Consumers: What 1 Billion Customers Want and How To Sell It To Them.
To find out how readers can make the most of fast-growing opportunities in China, I recently spoke with Zakkour, who is a principal at the global business consulting firm Tompkins International, where he leads the China/APAC practice and makes frequent trips to check out business opportunities in person for his clients. Chan is president and CEO of US China Partners Inc., a consulting and advisory firm that helps organizations design and implement strategies to target China’s consumers.
A New Master of US-China Super Ecosystem?
When you combine Netflix, Apple, Netflix, Samsung, Amazon and Tesla, what would you get? If you ask the founder and Chairman of LeEco, the company who bought #1 TV seller in Irvine, California-based Vizio yesterday for $2 billion, he will tell you that his company defies all the business models as none of them could define this new visionary company that promises “complete ecosystem, groundbreaking technologies, and disruptive pricing.”
(I emailed William Wang, CEO of Vizio and congratulated him for this acquisition, and he told me he will move to run the Data business Inscape, which is also 49% owned by LeEco, where he maintained 51% share. William was gracious to host me and my co-author for our best-seller book launch party, China’s Super Consumers, at Vizio’s headquarters and he donated a Vizio TV for raffle.)
Just a couple of months ago back, LeEco unveiled a new, 80,000 Square Foot North American Headquarters in Silicon Valley, with ribbon-cutting ceremony by Chinese Consul General in San Francisco Luo Linquan and San Jose Mayor Sam Liccardo. The new facility can support up to 800 new workers.
Last year LeEco’s TV business sold 3 million units in China, about half the size of the industry leaders in the Chinese market. LeEco is known as the “Netflix of China” and the company started in the realm of video content, and looks to differentiate itself through entertainment. It’s invested in creating and licensing content like movies, sports, and music, and also owns the means of distribution through TV and their own smartphones — which LeEco calls “superphones”. “LeMax 2”, the new flagship phone of LeEco, is offering powerful features and specifications inside an iPhone-like body for a relatively low price. The most distinctive feature of the phone’s design is that LeEco is the first smartphone manufacturer who omits the headphone jack in favor of USB-C. Above all, it also has a compatible VR headset, allowing you to watch all the 3D titles they licensed from US and China. Last year LeEco sold around 3 million smartphones in China, but estimates it will sell 15 million units in 2016.
Not ambitious enough? In CES this January LeEco is also bankrolling Faraday Future, the California-based EV startup that is currently building a $1 billion factory in Nevada. Besides, LeEco is also working with Aston Martin on its first electric car, the RapidE. In April it just introduced its own first electric car ahead of the Beijing auto show called LeSEE, and this concept sedan is designed to be fully autonomous with a fold-away steering wheel. Last, but not least, it is planning to build an Andriod-powered bicycle with 4GB of RAM (watch out, it may be in the next version of Citi Bike in New York city).
For the critics, many will doubt how a relative small company with revenue of $1.6 billion and around $14 billion on the Shenzhen stock exchange can conquer all these markets. However, for a company that was recently named one of Fast Company’s 2016 “Most Innovative Companies,” and Alphr’s “Best of Mobile World Congress – Most Innovative Company”, anything is possible. After all, LeEco is pursuing both the American and China dreams.
Study the Past If You Would Define the Future
“Study the past if you would define the future,” said the Chinese philosopher Confucius, and that may or may not be true in today’s fast-changing world, some of the data below may give you an aperture of what 2016 will look like between the number one and two economies. US and China may just be the perfect frenemy of enormous proportion.
In terms of GDP, US is still the largest with $17.41 trillion and China is the second-largest with $10.4 trillion, and larger than Japan and Germany combined. China is a minor when it comes to share of global military spending, a mere 12% as compared to 34% of the US; nevertheless China holds more than $1.25 trillion of US treasury securities. US trade deficit with China is a whopping $306 billion despite US exports to China grew 459% during the last 12 month.
Even though China is no longer the lowest-wage manufacturing country in the world, in 2015 productivity-adjusted hourly rate in China is $14.60 versus $23.50 in the US.
The Chinese currency yuan has fallen again as in January of 2015 the US dollar was worth 6.21 Chinese yuan and by mid-December, it was worth 6.48 yuan. However, Chinese consumption shows no sign of slowing down and Chinese tourists are number-one consumers in the world. US-China tourism has recorded over 25 million trips between the two nations at an average annual growth of 7.6% since the China-US Tourism Leadership Summit was established in 2007. Among that, the number of Chinese tourists traveling to the United States has grown at an annual rate of 18.4 percent. Over 2 million Chinese people came to America for travel last year, making China the fourth biggest source country traveling to the United States. 2016 will be the US-China Tourism year, as announced by President Obama and China President Xi Jinping earlier this year, the number of Chinese tourists will push close to 4 million!
US may have invented the Internet and online shopping, but China has been the e-commerce champion of the two since 2013. Alibaba, China’s leading eCommerce local champion, handles more e-commerce transactions than Amazon and eBay combined. Mobile commerce, which includes smartphones, tablets and mobile devices amounted to $180 billion last year, about 38% of all Chinese e-commerce. In 2016 it will reach $506 billion, more than 56% of all e-commerce transactions, according to eMarketer, a US research firm. The number of Chinese online shoppers is now 410 million, more than the entire US population. On November 11th, Alibaba’ s total value of goods transacted during its Singles’ Day shopping festival was $14.32 billion, more than US’s Cyber Monday and Black Friday combined.
US is known for our innovations, but China filed more patents and trademarks than the US. Last year innovators filed some 2.7 million patent applications to mark another worldwide annual rise, as application activity in China outstripped the combined total in its next-closest followers, the United States and Japan. Globally, patent offices receiving the highest number of applications in 2014 were China, with 928,177 filings, followed by the US with 578,802 filings. China also saw, by far, the highest trademark filing activity– with a class count of 2.22 million, followed by the US with 471,228 applications.
Last, but not least, China led in number of initial public offerings with 266 IPOs and the US was second at 203. The best performer among the top 20 IPOs was China National Nuclear Power, up 194.4 % from its June 10th offering.
Bon Jovi Sings Chinese Love Song on Chinese Valentine’s Day.
Yesterday was Chinese Valentine’s Day. To my pleasant surprise, I saw Jon Bon Jovi ‘s music video of him singing the most famous Chinese love ballad, The Moon Represents My Heart, the song popularized by Chinese superstar Teresa Teng in 1977, in anticipation of his first tour in China next month.
The legendary rock group has been touring around the world for 30 years, Bon Jovi’s announcement of their China debut in September has generated excitement from millions of Chinese fans across the country. Like any celebrity music group before them, the reputation of the group by itself is not enough to win over the hearts of China’s Super Consumers, who have been wooed by the best in the world for the last few years as their income and influences rise.
Regardless of how good was Bon Jovi’s Mandarin compared to Facebook’s co-founder Mark Zuckerberg’s speech in Tsinghua University, his attempt on singing one of the most popular Karaoke’s staples love songs is a “gift” to Chinese consumers and giving them “face” – it will go a long way towards building his success in his upcoming tours and expanding his fan base in China and Asia. Kudos to Bon Jovi’s public relations team for pulling this off. Singing this most popular love song has made him authentically Bon Jovi and distinctly Chinese.
I have known this famous love song since I was a teenager and don’t remember how many times I have sung this song with my friends, customers and partners throughout various karaoke bars in China.
As I have reiterated many times throughout our book, China’s Super Consumers, published by Wiley, (our Chinese edition, coincidentally, just released a few days ago to celebrate the Bon Jovi first tour in China), Mandarin is not mandatory but understanding and mastering the Chinese culture is the secret sauce of winning the hearts of Chinese consumers.
Five Golden Rules to Attract China’s Super Consumers
Two new records were set last month because of China’s Super Consumers.
First, Apple reported a record-shattering profit of $18 billion last month and propelled itself from number-six smart phone maker in China last October to number two today. Timothy D. Cook, Apple’s chief executive, said recently that it was only a matter of time until the majority of the company’s sales would come from China. Apple will open 25 retail stores in greater China over the next two years.
Equally impressive, the Chinese smart phone maker Xiaomi, started by the “Steve Jobs” of China, became the number three smart phone manufacturer in the world, just behind Samsung and Apple. Last year, it sold 61 million smartphones, more than three times its 2013 total. A few weeks ago, the 4-year-old company raised $1.1 billion in new funding at a valuation of $45 billion, making Xiaomi the most valuable private company in the world, ahead of the ubiquitous Uber.
First rule to sell to Chinese Consumers – their Face and Status Matter. If your product helps them elevate their social status and standing and is a foreign brand, they want it. In China we have a saying, “the moon is rounder in the foreign country.” In this case, go Premium or go home.
Second, value is king. Even though iPhones are manufactured in China, a hefty VAT (value-added tax) has kept them out of reach for many middle-class consumers (soon to be the largest in the world) in the country. Xiaomi has all the bells and whistles of Apple and Samsung but selling at about half the cost of the iPhone. In other words, it is of tremendous value.
Third, understand there is now a “China Global Consumer Demographic.” Companies must have a “China-US-World” strategy to engage them everywhere, not just in China. Tompkins International, a global supply chain consulting firm, had predicted that there will be about 7 to 8 million arrivals in the US for business and pleasure from China, up from about 5.5 million in 2014, prior to the US and China announcing that travel visas will increase from one-year validity to 10 years. Besides, Chinese are already the biggest spenders per capita per trip outside of China. On average, the Chinese traveler spends about $7,000-$8,000 per capita per trip, compared to the $3,000 that US travelers spend.
Fourth, pay attention to what tools Chinese consumers use. Chinese consumers change their phones sometimes 3 times a year, and use different social media tools than we do (there is no Facebook or Pinterest in China). Just about 2 or 3 years ago, a large number of Chinese consumers used Sina Weibo. Today close to 500 million of them use WeChat, a native mobile app to communicate with their friends and family many times a day. However, they may change to something new and better in a few years. Communicate with them often and stay on top of the trends of e-Commerce and mobile.
Last but not least, trust is the killer app. Because of the large quantity of faked products and the low-trust culture of Chinese consumers, the ability to foster trust quickly is critical as guaranteed authenticity is what they are looking for. One of the key factors for Alibaba to succeed in its early days is its payment system – Alipay, which has a payment escrow service which allows a buyer to check the products before authorizing to release their payment. Alipay effectively bridges the gap of mistrust among sellers and Chinese consumers and has become one of the success factors of Alibaba to become the world’s largest e-commerce platform. Alipay last year overtook Paypal as the world’s largest mobile payment platform with over 190 million active users.
If you observe the above rules, China’s Super Consumers will be pushing your organization forward for many years to come.
Ben Bernanke is reading my book?
The following is a true story.
Monday, October 27th at around 11:35am. Midtown East New York City.
I was about to walk into the Citicorp building at Lexington Avenue to meet two business executives from Cornell University at one of my clients’ office.
Suddenly I saw a gentleman, neatly but casually dressed without tie or jacket standing near the entrance who looked very familiar to me.
Not any movie star, but he definitely looked like the nation’s top central banker until the beginning of this year.
You mean Mr. Ben Bernanke, the world renown American economist who served two terms as chairman of the Federal Reserve, the central bank of the United States from 2006 to 2014?
I stopped, not sure if that was him. After all, I don’t see any body guards and whenever I saw him on TV or at a speaking event, he always had a suit and tie on.
It really looked like him. So I said to him, “Mr. Bernanke?” – just to satisfy my curiosity and I told myself I must be mistaken.
“Yes.” he answered. So it was Mr. Ben Bernanke, our former Chairman of the Federal Reserve.
“Mr. Bernanke, I just wrote a book, published by John Wiley & Sons, with my co-author. And I want to give you a signed copy.” I pulled out one of my two books, China’s Super Consumers, which I supposed to give to the two gentlemen later.
“Really? What’s the book all about?” Mr. Bernanke asked.
“It’s about China’s Super Consumers – you know, the fastest-growing consumer class in the world” I said. Of course he knows – he was the Fed Chair.
I started writing on the first page of the book, “Ben, The Best is Yet to Come.” And I signed.
“Mr. Bernanke, I hope you enjoy reading my book. Would you read it?” I asked.
“Sure, on my train ride home.”
I was amused. Only in New York.
I later told my two executives I only had one book for them, the other I gave to Ben Bernanke.
Signing Books at Book Party
My co-author and I have just started our book tour from New York City this week and the first book event we signed over 300 books. It was both an exciting and overwhelming experience both physically and mentally.
Knowing it would be taking a lot of time to sign and personalize every book, we actually arrived one hour early to start pre-signing the books to save time. Our thinking was when people bought the books, we could just personalize with their names and messages to make it more meaningful. Anyway, we are both first-time authors and we truly value people buying our book, China’s Super Consumers – what 1 billion customers want and how to sell it to them, published by John Wiley & Sons.
Michael Zakkour, my co-author, is a much better writer than me as he writes a column on Forbes http://www.forbes.com/sites/michaelzakkour/2014/10/02/chinas-national-day-golden-week-a-good-time-to-make-sure-you-dont-bite-the-wax-tadpole/ frequently and he has a very sharp and clear mind. However, he struggled as to what message to write to personalize to the readers buying our book. I saw him in great amusement that he wrote four to five lines of personalized message to each person, which is highly painstaking when you have to sign over 300 books and there was a long line of people waiting for you. It was a very nice thing to do but not really practical in front of hundreds of people waiting for you.
I just simply signed “Be China Savvy” with my signature which I think is a simple but succinct message leveraging my name “Savio”. But when your name is “Zakkour”, that tactics would not work,
I told him, “Michael, your personalized message is way too long. And when it combines with your doctor-like handwriting, who can really decipher what you wrote. Besides, it is way too long and we have a lot of people here.”
So he adapted the message into “Xie Xie” which in Mandarin Chinese means “thank you” which was even shorter than my message but not highly creative or special.
After 100 or so books, he changed his message into the number “88” which in Chinese also means good luck. That was easy to sign just the number “88”. However, not all American readers know what the number means so it could get lost in translation here.
Now I understand why some best-selling authors only sign their names without personalizing message as the crowds is too large and the wait time is too long if they do that.
As we learn how to be more effective in signing books in the next 15 book events throughout the country, I might just sign “Ditto” after my co-author’ s message to save some time.
After signing over 350 books at our last event, I could really use a nice massage on my hand as you are using muscle that you rarely use for a long time. We all rely on computer and word processor software for most of our writing and we forget how to write more than one or two paragraphs.
If you have any new idea, kindly let me know as we have thousands more books to go through in the next 30 days.
My Book Launch Party from New York to California
As I am wrapping up the final edits of my book, China Super Consumers, what 1 billion customers want and how to sell it to them, published by John Wiley & Sons, my co-author, Michael Zakkour, and I are actively putting together our book launch events from the east coast to the west.
For a first-time author, it is quite an exciting and exhilarating time and for men who would never understand the amazing process of giving birth, this is as close an experience as it could be as it was both painful during the process of writing and researching and joyful when it finishes. Now that it is done, we are both sighed with relief but tasked with the incredible challenge of marketing and selling the book to everyone we know to make it a best-seller. This is a moment of truth – a real stress test to the quality and reach of your personal and professional network.
To start, we are just incredibly lucky – there are no other ways to say it. Our book published date is 9/22 which is the same month the largest IPO in recent tech history, Alibaba, is scheduled in the same month. Alibaba is the largest e-Commerce company in China and on planet earth and it is about Chinese consumers. So we hope to bask in that “Alibaba Glory” effect a little bit.
Next, the New York Times will host us in our kick-off book launch VIP party in mid-town and invite some of their top clients to join us and confirmed that their Chairman/Publisher as well as their President/CEO will be in attendance. Wow, I have to start pinching myself that I am not in a dream. American dream or China dream? What a great way to kick off our book tour!
I live on Long Island and since I started my first business in 1992, I have many friends and business associates who live on Long Island. So I have our Long Island Book Launch party set up at the Carlye on the Green, the clubhouse for Bethpage Black Golf Course, home of the US Open in both 2002 and 2009. I have my good friend Herb taking the leadership role to chair the event and his very talented 15-year old son, Luke Jagger, will perform a song and I will pair him up with another young Chinese singer who won the local Karaoke Champion to signify US-China partnership and friendship – that would be an awesome evening.
My co-author, Michael Zakkour, who lives in New Jersey, will select a great authentic Chinese restaurant to host the New Jersey book launch. I have every faith and trust in his taste of Chinese food and that would be a very nice evening.
Then we will move to my good friend Michael and his lovely wife Jeanette in New Canaan to do a book signing with healthy food as Jeanette writes an award-winning blog of Jeanette Healthy Living…so that is yummy plus fortune cookies -an evening of good dose of learning about China Super Consumers and healthy food. If you live in Connecticut, don;t miss this one!
My good friend in DC Glynis will help me confirm the National Press Club, next to the White House with her good friend Paula to help us sell some books in Washington DC.
What about California? Well William Wang, CEO of the number one selling LCD TV VIZIO, will graciously host us at their corporate headquarters in early October and even donates a 42″ VIZIO TV as a raffle prize! Imagine get a signed copy of my book, China Super Consumers, and win a VIZIO television from the man who beats Samsung and Sony in America – that would be a very rewarding evening.
As we nail down all the other book-signing venues, I will keep you posted. Meanwhile let me take this phone call from one of my friends who wants to buy some more books.
“Sandy, how many you are buying? Only two copies….? I thought we are friends…..”