A Retail Success Story in China

Ground Floor Capital, a private equity firm, quoted me in its newsletter about China’s booming consumer market in the 2nd and 3rd tier cities. Below are excerpts from the newsletter:

KBS (Keep Best State) designs, produces and sells its own brand of apparel, principally targeting China’s middle class 20 to 40 year-olds.

The company is aiming at creating China’s leading fashion sportswear brand. It currently operates 145 stores, the majority of which are located in China’s 2nd and 3rd tier cities. 83 of the 101 new stores planned for 2011 will be franchises.

They are targeting at smaller cities, which are where the growth potential lies:

Contrary to conventional strategies that encourage retailers to target the largest markets, KBS has developed a strategy that targets 2nd and 3rd tier cities. These cities have very recently become the backbone of the Chinese growth story.

This is the exact market segment that KBS is targeting. Seventy percent of KBS’s revenue comes directly from these cities. 2nd and 3rd tier cities have smaller populations but, due to the growth in their respective middle class populations, they have become an attractive entry point for companies to build substantial market share. The growth in these cities can be attributed to the lower cost of living than that of the 1st tier cities.

And the newsletter quoted me as follows:

Helen Wang, a Forbes contributor and expert on China’s middle class, says: “middle class people have available one-third of their income for discretionary spending.” Helen defines China’s middle class as “urban professionals in foreign companies, private businesses, or state enterprises, government officials, and entrepreneurs, who have college degrees and earn an annual income from $10,000 to $60,000. Over three hundred million people, or about 25 percent of China’s population, met these criteria in 2010”.

I am glad to see someone benefited from my work.

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Boston Review: When the Chinese Government Will Throw Away the Communist Hat?

Helen H. Wang

This article is part of China’s Other Revolution, a forum on political and social change in China.

No one in China believes in communism anymore. The Communist Party has abandoned Communist ideology. A friend of mine joked that the Chinese government wears a Polo shirt and Nike shoes, but still has a communist hat. The Party is simply a ruling outfit that practices what seems to be quasi-capitalism.

To a certain degree, I agree with Edward Steinfeld that China has gone through profound changes in recent years. However, China’s political system is ill fitted to address the needs of an increasingly pluralized society. The government has not allowed any political opposition that could become a rival of the Communist Party. Continue reading

Helen Wang Speaks at Cisco on The Chinese Dream

I will be speaking this Friday, July 15, at Cisco System in San Jose about my book The Chinese Dream. This event is organized by Heartland Institute as the series of Thought Leader Gathering.

“The rising Chinese middle class will play an ever-larger role in China’s future growth and change the dynamics of the world we live in. By 2015, China will become the second-largest consumer market in the world behind the US. Helen Wang will navigate the many faces of China as it takes its place in the global world.”

The event is by invitation only. If you are interested in attending, please feel free to shoot me an email. Click here to see the event site.

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How Internet Companies Can Succeed in China

Forbes: Helen H. Wang

When a bellman in a Shanghai hotel advised me to get a breakfast coupon from an online group-buying site for less than half the price, I knew that social commerce had gotten into the hearts and minds of Chinese consumers. It’s not surprising that thousands of group-buying websites sprung up in less than a year in China’s chaotic cyberspace. According to JP Morgan, the group buying market grew from zero to more than $150 million in 2010, and is expect to reach half a billion dollars in 2013.

Although crowded with thousands of players, China’s group buying market is dominated by the top 10 companies, with Lashou commanding a 14 percent market share. Other major players include QQ Tuan, Meituan, etc. Gaopeng, Groupon’s China arm, came in last out of 10 in terms of number of deals.

When Groupon first entered China early this year, I really thought it would have a chance to succeed. Group purchasing is a perfect fit for Chinese culture. Even before people in the West knew such a thing as group-buying, Chinese consumers had showed up at some car dealers in groups to demand deep discounts. China’s collective culture makes group purchasing behavior very natural. In addition, many Chinese are good bargainers. They would go out of their way to find a good deal.

The timing was perfect for Groupon, too. China’s Internet population is approaching half a billion and hundreds of millions of new consumers are entering the scene each year.

Yes, China’s Internet market is known as a hard nut to crack because of low barriers to entry and many copycats. Western companies such as eBay, Yahoo, and Google have suffered painful defeats in China. But I thought Groupon could make it if it got it right.

Alas, so far the situation doesn’t look so good for Gaopeng. It has made some of the same mistakes as other Western companies. For example, its early management team was composed mostly of foreigners who have no experience in China. Their insensitive ad during the Super Bowl reflects how poorly Groupon understands China.  Its partnership with Tencent, China’s largest Internet portal, seemed to have a troubled start with internal conflicts. Now Tencent has its own group-buying site, QQ Tuan. Although Ouyang Yun, Gaopeng COO, said QQ Tuan and Gaopeng have complimentary business models, the two companies look more like competitors than partners.

Gaopeng also faces tough competition from Lashou.com and other group-buying sites. Lashou is founded by a seasoned Chinese entrepreneur and backed by U.S. venture capital firms SGR and Milestones – both are experienced in Chinese technology ventures.  Its momentum is strong after raising $110 million in series C funding in April. So far, Lashou seems to have done everything right. It is expanding rapidly to 2nd and 3rd tier cities, setting up call centers and logistics, and enhancing customer services.

Gaopeng certainly has an uphill battle in China. Some analysts have already written it off to a fate similar to eBay, Yahoo, and Google (not in bad company, all world class organizations ;-) ).

However, China’s Internet market is too significant to give up. In less than a decade, China’s Internet users could reach as many as 750 million and China’s consumer market could reach $16 trillion. A burgeoning middle class has fueled a consumption boom. Retail marketplaces are spreading in urban areas like wildfire. E-commerce has been growing 60 percent per year in recent years.

In order to succeed in China, Western Internet companies need to study the China market carefully and understand Chinese culture. Here is some basic advice for companies that want to succeed in China:

  • Try to use local talent who understand the China market well. Ideally, the management team should be a combination of experienced Chinese and Western managers
  • Be flexible with your business model and adapt your products and services to Chinese consumers. The most common mistake that Western companies make is that they transport their business exactly as-is to China. But the China market is very different from that of Western countries. What works in your home country may not work in China. If necessary, you need to re-brand and re-position your products and services. You also have opportunities to create brand new product lines in China.
  • Focus on your competitive advantages and outperform competitors. In the Internet space, oftentimes the only competitive advantage Western companies have is stronger financial support. If you have more money to burn than Chinese competitors, spend it smartly and wisely. Sometimes, your strategy may be to secure a large customer base. Revenue will come later.
  • Train your employees, sales teams, service and support teams. Many Chinese employees don’t have enough skills for the workplace. It’s important to go the extra mile in training. At the end of the day, all things being equal, customers are more likely to return to the website that has superior customer service.
  • In the Internet space, another critical factor is speed of execution. The window of opportunity is only about one or two years. Whoever who can act fast and get there first will be the winner.

It is still not too late for Gaopeng to get back on track and succeed in China if they can implement the right strategies with focus and speed. Someone has to change the game. As Meg Whitman, eBay’s former CEO, said, whoever wins China wins the world.

– Helen Wang is a consultant and author. Her new book The Chinese Dream: The Rise of the World’s Largest Middle Class and What It Means to You is top rated #3 on Amazon. Follow her on Twitter @hhwang

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The Chinese Dream Featured in the Front Page of China Daily

My whirlwind book tour to China in June generated major media exposure. China Daily has a front page article about my book The Chinese Dream.

For a PDF version, see here.

In addition, I am pleased to see that China Daily even featured it on its front page.

“Author Helen H. Wang says the country’s growing middle class holds the key to deepening trust between the West and China and realizing the value of ‘our global oneness’. Chitralekha Basu reports.”

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China Consumer Insight with iTV-Asia

I was very honored to share the stage with Tom Doctorroff, Asia-Pacific CEO of JWT Advertising, at iTV-Asia’s China Consumer Insight event in Shanghai.

As the Chinese middle class grows, China’s consumption market is expected to reach $16 trillion by 2020, according to a Credit Suisse report. Who are these new consumers? What are their characteristics? How can multinationals reach them? These were the subject of our panel discussion.

Below are the highlights:

  • Chinese consumers are fundamentally Chinese. Certain characteristics stay true despite recent dramatic changes. For example, Chinese culture is collective-oriented. People tend to measure their worth according what society expects of them, rather than what they want for themselves. Chinese consumers are more willing to buy products that enhance their social status. Western companies can charge premier prices for such products.
  • Young people are becoming more individualistic, and they want to express themselves. However, once they get married, they are more likely to follow the conventional collectivist mindset. Marketers need to understand this and craft their messages to reach different age groups.
  • Although there is a lot of optimism, many people are living under extreme anxiety. Part of the reason for anxiety is peer pressure.  They see some people become very rich while others remain poor. They are worried they will be left behind, which would be humiliating.

To give some context, I define the Chinese middle class as those who earn an annual income from $10,000 to $60,000. They are mostly urban professionals and entrepreneurs. A rule of thumb is that a middle-class household has one-third of its income for discretionary spending.

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