The Negotiation

Topics Discussed and Key Points:

●      Major trends across China eCommerce and consumer behavior in the past year

●      Categories that are doing really well in China today

●      Non-traditional categories that are on the way up

●      The younger generation’s move “back to basics” and “materialism fatigue”

●      Finding the keys to finding purchase motivation amid China’s “post-consumer high”

●      China’s anti-monopoly policies and their long-term implications

●      What digital online platforms Michael is most excited about

●      The rising dominance of “information capitalism” and its implication on culture

●      Bridging the in-store and the digital experience

●      Why live streaming has not taken off in North America yet (and when it will)

Episode Summary:

Today on The Negotiation, we talk with Michael Zakkour, founder of 5 NEW DIGITAL, an exclusive consulting organization that advises its clients on strategy, structure, implementation and transformation in the age of the digital industrial revolution - across the "5 New" - New Retail, New Technology, New Finance, New Supply Chain and New Manufacturing. He is also the author of "New Retail: Born in China, Going Global.” 

We look back on the past year and note the major developments across China's eCommerce and consumer behavior.

Michael says, “What we’re really seeing now is a blending of the idea of, ‘What is eCommerce?’ with the idea of, ‘What is social commerce?’” He contends that this is an inevitability that was fast-forwarded as a result of the pandemic. The typical Chinese consumer now no longer sees a distinction between the two—that live streaming, AR, VR, ER, and the like are now one and the same. “It’s all becoming part of this larger-than-life, technicolor, robust experience of shopping.”

He then goes into the current and rising trends in the market, which turn out to largely be the home, beauty, and kitchen industries as consumers—particularly the younger generation—have begun to embrace a “back-to-basics” lifestyle in the wake of “materialism fatigue”.

Michael also does a deep dive into the question of monopolistic practices in China and how they relate to those in the U.S. He addressed the potential for decoupling, saying that it is not so much the economies of the West that we should be considering in this particular case, but the decoupling of the world of technology and information between East and West.

Finally, Michael looks forward towards the retail landscape in 2022, touching on the economic and cultural impacts of what he calls “information capitalism”, China’s mastery in bridging the in-store and digital buying environments, and why live streaming is set to take the world by storm this year—even in the West.

Key Quotes:

“What we’re really seeing now is a blending of the idea of, ‘What is eCommerce?’ with the idea of, ‘What is social commerce?’ [...] Live streaming, VR, AR, ER—it’s all becoming part of this larger than life, technicolor, robust experience of shopping.”

“Chinese companies have been far better than their Western counterparts at making digital commerce, shopping—where people are actually shopping: It’s social, it’s fun, it’s engaging, it’s robust, it’s loud, it’s colorful. It’s everything that shopping should be.”

“You will find all the keys to purchase motivation in China through [their] language, culture, history, and philosophy. Over and over and over again, the brands and the retailers and the CPGs and the companies that make it in China spend the requisite time ahead of time, and are constantly looking into those core four in order to build the Chinese version of who they are.”

“Are we headed to a decoupling? Now, when people talk about decoupling, they’re usually thinking about the decoupling of the economies of the West in China. But in this particular case, we’re talking about: ‘Are we heading towards the decoupling of the world of technology and information between East and West?’ That’s the big question.”

“Our relationship with and the usage of technology and information, along with our relationship with the environment and sustainability, and our relationship with our government are going to be the three mega-forces that will shape the rest of this century.”

“Physical retail matters and it always will. So, the question then, is, ‘How do you build a relationship between the physical and the digital worlds, and the physical and the digital experiences?’”

This episode is a look back at all of our podcast guests and the topics we covered in 2020, putting together some of our favorite moments for you into one single episode of goodness. The guests featured in this special episode are:
Matt Sheehan, episode #75
John Pomfret, episode #78
Anne Stephensn-Yang, episode #82
James McGregor, episode #83
Chloé Goncalves, episode #85
Charles Lavoie, episode #91
Benjamin Wahl, episode #92
Greg Turner, episode #93
Ambassador Dominic Barton, episode #100
Zak Dychtwald, episodes #101 & #102
Mark Dreyer, episode #106
Rui Ma, episodes #110 & #111
Freddie Bacon, episodes #112 & #113
Craig Smith, episode #121
Gordon Houlden, #122

Topics Discussed and Key Points:

●      Snowsports culture in China versus Japan

●      Consumers in China’s snowsports industry versus the West’s

●      How Burton markets and localizes snowsports in China

●      Marketing snowsports as a lifestyle in China

●      The evolution of retail in China and how Burton has adapted

●      How to set goals and strategize for a market entry into China

●      The impact of the 2022 Winter Olympics on Burton China

Episode Summary:

Today on The Negotiation, we speak with Craig Smith, CEO of Burton Snowboards China. Founded in 2013 in Beijing, Burton China has grown to over 40 dealerships nationwide and seven premium partner resorts.

Craig started with Burton at their Tokyo office two decades prior. Regarding snowsports, Craig says that “the cultural differences in China and Japan are numerous.” One major example is Japan’s strict attention to detail as compared to China’s spontaneity and love for adventure.

Likewise, consumers in the Chinese snowsports industry differ considerably from those of the Americas and Europe. For one thing, snowsports only began to explode in popularity in 2016. Also, Chinese consumers generally make most of their buying decisions based on the Key Opinion Leaders (KOLs) they follow, whereas consumers in the West—particularly with regard to the sports industry—refer to magazines for the information they need.

Asked about how Burton goes about their marketing snowboarding in China, Craig says that education and painting a vivid picture of the lifestyle around snowsports rather than the products and facilities themselves is key to winning consumers’ hearts. In Burton’s own words, “We’re bringing the spirit of snowboarding to the consumer 365 days a year.”

Craig goes on to offer his advice to foreign companies looking to enter the Chinese market, which includes doing deep research on the cultural nuances of the market and your ideal customer, finding a local partner to help you navigate government regulations, and being prepared to move at China speed.

Finally, Craig speaks on Burton’s plans for the 2022 Winter Olympics and how they aim to be a player in the Chinese government’s goal to create “300 million snowsports enthusiasts” in the country.

Key Quotes:

“Chinese consumers are in a very different stage of development in the snowsports industry compared to consumers in the Americas and in Europe, just because snowsports are so new—snowsports really only took off in 2016.”

“The most important focus for Burton China is sharing the fun of the lifestyle around snowboarding.”

“My suggestion for companies looking to enter the Chinese market is: Learn about the market first and foremost. Learn about the consumer. Learn their wants—what motivates them to engage with a brand. That takes time, and that takes a lot of patience.”

“In China, government relations are extremely important. It’s difficult for foreign companies to come in and build government relations, and that’s where a local partner certainly can help.”

Topics Discussed and Key Points:

●      Contemporary China through the lens of fashion and culture

●      The new thinking around fashion and individuality among China’s younger generations

●      China’s fashion scene today and how it differs from that of New York

●      Does China have fashion icons?

●      China’s urban underground scene

●      The future of fashion in China

Episode Summary:

Today on The Negotiation, we speak with Elsbeth van Paridon, a sinologist, journalist, and lover of China fashion, lifestyle, and urban culture. In 2018, Elsbeth founded The China Temper, a print and digital publication which “offers a gritty slash grungy look at contemporary China through a fashion-focused lens.”

Aside from her work with The China Temper, Elsbeth serves as an editorial consultant at the Beijing Review, an editor at WeAr Global Magazine, and a contributor to SupChina and RADII China.

“With economic development comes the development of the individual,” says Elsbeth. With regards to fashion and culture, for the longest time Chinese people as a whole have shied away from standing out from the crowd as individuals. However, in the last decade, those living in Tier 1 cities have largely shifted away from this attitude dramatically.

Elsbeth gives her thoughts on the idea of individuality in the country, from the rigid conformism of Mao’s China to a new generation “caught between tradition and innovation”. She refers to the modern fashion scene itself not as “trendsetting” but as “trend-dictating”, driven by the power of the stories behind the clothes.

She goes on to speak on China’s urban underground, particularly in Beijing (as she contends that “everything in Shanghai is above-ground”) and the trends that have emerged out of it, such as tattoos.

Finally, Elsbeth believes that gender-fluid fashion—which unbeknownst to most actually has strong historical roots in the country—is here to stay.

Key Quotes:

“With economic development comes the development of the individual, and fashion is a major part of that. It is a complete reflection of what is going on in society.”

“Fashion is a daily conversation between you and the world.”

“I only make fashion statements. I don’t make political statements. That way, it’s quite easy to create content. I’m telling stories about China from a completely different angle. Nobody’s doing it, and it’s the ultimate soft power.”

Topics Discussed and Key Points:

●      The story behind Control Risks and how it expanded to other markets

●      Defining “political risk” and its relevance to businesses in China

●      Does the government move as fast as the economy and how do businesses adapt to changes in China’s regulatory landscape?

●      How to do due diligence in China versus other North Asian markets

●      How should political and regulatory issues be considered when approaching due diligence?

●      With what types of situations can business intelligence and political and regulatory risk analysis be helpful to businesses in China?

Episode Summary:

Today on The Negotiation, we speak with Rosie Hawes and Carly Ramsey of the China division of Control Risk, a global risk consultancy headquartered in London. The firm’s clients include national and multinational businesses of all sizes in all sectors, law firms, government departments, and non-governmental organizations.

“Political risk,” says Carly, “is very relevant to businesses in China” due to the country’s strong drive to turn China into a modern, developed nation.  Regulations abound, therefore, to ensure that business growth in almost every sector is steering the nation toward accomplishing its various political objectives.

And these political priorities, Carly continues, “are not new. Those are long-standing, multi-decade long priorities to develop China into a modern country.” Businesses should operate with this strict regulatory environment in mind by having the right people in place who can closely follow these developments and translate those observations into company action. “This is where we focus: Are you set up to manage this shift?”

Rosie stresses the importance of considering the political and regulatory landscape when conducting due diligence no matter the size of your company as “any company that wants to succeed in an unfamiliar market needs to test the information that they’re being provided”, preferably via a neutral third-party.

Key Quotes:

“‘Political risk’ is just the risk from political decisions, political events, political actions on business. That is very relevant to businesses in China. [...] There is a strong political priority to develop China into a modern, developed nation. That means that there are political goals in almost every aspect of society.” ~Carly

“Regulatory enforcement is here to stay. It will continue. And new firms and sectors will be targeted. That is just the reality now. But it’s also equally important to remember that Beijing does want the private sector to thrive—and foreign investment to thrive. But there is no hesitation now to make sure that businesses are falling in line in terms of meeting these higher-level political goals.” ~Carly

“We do have to be careful to balance Chinese reporting with Western reporting because both have an element of truth and both have an element of bias. A lot of our clients are not familiar with China so the first thing they will do is Google the company and get a very limited set of information, if at all; or, something that is perhaps not fully contextualized so they really don’t understand what they’re seeing. So, a lot of what we do is trying to make sure that the broader local context is provided so that they can assess how good or bad what is being reported in the media really is.” ~Rosie

“We do work with smaller firms as well. Really, any company that wants to succeed in an unfamiliar market needs to test the information that they’re being provided, and really need to understand—through a neutral third-party—the extent to which their potential supplier or their potential investment target is really trustworthy and really capable of delivering what they’re saying.” ~Rosie

Topics Discussed and Key Points:

●      How Singles’ Day performed relative to Jacob’s expectations

●      Platforms that will gain traction at next year’s 11.11

●      Notable creative or marketing tactics used at this year’s festival

●      How this year’s GMV may compare to 2020s

●      Whether there is still room for foreign brands going forward

●      What to know about Pipl (Personal Information Protection Law)

●      WPIC’s plans for Southeast Asia

●      Demographic differences in China versus Southeast Asia

Episode Summary:

Today on The Negotiation, we speak with Jacob Cooke who shares his observations on Singles’ Day in 2021 and how closely the festival met his expectations.

In his words, how 11.11 unfolded was “almost bang on” with what Jacob anticipated, with a couple of categories “going a little bit over” and toys being the only underperformer.

It was a “Tmall-dominated shopping festival” that was largely untouched by the influx of new government regulations this year which, again, Jacob expected. He predicts more platforms gaining traction at next year’s 11.11 as Walled Gardens continue to come down and cross-platform functionality increases in scope.

Platforms also doubled down on live streams which had already been immensely popular in the Chinese market for some time, precisely because they know that live streams have become such an effective way to move product.

In many ways, “China is starting to become comfortable in their skin,” pushing for local champions in each of the different categories. While the country had been playing catch-up as recently as a decade ago, today local brands have been dominating in the market.

Finally, Jacob gives his thoughts on how companies will have to deal with the legal implications of Personal Information Protection Law, WPIC’s budding work in the Southeast Asia market, and demographic differences between the China market and that of Southeast Asia.

Key Quotes:

“There are a lot of misconceptions about why local brands are doing well. In a lot of cases, they have an easier time because they’re focused solely on China. Very few of them have global ambitions because the market is so large here.”

“I don’t think we’re done with regulators in terms of what’s done with personal data. I think that’s actually going to be further enhanced. [...] I think that what’s happened this year [with Pipl] is that the regulators have started to take action to make people take these new laws seriously.”

“eCommerce has normally been adopted by younger consumers. China’s done a really good job at making eCommerce universal.”

Topics Discussed and Key Points:

●      Launching Founders Space in China

●      Why Steve wrote Make Elephants Fly

●      China’s unique (and commonly misrepresented) approach to innovation

●      Mentoring Chinese vs Western entrepreneurs

●      How evolving family dynamics and the Westernization of much of today’s Chinese youth influences the country’s perception towards entrepreneurship as a career path

●      What Western startups need to know if they want to enter China, and what Chinese startups need to know if they want to take their business abroad

●      Why Steve wrote The Five Forces That Change Everything

●      Steve on whether China will win the battle for AI supremacy

Episode Summary:

Today on The Negotiation, we speak with Steve Hoffman, venture investor, serial entrepreneur, and award-winning author. He is Chairman & CEO of San Francisco-based startup accelerator Founders Space, which was ranked the #1 incubator for overseas startups by Forbes and Entrepreneur Magazines.

Steve remembers the moment he was first invited to establish his first Founders Space in China. This was the start of a plethora of opportunities that came his way almost overnight: That same year, Steve was simultaneously doing speaking tours, launching his incubators in other cities, and had just published his first book Make Elephants Fly. His big “break”, however, came in the form of a talk he gave for Tencent which made Steve China-famous.

Steve makes the case that China’s business world is actually quite innovative, contrary to its “copycat” stereotype. In fact, he says that it is precisely due to their ability to see what’s working, and to be able to improve upon these products and adapt it to their local market, that defines China’s truly innovative spirit.

Asked for his experience in mentoring Chinese entrepreneurs as a foreigner, Steve says that, in order to get the best out of a local, a mentor needs to know their limitations. Specifically, as a foreigner, Steve can only teach from the point-of-view of a Westerner. But that is okay—the Chinese entrepreneur will even appreciate that unique perspective.

He then adds that a true, well-rounded business education comes when the foreign mentor collaborates with local Chinese mentors, filling each other’s gaps and complementing each other on a cultural level.

The same principle applies when it comes to Western startups who are looking to enter the China market. “Entering China is tough,” says Steve, “because it’s an entirely different ecosystem.”

A big part of this is culture, which is centered on relationships. Those who succeed, then, are founders who have a firm grasp of the language and culture of China. At the very least, it pays to have local partners who have an intimate understanding of this ecosystem.

Key Quotes:

“The reason startups work so well is, by their very nature, they are limited. They are limited in size—they only have so many founders. They are limited in money—so they have to use their resources very cleverly, forcing them to innovate. And they are limited in time—so they have to iterate really, really fast. A big corporation doesn’t have those limitations.”

“[Chinese entrepreneurs] are really receptive. Chinese entrepreneurs want to succeed. They are open to ideas. And because I’m a foreigner, they’re really open to our perspective. So, I’m not going to give them the same advice that a local Chinese mentor or innovation instructor would give them. I give them advice from my culture, my background.”

“[Chinese] understand that it’s not about what you wrote on the paper. It’s about your relationship with them. And it’s not just about your relationship with one person in China—the person you’re doing business with—but, it’s your relationship to all the other people in that person’s network.

Topics Discussed and Key Points:

●      Problems that Axis aims to solve

●      How Axis helps to develop resorts

●      How is China preparing for the 2022 Winter Olympics

●      How Axis is preparing for the 2022 Winter Olympics

●      Snowsports culture and the hospitality industry in China today

●      What Chinese consumers have taught Justin and the Axis team

●      Building ski resorts in China versus other countries

●      The development of four-seasons resorts in China

●      The future of winter sports in China

●      What the West can learn from China’s snowsports industry

Episode Summary:

Today on The Negotiation, we speak with Justin Downes, President of Axis Leisure Management, a firm comprised of hospitality, leisure and business experts specializing in winter sports, hotels, resorts, restaurants, bars, retail, golf courses, tourism authorities, entertainment companies and various other establishments related to the services and hospitality industries in China.

Axis was founded to address the fact that, at the time, “there [was] absolutely no expertise in the China market for building international-level ski resort destinations.” The management firm was thus established to “bring a global, high-quality standard experience across the board into the winter sports market in China.”

The company prides itself not only on its ability to facilitate business management but also on the capability of its team of experts to take someone’s vision out of their head and onto paper.

Listen in as Justin shares how China is preparing for the 2022 Winter Olympics in Beijing, which he says is dependent on the evolution of Chinese industry, the actual preparation and production going into the Olympic Games, and how the governing body intends to navigate COVID-19 before and during the actual Games.

The lead-up to the 2022 Winter Olympics bodes well not only for the snowsports industry in China but for the country’s sports world in general. Both the public and the government have contributed to drastic growth in the health and wellness industry in recent times, and the countdown to the Olympics has only accelerated that interest and growth.

Finally, Justin explains the ins and outs of developing ski resorts in China, including considerations around establishing and managing four-seasons resorts.

Key Quotes:

“Finding a piece of land in a remote location, in China, is quite easy. It’s really about, ‘Who’s going to come there?’ and ‘How are they going to get there?’ In some cases, the Chinese government builds fantastic infrastructure such as a rail with nothing at the end of that point, or they build a fantastic destination but no way to get there. We try to link these two components into a more organic growth solution.”

“China performed a fantastic job in 2008 with the Summer Games. It’s not as if they’ve not done this type of thing before. [...] From an execution standpoint—if you take COVID out of the equation—I think China will deliver a flawless athletic experience.”

“There’s been a lot of interest and pressure, both from the public-up and the government-down, to create an environment where people are healthier and happier. [...] General health and wellness in China is off-the-charts as far as opportunity and growth.”

Topics Discussed and Key Points:

●      Trends that shaped consumer behaviour in 2021

●      How different categories have fared over the past year

●      How consumer trends have evolved in the past 18 months

●      Sectors to lead the charge in China’s economic growth going forward

●      Which categories are predicted to be successful on Singles’ Day

●      New tactics brands will use aside from discounts

●      How important it is to have inventory on the ground for Singles’ Day

●      How the impact has impacted manufacturing and logistics

●      Potential long-term effects of this year’s 11.11

●      How brands are preparing for fallout due to supply chain issues

Episode Summary:

Today on The Negotiation, we speak with Jacob Cooke, co-founder of WPIC Marketing and Technologies, to get his pre-and post-11.11 insights and predictions. As 2021 comes to a close, Jacob does a deep dive into the consumer trends that have emerged in China over the past year.

The biggest factor that rippled out into all aspects of commerce and consumer behaviour in 2021 was operational continuity. Both buyers and sellers are no stranger to having to navigate ever-changing logistical challenges in the market, and this has led to increased vigilance and meticulousness in the way people purchase.

Online retail quickly became the preferred way to shop, the health and wellness category has soared, and even high-end fashion has seen a resurgence over the past year as brands have finally learned to adapt to the limitations brought about by COVID-related restrictions and other obstacles. On the other hand, mother and baby brands have fallen due to lower birth rates. Most other categories, Jacob observes, have seen linear growth.

The result of these adaptations is that brands have now gotten their predicted sales down to a science. They do not expect to overperform or underperform on Singles’ Day as big data and machine learning have given companies the ability to calculate the precise amount of inventory they would need to prepare in time for 11.11.

“Nothing is truly made in its country of origin,” Jacob reminds us. As manufacturing and logistics continue to experience complications, inventory will become increasingly precious. Companies will largely be playing on defense to preserve the inventory they have along with finding more creative solutions to moving product beyond discounts.

Key Quotes:

“In general, when we look at the history of 11.11 (I think we’re at year 12 now), a lot of the growth in those early years was from DAU (daily average users) and MAU (monthly average users). A couple of years ago, Tmall hit that $900 million mark [and] reached saturation in the market. Growth then started coming from increased spends between that $900 million but also from broader and broader categories.”

“This 11.11 may potentially be smaller than last year’s 11.11 due to the supply crunch. It’s going to be the biggest issue. I don’t think it’s been in the press nearly enough. [...] This is not a new problem. This has been going on for several months. I think now people are starting to notice it with empty shelves; but, it’s no different anywhere in the world. Global supply chains are extremely complicated.”

“The Chinese eCommerce system is very public. Those comments are always there. The ratings are incredibly important. And it all feeds back into the search algorithm. So, you have this monstrous platform, but you’re also up against a ton of other brands. Customer feedback is incredibly important. Your reputation is everything. You don’t ever want to misrepresent the products that you’re selling. You want to be as accurate as possible. And if there are disadvantages to your product, you want to be clear about that, too, and provide reasons. You don’t want any consumer to be surprised about the item that they receive at home versus what they think they’re purchasing online.”