China is the second largest cosmetics market in Asia and the fifth in the world. It has been a profitable paradise for foreign cosmetics brands for a long time. Foreign cosmetics brands in China own around 70% of the market. In 2018, P&G and L’Oreal had the biggest market share in China, with 25.8% and 21.5% accordingly. The American Procter & Gamble, the French L’Oreal, The Japanese Shiseido, the Anglo-Dutch Unilever and the American Estee Lauder are the key players in China’s cosmetic market.

Data Source: qianzhan, China’s cosmetic market share 2018 (foreign brands)

Chinese consumers’ behavior is evolving very quickly, due to the huge economic growth. Hence, the middle-class in China are more sensitive to their life quality and health-awareness. Therefore Chinese consumers have been more interested in using overseas products which have a long history and more refined products.

Marketing strategies of foreign cosmetics brands in China

L’Oreal is a huge success among foreign cosmetics brands in China

L’Oreal shows rapid growth in Chinese e-commerce

The French brand has grown ten-fold on e-commerce since 2011. It is the leader on e-commerce in China, which is the fastest growing channel for L’Oreal. In 2020 e-commerce already makes up 50% of L’Oreal’s China sales.

Data Source: L’Oreal Group Annual Reports, Percentage of Loreal China sales from e-commerce

The next step for L’Oreal is new retail: the combination of the offline and online channels. It includes such technologies as augmented reality, virtual reality, and artificial intelligence. Today L’Oreal in China already provides skincare diagnostic supported by artificial intelligence for Vichy on Tmall.

Foreign cosmetics brands actively use KOLs in such online platforms as WeChat and Weibo. For example, many celebrities like Li Gong, Zhilei Xin (Famous Chinese actresses) promote L’Oreal cosmetics among Weibo users. 

Personalization and co-branding are the key cosmetics marketing strategy in China for L’Oreal

More and more companies focus on offering personalized experiences for their customers. To create a more customized digital experience, L’Oreal has integrated technology to let people “try on” lipsticks by pointing their smartphone camera at themselves. The L’Oreal-owned Giorgio Armani make-up brand became the first luxury line to use the technology on WeChat. WeChat users can order them from Giorgio Armani Beauty’s mini-program shopping site. Users also can screenshot, save and share images as well as view before and after images to elevate the consumer shopping experience. 

Source: Cosmetic Design Asia, Loreal Group has launched of its Augmented Reality (AR) make-up try-on application ModiFace in China

L’Oreal’s quick rebound after COVID-19

The French brand reported that its China sales have seen signs of recovery since the COVID-19 outbreak. Despite overall sales for the quarter shrinking globally, L’Oreal China achieved high growth in March 2020. The CEO of L’Oreal Group, Jean-Paul Agon highlighted that the company’s performance in China was “remarkable”.​ “China was able to close the quarter at plus 6% which is pretty amazing when you think about the difficulty that they had due to the pandemic.”​ L’Oreal China recovered quickly due the early restoration of operation and wide usage of the online-to-offline model. Additionally, during the Women’s Day Festival on March 8^th, 2020, L’Oreal group launched an online shopping event in China to trigger sales.

In March 2020 sales of L’Oreal Group in China became positive again. That proves that using of online-to-offline model and social networks promotion were successful marketing strategies for L’Oreal in China, and especially boosted their sales through the tail end of the pandemic.

Estée Lauder tops the list of 100 most prestigious cosmetics brands in China

Estée Lauder targets young Chinese millennials

The beauty brand targets young millennials to tap into China’s booming cosmetics and personal care industry. Its shift away from older consumers is part of its long-term investment strategy in the country. Estée Lauder’s cosmetics marketing strategy in China is to position itself as millennial-focused. It quickly identified that tapping into the high spending ability of young Chinese consumers with specialized luxury lines is essential for its success.

To gain a clear, competitive edge over its rivals, it redesigned its marketing campaigns. For example, Estee Lauder in China increased digital engagement, leveraged social media platforms such as WeChat and Weibo. Additionally, like many other foreign cosmetics brands, it collaborated with the local celebrities.

Estee Lauder focuses on digital strategy

E-commerce in China has developed rapidly and is a popular way to shop for most Chinese. Thus, it took a specialized online strategy to adapt to the Chinese market. E-commerce represents approximately 30% of Estée Lauder’s business in its top markets. In 2014, the brand became one of the first high-end cosmetics brands to enter Tmall. They built a professional team with 50 persons to focus on the brand’s Tmall store and independent e-commerce shop. In 2017, the sales revenue of Estee Lauder Group in China had 40 percent growth. Notably, e-commerce accounted for 50 percent of that increase. Also, as a part of its cosmetics marketing strategy in China, Estee Lauder opened online stores for its sub-brands. It helped to bring more consumption to the Group.

Data Source: WalkTheChat Analysis, Evolution of Tmall flagship sales between March 2019 and March 2020

KOLs and special products push the sales of Estee Lauder in China

Estee Lauder invests heavily in digital marketing, social media, and KOLs. For example, Yang Mi, a famous actress in China, is Estee Lauder’s brand ambassador. Her first cooperation with Estee Lauder in February 2017 earned over one million shares on Weibo and brought over 500 percent more sales. Meanwhile, some popular KOLs in China helped to increase consumption. In 2019’s double 11 presales, Chinese actress Li Jiaqi sold over 0.4 million Estee Lauder’s Advanced Night Repair in a short time.

Estee Lauder’s matrix covers almost all categories of cosmetic products and price ranges, reducing the risk that customers switch brands as their preferences evolve. Notably, Estee Lauder Group launched a brand called Osiao in Hong Kong in mid-October, 2012. This brand is specially designed for the skin of Asian people.

P&G’s cosmetics marketing strategy in China highlights premium innovation and product mix

P&G launches a premium skincare brand in China

Unlike other top foreign cosmetics brands in China, Procter & Gamble (P&G) decided to put focus on the premium segment. In 2019 this American company brought a premium skincare brand called Oriental Therapy to the Chinese market. Chinese herbal medicine inspired the company to create this cosmetic line.

What makes it especially unique is that it meets skin’s different needs during the four seasons. According to Oriental Therapy’s Weibo post, the beauty line focuses especially on Chinese women.  The brand is now available via Tmall, WeChat, and Xiaohongshu shopping platforms. P&G believes that Oriental Therapy will fill the gap P&G has in its beauty offering in China. One of its key products, Springtime Hydrating Essence costs 450 RMB or 65 USD. The brand’s skin-care sets cost between 740 and 1140 RMB, or 107 to 165 USD.

Source: Weibo, Premium skin-care brand Oriental Therapy for China

However, P&G faces a lot of competition among foreign cosmetics brands. For example, companies like Estee Lauder and Shiseido are also upping the ante through launching new brands including DARPHIN and D-Program.

P&G uses Alibaba to sell in China

To expand its e-commerce P&G has turned to Alibaba Group, which operates the country’s largest online marketplaces. Alibaba also offers digital marketing solutions and access to a huge audience via its media ecosystem, including  Alibaba-related companies such as video-streaming site Youku and the Twitter-like Weibo microblogging site.

“E-commerce also plays a significant role in brand building, which is changing P&G’s century-long brand-building model.” – says Jasmine Xu, the company’s vice president for Greater China e-business and branding. Oriental Therapy has also opened a flagship store on Tmall, where it offers products in different combinations.

China is the second biggest market for Shiseido

Shiseido adopts cooperative cosmetics marketing strategy in China

In 2020 the Shiseido Group opened its first Beauty Innovation Hub outside of Japan at its flagship space in Shanghai.  Shiseido Beauty Innovation Hub represents a new way of working to drive consumer-centric solutions in China. At this space, Shiseido plans to collaborate with Chinese startups and disrupters, and create innovation which will deliver true value. Cooperation and localization, rather than head-on confrontation, is the strategy Shiseido takes. The Beauty Innovation Hub aims to work with local startups in the extended beauty space. On top of this, Shiseido in China plans to experiment and create new businesses. The hub serves as an open innovation platform for Chinese startups, opinion leaders, area experts, media and scientists.

Source: Medium.com, Shiseido Beauty Innovation Hub in Shanghai

Shiseido in China joins Tmall to promote online sales

In 2018, Shiseido revealed their New Retail strategy. A part of this strategy is a platform they developed called the “Shiseido Official Beauty Star Product Hall”.

In 2019, Shiseido signed a partnership with Tmall. It helped to develop new products based on what Chinese consumers are searching for on Tmall. The first co-developed products, a ‘mild and refreshing scalp shampoo’ and an ‘essence oil for split ends’ will launch on Tmall under Shiseido’s hair and body care brand Aquair. Shiseido said it expects e-commerce to generate 40% of its China sales by 2020.

“Without a doubt, whether it be e-commerce or digital innovation, Alibaba is the leader. Alibaba is one of the most important strategic partners for Shiseido China as well as for the entire group,” said Fujiwara, Shiseido’s CEO.

Data Source: Shiseido Annual Reports, Percentage of Shiseido China sales from e-commerce

Mary Kay uses scientific innovation in China

Mary Kay China targets young consumers

As Chinese consumers are more and more informed about beauty, Mary Kay is facing the challenge of developing interesting products. “In China​, beauty consumers demand for products and services are constantly increasing.

The current consumer trend of skin rejuvenation in China is strengthening, and the purchasing power of the 18 to 24 age group is rising,” said Katherine Weng, general manager of Mary Kay China. To cater to younger consumers, the company’s cosmetics marketing strategy in China is to create “bold and interesting” ​products. In 2019, it launched Pink Young brand in China. As company claims, “It’s the answer for today’s woman who wants to show her femininity along with her fierceness.”

In 2018, the company invested around $50 million in the Mary Kay Science and Technology Center, located in Shanghai. Additionally, the company sees the need to increase its online presence. It has launched a new channel which enables consumers to use WeChat to place orders with independent beauty consultants.

Mary Kay focuses on direct sales in China

Mary Kay is one of the world’s biggest direct selling enterprises of skin care products and cosmetics. Within a short time, Mary Kay China established its name among Chinese consumers and experienced steady growth in the country’s first-tier cities. Now, it has set up 35 branch offices across the country. When the company first began expanding beyond China’s big cities, its direct-sales model was new to consumers in China’s second- and third-tier cities.

Mary Kay has three key strategies. First, it drew up strict rules on how beauty consultants should conduct themselves and present Mary Kay products. Second, it developed advertising campaigns in a variety of regional print and broadcast media. Third, the management team established special training programs for consultants.

The sales force represents a competitive advantage. Consultants know their customers well. Such personal networks are vital because Chinese consumers tend to trust people with whom they have a good relationship. Their close relationships with relatives and friends would ease making follow-up visits to get feedback and introduce new products.

Summary of the marketing strategies of foreign cosmetics brands in China

Co-branding

Not many foreign cosmetics brands use co-branding as a key strategy. Co-branding helps brands “exchange” customers, and effectively expand their consumer base. As competition in the Chinese cosmetics market is fierce, such giants as L’Oreal or P&G have not shown interested in involving other brands for cooperation. Shiseido has another approach. It has its Innovation Center in Japan, where it also cooperates with other local brands. Thus, cooperation with the Chinese start-ups was a natural marketing strategy for this company.

KOL marketing

KOLs are popular social media users who can influence a wide audience. In China they usually post on WeChat or Weibo, but other platforms like Xiaohongshu can be considered depending on the target audience. Many foreign brands cooperate with them to expand their audience, especially among millennials. To gain new consumers and increase sales, L’Oreal and Estee Lauder chose this cosmetics marketing strategy in China.

Direct sales

Direct sales are a traditional channel for all foreign brands in China. However, as of 2020 most brands consider e-commerce as a key sphere for development. During the COVID-19 outbreak direct sales showed its vulnerability. Mary Kay is the brand which always had its special strategy of creating personal relations between beauty consultants and customers. Nevertheless, now Mary Kay in China is also considering using digital technologies to promote its products.

E-commerce

The target audience in the cosmetics industry is the post-80’s and post-90’s generations. They always keep up with the latest trends and care a lot about their appearance. One of the most effective ways to approach them is to find where they spend most of their time: online platforms and social networks. Most foreign brands widely use online methods to expand their influence in the Chinese cosmetics market.

Special products

Some foreign brands focus on a special approach to the Chinese market. They create products and sub-brands oriented on the Asian audience. It could be skincare products created specifically for Asian skin or inspired by the Chinese traditional medicine. That helps to increase customers’ loyalty and increase sales in the Chinese market.

Author: Valeriia Mikhailova

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This article Marketing strategies of foreign cosmetics brands in China is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Welcome to China Paradigm, a show powered by Daxue Consulting where we interview season entrepreneurs and experienced managers in China about their business experience in the country.

Matthieu David: Hello everyone. I am Matthieu David, the founder of Daxue Consulting and its podcast, China Paradigm. Joining me today is Yoann Delwarde. You are the co-founder of Infinity Growth and what you are doing or what you have written on LinkedIn or well, that will be one of the questions that we have. You are helping B2B companies that need to scale up and sell more with integrity. The word “integrity” is something I’d like to know more about and why you insist on it. You do B2B sales coaching, sales training in Shanghai, and consulting and you have been in China for – from my calculations – for at least 7 years. It may be actually more. So, it is a sizeable amount of time that you have been in China.

You have been working in a company and you started your company and you are also on the side, very active by lecturing, mentoring, and something that for me, firmly defines you for some time, which is Toastmasters. You are very involved in Toastmasters clubs in China. I feel along with Chinese communities because Chinese communities are also very involved in Toastmasters here in Shanghai. Thanks, Yoann for being with us. I am very happy to have you here. So, what do you do with your company now, Infinity Growth?

Yoann Delwarde: Thank you, Matthieu, for the introduction, amazing. So, actually, at Infinity Growth, we are helping B2B clients, as you mentioned to get the service they deserve. So, this is really the one-liner, “Get the service you deserve”. We help them to scale up, as you said, so to increase B2B sales in China and also selling with integrity. We’ll come back to the word integrity later in this conversation because I believe, now, that’s what people want to buy. They don’t want to be sold. They want to buy something they believe has integrity. So, this is what we do, basically.

Matthieu David: Tell us more about what kind of teaching you give to your clients? Do you have products; meaning like specific teaching and segmented or everything is adapted based on what you think they need, or it is both of them?

Yoann Delwarde: So, that is a very good question. If I take you as a potential client, you are the CEO of your company and I am sure you want to be a successful CEO. You are already and if you want to be even more successful one thing is to have more sales and one of the prime’s of this year is that we are in a recession. So, you may feel stuck or you may feel pressured and so actually at Infinity Growth what we do first is, we really understand you because we have privacy executives and so that’s really the key. Why I can say that is because actually we got 90% of our clients by referrals.

So, we don’t just care about numbers. We really care about you and how we usually do it is, first, we start by getting an assessment of how you do the sizing of your company today, and then based on this assessment, we build a plan together and then execute this plan with passion and with great care and enthusiasm to increase B2B sales in China.

So, usually, if you want to have the rhyme, we say, “We meet up. We team up and we raise our glasses up.” So that is how usually I introduce myself. So, coming back to your question on how we practically do it. We have a series of methodologies and tools because I believe that sales is a science. We have the mindset, the methodology or behavior of the way to talk, the way to ask and I think that this is no further than that. That is why it is a mix between methodologies, processing tools and processes; sales processes, and also about the mindset and the behavior.

That is how I would maybe put an umbrella on everything we do and as you said, we already have lectures or courses and we also have trainings and so we already have our set, but actually, 80% of what we do is really customized or tailor-made because everyone has different challenges. So, we look at different situations and we identify what could be the weak parts because each situation has a strong and weakest link and then we work on that with different sprints and methodologies of scanning everyone in our niche. Every quarter we have a sprint and we grow.

Matthieu David: Are you a member of EO? Are you a member of the ChinaAccelerator or EO because scaling up is a book that is used a lot about by EO; Entrepreneurial Organisation, which is for people listening to us who may not know, which is a big organisation in the U.S.? They have entrepreneurs, which are mentoring and teaching other entrepreneurs on how to scale up. So, we have four chapters.  One is about cash, one is about money, one is about; I don’t remember actually all four of them, but you certainly know them and it is very, very organised and to the opposite to what you can release in podcasts, books, whatever success is not random. I think that the basis of the thinking is that success is a methodology, success is a habit, like the Rockefeller habit (learn more about the Rockfeller habits[MOU1] ) also that they communicate on. So, are you a member of EO and do you inspire yourself from this organisation?

Yoann Delwarde: Actually, this is interesting because of why I started this company; the main reason is because of ChinaAccelerator and so I am extremely grateful for this organization. I have wonderful friends there and now I am a mentor since 2018 and actually, they inspired me because my first client was one start-up from ChinaAccelerator who basically asked me to charge them because they were loving what I was doing when they received it.

Matthieu David: We interviewed them as well in the podcast.

Yoann Delwarde: Fantastic and so actually when I started in ChinaAccelerator I realized that I was very successful in my previous company, however, if you want to have… because they have a star-up every 6 months. So, if you want to have ten start-ups all in different fields, you’d better have tools, you’d better have a process, you better have habits because it is not bout experience-sharing anymore. Because they have all different industries and all different challenges; the size of the plans. So, you really have to go one level deeper and for three years, I realized that ChinaAccelerator batch after batch, challenge after challenge, success after success and also failure after failure, because a start-ups’ failure rate is very high, even for ChinaAccelerator. So, that really forced me to find the methodologies and tools and as you mentioned also about EO; actually, I have many clients from EO.

I am not a member yet, but I know very well their committee and actually, we are thinking to register EOP this year because they are changing their criteria. Before, if you wanted to enter as 1 million dollars as revenue, but now they are more flexible and actually I am even thinking to join faster. I was thinking next year, but maybe I will start this year.

Yesterday I had a phone call that was fantastic and that’s why I am so happy today, with Jack Daly and actually, he is one of the sales guru’s and I had such a nice phone call with him and he shared with me the experience that when he started his business during the first 3 years he was spending so much time with EO, PO and global CO because they are for him, the center of influence. That’s where he got most of his leads and clients.

I am doing the same methodology with the American Chamber of Commerce, with ChinaAccelerator, with EO and soon with other organizations through my panel who is contact also maybe with the more businesswomen in China (learn more about how businesswomen are changing the corporate culture in China). This is definitely a big plus for our business, and this is where I believe we can find the people who are most coachable and who are really willing to change and have sales training in Shanghai, and that’s the clients we love to work with.

Matthieu David: Let’s try to be specific. You mentioned tools to increase B2B sales in China. Would you mind being more specific about the tools? Are they digital tools? Is it something like Trello, CRM that you are using, or are there tools that are more conceptual that you are using, like Lean Canvas or other elements? Would you mind being specific on the tools you may use?

Yoann Delwarde: Of course, so before we talk about the tools, I want to talk about the funnel because maybe for some people in this phone call, that would be a good introduction. So, I believe there are six steps of the funnel. They actually mention 5, but I believe there are 6. So, the first one is targeting when you have to choose who your ideal clients are and who you want to work with, and then it is the interaction.

How can we communicate with them to understand the needs that they have and then it is the proposition stage; how can you set up the value proposition and then you mentioned business Lean Canvas. That is a great framework. Then there is the closing stage where basically you need to close, you need to sign, you need to shake hands and then there’s the stage of exceeding expectation where you need to deliver or over-deliver and then there is the last stage, which is growth.

This is about key accounts, cross-selling and renewal, and also referrals. So, each stage has different tools, methodologies, and principles. So, if I take an example, for the interaction; the product you are selling is the mindset when you ask questions so that you can dig into some clients’ needs and then you use the embassy for you to understand them, you use the authority to explain who are the clients you are working with and so all of that can be framed in a one-page strategy with a graph and then, of course, it needs to be executed through the different tools and checklists, for example of questions.

Through recording with the CRM; Customer Relationship Management system and again, the tools for me are not the most important because when the people use the tool and they don’t know why they don’t use the tool well (listen to another episode on CRM in China).

So, first, we focus on the why and we make role play because actually role play is a key for us. It’s like CRT share and you have a competition and you send your students, or you send your sports team to the match. Of course, they will lose if they don’t train before, right? This is the same for salespeople. Not only about the process itself. It is really about the ecosystem that you can build around at each step of the funnel. Is that helping you to visualize more?

Matthieu David: Yeah, 6 steps, very clear and we talk about B2B so, it is very clear. Talking about how you support this sales training in Shanghai and this transformation, do you interact with them with an initial understanding of who they are and what they do and their challenges, but then how do you work on the transformation with them? Every step you organize a workshop every week, every month, or is it… could you give us ait more of an idea so that you can project yourself in how you interact with the companies you are coaching, mentoring, and supporting?

Yoann Delwarde: So, the first “F” is Focus, the second one is Fun and the third one is Follow-up. So, focus means actually every week we have a clear focus and I usually spend one or two hours coaching, with the executive; sales executive. So, actually, at the beginning of the quarter we have a plan for 3 months and then every week we have something specific following this plan and also, we have some time to sit with the challenges. So, that is usually how we do it. We have the coaching and then if we see the team needs something specific, we set up a one-day training or two-day training. So, this is a mix between coaching and training however, most of the time what I realize is that people don’t need theoretical knowledge.

They need advice and they need to reflect, and they need to ask questions because they don’t know who to ask and so that is basically what we do; 80% of what we do. It is practical. So, they have a closing and how to close. They are talking to this client in an industry they have never approached before; how to do it. They are trying to expand into a client. They have so many businesses. They don’t know where to start. So, that is really practical.

Matthieu David: When they have questions, that is something I am always wondering. When we have a question for more clients on Daxue Consulting, we have to do research (learn more about the research methods at Daxue Consulting). We have to collect data. We need to interview people. When your clients have questions, you are talking about one specific topic. Daxue covers a lot of topics, so we have to update ourselves and so on. You have one topic. Does it require you to dig into the industry, to go further, or basically you have most of the concepts in mind and so you able to answer them? Or does it require you to take one day at home to work on your training, to go back one week later with answers to the questions they have raised?

Yoann Delwarde: For sales training in Shanghai, there are two key roles. The first one is sales; that’s my passion and the second one is coaching. Actually, there is the spirit of coaching, which is we believe that the coachee; the person we are coaching, has the answer already. So, the key is not about the answer that I can give. It is about the question I can ask to make them realize what they know and what they don’t know and then, how can we ask questions so we can know what they don’t know and most of the time in sales, this is not about them. It is about what the client wants; their needs, their motivation, their political agenda.

Once we know that, the sales race because actually, I believe sales is a transfer of trust. So, maybe my goal with the salespeople is, how can they build trust with their clients and how can I give them the confidence to ask the question in a proper way and so that I really a lot about changing the way they act with the clients.

I thought sometimes you would have to go back for some research, but most of the time there is no need because first of all, it is urgent. They need to apply right now and second of all, it is most of the time based on the behavior and they already know. It’s just they don’t execute it in the proper way or sometimes they forget or sometimes they have the stress of all the things going around and they don’t take the time to focus on one thing.

Matthieu David: I see. You said that sales is a science and then you said a bit later it is an art. You know, the word of Peter saying entrepreneurship is neither a science nor an art. It is a practice. If we look at the word, science art, and practice, how do you articulate them because you used two of them and I believe the practice is not to overlook neither in sales.

So, how do you feel about those three? If it is a science, then it can be taught at university, it can be lectured and after that, you are done. You know how to do it. If it is an art, then it needs talent. Not everyone can do it. Science everyone can learn, right with some time and investment. If it’s a practice, it requires time. You have no choice. You just have to spend time. So, how do you articulate those?

Yoann Delwarde: Actually, I use those because they are opposite and now it is true that if you bring practice it makes it look like a triangle and this makes me think of the three from Aristotle. Credibility, logic, and motion. It is the same for me. These three need to be combined with each other and if you only have one, you will be just okay sales, if you have 22 you will be a good sale, if you have 3, you will be the great sales. So, this is what I believe about those three and if I make an example, starting with practice when I don’t practice sales, I lose my saleability. It is like when you don’t work out for 2 months, your body just cannot forget.

Of course, it is easier to keep up if you were a previous athlete or you are used to doing sport every day, but still, you are using your physical abilities and it is the same in sales. If you don’t close every week, you lose your ability to close. Or if you don’t make a phone call every day, you lose your ability to make phone calls. It’s like public speaking, basically.

I gave 500 speeches in the last 5 years, and I can feel it. I am not as good as before because I don’t speak as much as before. That’s it. It’s simple. The second one is about art. Why is it art? Because you can really see who the most successful salespeople are. They are usually not the ones with the highest IQ. They have the highest EQ (learn more about the importance of IQ and EQ for salespeople).

So, they are really the ones who can adapt to the environment and to the person they are facing and make them feel good, make them want to hear what they want to hear and help them and support them in a way, but at the same time, if you are just an artist, but you don’t have the science or you don’t have the process, how can you build a team? How can you scale up because that’s actually does one of the great sales of the funder? They sell a lot and then when they recruit their team, they don’t know how to share the knowledge.

So, actually, for me, these three are really inter-dependant and this is a triangle and if you have a triangle you are extremely strong. So, what we do is we are trying to understand for each part, what each client could develop because everyone has already their strengths so that they can become more systematic and they can scale up and be something that is sustainable.

Matthieu David: You just anticipated one of the questions I had, which is what are the main failures or mistakes that you see among the people you are coaching, and one of them, you just mentioned is that funder can be good at sales. He can be good at a lot of things, but he has to be good at sales otherwise his business won’t take off. So, he is good at increasing B2B sales in China, but he doesn’t know how to get more salespeople and I have seen that. I have seen that a lot. The struggle to actually get people to sell something valuable. That is one mistake or difficulty you are seeing. What other difficulties are you seeing in B2B sales around you?

Yoann Delwarde: If I make categorize, as you said from 0-1, I would say 0-1, 1-10, 10-100, 100-1 billion. I have those 4 categories in mind. From 0-1; this is about the funder and as you said, if the funder is not able to sell, his company will never grow, or if you don’t have a co-founder or someone on your team that is good to sell. All the start-ups that fail for me, most of them is because they don’t have the right sales mindset.

They think about their product, they think about their features, but they don’t think about the benefits if I could summarise. So, that is really the most important challenge for me. From 1-10 it’s about training, coaching the 3-10 salespeople that can help you to sell more than only yourself. So, it is really about giving your knowledge because if you are in a small company you need really to explain how you did in the past and then if you want to go from 10-100 it is about the departments. It is more about the culture. I’m thinking about the incentives, about the rules, how can you make them collaborate and not compete.

Then, when you go from 100-1 billion, it’s more about the strategy and so it is more about the vision and the direction. I am not saying that the vision or direction is not important from 0-1. I believe it is less important if you make the priority. So, depending on different stages, you have different challenges, different failures and that’s actually why I think some companies have some bottlenecks in the kind of numbers of employees and I think ion scaling up, we both read the book talking about it because there is something to do and they don’t really know why they don’t really know what and they need some external point of view to help them to go to the next stage.

Matthieu David: We talked about it already. You said that you are helping companies to increase B2B sales in China to let’s say the right formulation; which needs to scale up and sell more with integrity. How do you feel that it was important to mention you with integrity? When you think about salespeople, we think about aggressive people, we think about people who are going to make big money to sell as much as possible. Integrity is a basis, but it is not seen as something like a tag line. It is more to have hyper-growth. People will say, “I helped you to reach hyper-growth.” You say selling with integrity. Would you mind sharing with us why you use integrity?

Yoann Delwarde: Actually, that is interesting because I come from very modest family background. I am the first one who got a high degree diploma, I am the first one who got an engineering diploma and I am the first one who is starting a business. So, in my family, the culture is not really about entrepreneurship and I have to say I have some challenges to start with sales because I was like you. I was thinking basically sales are not really honest people.

They are just trying to take benefits or take advantage of you, but the thing that I realized is that actually, we can really build a high level of trust when you are not selling when you are helping and here, I have a clear example. In my career, I told my potential client, “Listen, I don’t think I am the right one for you. I know someone else who can do better at a cheaper price.

That is what I can do”. Doing so, I got so many more customers because this one was trusting me and he was seeing me as a trusted advisor and then he referred me to the people who would really need me, eventually. That’s when I started to realize that selling with integrity and honesty can play a very big role. In all the sales guru’s I would say, or all the salespeople who are successful entrepreneurs, they all have this mindset. They are not trying to cheat people.

They have a higher value behind it. Why integrity right now is very important for our business is because actually, my co-founder is involved in many sustainability projects (learn more about the “green industry” in China).

She is helping people in need, etc. and we discussed a lot and we realized that actually, we can have so many companies. So why not choosing the one that really has a higher value, that take care of their employees who want to have a positive impact on society, on the environment because if we help them; I know it is a small contribution and I know it may be a dream, but in the book that we are writing, if we take, for example, these nice companies, then it will inspire more people to believe that actually they can do something great and it is not because they are making money, that they are doing something wrong.

So, that is the mindset behind it and that is why we are so passionate about this key role. Just yesterday I was with a client and he was telling me maybe I should fire our sales guy and I asked him this question. I said, “Have you tried your best with this sales guy or not yet?” He paused for 5 seconds and he said, “It is true. I didn’t try” and I say, “Why didn’t you try?” That is how we do it every day.

Matthieu David: I remember I was part of EO for some time and I remember that one of the coaches said for the values you choose, choose the values that will really resonate with who you are. He took the example of; I don’t know if you remember at the end of ’99, beginning of 2000; before the crisis in 2001. This company or one of its values was selling with integrity.

They cheated their investors and accounts and accounting and so on. They could have said, “My value is growth, whatever it takes.” That could have been a valuable line. He was in some way cheating the investors because it’s growing whatever it takes, but then use integrity, which was not adequate, actually. So, you are talking about B2B, but you are also talking about digital because you do sales training in Shanghai on LinkedIn on how to increase B2B sales in China. Would you mind sharing with us, what the learning is that you have to use LinkedIn to increase B2B sales in China?

That’s my first question and the second question is about China. Is LinkedIn a digital way to sell in China? The learning that we got in the past 10 years is that Baidu is a good channel to increase B2B sales in China. It is not a good channel to increase B2B sales in China. LinkedIn is a good channel for B2B all over the world, but in China still, not all the professionals are on LinkedIn (learn more about LinkedIn in China). You may not find all the contacts on LinkedIn. So, would you mind sharing more about LinkedIn and digital in China?

Yoann Delwarde: Yes, that is actually a great question and I want to make a small remark. I use LinkedIn a lot and I advise my clients to use LinkedIn a lot related to the stage targeting. When they want to get some people in the organization that they are targeting and then interacting. However, once you interact then for me it is to increase B2B sales in China and LinkedIn is actually not so useful. So, this is how I use LinkedIn because in sales, to have the leads you really have 4 ways. The first one is through SU and you mentioned it; Baidu, when people type a keyword and the second one is inbound marketing, copyrighters, and marketing agencies. The third one is outbound, where you send a lot of e-mails and the 4th one is targeting where you are more precise.

So, I use LinkedIn for the targeting part, so just to make it clear. The content marketing one; there are people who would advise you much better than what I can do, so I prefer to stay in my circle of expertise and actually what I realized with LinkedIn is as you said, not everyone is there. However, in most of the companies now, there are at least 5-10 people.

At least in the biggest companies and actually, when you interact with them and when you really take the time to listen to them, they can introduce you because you have two ways; bottom-up, bottom down. On LinkedIn it is very easy to do bottom-up, then from the top-down, what I realize in China is that there are many of what we call the center of influence and the center of influence; they are connected through the whole industry. You are one of the centers of influence because you have interviewed more than 100 people already.

So, for someone that is willing to have access to the circle, if he or she would contact you and make a good level of trust with you, you could probably introduce him/her to that network. In China it is working a lot like that because in every industry you have some I would say a key opinion reader, who can really connect you and this is actually what I realized, as I was really hopeful for my clients to help them to detect who could be those centers of influence that are not competing with their business.

Because, of course, your competitor doesn’t work and then how together you can create a partnership so that you support each other and you create an ecosystem where you can actually really support the people who are our clients. If you have a client who wants to improve their sales, now you interview me and if I am meeting the clients that need your service, I would love to do a podcast I would have introduced you as well. So, this is I think a way that could really work to increase B2B sales in China.

Matthieu David: On a more technical side of using LinkedIn, what you are mentioning is that when you create your own connections on LinkedIn, then you will do the hashtags, the hashtag of those people to mention them on your post. So, actually, we gain visibility with their feed and with the people they are connected with and will give them visibility as well to the people you are connected to within your feed. You also give strength to the algorithm of LinkedIn because you are doing hashtag the name and that is why you are mentioning partnering because the word ‘partnering’ or to partner with someone is so much overused that sometimes we don’t know what it means and in this case, you are meaning the mentioning, the liking, you are mentioning, sharing and commenting on those people you are actually posting.

Yoann Delwarde: Exactly. That is a really good example. That I something that we are doing a lot of recently, especially this year because now most of the people are at home. So, I think it’s also about creating content, but thus far, again I am not the expert. As you said to interact with the people, so they like, comment and add them, try to create some value together, and again, this is not a sales approach. This is more of a conversational approach, where you try to build trust, you know each other and that doesn’t mean that they will be your direct line, but one of the networks could be, as you said.

Matthieu David: On LinkedIn, when you contact someone it is an e-mail. There is a mailbox on LinkedIn, and you send an e-mail. I found out over time that a good e-mail can be very powerful. A good e-mail… I have some theory on it, and I have some thinking about it, but I’m pretty sure you thought a lot about it, and you have a lot of practice in it. What would be some of the key elements to remember when you write an e-mail? Would you mind sharing that? I have some tips from myself, but I am not as organized as you are or as conceptual as you are. What would you advise people to do?

Yoann Delwarde: That’s a question that all my clients ask. So, now I have a very standard reply. I use the triangle of Aristotle; credibility, logic, and motion. So, I always start with credibility and so I always start with the fact that actually people love, love stories, and also when you are talking about them, so I always start from them.

So, I would say, “Hi Matthieu. I saw that you are a CEO at Daxue Consulting.” So, you know that I know about you. I am not just randomly writing one thousand e-mails, right? And then I will mention your credibility. So, who am I already with that you know, or who could give me the authority so that you would want to reply to me and in this case, if I say, “I know that you are doing a lot of podcasts and I know that you interviewed Sophie from ChinaAccelerator and I saw that she is amazing in a lot of your podcasts” the credibility is there.

So, you know that I know Sophie and since you interviewed Sophie, you believe this could be interesting, right? So now you have more interest to look at my profile. Then the last one is about logic. So, it is to give them a clear next action. So, the next action could be, “How about we have a 5-minute discussion so we can know more about each other? I would love to share more stories with you and to see what we can do together. I wish you a wonderful day.” That’s it; 5 lines and he will probably reply.

Matthieu David: My experience is that I am very careful with e-mails within the team. I try to also have a high standard because indeed, you can receive some very bad e-mails sometimes and good e-mails, which are adapted. I would have one thing as a comment, is that I saw some bad experience mentioning people we don’t know, or mentioning people we know, sorry, but we don’t know the relationship with this person and I know it was not by e-mail, but it was by speaking. I mentioned, “I know this one. You also know this one” and actually, they hate each other, and actually, it was not a good mentioning and I realized that I had to stop to say that we know someone in common. So, there is a bit of risk in mentioning someone in common that we know.

Yoann Delwarde: That’s true and that’s why I usually mention companies. In your case, I wanted it to be adapted for the people who listen to the podcast, so I mentioned someone who was in the podcast that I know and she also knows me, but usually, I mention companies because companies, as you said, you cannot hate a company, right? If you hate the company, you need to explain to me how you can hate a company. So, I usually mention the company, but the key there is about credibility. Why should they listen to you; because you are a big company that is similar to them and so they want to know more about you.

Matthieu David: The concept, the knowledge you have got; you mentioned one book which is scaling up or scale-up. What other books would you recommend for people, specifically on sales, on learning about increase B2B sales in China, if you can narrow it down to B2B?

Yoann Delwarde: I have a list of 15 books that I can send you later on because it is also a question that I often get. I have to say that I have read many sales books. Actually, I have a belief. I don’t choose a book; the book chooses me. So, when I go to the library, I look at all the titles and there is always a challenge that I like two books and I open them and go through the agenda, table of contents. If there is one thing I like, I open it, I read it quickly and if I like it, I buy it. So, that’s how I do it.

Matthieu David: Interesting, so you go to a bookstore to find books you don’t even know. You don’t go online to check what people say and so on. You would go to a bookstore and look at the title and then you would go inside to see what’s inside?

Yoann Delwarde: Exactly and also every time there is someone that I trust who read a book that liked it, I ask them what they learned and if I liked it, then I just go and buy it online. I have two ways to buy books. My library is full. I think I need one hundred years to finish all the books, but that’s okay because I know if one day, I need something I can go find it there in a book. That gives me a lot of feeling of enthusiasm and I also bring books with me. I have a book that I am reading actually, every day which is called the Sales play Book by Jack Daly, the person that I had the chance to talk with yesterday.

That is my new Bible. That was alive before I met this book and it is alive after I made this book. This book is gold because most of the time a sales book is full of stories which is amazing because you remember stories, but there is nothing conceptual behind it. For me, there are stories that are very structured. I really like it because when I have a chance I go back and I also have some videos from him, and he makes me reflect. So, that is really the book I would suggest and also, I will send you the fifteen books that you can also refer to.

Matthieu David: Last question before we go to the usual questions I ask at the end of the interview and you already answered some of them. It is about Toastmasters. You have been with Toastmasters clubs in China for a long time. Chinese people are very involved in Toastmasters clubs in China, more than French people. I am French. You are French and you are French, right?

Yoann Delwarde: I am.

Matthieu David: I am not sure because we speak French in different countries, so we were not that involved in France with Toastmasters. I think that China is very involved in it and you are too. Would you mind mentioning what you got from Toastmasters clubs in China and what Chinese you feel they get? I have a sense that they are looking for English learning or English classes, some of them more than public speaking learning.

Yoann Delwarde: Toastmasters is one of my passions. I discovered it 5 years ago actually by chance. It is actually 6 years ago now. What I got through it is the confidence to do public speaking in China, because actually, public speaking is the biggest fear in the world. People fear to do public speaking in China more than spiders or death, just to let you know how strong the fear is of public speaking.

Matthieu David: Sorry to interrupt, but there is an anecdote; Warren Buffett was scared about public speaking and he learned from decalogy, I think and he had his diploma in his office and actually I think he doesn’t show his diploma degree. It helped him to learn how to speak in public and that changed his life and changed the business he was to create.

Yoann Delwarde: I fully agree and what I can tell you is that there was a life before Toastmasters and there is life after Toastmasters. I feel more comfortable to do public speaking in China in front of 100 people than to speak to you now because I got used to it. I got stressed if I talked… what is Matthieu going to ask me? If I stand in front of 100 people, I feel more natural. It is kind of a new feeling.

The thing is, if you can speak to 100 people and 100 potential clients, you save so much time because if I have to speak to all of the people in China, but if we organize a conference; no matter online or offline and there are hundreds of people listening to my speech, there will be at least one or two that will come to me at the end of the speech to say, “I love what you said. I need you. Let’s have a talk.”

Matthieu David: To be more specific, what did you learn at Toastmasters clubs in China? I understand the one thing you get is practice. That is clear. For people who don’t know Toastmasters, we didn’t say what it is but is I the regular meeting where you give a speech to an audience within your community. It could be your university, a district and I don’t know how long the speech should be, but after there are some discussions and feedback from the audience on the speech, but you are going to tell us more about it.

Yoann Delwarde: What is the goal of Toastmasters? So, it was created more than 90 years ago and now we have more than 170 000 members across the world in almost every country and this is NGO. So, a non-governmental organization, so a non-profit organization and in China, in the district that we are we have east district and east district has more than ten thousand members and as you said, that is getting more and more trendy and the goal of Toastmasters is to help people improve their communication skills and leadership skills and actually the leadership skills is something that people don’t really know, but that is where I learned the most. I was leading a team and I was helping actually; in my last project, I was helping 80 people to run a project that had an impact on 5000 people within a year.

So, this is really a strong leadership common line there. For communication, as you said, there are 6 steps. The first step is you have the objective of the speech and so, what is the goal for you to make the speech? It is not just to speak. You have a key objective and it could be about body language, it could be about coaching, it could be about sales. You have the objective before the speech and then you do the speech and after the speech, you get an evaluation; an evaluation that is very constructive and empowering where they tell you what you have done well on and where you can improve.

Actually, it is like a step by step process because you start from scratch, and then at the end, you can become a keynote speaker and then we even have some certification for public speaking that we are doing at every year in the international conference. That should happen in Paris actually, but due to the situation maybe we do it online, but again actually that is one thing that I got from Toastmasters is the network.

In 2017 I was in Canada and I had the great chance to meet Tony Buzan, the inventor of the mind map; one of maybe the top ten most famous people in the world. He was there and I had the chance to spend the whole night with him because we went out with some friends, because actually he happened to know one of my Chinese friends and there are so many people like that in Toastmasters.

They are willing to share and that you can reach out to them, shake their hands, and get their book. So honestly, I really advise everyone to go there. That’s just amazing. More than 90% of the fortune 500, have a Toastmasters clip. So, most of these are extremely encouraging and so I would not be surprised that Bill Clinton was a member. I am not sure I had the chance to meet him yet, but if I meet him, I will ask him.

Matthieu David: I think he was. So, the last question I usually ask, and I may not ask all of them because you answered already some of them about the books. What do you read to stay up to date about China because you have specifically coaching, mentoring, and helping companies in China? So, you have your concepts, but you need to implement them in China. What do you read to stay up to date?

Yoann Delwarde: I will be very frank with you. I believe that even if I read all the books, as soon as they go out, they are outdated. So, what I really do, I talk to people because I believe that every ordinary person, they have extraordinary stories to tell and I ask them questions. I am a very aggressive listener.

When I listen, I really listen. I even mute myself and when I am not sure about something, I try to ask 5-10 people in my network, “Okay I have this challenge. This is what I am thinking. What do you think?” or, “You hav some experience in that, how do you think they will react?”  If all of them tell me, “Yoann, you are going through the wall.” I back off. If they tell me, “Yoann, that could be good, but think about that.” Most of the time this is something that helps me and so I read a lot. I meditate a lot and reflect a lot, but also, I talk to people even more. I think that now, again, most of the challenge is you need to ask people how they would react because they are all complex.

Matthieu David: Yeah, you begin by saying, “Can I be honest,” but actually that is certainly a swirl that many people mention is to… I would not say to meet and talk is to refer to their contact. It could be WeChat, it could be LinkedIn, it could be Talk, but it seems that a lot of the people get information from WeChat and LinkedIn and so on. Do you have anything you read? I read from the New York Times and The Morning Post to know what is going on in China. Would you have some sources you would like to share?

Yoann Delwarde: What I am trying to do is I am always trying to have different sources of information and so I like Frog, for example. I like the New York Times and also, I read some newspapers from China. What I am always trying to do is to cross the different information because obviously when you only read one newspaper or one book from one nationality, you are biased.

So, I am really trying to see different angles and different perspectives, but I have to say the really good books are written in Chines, which I cannot read yet so I really rely on my Chinese friends and my Chinese partner. When there is something trending in China, I’d rather ask and I am thinking about the new social selling communities, I am thinking for Alibaba, etc. I just go and ask because if I read a book written in English, I lose so much information already because of the translation, etc. So, I prefer to ask people who read Chinese books.

Matthieu David: I feel you are someone who can think a lot about productivity and productivity tools. What productivity tools do you like most?

Yoann Delwarde: I am trained from GTD; Get Things Done and I did two training’s and so I really like this methodology by David Allen and this really helps me to be effective. I don’t believe inefficiency. That’s actually what I say to most of my clients. If you want to be more efficient, you will get a 5-10% growth every year and I don’t want to work with you. I want you to be effective. So, I want you to get 50% or 100% growth every year. So, it is really about mindset shift and not about 5-10% saving every day.

Matthieu David: Is there a specific tool or software you really like? We may use simply sometimes a calendar or notes on I-Phone. That is something I use a lot. Will you have some tips to share about software tools?

Yoann Delwarde: Actually, it’s funny because I have a buddy. We are coaching each other every month. He is an extremely organized guy. The thing is that it doesn’t work for me. So, what works for me is a very simple Excel file, I have a book and I reflect every week what I have done, what I want to do the next week. I am a bit old school in that, but I have seen people who are using their phones, but for me, I still like pen and paper. What is really important is about the mindset and no matter the tool, it doesn’t matter.

What matters is first, you collect, your mindset, or everything in your mind, you write it down. Then you organize into the next action and then you prioritize and then you have your yearly plan, your quarterly plan, your monthly plan, and your weekly plan. Just make it happen. So, first is, you plan, you do, and do something I that plan. I try to decrease the doing something in the plan and actually it doesn’t really matter. I plan and I do what I plan and when I do what I plan, I am present and mindful.

Matthieu David: There are two questions that I ask at the end of the interview, which comes from Peter Drucker. You can assess innovation when you look at a success that was unexpected or a failure that was unexpected. So, it gives you an idea of what is going on in the market. An example I often use is carpooling leaving China, which is unexpected and it shows that e-commerce is taking over the economy.

What would you be able to share from your observation over 8 years in China? Something the company; events or something in society that has been successful or a failure that you were surprised and it shows something bigger happening in the society or the economy.

Yoann Delwarde: This is very interesting, because when you asked me this question, I had the same discussion with my parents last weekend, and actually I told them that China was already advanced and actually this outbreak of Covid-19 is just a catalyst that makes China even more advanced. Why do I say that; because everything that is happening online right now is just amazing. I mean the fact that you could stay at home when people could not go out and you could still get your food.

When I talked with my friend in Europe they were just out of the blue like, “Wow. How can you do that?” And about the robots, about the drones, I see even the healthcare how they can improve and then again I say that as purely when I look at the business, the way they are trying to speed and I am not talking about the values because this is something that I think many people are getting emotional about. The speed that they have and the vision that they have is tremendous and yeah., I think this is just a catalyst. I think they are already advanced on many topics. It’s not that I’m surprised. For me, it is no surprise. It is just that I think it is just making it happen, fast.

Matthieu David: Yeah and in some way, we are all more aware now that China has reached a level of development, which is in some aspect more advanced than the so-called…

Yoann Delwarde: I am talking about technology here.

Matthieu David: What about failure? What failure have you witnessed that was a surprise to you and shows that something is going on?

Yoann Delwarde: Well, actually the last one that I saw because I have one client at FNB and I heard the news by a local coffee and I was surprised because the way they started, I mean 3 years ago you see no drinking coffee, right and now you see drinking coffee everywhere, even more than Starbucks. I was thinking, “Wow, they must be super successful” and the way they were approached at the beginning, they were trying to learn from Starbucks the ideal plan, etc. Go to the building and target the best clients and also to have cheap prices seems to be working and then when you see it dropping and them falling behind, you realize, “Hey, sometimes it looks good, but actually behind it is not so good.” So that was a good reminder.

Matthieu David: What’s even more surprising is they could have said fake things to so many people and so many investors and that they could have worked its way. I feel that that is a failure we need to learn from.

Yoann Delwarde: Actually, it is more related to the start-up community because I am in this one and I can clearly see. There is a bobo and there is a bobo especially in China that is exploding now. So many start-up’s fail because it was built on nothing, especially the ones that were purely Chinese on and Chinese invested, especially from grants from the government which has no sales behind, no business model behind and it is just going to poof and so I think this was good because it was like Internet bobo in early 2000. I think it is the same now for start-up technology. Only the one that really has something tangible and a good business model will survive. All the rest will be out within a year.

Matthieu David: Thank you, Yoann for your time. You took your morning for us and I really, really appreciate it. Congratulations on what you did. I’ve known you for a long time; 6 years I think because we organized together with a forum with SME and big French groups and actually when we look at them, some have left or some have changed or some have grown and some have left.  So, this landscape has changed, but yeah, thank you very much. Congratulations on what you did for the foundation of Infinity Growth. It’s such a good name, by the way. I don’t know how you got it and I don’t know what domain name you have. I’d like to check that and I hope you enjoyed it. I hope everyone enjoyed as well the talk and thank you to everyone for listening.

Yoann Delwarde: Thank you and if you want to reach out to me just add me on LinkedIn and I will be happy to talk to you. Thanks, Matthieu for the interview. That was perfect.

Matthieu David: E-mail; do you want to share your e-mail?

Yoann Delwarde: You can just add me and you can see my profile and then you can write to me. That is much better.

Matthieu David: Okay at least they know that now they need to write a good e-mail.

Yoann Delwarde: They can say they listened to the podcast and I will add them directly. Matthieu David: Thank you Yoann, for your time. Good-bye, everyone.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

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This article China Paradigm transcript #102: The way forward to increase B2B sales in China is the first one to appear on Daxue Consulting - Market Research China.

 Source: askci research, of the 3D printing market in China

The history of 3D printing in China

As a big manufacturing country, China had embraced 3D printing with central-government-level supporting policies since 2012. In 2015, Ministry of Industry and Information Technology labeled 3D printing as one of the strategic national goals. Come 2017, the National Development and Reform Commission emphasized the industrial 3D printing, namely for large engines and space technologies. In 2018, China’s National Intellectual Property Administration listed companies in 3D printing materials as key support targets.

“The next trillion dollar industry” was the name given to 3D printing by Pascal Gobry from Business Insider. Around 2015, 3D printing in China was suggesting the creation of new opportunities in almost every industry, where with the touch of a button, actual objects can be printed out of an array of materials. Printing has now gone from spreading ink on a sheet of paper, to transforming digital files into 3D objects.

This is achieved by arranging a variety of materials including polymers, glass, metal, wax, edible food, ceramics and even human tissues into complex shapes, which would be nearly impossible to replicate by hand. Some of those objects will create the opportunity to save and extend lives or bring ease to our daily routines. 3D printing objects are achieved with successive layers of material laid down one on top of another until the desired object is accomplished. In other words, the 3D printed object is a superposition of thinly sliced horizontal cross-sections of a chosen material. The possibilities of 3D printing are breathtaking.

However, it’s not quite as easy as pressing a button. Virtual designs must be created in the form of CAD file (Computed Aided Design) supported by 3D modelling programs. Those programs offer 3D designers the opportunity to conceive objects from nothing and the imagination is free to move beyond the human handiwork. Scanners also produce CAD files, enabling existing real objects to be identically replicated in digital formats, which is often much quicker than recreating the original object.

A software must slice the digital object into horizontal layers so that the printer superposes printed slices one after the other resulting in a three dimensional object. The printing process may be performed by various technologies being improved constantly. Technologies most commonly exploited are selective laser sintering (SLS), fused deposition modelling (FDM) and stereolithography (SLA), each suggesting different advantages and responding to specific demands.

Applications & breakthroughs of 3D printing in China

The possibility of printing 3D objects will revolutionize most industries since its application is beneficial in many sectors. The application of 3D printing includes design visualization, prototyping, architecture, education, geospatial, healthcare, entertainment, retail and many more.

Food industry

Companies such as Foodini and the German Print2Taste start-up are exploiting this opportunity of creating innovating designs, shapes and decorations with printed food. The printed objects are edible by printing edible food such as icings or soft food.

Construction industry

China was noticed since 2015 by creating the “Tallest 3D-printed building” in Suzhou. The Chinese company seems to be responding to the need to build fast and efficiently. However, they’ll be facing stiff consumer hesitance as previous attempts to build quickly and efficiently had resulted in several high-profile building collapses.

Nevertheless, Ma Yihe, CEO of WinSun, is optimistic about 3D printing in China. He believes his company will build “dream factories” since the process would reduce construction materials of 30% to 60% and labor needed would be cut significantly. What’s more, It would use sand and other waste, enabling more recycling and the use of local materials. The buildings that result from 3D printing would be a lot cheaper and revolutionize the entire construction industry. Several factories were already underway in China and one is located in Dubai. However, WinSun is very controversial for patent reclamations and security concerning the stability between printed layers in the event of an earthquake.

Source: 3D printing media network, river revetment wall build in Suzhou

After years of refinement, in 2019, WinSun successfully built the world’s largest 3D-printed structure in Suzhou: a 500-meter long river revetment wall. There are many positive points about 3D-printed bricks and structures, compared to traditional material and constructions. Not only can an artificial riverbank follow the natural shapes better, it also better protects local flora and fauna. In addition, implementing and fabricating custom-designed 3D-printed bricks is way less expensive than solid walls and dams. 3D printing in China has its future, especially in construction sites where quality, precision, and speed are required.

Medical science and research

Another field that is inspiring is 3D bio printing, in the medical science world. By printing cells along a predetermined pattern, human tissues, organs, and blood vessels could be replicated. Organ printing would change the medical industry and improve life expectancy drastically. Many biotechnology firms are currently aiming at tissue-engineering applications and about to revolutionize the medical field.

In China particularly, there’s a serious shortage of organ donors. Even though the number of organ donations are on the rise since 2016, the donation per capita is only around half the world average. Anything that helps more Chinese access higher level health care would be welcomed by the medical industry. According to Yong He, professor at Zhejiang University, 3D bioprinting is valuable for pharmaceutical development and organ substitution.

However, big obstacles accompany progress, especially in the bio-medical area. Compared to natural organs, 3D-printed organs have less precision, require biological compatibility and structural strength. Those obstacles underline the multitude of bioprinting materials required to replicate a functional organ. What’s more, there’s already a strained relationship between doctors and patients. It will be difficult for surgeons to convince the population that 3D-printed alternatives are safe. Clinical trials and public education campaigns are necessary, if China wants to save more lives suffering from lack of suitable organ.

Manufacturing

Manufacturing has been improved thanks to complex 3D parts in a single build. Designing is more efficient and the experimentation phase can be completed much faster. For a long time, manufacturers have been using 3D printing to make prototypes and undertake research. If they target directly the end users, the customized products will only cost a fraction of what the traditional manufacturing does. In Hainan province of south China, a Chinese company called Sanya Suhai printed the “first 3D-printed sedan car”. The vehicle measured 3.6 meters long and 1.63 meters wide. It is powered by rechargeable batteries and reached the maximum speed of 25mph. It’s not ideal and only a work in process, but certainly a novel way to use the omnipresent lead acid batteries in China.

Education

For all those industries, art and reconstructions for education are positively impacted by 3D printing. Since 2007, 3D Print Art Shows developed to let artists express themselves in various new ways. Priceless and unique artifacts in archaeology may be reproduced for hands-on studying and research.

iDreamer 3D is another example of how China emphasizes the education of 3D technologies to teenagers. With the help of online courses, teenagers can immerse themselves with numerous 3D printing cases ranging from vehicle building to city planning. Likewise, Zhejiang Science and Technology Museum introduced China’s first 3D experience park as early as 2013.

Expand space exploration boundaries

NASA has been developing this new technology, competing to design and build a 3-D printed habitat for deep space exploration. According to Sam Ortega, Centennial Challenges program manager “The future possibilities for 3D printing are inspiring, and the technology is extremely important to deep space exploration.”

China has programs of its own too. the Chinese space program is building 3D printed space suits. 3D printing would allow astronauts to print items with a 3D printer directly in space with no freight difficulties. Those are being developed by the Shanghai Academy of Spaceflight Technology. With serious research into 3D printing in China, astronauts will be safer in their suits while spacewalking. In addition, extra suits can be constructed if they’re needed, saving time, money and resources.

New opportunities & services embraced by the Chinese government

3D printing was already getting investments from the Chinese government in the early 1990s, investments of $3.3 million were injected into in innovating institutes to promote manufacturing technologies.

As 3D printing requires mastering technologies and the capacity to create new objects relies on 3D designers, China founded the first 3D Printing College in the world, Baiyun-Winbo 3D Printing Technology College in Guangzhou in 2015. The popularisation of 3D printing means a higher demand for people producing the digital files and China is planning to respond to that need. There are also 3D printing bureaus such as Shapeways and Ponoko offering inexpensive digital designs with a relatively limited range of objects. In addition, according to Simon Shen, CEO of Kinpo Group, the Chinese government installed 3D printers in 400,000 elementary schools from 2015 to 2017. This benefits the Chinese society in the long run as teenagers are educated and skilled in 3D technology from a young age.

Source: Jiemodui, Primary school students curious about 3D printing in China.

Currently, the top-rated industrial printer is Union Tech, taking 16.4% of the 3D printer market share. Stratasys follows with 14.8%. According to Jenny Lawton, CEO of MakerBot, 3D printing will become mainstream, and certainly, 3D printing is getting implemented in China at a very fast pace. In 2014, China International 3D Printing Exhibition was held twice and recognised as one of the most valuable industry shows in the world.

Fast growth & Transformations of 3D Printing in China

The fast growth of 3D printing is partly attributed to the support of open source platforms. RepRap is a 3D printer sold for about 1,000 dollars enabling people to customize and develop open source ideas. Open-source communities such as Thingiverse and Cubify are gaining more and more interest as they provide hyper-customization and support sustainable development.

Enthusiasts for 3D printing are growing fast since 2011, thanks to its rapid development and acceptable price ($250 to $2500).  People from all backgrounds are acquiring 3D printers and large-scale utilisations will increase customer options. Fabrication may become totally personalized with simple adaptation of the digital file. Thanks to 3D printing, print-on-demand and mass customization are possible.  In May 2015, the highest rated desktop printer for personal printing was the Form 1+. It reached more than 400 reviews of fully satisfied customers and is considered by 3D Hubs as the most popular resin printer.

The democratization of the 3D printing technology and knowledge is expected to change the nature of commerce according to specialists. Indeed, end users will be able to manufacture their products on their own, meaning that products wouldn’t be bought from other people or corporations. Trade of the digital 3D object will however remain, so would the raw material. A long marge of progression still remains before reporting such transformations, but in our lifetime, new concepts are ready to revolutionize many industries and China making sure that it stays abreast of changes in advance, compared to foreign countries. As the president of VisenTOP, Xiao Guodong stated in 2015, “People in China are both passionate and perplexed by 3D printing technology.”

This article Future applications of 3D Printing in China is the first one to appear on Daxue Consulting - Market Research China.

What are rare earth minerals?

Rare earth minerals or rare earth elements (REE) are a group of 17 minerals that share similar chemical features in the periodic table plus yttrium and scandium. They are considered ‘rare’ not due to lack of supply in the earth’s crust, but rather because extracting, refining and processing them requires tremendous effort and investment. They are used to make multiple high-tech commercial products like hybrid electric motors and hybrid batteries, computer hard drives, mobile phones and camera lenses, portable x-ray units, stadium lights, flat-screen TVs, energy-efficient light bulbs, fiber optics, glass additives etc. These resources are everywhere in our daily use and most of them are from China.

Rare earth minerals, a Chinese monopoly

Today, the production is mainly concentrated in the country. Although China has 30% of the global deposit of rare earth minerals, China attributes 90% of the output. Not only being the top producer in the world, China is also the top user, roughly 70% of global mined production is consumed by China’s downstream industries. For instance, about 75% of global production of neodymium-iron-boron permanent magnets is demanded by domestic industries. Chinese car brands like Byton and all the automotive industry could benefit from this monopoly.

Source: USGS – The evolution of the production of rare earth minerals

Imposed limits on exports of rare earth minerals in China

In 2009, China started to limit exports of these minerals to build up domestic manufacturers to keep more of the profits that would otherwise go to Western and Japanese producers of mobile phone batteries and other products. The restrictive export quotas on rare earth minerals in China made global technology producers concerned about insufficient supply. Hence they tried to reopen or develop new mines in the United States and other regions. Also, Japan and some other countries now recycle rare earth materials.

WTO regulation against rare earth minerals in China

Some countries leaders fear the Chinese monopoly over rare earth minerals, so they attempt to regulate the situation. In March 2012, the European Union, Japan and the United States submitted a complaint to the World Trade Organization regarding rare earth quotas. China started implementing export quotas in 2005. The purpose is first and foremost national: “to protect its natural resources and ensure a sustainable economic development”. Prices increased from 2010 as well as for terbium, a mineral which price increased nine times in a few months. It was the first trial trying to regulate the Chinese monopoly, the country lost the appeal.

An asset for Chinese diplomacy

The important amount of rare earth minerals in China gives the country a strategic advantage in its diplomatic negotiations. For example, the resource was leveraged during the diplomatic tensions with Japan in 2010.

Source: Google maps – The Diaoyu or Senkaku islands

The Diaoyu Islands (Senkaku in Japanese) are maritime areas disputed by both countries. On these islands, Japan captured the captain of a Chinese trawler. This event increased diplomatic tensions and lead to the embargo of rare earth minerals against Japan. China sold just 30% of rare earth minerals to Japan compared to the previous year. This embargo seriously affected the Japanese technology industry which depends on the supply of rare earths minerals from China. The country keeps a strong advantage over rare earths because it takes an average of 25 years to construct a functional mine.

Is the advantage of Rare earth minerals in China overestimated?

Perhaps the advantage that rare earth minerals brings to the country is overestimated. First, rare earth minerals are, ironically, not that rare. In fact, there are several mines around the world: such as in mountain passes in California, in Australia and Vietnam. Second, a rare earth minerals embargo for diplomatic reasons would have terrible consequences for Chinese companies. There would also be retaliations from other countries that are victims of the embargo. Hence, the economic cost is too significant.

Moreover, the use of rare earths as a diplomatic weapon goes against China’s long-term strategy. The country wants to upmarket in its production and focus more on high technology. An embargo on rare earths would lead to an increase in the world price of these minerals and would therefore ultimately be negative for Chinese technology companies, which could see the price of their subcontractors and the entire production chain increased. Also, if the price goes up, some mines would be tempted to re-open again as there will be opportunities for investors.

Mining rare earth minerals is a significant source of pollution

It is difficult to reverse the damage done by extracting rare earth minerals. Yet they are necessary to produce all electric vehicles, which are the poster-child of anti-pollution. The extraction of rare earth minerals in China pollutes and produces toxic waste. In Inner Mongolia, villages near the Baotou mine have levels of radioactivity 32 times higher than average. Whereas, at Chernobyl, the measured radioactivity is only 14 times higher than normal.

Source: Pixabay – The Baotou mine in China

Western countries have stopped the mining of rare earth minerals under environmental constraints. In 1998, the United States was forced to close the open pit mine at Mountain Pass, California, after thousands of liters of radioactive water were accidentally released into the environment. In addition, many countries refuse to allow this type of mine to be built on their territory. Even though in the past several countries produced rare earths, they all stopped because of the danger for the environment. It is difficult to reopen such mines in countries today, public opinion would be against it. This reinforces the undisputed Chinese monopoly for these resources.

China’s rare earth materials shapes our lives in more ways than we know

In conclusion, rare earth minerals are becoming significant components of our lives. They are the source of materials for smartphones, new energy vehicles, and can be found in all the high-tech objects of our daily lives. China concentrates the production of these rare earth minerals and has a strategic advantage. Countries that produce manufactured goods have become dependent on China’s rare earth material exports. This advantage should be balanced, as mining is very harmful to the environment. Moreover, even if it could be a geostrategic deterrent, the use of quotas or restrictions against foreign countries could be harmful for the Chinese economy as some retaliations will come.

Author: Enzio Cacciotto

Rare earths are a necessary material of new energy vehicles

Learn more about the development of new energy vehicles in China’s automotive market

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

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This article Rare earth minerals in China: The resource behind NEV, smartphones and modern China’s geopolitical status is the first one to appear on Daxue Consulting - Market Research China.

Suspicions of fraud had already been hanging around for several months after the investment firm Muddy Waters released a report based on 11,260 hours of store traffic video. The report highlights Luckin coffee’s fraud by cross-checking actual orders and customers, and the company’s bottom line.

Source: Luckin Coffee stock price, Luckin’s stock plummeted from $50 to $3.82

As a result, Luckin Coffee stock price plummeted from USD 50 to less than USD 2 in a matter of months. But does this may not mean the end of Luckin. With such a low stock price and a high tech eco-system, there is a possibility to extend the rein of Luckin. Hence, we speculate who could buy the company that once was capturing Starbuck’s share on the coffee market in China?

The fantastic story of an internet company selling coffee

Luckin Coffee is an internet company. Coffee is the product sold by this company which operates more like other Chinese tech startups than a coffee shop. Indeed, Luckin Coffee digitalized and standardized the operation of an offline retail business.

Concretely, Luckin coffee users order through an application and pickup in store, a vast contrast from the large, cushy relaxation areas of its competitor Starbucks. Luckin coffee’s business model is based on new retail in China. This means that the online shopping experience of buying a coffee is supplemented by offline actions of going into a store and being served by a real employee.

Source: Luckin app, Forbes, Luckin Coffee’s business model embodies new retail in China through on app orders needed to be offline picked up

What else defines Luckin coffee as an internet company is the classic cash-burning process to quickly acquire users and scale-up. This method enabled Luckin Coffee to raise the right amount of money to promptly establish thousands of stores across China before going public by a USD 640 million IPO in May 2019 on the Nasdaq. Another interesting finding is that the company’s IPO documents insist on Luckin Coffee’s new retail business model, rather than on its F&B products.

Following the IPO, the company quickly raised USD 1.1 billion in January 2020. The same month, the company made the headlines by becoming the first coffee chain in China. Thanks to its highly praised business model, the company now exceeds the number of Starbucks stores, with more than 6,500 locations.

But the story was too good to be true. Right after the IPO, the company is reported having fabricated financial and operating numbers.

Luckin Coffee’s fraud highlights a fundamentally broken business

On January 31, 2020, short-seller Muddy Waters published an 89-pages anonymous report, claiming that the company had falsified financial and operational figures. Not only claiming that, the report says Luckin Coffee “was a fundamentally broken business that was attempting to instill the culture of drinking coffee into Chinese consumers.”

The report says the number of items sold per store per day was inflated by at least 69% in 2019 3Q and 88% in 2019 4Q. According to the writers, they employed 92 full-time and 1,418 part-time staff to record traffic in 620 Luckin Coffee stores. The data accumulation is impressive, with the collection of thousands of receipts, as displayed below.

Source: Muddy Waters’ anonymous report

Faking in-store order numbers

According to the investigation document, Luckin coffee’s fraud would likely have started occurring around November 23, 2019, when the company started to inflate its own app online order volume.

As all orders are placed online and retrieved from the store, a sequential order number appears on the receipt (such as when ordering at McDonald’s). Therefore, paying attention to these numbers could give a clear idea of how many orders have been placed per day for a specific store.

However, this method cannot be used if Luckin intentionally jumps and skips numbers during the day to purposely distort the tracking results. This is exactly what happened, as evidenced by this screenshot in the report.

Source: Muddy Waters’ anonymous report, Wechat screenshot evidences the inflation of Luckin Coffee’s order volume as one of the methods to manipulate operation figures

Shortly after the revelations of the report, Luckin published a press release to deny the allegations. The company evoked the strength of its business model, combined with the booming coffee market in China: “Luckin Coffee firmly stands by its business model and is confident in benefiting from the strong growth of China’s coffee market in the future.”

The fact that Luckin Coffee’s stock price didn’t drop after the publication of the report, until Luckin’s own internal audit, shows strong trust from the investors in the company’s business model.

But was the magic business model of Luckin Coffee enough to prove that the business could ever reach profitability?

Were Chinese people even ready to drink more coffee?

Data from the International Coffee Organization (ICO) show that the coffee market in China experienced strong growth between 2007 and 2015. But for the past few years, growth has stalled, especially since the players which target the core functional coffee demand are well established and more numerous (Starbucks, Costa Coffee, McCafé).

Source: International Coffee Organization (ICO) 2018, Unroasted coffee beans consumption in China

Coffee consumption is driven by culture rather than economic development

Increasing disposable income does not mean that their small consumption of coffee will explode overnight. Obviously, the coffee market in China was a boon for those who managed to capture the emerging demand in the 2010s (Hello Starbucks). In fact, the global coffee consumption comparison across countries indicates that coffee consumption per capita level is primarily driven by culture rather than economic development.

Indeed, China’s coffee bean consumption per capita is not only significantly behind developed countries such as Japan but also way lower than developing countries such as Vietnam.

More Westernized developing countries such as Vietnam (a former colony of France) and the Philippines (a former colony of Spain and the US) have high coffee consumptions. By contrast, in countries with strong tea cultures, such as China, India, and Sri Lanka, coffee consumptions are low.

Therefore, it’s no wonder that Luckin Coffee burned billions of investors’ dollars without meeting the expected success.

Source: International Coffee Organization (ICO) 2018, Per-capita Coffee cups consumed across Asia

Time for a Business turnaround in China

Even if Chinese people only consume 7 coffee cups per year, they do like coffee. Luckin coffee’s scandal does not contradict this. Rather, it highlights the fact that burning billions won’t make people drink coffee even faster. However, if Chinese people won’t drink more coffee, they will drink more tea.

While the number of tea stores demonstrated a continuous growth trend, the number of freshly brewed coffee stores declined from 121,000 stores in 2016 to 105,000 stores in 2018. Hence, the coffee supply network coverage is not the issue. There is just not enough demand yet.

Data source: Meituan, 2019 Chinese Beverage Industry’s Development Trend Report, The growing number of tea stores highlight the strong growth of the tea market in China

Following these observations, Luckin Coffee did try a business turnaround by starting a new type of product called Luckin Tea in May 2019. But business turnaround in China requires more than starting a new range of products.

Daxue Consulting’s China business turnaround expertise

In order to help a client build its business turnaround in China, Daxue Consulting developed a four-step plan, beginning with an audit of the situation. It consists of identifying where the brand had potential improvement and re-orientation needs. It includes distribution screening (data-collection through Store-Checks in China), brand image, and positioning in its competitive frame (through Benchmark). The following steps include consumer research, marketing activation portfolio, and monitoring plan.

It turns out this article briefly tackles step 1 of daxue’s business turnaround consulting service in China. We identified where Luckin has potential improvement – in tea – but we still need to assess its tea competitive frame.

Could Luckin Coffee’s future be with tea products?

Tea is an entirely different market from coffee. Nowadays, the tea market in China is made up of ‘new style tea 新式茶饮’ which is made of fresh tea leaves and concentrated liquid, such as milk or cream. It also includes topping like jellies, tapioca pearls, and fruit. Hence, while demand is not the limiting factor for the tea market in China, the main challenges lie in supply chain management and in-store production.

Source: Daxue Consulting report, The Tea Market in China

Could Luckin Coffee’s future be with Luckin Tea?

Part of a more aggressive turnaround strategy, Luckin Tea was separated from Luckin Coffee as an independently operated brand in September 2019. However, Luckin Tea in-store production and supply chain management is designed for Coffee products, which are fundamentally different from the new-style tea products.

In a China Paradigm podcast interview, Martin Papp, co-founder of PAPP’S TEA told Daxue Consulting young Chinese are going to Starbucks because they can’t find a tea location that fits their lifestyle. They want a more modern, fashionable, and cool tea brand. And while Luckin Coffee and its spin-off brand Luckin Tea are focusing on digital and financial engineering, HEYTEA appears to be focusing on thrilling their customers via its product development.

This new-style tea brand has lines out of doors in China and proven demand for their fresh flavored elaborated teas. While Luckin Tea products are basically made of blended NFC juice, frozen fruits, and artificial pigment, HEYTEA’s products have an uneven texture with distinct layers of tea, fruits, and hand-made cheese milk topping.

Source: Luckin Coffee, HEYTEA, could Luckin Coffee’s future be with Luckin Tea?

HEYTEA also has extensive capabilities in continually refreshing the menu with new product introduction. It is something quite far from Luckin Tea, whose in-store standardization process leaves little room for product customization.

Could Luckin Coffee’s future be with HEYTEA?

Let’s summarize. Luckin Coffee grew up like a tech company using investors’ money to open more than 6,000 outlets – more than Starbucks – without ever reaching profitability.  The company has been accused of faking its financial and operational figures, which turned out to be true. As a result, Luckin Coffee’s stock price plunged and will soon be delisted from the NASDAQ stock exchange. In a last attempt, Luckin Coffee created Luckin Tea, which turns out to be no more than a desperate move to capture new-style tea lovers with a tea that cannot fall in this category of products.  

On the other hand, HEYTEA is thrilling Chinese customers. The brand is growing based on its traffic, not investor capital, just like Starbucks did in China. The brand has 400 stores, regularly taken by storm by tea lovers. In fact, HEYTEA is Starbucks’ most interesting competitor now. Simply because we saw that it has a tailwind that neither Starbucks nor Luckin Coffee has – a significant, proven and enthusiastic demand.

Should HEYTEA buy Luckin Coffee?

Moreover, HEYTEA is recently moving into coffee. They quickly adopted a Chinese new-retail business model as Luckin did, merging pickup stores and their ordering app called “HEYTEA GO.” The brand is now growing on Luckin Coffe’s field, which previously tried to grow on HEYTEA’s one. The strong difference between the two is that HEYTEA succeeded in its ‘home’ market while Luckin Coffee is slowly dying on its.

Source: EqualOcean, HEYTEA GO pickup stores, could Luckin Coffe’s future be with HEYTEA?

Then the question comes naturally: Should HEYTEA buy Luckin Coffee?

HEYTEA is already doing great at creating popular products that thrill Chinese consumers. But unlike Starbucks, it still doesn’t have a quality footprint of good locations across China. Therefore, according to Jeff Towson, “The next logical move is for HEYTEA is to find a partner to scale up on the real estate aspects.”

Could the tea brand buy Luckin? It could. It could get HEYTEA +6,000 locations in a snap. However, according to Mike Vinkenborg, project leader at Daxue Consulting: “Part of HEYTEA’s mystery is their lines. If the brand becomes too mass, it may lose its level of mystery.”

Still, we could easily imagine HEYTEA buying Luckin Coffee. The new-style tea brand could use it as a strong asset to develop its coffee branch by only selecting a few thousand premium quality Luckin Coffee stores to further threaten its biggest rival, Starbucks.

If Luckin Coffee’s future is uncertain, HEYTEA could be interested in buying the broken business. If not, possibilities are endless for other hot drink businesses to take over the brand. And if not again, let’s see if Luckin Coffee’s business turnaround in China can strengthen its capabilities to turn off rumors of bankruptcy.

Author: Maxime Bennehard

Curious to learn more about China’s tea market?

Check out our official report on the tea market in China!

See our China paradigms episode with a tea entrepreneur

This article Business turnaround in China: What is the future for Luckin Coffee? is the first one to appear on Daxue Consulting - Market Research China.

Two drivers of China’s counterfeit production

The counterfeits industry in China: a consequence of economic growth

The counterfeit industry in China is seen as a problem but it should also be studied as a symptom of economic growth. In 1978, Deng Xiaoping started reforming China’s economy. For the first time, foreign investments where encouraged. Many companies wanted to relocate there because of low wages and domestic potential. The industrial power grew and the country became the factory of the world as the the international production process. Global brands like Nike or Adidas have a part of a part of their production there. In many sectors, the country started to adopt new technologies.

While China’s living standards improved greatly, the new industrial power lead to counterfeits, as factories could cheaply re-create brand products. The counterfeit industry in China seems like a minor symptom of industrialization. Hence, even if it is necessary to tackle counterfeits, it was just the result of a growing Chinese industry.

China counterfeiting is linked with brand culture

Since the early 1990’s, the counterfeit phenomenon increased quickly in China. During this decade brand culture emerged as the opening of western luxury stores in country. Fashion brands became hyped, and counterfeits were a mean to obtain luxury goods without spending years’ worth wages. Since, fakes continue to progress fulfilling the domestic market of China.

In 2015, China and Hong-Kong represented 86% of the global counterfeit industry, which is around 400 billion USD every year, according to Europol. Thanks to years of relocating for foreign companies, Chinese factories now have the skills needed to copy almost everything. In Chinese stores, 60% of luxury goods are imitations and you can also find some complete fake stores who just looks like a real one. For instance, A fake supreme store opened in Shanghai. The counterfeit phenomenon highly increased following the luxury market starting in China.

Size of the market for counterfeit products in China

The global counterfeit trade for all items, from purses to electronics to software, is worth USD 461 billion, about 2.5% of all trade worldwide. That is more than the global drug trade. Despite attempts regulation, international trade in counterfeit goods has almost doubled since 2008.

According to the 2018 Global Brand Counterfeiting Report, worldwide losses suffered due to counterfeiting amounted to USD 323 billion in 2017, with handbag companies alone accounting for $20 billion of that.

80% of the world’s counterfeit goods come from China, and many of the market’s consumers are in China as well.

The market for fake goods in China

There are several distinct market segments of consumers who purchase fake goodsin China. The primary segment is buyers unaware that they are purchasing fake products. This deceptive counterfeiting is rampant, but the market for fake goods in China is largely driven by consumers who actively search for and purchase counterfeit products. 

Middle-class shoppers who value brand prestige make up a large segment of the non-deceptive counterfeit market. They can afford the occasional $500-$1000 bag, but not the luxurious $15,000 Louis Vuitton or Birkin. These aspirational Chinese shoppers purchase fake goods for the same reason the wealthy buy real products: to emulate their high-class idols, impress peers, and enhance social status. Fake goods allow shoppers to “consume” prestigious brands without actually buying the high-quality goods.

Some consumers knowingly buy counterfeit goods even though they could afford a genuine product. They have ample funds but believe that the high prices of authentic products are unwarranted, especially when they can get a similar version at a much cheaper price.

Chinese Fashionistas chasing the trends

Some wealthy buyers of counterfeit goods in China are known as “fashionistas.” These fashionistas want to buy the hottest new products, but know that another trend will replace it next season and are thus unwilling to invest the money to stay on trend season after season. Furthermore, they see counterfeit purchases as low risk, because limited-edition or recently released products are less familiar to the general public, making it more difficult to call out a fake.  

Buyers of counterfeit goods impose a hidden cost on the brand and people who buy the real thing: they make the brand less exclusive. All non-deceptive counterfeit market shoppers share one attribute: they are willing to pay for visual attributes and functions, but not willing to shop the genuine products. 

Government regulation of the fake market in China

Affected parties have previously complained that punishments for selling counterfeit goods in China are too light to deter offenders. In February 2017 Alibaba reported that of the 1,910 cases of suspected counterfeiting they passed on to authorities, only 129 people were found guilty.

In August 2018 the State Administration for Market Regulation stepped-up efforts to crack-down on the illegal production and sale of counterfeit goods in China.

The regulator announced strict punishments for online trading platforms that fail to protect the rights of consumers and trademark owners, or that do not actively cooperate with market regulatory authorities.

They demanded that other regulators such as the Shanghai Administration for Industry and Commerce launch targeted investigations into sales of counterfeit goods in China, and specifically called out offending platforms such as Pinduoduo.

The new China’s e-commerce law, which took effect on January 1^st, aims to discourage counterfeiting in China through heavier fines and places more responsibility on digital platforms to remove sellers of fake goods. The law also addressed false-advertising, consumer protection, data protection, and cybersecurity.

The new law targets three groups: e-commerce platform operators like Taobao, merchants who sell goods on sites like Taobao, and vendors with their own websites or who sell on social media. Merchants who sell exclusively on social media platforms had been previously unregulated, but now these sellers will need to register their businesses and pay relevant taxes.

In an effort to spur major e-commerce platforms to crack down on counterfeits being sold on their sites, the law makes platform operators jointly liable with the merchants selling fake goods. Previously, only the individual merchants were liable. Platform operators can now be fined up to 2 million RMB (USD 290,000) for the property infringement that comes with selling counterfeit goods in China.

E-commerce platforms crackdown on the sale of the counterfeit good industry in China

Taobao and fake goods

In 2015, Alibaba was the subject of intense state scrutiny as the State Administration of Industry and Commerce unveiled that only 37% of the luxury goods authorities examined on its Taobao platform were genuine. In a strongly worded white paper, state authorities criticized Taobao for lax internal controls, declaring that many of the products sold on the site were substandard, violated trademarks, or were just plain illegal. Chinese consumers agreed and called on the government to tighten supervision over Taobao. Alibaba declared a zero-tolerance policy towards counterfeits, and created a new 300-person team to ramp up the fight against fake good in the Chinese market.

Luxury brands were unimpressed, and in May 2015 Gucci, Balenciaga, YSL and other brands filed a lawsuit alleging that Alibaba’s negligence encouraged the sale of fake goods on its sites. A US federal court dismissed the suit, but Alibaba’s reputation as a haven for counterfeiters persisted.

In 2017, Alibaba was again under consumer and government pressure when Taobao was found to have over 240,000 vendors selling fake goods, up from 180,000 vendors the previous year. To assay consumer anger and protect investor relations, Taobao in mid-2017 launched an initiative to crack down on the fake goods being funneled through their site. That initiative has led to 95% of takedown requests and red-flagged listings being processed within 24 hours, a significant improvement in processing times. 97% of listings for counterfeit items are now deleted before transactions even take place.

How does Pinduoduo handle counterfeit items?

Pinduoduo, the third-largest e-commerce platform in China, is another site criticized for selling low-priced knockoffs. In August 2018 the State Administration for Market Regulation investigated Pinduoduo and announced that Pinduoduo should strengthen platform management and better regulate activities of third-party vendors. Pinduoduo soon removed more than 10 million fake items from its site and blocked more than 40 million product links suspected of copyright violations. It is working with over 400 luxury brands to fight counterfeiters and has created a hefty 150 million RMB account to refund consumers who were unwittingly sold fake products.  

How counterfeiters in China get around AI controls online

There are many intricate ways in which sellers of fake goods in China have evaded regulation online. One common trick is for sellers to redirects clients to separate websites, where they can browse options and place an order. Another method is to label items as “haute couture,” which consumers are aware implies ‘high-quality copy.’ Aside from this label, Taobao sellers can change the name of the brand they are copying, or display just part of it. One seller of copycat Zara clothes lists his items as ZA or Z*ra, which allows him to sneak past the filters set by Taobao.

Taobao’s AI tools are constantly upgrading to become more difficult to trick, especially with the introduction of filters against luxury products priced below a certain point. Accordingly, some sellers of fake goods will display a price for their product that is consistent with the price for the real thing, or display a price that is outrageously high. Interested customers will talk to the shop in Taobao’s private chat function, and sellers will reveal the real, much lower price.

In-person sales of counterfeit goods in Shanghai and Beijing

Counterfeit goods sold online in China work hard to avoid detection, but physical brick-and-mortar ‘fake markets’ in cities like Shanghai and Beijing are out in the open, easy to find and even reviewable on sites like Trip Advisor. Officials routinely inspect physical stores, but they may not take the job too seriously because they know local vendors rely on the income. Regulators let the stalls peddling cheap and fake goods slide, instead choosing to target merchants who lead interested buyers to unmarked apartments, back rooms, or closets full of high-quality fake Gucci, Prada, Michael Kors, and Louis Vuitton handbags.

Aside from avoiding government regulation, counterfeiters in China work hard to stay under the real company’s radar. One fake good peddler in Beijing explains: “We careful. Louis Vuitton. They send spies and they sue. So we hide.”

The emerging authentication industry in China

The prevalence of fake goods in China and consumers’ subsequent fears of being scammed into accidentally purchasing knockoffs has created a new sector: product authentication.

There are dozens of apps on the Chinese Apple iOS app store that offer to verify luxury goods. Authentication company Zhiduoshao has hundreds of thousands of users who pay 49 RMB for a product to be checked virtually by an expert. Founder and CEO of Zhiduoshao maintains that 95% of authentication requests can be answered online via photos. Authenticators tell users what kind of photos to upload, and then carefully inspect the monogram, fabric, and technique. Often, the process only takes a few minutes.

Similar app Isheyipai boasts an “expert jury” of 12 authenticators. Users upload photographs of the item in question and choose who they want to check their product. Prices range from 49 RMB for a junior authenticator to 99 RMB for senior staff. Appraisers each have areas of expertise, such as bags, jewelry, or shoes.

Private companies offer training courses that teach appraisers-in-training how to inspect a wide range of luxury brands and products, with advice about texture, logos, stitching and everything else that a counterfeiter might get wrong. A 10-day program can cost up to 40,000 RMB.

Authentication companies in China have an uneasy relationship with the brands whose integrity they claim to protect. Cartier maintains that their products should be bought only from “authorized sellers,” while Audemars Piguet states that it does not endorse any authentication app and De Beers says it is unaware of them.

Brand wariness of authentication services is rational because Chinese counterfeiters are now imitating these authenticators too. Seemingly authentic sites copy the names, website layouts, and imagery of established authentication platforms like Zhiduoshao in order to scam consumers seeking product verification out of their money. In one case, consumers discovered that an authentication app was faking reviews and authentications to sell knockoff goods.

How brands can fight back against Chinese counterfeiting

Anti-counterfeiting strategies must be brand specific to take into account the company’s target market, the types of counterfeits produced, and how the counterfeits are being manufactured, distributed, and sold. An effective strategy combines IP protection, export and customs controls, and retail market controls.

But no matter how sophisticated the anti-counterfeit strategy is, where there is a demand there will be a supply. The only surefire way to shrink the market for counterfeit products in China is to deter consumers from purchasing fake goods in the first place. However, typical deterrence strategies that luxury brands have used in the West will not work in the Chinese market.

Many consumers are aware that their purchases are counterfeit

Most consumers who purchase counterfeit products in China are well aware that the quality is not on par with the real product. When consumers buy fake goods, they do so despite the possibility that the product will fail them. Additionally, the prevalence of sophisticated fakes means that consumers can easily buy counterfeit products with nearly genuine quality. Thus, highlighting the poor performance quality of counterfeit goods is not an effective deterrence strategy for brands to adopt in China.

Where in other countries purchase of knockoff goods is a punishable crime, in China consumers are not liable for their counterfeit purchases. Deterrence of counterfeit purchases in China cannot then be fear-based.

There are two main deterrence strategies that luxury brands can adopt to dampen Chinese consumer demand for fake goods: the ethics emphasis, and the psychosocial emphasis.

Anti-counterfeiting in China: The ethical approach

Counterfeiting is not a victimless crime, and luxury brands should tell consumers who gets hurt when they buy fake products in China.

Most counterfeit goods in China are made in sweatshops by children and slave laborers who are often the victims of human trafficking. These sweatshops are overwhelmingly in low-tier Chinese cities, and these child workers are often Chinese, making the issue hit particularly close to home for Chinese consumers of knock-offs.

The Chinese counterfeit industry’s use of child labor is much more damaging than the use of child labor by companies like Walmart and Target. Corporations can beare held accountable for exploiting cheap labor: when labor abuses are exposed, companies face plummeting share prices, lawsuits, and customer boycotts. Counterfeiters face no such risk, because consumers of knock-off goods do not know who manufacturers their handbags or sneakers.

Brands can educate against counterfeiting practices in China

Additionally, brands can educate Chinese consumers about the criminals who benefit when a shopper buys a counterfeit good. Production and distribution of counterfeit goods are heavily controlled by ultraviolent Chinese triads, who traffic in narcotics and sex slavery alongside fake products.

Consumer awareness of the hidden costs associated with their counterfeit purchase can create shame and guilt that might deter some Chinese consumers from buying knock-off goods.

Anti-counterfeiting in China: The psychosocial approach

In the West, there is a shame that comes when one admits to buying counterfeit products, and luxury brands should work hard to foster that stigma in China. For some people, the regular purchase of fake goods is a normal part of life: many Chinese consumers who own fake goods assume that the luxury brands sported by their peers are fake as well.

In 2018 the Japan Patent Office launched an anti-counterfeiting campaign that revolved around embarrassing consumers who buy knock-off products.

It is too early to see the results of Japan’s shame-based anti-counterfeit strategy, but the premise is solid. Luxury brands effected by Chinese counterfeiting could emulate the approach, and work to create a social stigma against knock-offs.

Across the board, the most effective strategies to deter Chinese consumers from buying counterfeit products are shame-based.

Who is benefiting from the counterfeits industry in China?

China is responsible for more than 70% of counterfeiting according to the World Customs Organization. Where all the money from this industry is going? Alain Rodier, in his book: The Triads: the hidden threat, indicates that the counterfeiting is linked with Chinese triads. They are using the money received from counterfeiting to invest in other illegal activities. However, the money can also be legally re-injected into the country. Alain Rodier argues that criminal money is largely reinvested in the country’s legal economy: “As far as the Chinese triads are concerned, they would have a worldwide turnover of 200 billion dollars. Much of this money is reinvested in the legal economy”. For instance, the Sun Yee On triad would have largely participated in the development of Shenzen. Even though triads and other organizations directly benefit of counterfeiting, it can be noted that this money is sometimes reinvested in the legal economy.

Rethinking the fashion industry

One way of tackle the fake industry is to completely change the opinion of people concerning clothing. Trends should focus more on quality than brands. Fast fashion might also be a big issue in consumption because of its impact on the environment. If the fashion industry evolves to its simplest form, people would not be sensitive to brand image. Without the importance of brand image, there is no demand for counterfeit luxury goods anymore. Naomie Klein with its book “no logo” lead this movement in the end of the 1990s. One way to wipe out counterfeits is to educate people to consume goods differently, without being obsessed with brands.

To conclude, the counterfeit industry is a direct consequence of the industrial growth in the country combined with the value placed on brand image. It is difficult to tackle this gigantic phenomenon generating billions each year. You have both to address the production and the consumption of counterfeit goods. The counterfeit goods industry is injuring companies because it negatively impacts their brand image, consumers who are genuinely interested in the luxury products may lose faith that what they are buying is authentic.

What brands can do to avoid intermixing with counterfeits in China

For luxury brands to avoid being sold alongside counterfeits, brands can try a brand independence, or direct to consumers strategy in China. Counterfeits are sold easily on e-commerce platforms, but selling from a brand’s own website, or brand.com, is a surefire way to avoid competing with counterfeits and keep a pure brand image.

Authors: Alison Bogy & Enzio Cacciotto

Daxue Consulting helps you get the best of the Chinese market. Do not hesitate to reach out to our project managers at dx@daxueconsulting.com to get all answers to your questions.

Luxury brands in China do not have to compete with counterfeits

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The total import of seafood in the first quarter of 2020 was 22.8 billion yuan. Import in the first quarter of 2020 fell by 27% from the fourth quarter of 2019. It is the lowest value of import volume since 2018.

    
[Data source: Statista, ‘China’s import of seafood’]

The COVID-19 outbreak in China came to public attention in January. It was announced during the Lunar New Year, which is also the traditional peak season for consumption. Before the outbreak, China’s seafood import had achieved consecutive growth during 11 quarters. However after the news broke, the seafood market in China experienced a decline in import. 

On the one hand, COVID-19 outbreak impacts the consumption of seafood in China. By the first quarter of 2020, consumption was almost stagnant. On the other hand, the import and transportation of Chinese seafood was blocked.

China also saw the decline in export of seafood products due to lockdown measures in other Asian countries.

[Data Source: General Administration of Customs of China, ‘Growth in exports of seafood from China’]

Fish industries are suffering from the COVID-19 outbreak

Producers of freshwater species are taking a big hit in the fallout from China’s coronavirus outbreak. They cannot harvest lot of fish and shrimp, but they still need to feed them. It erodes the financial wellbeing of producers.

Particularly hard hit was the crayfish industry. The peak season for crayfish consumption starts around May and lasts through the summer. The epicenter of the outbreak, Hubei province, is also the largest production area for crayfish in China.

Due to isolation, all key tilapia processing factories on Hainan Island faced ongoing labor shortages. Fish factories are operating at average of just 25 to 40 percent of normal output. 

The Seafood market in China after COVID-19

Although China’s seafood import slowed in 2020, consumption has a potential to grow.  

The coronavirus epidemic in 2020 will have a serious impact on the Chinese and global seafood supply chain. It will also have an impact on both supply and demand of seafood in countries. Entering the middle of the second quarter, there has been no obvious improvement in catering consumption. Therefore, there is a probability of China’s seafood import growth to decline this year.

However, the Chinese market has recovered from COVID-19 earlier than other countries. There is a hope that once the supply chain of seafood will get back to normal, the industry will function normally.

Short-term effect of COVID-19 outbreak on the seafood market in China:

The epidemic control measures interrupted logistics and seafood catering companies had to cancel a lot of orders. Seafood products processing company’s halted operations, and the market transaction volume was extremely low. This has led to serious backlogs for farmers and middle-level distributors. It directly affected the income of fish farmers and distributors at all levels. Many small market participants could not afford the losses caused by the epidemic and went bankrupt.

In terms of international trade, the epidemic has caused panic in the global seafood products industry. Due to concerns that the epidemic will affect China’s demand for import of seafood products, the prices of foreign seafood have fallen steeply. In terms of exports, many countries have introduced entry controls. Under the circumstances that China has not completely controlled the epidemic, short-term forecast of seafood export is also not optimistic.

Mid-term effect

After the epidemic is over, experts expect that the public will experience retaliatory consumption. After the news emerged that the source of the virus could be the seafood market in Wuhan, the Chinese became more suspicious of seafood. However, gradually the demand for seafood is returning to normal, as scientists have not yet figured out which animal the infection occurred from.

[Source: Baidu Index, search frequency for ‘seafood’]

In addition, 2020 is the ending year of China’s “Thirteenth Five-Year Plan”. According to this, China’s total output of target fishery products in 2020 should be 66 million tons. 

Long-term effect

With the improvement of people’s income level and the development of logistics, China’s seafood products consumer market will maintain long-term growth.

In addition, compared with wild terrestrial animals, wild seafood products are healthier. Since China has gradually issued policies and laws prohibiting wild animals trading, the demand for seafood products may increase. Experts claim that the market scale of aquaculture products in the future will be even broader.

The Chinese seafood market before COVID-19

In the big picture, the Chinese seafood market is booming. China has a long history of eating seafood, especially for coastal residents, seafood has always been an indispensable component of a complete dining-table. After China’s reform and opening-up, an active import of foreign seafood began. Back then, imported seafood was considered novel and luxury. However, seafood is now accessible to the Chinese mass market. With China’s economy growing and people’s quality of life elevating, the seafood market has expanded continuously, e.g. the sales quantity of processed seafood, including chilled, frozen and shelf-stable seafood, shows a steady growth since 2012.

The credit of Chinese seafood market’s growth can go to rising per capita disposable income in China and improved life quality, both in rural and urban areas. In 2017, the disposable income of national residents has achieved a 7.3% year-on-year growth. This means, more consumers are able to afford seafood, even in inland rural areas.

 

Chinese seafood consumers want it all: Health, Freshness and Taste

China has a rich catering culture and a long food-therapy history, Chinese people deeply believe in the relation of what they put in mouth and their health condition. In recent years, environmental pollution and food safety have been seen as crucial issues, imported seafood is often considered more nutritious and safer due to the water quality and stricter quality control. Consumers are becoming more and more aware of the health benefits of seafood, such as the high amount of unsaturated fatty acids.

“Besides pork and egg, seafood has become an important source of protein for Chinese consumers, which influences the consumption structure in China”, says Mike Vinkenborg, project leader of Daxue consulting.

Although the health factor plays an important role of Chinese dining table, taste cannot be compromised. As we can see from the comments on Chinese popular e-commerce platforms, positive feedback coming from seafood buyers mainly focuses on deliciousness and freshness, while negative feedback is usually about safety issues.

Brands capitalize on preference for freshness and flavor when naming their brand

Naming brands or products in China is a tricky, yet crucial part of a market-entry since Chinese people attach great importance to names. Not only the pronunciation but also the chosen characters have to be taken into consideration for brand naming. Looking at the Chinese seafood brands’ naming, most seafood vendors try to emphasize freshness by using Chinese words “鲜 (meaning fresh)” and/or “生 (meaning raw/living)”, as well as to imply deliciousness by using words like “味(taste)” and/or “香 (good smelling)”.

Source: daxue consulting, brand name’s on China’s seafood market

Chinese consumers are hungry for imported seafood

China has been one of the most important seafood markets in the world, its market demands of imported seafood have reached 7.6 million tons in 2017. In 2017, Russia is the largest exporter of seafood to the Chinese market. USA, Canada, New Zealand, and Norway are also important sources for importing seafood in China. Imported products mainly include shrimp, salmon, crab. Based on the information from e-commerce platforms, most popular imported seafood are frozen products. The top sellers’ prices are relatively low among all segments of imported seafood on JD. During important festivals, seafood has been one of the main products purchased online. For example, 38% of food sales on Fresh.jd.com came from seafood during Chinese New Year in 2018.

 

The most related keywords of “salmon” on Baidu Index mainly consist of “the way of making salmon”, “Norwegian salmon”, “price” and other saltwater fish like “trout” and “grouper”.

The most related keywords of “lobster” are “crayfish”, “Australian Lobster”, “lobster breeding”, “Australian” and “how to cook lobsters”.

Baidu is the number one search engine in China. More than ¾ of the total search is made by Baidu. Baidu index collects and analyzes the statistical data of searching behavior, which reveals the market trend.

Qualities of the Chinese seafood market that brands should consider

The Chinese seafood market is highly seasonal and festival-dependent

As we can see on Baidu index, the search frequency of both “saltwater fish” and “saltwater shrimp” went significantly high during the periods of Chinese New Year (normally at the end of Jan. to the beginning of Feb.). And again, search frequency grew enormously every year in the fall season, which is considered by the Chinese as a good season to eat fresh fish/shrimps. Due to the Chinese national day, which is on the 1^st of October, the search frequency goes very high every time at the beginning of October. The whole country will have a 7-day-holiday at this period of time, and seafood producers may also prepare special gift boxes with living or frozen seafood inside so that the Chinese consumers can just grab it in an online or offline shop and bring as a present when visiting family or friends.

 

 

Chinese seafood is as peculiar as it is delicious

Many kinds of seafood which Chinese consumers love are not common in other countries and even considered as peculiar, like sea cucumber, fish balls, turtle and eel. However, even though consumers from other countries don’t purchase certain kinds of seafood, it is still an opportunity for international seafood exporters. For example, there are lots of dried sea cucumber from the U.S., Canada and New Zealand being sold at relatively high prices, China has a long history eating sea cucumbers and believe they have a lot of health benefits. Also, seafood snacks are quite common in China, e.g. processed dried squids or fish, which suit many Chinese consumers’ taste better and considered as a healthier option compared to other snack options like candy or chocolates.

Seafood has different presentation and distribution channels in China

As mentioned before, Chinese consumers attach great importance to the freshness of the seafood. That’s why purchasing living seafood on a Chinese traditional food market is still common, especially for the older generation. Meanwhile, many retailers and restaurants present their seafood in glass tanks or on the ice, no matter if it is fish, crabs or turtles, in order to show the freshness of their products.

By looking at the Chinese catering industry structure, we see hot pot contributing 22% of the total revenue of China’s catering industry, following by Buffet with 12% and barbecue as well as Japanese cuisine both with 5%. For all these types of Chinese cuisines, seafood plays a significant role, which provides huge opportunities for imported seafood. For example, a major proportion of imported salmon on Chinese seafood market are not consumed at home, but on the catering market. China has no long history of consuming salmon, however, in the last decades, Japanese cuisine has become very popular, especially among Chinese millennials. Sushi and Sashimi (Japanese raw fish) are being widely accepted, raw salmon is even on the menu of many traditional Chinese restaurants as an appetizer.

 

 

 

Despite traditional offline retail channels and catering market, Chines e-commerce platforms can also not be ignored. Besides well-known platforms like Taobao and JD, many fresh food platforms have been developed and are achieving great success, e.g. the sales value of seafood has entered the top 3 on FFresh.jd.com in2017. For domestics and international seafood brands, dedicated websites are also important distribution channels. “Most popular seafood brands on the Chinese Market are selling their products on main e-commerce platforms. Fish dominates the seafood consumption in China for its rich variety and affordable price”, says Vinkenborg.

 

On Tmall/Taobao, frozen shrimp is the most popular product among all categories of saltwater shrimp and abalone is the most popular products among all categories of shellfish. There are many imported abalones being sold from different areas like Australia, South Africa, and New Zealand. According to Vinkenborg: “Argentinian shrimp remains the most popular imported seafood in China, salmon and crab also perform well in terms of online sales.”

A new blended retail ecosystem offers opportunities for fresh seafood distribution

New-retail is a retail ecosystem that blends online and offline channels in a unified way. Due to the rise of e-commerce, traditional retail businesses have experienced downturns. A number of foreign retailers have encountered difficulties in China, including Korea’s Lotte Mart, the US’ Walmart, and France’s Carrefour. But the growth of online retail sales will slow down as physical retail still dominates consumption, especially in the seafood section. Although many seafood products can be bought online, Chinese consumers’ buying habits make them prefer fresh seafood which they can see in a tank or on ice. New-retail offers good opportunities for the distribution of seafood on the Chinese market.

The Chinese seafood market meets all requirements for new-retail thanks to its strong consumer base, increasing purchasing power, preference for novel and luxury shopping experiences, and the widespread use of mobile payment.

Pioneer example of the new-retail model while selling seafood in China: Hema Xiansheng

Hema Xiansheng (盒马鲜生) owned by Alibaba is a combination of a supermarket, restaurant, seafood market, and mobile application. According to Daniel Zhang, Alibaba Group CEO: “Hema supermarket is what you get when you imagine a seamless blend of the online and offline shopping experience.” Chinese consumers can order seafood on Hema mobile App, which will be delivered within 2 hours to wished address. Consumers can also go to Hema supermarket to purchase grocery and pick up fresh seafood, which can be prepared and served directly in the dining area of Hema supermarket.

Now is the ideal time for foreign brands to enter the Chinese seafood market

To sum up, the booming Chinese seafood market is offering huge opportunities for international seafood exporters. This is supported by the following chain of events: 1) the rising disposable income, the life quality of Chinese consumers has been significantly improved and can afford seafood as a protein source. 2) Because of the improving quality of life, Chinese consumers are pickier about the health, freshness, and taste of seafood. 3) Seafood from overseas is considered safer because of the higher water quality and stricter control standards.

Yet international seafood exporters should pay attention to and take advantage of the particularities of the Chinese seafood market. For example, the climaxes of the Chinese seafood market is dependent on seasons and festivals; the sales volume reaches the peak during Chinese New Year, followed by Chinese national day. There is also much peculiar seafood like sea cucumbers and eel which are not consumed in the west also offer opportunities for seafood exporters. Last but not least, the different distribution channels of Chinese seafood market should also be taken into consideration. For instance, the catering industry is a crucial distribution channel for China’s seafood market. Popular types of cuisines like Hotpot, buffet and Japanese food all contribute an enormous percentage of seafood consuming amount.

Authors: Chencen Zhu & Valeriia Mikhailova

Daxue Consulting can help with the analysis of any market in China, including the seafood industry

Daxue Consulting, as a market research company, provides the adapted data in one of the most challenging markets in the world, China.  We have a wide range of services to deliver competitive market research. To know more about the F&B market in general or a specific industry in China, do not hesitate to contact our project managers at dx@daxueconsulting.com.

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China is a leading country in the world’s paper production, consumption and imports for decades. However, Chinese paper market is facing both opportunities and challenges..

Production, consumption and revenue of paper and paperboard in China experienced a drop in 2018

[Data Source: Chinese paper industry Association, “The production volume and consumption volume of paper and paperboard industry in China”]

Generally, the paper market in China saw an increasing trend from 2008 to 2018. According to the statistics released by the Chinese paper industry Association, the production and consumption of paper and paperboard in China had a stable annual growth rate of 3.08% and 3.16% respectively. In 2018, China’s consumption reached 104.39 million tons and it produced over 104.35 million tons to rank the first in the world. However, compared with that of 2017, the production of paper and paperboard decreased by 6.24% while the consumption experienced a drop of 4.2%.

[Data Source: Chinese paper industry Association, “Industry revenue of paper and paperboard in China”]

Similarly, in 2008, the industry revenue of paper and paperboard in China declined for the first time in more than a decade, decreasing from 921.5 billion yuan in 2017 to 815.2 billion yuan.

China’s imports and exports of paper, paperboard and papermaking raw materials

The imports and exports of paper and paperboard show opposite trends

Due to old production technique, China had been importing more paper and paperboard than exporting before 2010. Since 2010, the exports have exceeded imports in Chinese paper and paperboard industry. The imports dropped from 6.37 million tons in 2002 to 2.82 million tons in 2014, and then gradually rose to 6.22 million tons in 2018 while the exports increased from 0.855 million tons in 2002 to 6.81 in 2014, and then fell back to 6.18 million tons in 2018.

The imports of papermaking raw materials (pulp, waste paper) have increased at a rapid rate and significantly exceeded the exports for decades

[Data Source: China Customs, “The imports and exports of pulp in China”]

The imports of raw materials of papermaking in China, including pulp, waste paper, paper veneer have grown at a fast pace for over thirty years because of the increase in the demand for paper products and lack of high-quality raw materials. China has imported a large amount of raw materials from the international markets and the imports of pulp and waste paper have soared from 5.26, 6.87 million tons in 2002 to 24.79, 17.03 million tons in 2018 respectively. The shortage of papermaking raw materials and the increasing demand in the Chinese paper market can explain such trend of imports and exports of papermaking raw materials.  

Different kinds of paper and paperboards

The paper and paperboards industry breaks down into the cardboard, corrugated paper, uncoated printing & writing paper, white board, household paper, coated paper, package paper and others.

The above pie charts compare the production and consumption of different kinds of paper and paperboard in China in 2018. Cardboard, corrugated paper and uncoated printing & writing paper are main kinds of paper and paperboards in terms of both the production and consumption. The white board, coated paper and package paper ranked the fourth, the fifth and the sixth of the production respectively. As for consumption, the proportion of package paper is slightly higher than that of household paper.

[Data Source: Chinese paper industry Association, “The production volume and consumption volume of Chinese household paper market”]

It is worth noting that the production and consumption of Chinese household paper (which breaks down into the kitchen paper, toilet paper, paper napkin, tissues, women’s sanitary napkins, and baby products) saw a continuous upward trend from 2009 to 2018, raising from 5.8 million tons to 9.7 million tons in production and from 5.3 million tons to 9 million tons in consumption. The average annual growth rate of production was 5.88% while that of consumption was 6.1% in the same period.   

The production and consumption of cardboard, corrugated paper and package paper showed similar trends with the paper and paperboard industry in the period from 2009 to 2018: increased steadily from 2009 to 2017 and fell back in 2018, with annual growth rate ranging from 2% to 3%.

A giant paper brand in China: APP

The Singaporean-based company, Asia Pulp & Paper, also known in the paper industry as APP, is one of the largest pulp and paper companies in the world. APP-China has focused on operations in the Yangtze River and Pearl River Delta regions since 1992, and has invested in several large world-leading pulp & paper companies, including Gold East, Ningbo Zhonghua, Ningbo Asia, Gold Huasheng, Gold Hongye, Hainan Jinhai and Guangxi Jingui as well as large scale, modern fast-growing forests.

Following the enterprise philosophy of sustainable development, APP always attaches importance to its special relationships with society and environment. It strives to protect environment and take social responsibility. In order to make APP a first-class enterprise of the world which integrates forestry, pulp and paper production, it invested heavily on artificial forestry development. Until now, its forestry enterprises has made over 4.3 million mu of artificial forestry in China, and the circulating economy model that integrates forestry, pulp and paper production has taken shape now.

Furthermore, over 10 pulp and paper enterprises invested by APP have all passed accreditation of ISO 14001 International Environment Management System, and Ningbo Zhonghua was the first paper-making enterprise that passed accreditation of ISO 14001 International Environment Management System in China. Gold East Paper and Ningbo Zhonghua Paper were awarded “National Environment Friendly Enterprise” in September 2004 and November 2005 respectively, which gradually changes the bad image of pollution maker of paper-making enterprises.

External challenges: The impacts of China’s new regulations on the paper industry

The biggest challenge for Chinese paper industry is the serious shortage of domestic raw materials and China has become highly dependent on international raw materials suppliers. However, due to more and more demands and awareness of environmental protection, in recent years the Chinese government has implemented a series of new regulations on raw materials of papermaking importing, for example, prohibiting importing of unsorted waste paper, lowering the foreign (non-paper) content in the imported waste paper from 1.5% to 0.5% and implanting new import restrictions on recovered paper.

The new policies and regulations have far-reaching impact on China papermaking industry. In China, paper and paperboard producers are currently facing a growing challenge of rising prices across the chain. Although in 2019, China’s containerboard demand recovered to some degree and the recovered paper gap was made up by imports of recycled pulp and containerboard. However, in 2020, with China’s move towards zero RCP (recovered paper) imports, a further potential 40% to 50% reduction in RCP imports will trigger a ‘new’ raw materials supply gap. China’s producers in paper and paperboard industry will continue to be challenged by this new situation.

Internal challenges: Reform in paper industry in China

From the perspective of domestic paper industry, a number of problems accumulated in China’s paper industry during the Golden Decade (2000-2010) have begun to erupt, such as dependence on raw material imports, structural overcapacity, high import dependency of high-end paper products and un-established waste paper recycling and classification system.

In addition, from 2011 to 2015, China has eliminated backward paper capacity of 40 million tons and target for new closure will be another 8 million tons during 2016–2020, which means the industry integration will continue to increasing. It could be tough for small market share companies as well as high polluting and high energy-consuming companies in paper industry.

Potential business opportunity of paper market in China

From demand side, there is still room for development in Chinese paper market

In 2017, the world’s per capita consumption of paper was 54.71 kg per year. Europe and North America are the main force of paper consumption: the figure was 229 kg per year for North America and 178.7 kg for Western Europe. Comparatively, China’s per capita consumption of paper was 75 kilograms. Per capita paper consumption is closely related to the economic development of various regions.

In developed areas, people have relatively higher requirements for the quality of life, which is often reflected in the more exquisite product packaging, the increase in consumption volume of household paper and the continuous emergence of new subdivision paper demand, leading to higher paper consumption.

Since 2000, China’s per capita consumption of paper has increased by 150%. However, the current figure (75 kg per year) is still low considering China’s economic rise. From a global perspective, China’s per capita paper consumption has much room for growth.  

Also, as we have mentioned before, the Chinese household paper market has great potential opportunities. If you need more information about this market, please refer to the toilet paper market in China.

Opportunities during industrial transformation

Since available domestic recycled pulp capacities and the weak waste paper recycling capacities cannot sufficiently fill the gap between demand and supply yet, there are opportunities for additional containerboard imports. And due to the more and more strict import restrictions on waste paper, international importers with high-quality waste paper will be more competitive. Also, the import restrictions will provide great opportunities for both international and domestic waste paper recycling market, which aims to improve China’s waste paper utilization and recycling rate.

Facing both internal and external challenges, many paper companies are accelerating the structural adjustment and continue to eliminating less efficient capacities. At the same time, paper companies have been expanding into the industrial chain through the extension of upstream and downstream, in order to achieve the control of raw materials by reducing costs.

Government goals of self-sufficiency

It may be a good timing for companies to invest in new capacity in China if substantially less efficient capacities leave the market.  

Overall, the paper market in China is set to enter a new era of great challenges and opportunities while transforming towards achieving the Chinese government’s goals of self-sufficiency and environmental sustainability. Challenges could sometimes be turned into business opportunities if you are sensitive and insightful enough.

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This article Paper market in China: Imports and exports in balance is the first one to appear on Daxue Consulting - Market Research China.

1. Creating a Chinese business name

Finding an appropriate Chinese name for your company is a requirement. Once you have registered a Business Name, you may go a step ahead to getting a logo for your new business. All these three should be unique and not like any other registered business. This will be the trademark of your business and if in doubt over the name, logo or domain selected, there are sites that can help you know if the one you select or create has already been taken. By failing to do so, you may end up registering using either a business that closed or one that never took off, eventually bringing confusion to prospective customers who search for your business.

When starting a business in China, there are certain research strategies to find a solid business or brand name. Unless you are a native Chinese speaker, it is not advised to choose a name yourself. There are many underlying factors to maneuver. For one, dialects; something that sounds nice in Mandarin may translate to something unappealing in Cantonese or Shanghainese. Secondly is tones. Although a translation of a brand name might accurately describe the brand, Chinese speakers are sensitive to how tones of syllables fit together. Hence certain phrases may sound poetic and charming, while other phrases may sound unappealing. Third is meaning. Some brands choose to transcribe the sound of their brand in English to Chinese without considering the meaning. This can be disastrous if the characters used have a conflicting meaning with the brand purpose.   

2. Have a business plan backed with market research

Failing to have an established business plan is like planning to fail. One thing that a new start-up again may confuse is a Business Plan and a Business Structure. These are two different things. First, doing some research and deciding whether to be a Sole Proprietor, venture into a Partnership or register a company, should be the first step into knowing what business plan to have. Once you have decided on the type of business, you can then lay down the plan. Contained in a Business Plan are aspects of funding as well as what type of business venture to undertake. It will also entail how you plan on spending, so as not to over or underspend.

When starting a business in China, market research is an important part of a business plan. Consumer research like social listening or focus groups can help brands understand their target consumer preferences. Feasibility research and market sizing help companies understand the practical steps to take the capture their share of the market.

3. Create a business structure that supports flexibility

A business structure is different from the business plan. While new startups confuse this, they eventually lack a management scheme and gradually finish to poor management. So, a Business Structure is what entails what every employee in the business is to do. From the executives, accountants, superintendents, junior staff to all other working employees. When deciding on what structure to have, it is advised to seek the knowledge of professionals and experts in the field as such, professionals such as lawyers, accountants, and even some business people may help you understand and decide on the best business structure for your business.

Adapting to a more Chinese business structure can be quite demanding. Higher ups in Chinese companies demand a lot from inferiors, but in turn, treat them like family. Although often being very hierarchical, Chinese companies tend to be more nimble than their western counterparts. Companies that aim to compete in the rapidly changing Chinese market must also have a business structure that supports flexibility.

4. Finding the right business location

This is a vital element. For those looking to register a business in China, failing to understand the laws of the land could lead to problems. Again, this is among the biggest problems faced by startups. You will need to understand laws relating to taxes, registering the business as well as the many different laws within the country. So, to avoid legal when starting a business in China, it is similarly advised to seek the counsel of those experienced in the field or do thorough research.

Many foreigners who are starting a business in China flock to cities like Shanghai and Beijing. However, although China’s megacities are well-connected and have a lot to offer, it is worth considering smaller cities where prices may be lower. For example, setting up a business in Hangzhou is great for online companies.

5. Finding your competitive edge

The nature of the business is an essential aspect in determining how things will be run. In other words, this is a sure way to set yourself apart from other ventures depending on the type of business you carry on. Note that, this is also an aspect in the Business Plan, and because of that it should be a well-researched type of business to avoid huge competition. Though competition is good, you will need to offer something new to the competitive edge so as to keep the light on.

Without a competitive edge, in the competitive Chinese market, brands are forced to compete by price, which means taking slim profit margins. In the food and beverage industry, a competitive edge could be health and safety. Chinese consumers are growing more health conscious, and especially since the COVID-19 outbreak, consumer have health on their mid.

Never stop learning

So, considering these factors carefully, you will be on the way to having a fruitful business. It is also recommended to do more research over the matter of opening a business to have enough knowledge when you do so.

For those seriously considering starting a business in China, learn from those who have succeeded before you. The China Paradigms podcast series has over 100 stories from entrepreneurs in China, from a wide range of backgrounds and industries. You can find the podcast on Apple Podcasts, Spotify, Soundcloud and Youtube.

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This article 5 Things everyone gets wrong when starting a business in China is the first one to appear on Daxue Consulting - Market Research China.

China is the world’s largest outbound travel market in both the number of tourists and spending. Drivers of China’s rising outbound travel market include rising incomes, relaxed travel visas, increased global awareness, easier access to travel information online, and more international airlines. Outbound travel is, of course, the driver of Chinese duty-free consumption. This report explains how duty-free shops, both in China and overseas, can reach Chinese travelers.

[Data Source: chyxx.com, Chinese Duty-Free Consumption report by daxue consulting, growing number of Chinese outbound trips]

Popular destinations of Chinese outbound tourism

South-East Asian and East Asian countries are the first choice for Chinese outbound tourists. Top destinations are Thailand, Japan and Vietnam. The choice of these destinations is due to the geographical proximity to China and the ease of obtaining a visa.

[Data Source: Analysys& National Tourism Administration in different countries, Chinese Duty-Free Consumption report by daxue consulting, top outbound destinations for Chinese tourists]

Key trends of Chinese outbound tourism

The rapid growth of outbound tourists continues to drive Chinese duty-free consumption, but the per capita single-consumption amount has not changed significantly. Besides, due to the opening of new airline routes and the general increase in consumption capacity, non-first-tier cities have become major growth engines. In terms of age distribution of tourists, the growth is concentrated on those born between 1950 -1970, and 1990 -2010. More and more Chinese travelers are interested in both shopping and new experiences. Restaurants, museums and special performances are key projects for outbound travel.

Outbound tourism expenses

Due to the rising purchasing power of the middle classes, Chinese consumers’ spending on outbound tourism has been the world’s No.1 for 7 years and the number is still increasing. Regardless of tourism destinations, Chinese often spend a large part of total travel expense on cultural activities, accommodation, and shopping.

[Data Source: UNWTO, Chinese Duty-Free Consumption report by daxue consulting, China’s growing expenses on outbound tourism]

When asked about favorite shopping destinations during travel, more than 60% of Chinese outbound tourists prefer duty-free shops, as have assured quality at a cheaper price. Retailers around the world focus on Chinese customers because of their strong purchasing power. For example, in South Korea, Chinese duty-free consumption accounted for 83.4 billion RMB on duty free goods in 2018. This accounts for 73.4% of the total sales of duty-free stores in the nation.

[Data Source: McKinsey & Company, Nielsen, Chinese Duty-Free Consumption report by daxue consulting, duty-free stores are the most preferable channel for Chinese tourists]

Global duty-free sales

Due to an increasing number of travelers and rising spend per person, Asia Pacific region drives most the global growth of duty-free sales. In emerging countries such as India and China, Chinese middle-class consumers have the spending capacity to promote the growth of the duty-free industry in the global market.

[Data Source: Tax Free World Association, Generation research, Chinese Duty-Free Consumption report by daxue consulting, growth of duty-free sales in APAC]

Global duty-free sales in different channels

Due to the high volume of passengers, good maintenance and having a wide variety of brands and products, airport shops account for the largest amount of global sales. Downtown shops and border shops had realized significant increase in sales with the continuous expansion of shops in urban areas.

[Data Source: Statista, Chinese Duty-Free Consumption report by daxue consulting, airports take a lead as duty-free channel]

Inbound duty-free market in China

Due to policy support in recent years, China’s inbound duty-free shopping is now competing with South Korea’s dominant position. Offshore duty-free shops grew quickly during the last few years with the relaxation of restrictions and the increased number of product categories.

COVID-19 hits the Chinese tourism industry

The damage to the Chinese tourism industry because of outbreak is equivalent to a loss of 1 trillion RMB GDP. Many travel enterprises estimated the ongoing shutdown costs the industry about ¥17.8 billion every day.

[Data Source: Tai Media APP, Sina Finance, Chinese Duty-Free Consumption report by daxue consulting, decreasing domestic trips due to COVID-19]

Only 2% Chinese tourism related companies felt that they had not been significantly affected after the COVID-19 outbreak. Coronavirus impact on tourism in China especially visible among travel agents, hotels, and retailers (related to tourism). 

Chinese tourists contribute to the tourism industry in many countries. For instance, in 2018, Chinese tourists represent more than 70% total tourism in Hong Kong and Macao, similarly, more than 25% total tourism in Thailand, Japan, Vietnam and Korea. The impact on the economies of these countries will likely rebound in the second half of 2020.

[Data Source: Press reports; McKinsey Global Institute; Pengpai News, Chinese Duty-Free Consumption report by daxue consulting]

Coronavirus impact on tourism in China opened the opportunities for new online approach in this sphere. During the COVID-19 outbreak, many scenic areas and museums used live-stream to increase exposure and attract tourists, which attracted a lot of traffic. Even after the outbreak, the live-stream still can be watched by elderly and people with disabilities, and can be used as a preview before travel.

Short-term and long-term coronavirus impact on tourism in China

[Data Source: TravelDaily, Chinese Duty-Free Consumption report by daxue consulting]

Key Characteristics of Chinese Outbound Tourists

Chinese outbound tourists demographics

Those born in the 90s and 80s make the majority of overseas tourists. They are, on average, highly influenced by social media and they usually plan carefully to find value-for-money trip sand shopping. These Chinese tourists pay attention to both quality and price, they like customized activities and products offered by local stores.

[Data Source: Analysys & National Tourism Administration in different countries. China Tourism Academy, Chinese Duty-Free Consumption report by daxue consulting, majority of Chinese outbound tourists are young people]

Most Chinese outbound tourists come from tier-1 and tier-2 cities (provincial capital cities), over half are female. Most are also upper middle-income citizens who are willing to spend money while traveling to seek high-quality experiences.

[Data Source: Analysys & National Tourism Administration in different countries. China Tourism Academy, Chinese Duty-Free Consumption report by daxue consulting]

Chinese Duty-free consumption: The most popular duty-free goods

Skin care and beauty products are the most popular goods in duty-free shops. Women are the most important consumers, since the top selling products are women’s products. In addition, Chinese tourists tend to buy famous wine and wrist watches. Many Chinese tourists research duty-free products before purchase by reviewing online recommendations. Even after they arrive at their destinations, Chinese travelers will continue to research about duty-free goods. Brands can reach Chinese tourists by launching their own Chinese websites and apps. This allows consumers to shop anytime, anywhere, at their convenience.

Buying purpose of Chinese Duty-free consumption

When visiting duty-free stores, Chinese tourists of ten purchase duty-free goods for themselves or as gifts. A small percentage of Chinese duty-free consumption accounts for buying duty-free goods on behalf of others, such as Daigou, which is someone who buys goods from foreign markets and sells them back to consumers in mainland China. Many duty-free consumption behaviors among Chinese tourists are planned spending rather than impulse spending, they make plans based on the info from guides and comments on Chinese social media and travel websites.

[Data Source: PTRA, m1nd-set, Chinese Duty-Free Consumption report by daxue consulting]

Payment methods of Chinese overseas tourists

The payment methods of Chinese tourists vary by age and travel destinations. The post-70s and 80s Chinese tourists tend to use bank card payment during trips. For post-90s Chinese tourists, mobile payments make up a big proportion of their payment methods. Cash payment is used by all the generations of Chinese overseas travelers. They use bank cards more frequently in developed regions where credit cards are used more commonly, such as the USA. At destinations where tourists can easily connect to mainland China’s banking system, such as Hong Kong, Chinese tourists prefer mobile payment since it is convenient and a better way to keep track of spending.

[Data Source: Nielsen, Chinese Duty-Free Consumption report by daxue consulting]

How Can Brands Reach Chinese Outbound Tourists

Offer content that adapts to Chinese consumers

China outbound tourists generally choose to read travel recommendations before trips, and the most convenient way is to use popular media platforms that specialize in tourism and shopping, such as Weibo, WeChat public accounts, Mafengwo, etc. Those platforms normally provide accurate content by precisely targeting groups to permeate. Naturally, major brands choose to cooperate with these platforms to get them mention their products in articles in order to gain a high degree of attention.

Interact with consumers by delivering targeting brand campaigns

As competition intensifies among brands, companies nowadays innovate and differentiate themselves by delivering customer-centric campaigns in China, and experiences that give their target audience a compelling reason to become customers. As for duty-free brands, participating in similar duty-free shopping festivals can better interact with consumers and increase brand recognition in this field. For Chinese consumers, this kind of offline events make them have easy access to some foreign luxury brands that are not easily available in mainland China.

Provide more duty-free exclusives

Since Chinese outbound travelers purchase ahead of the Chinese New Year period and other holidays, travel retail exclusives are key purchase drivers at those time period. Also, “uniqueness of products or services” is one of the most impactful factors among duty-free shoppers. Duty-free stores offer some famous Chinese brands with lower price, compare with domestic stores, like Moutai. Because of the export tax rebate policy (exported goods pay less tax), Moutai in duty-free shops is much cheaper than the same product in domestic shops, which attracted many Chinese overseas tourists who like Baijiu (白酒).

[Data Source: daxue consulting, Special selection Moutai in duty-free market]

Cooperate with mobile e-commerce to reach traveling consumers

By cooperating with a mobile e-commerce platform like GlobuyX, duty-free brands can settle in mobile e-commerce to expand their promotion channels and connect with Chinese consumers. Globuy launched a WeChat mini-program that allows duty-free brands to exposure advertisements, duty-free goods discovery and pre-orders, WeChat menu links and exclusive benefits. Through this kind of cooperation, brands can reinforce their awareness and branding, achieve the purpose of communicating brand events and products with consumers and increase footprint and exposure online and offline in China.

[Data Source: GlobuyX mini-program, Chinese Duty-Free Consumption report by daxue consulting]

KOL Marketing to reach Chinese duty-free consumers

With the strong development of KOLs in China, consumers will now hold a wait-and-see attitude and buy products after KOLs. Therefore, some high-end duty-free brands choose to cooperate with KOL to increase their sales. According to Weibo data, the number of discussions on the Sanya Duty-Free’s Night in reached 30,000 times, and the number of likes exceeded 5,000. During Sanya’s Duty-Free Night, they successfully attracted a large number of fans by holding meet-and-greets with fans for major KOLs, including cosmetics, fashion, etc. When KOLs interacted with fans (take pictures, signature, etc.), they also recommended products to them.

How Duty-Free Shops Can Attract More Chinese Outbound Tourists

Global competitive landscape of travel retailers

The global duty-free and travel retail market is highly fragmented, and the market is dominated by non-Chinese brands.

Chinese Duty-free consumption: Business overview of Dufry

DufryAG, from Switzerland, is the world’s largest duty-free retailer with over 2,300 shops in 65 countries. The combination of organic growth and M&A enabled continuous high growth of Dufry.

[Data Source: The Global Travel Retailer 2019, Chinese Duty-Free Consumption report by daxue consulting]

Dufry’s digitalization strategy

Dufry aims to be present at every stage of the whole Chinese customer journey. By using digital and technology innovation, it is enabled to improve consumers’ shopping experience and provide personal tailored services. Travel loyalty program combining shopping and travel benefits.
 

After one year of membership, average purchase frequency increased 80% and the average spending increased 131%, comparing to the data collected one year before the membership. Dufry has virtual lipstick testing technology in the store, customers can change the color with a tap of the screen.  The strategy engages customers during in-store shopping experiences.

Dufry’s pre-order service for Chinese consumers

Dufry’s “reserve & collect” website allows consumers to pre-order duty-free goods online, then pick up and pay for Hong Kong’s offline stores. The website had 5,570 visits in November 2019. The service adopted Chinese consumers’ demands for convenience and preferential price.

Chinese Duty-free consumption: Overview of the China duty-free Group (CDFG)(中国免税集团)

As a state-owned duty-free company, China duty-free Group (CDFG) has realized high-speed development in recent years with powerful support from the Chinese government. The company has started to step into the global market, although it focuses on China’s domestic market.

[Data Source: chyxx.com, Chinese Duty-Free Consumption report by daxue consulting]

CDFG’s new travel retail strategy

Utilize digital technology to enhance connection with consumers. For example, in 2018, CDFG built a membership big data platform that helped the company have better understanding on their customers. Then, personalized service can be offered to ensure better shopping experience.

[Data Source: tfwa.com, Chinese Duty-Free Consumption report by daxue consulting]

CDFG’s strategic cooperation with Alibaba

In November 2018, CDFG officially built strategic partnership with Alibaba Group to expand the retail market in China. The cooperation focuses on areas including e-commerce, big data and logistics, aiming at establishing a new tourism ecosystem. The partnership allowed CDFG to use Alibaba’s digital tools and e-commerce platforms to optimize offline duty-free shopping and improve its logistic efficiency. According to the agreement, consumers can use Alipay in CDFG’s offline duty-free stores. As one of the merchants on ‘Fliggy buy’ (the global shopping channel on Fliggy, platform owned by Alibaba), CDFG can provide its products and content to attract Chinese consumers.
Powerful support from Alibaba group ensure CDFG better performance on digitalization and have access to more consumers’ information.

CDFG’s social media strategy

In addition to KOL collaborations, CDFG also leveraged live-stream promotions. The live-stream focused on skincare and cosmetics demonstrations. Also, it picked some popular brands to introduce price, size, discount, etc. by interviewing salespeople. Many Chinese consumers favor this kind of videos that share in-store experience. Audience members who share the video can have a chance by lucky draw to receive Guerlain’s perfume for free. This attracted much attention from Chinese customers and received 3.67 million views on social media.  

The upgraded strategies of duty-free retailers

As in the case with many offer industries, digitalization offers great opportunity to the duty-free and travel retail industry. For duty-free retailers, digital technologies are tools that can build a travel retail ecosystem. By working closely with brands, airports, airlines, etc., data can be integrated to obtain a complete view of the customer journey and buying behaviors. Therefore, duty-free shops and travel retailers are enabled to provide superior customer experience and establish loyalty programs. By integrating online and offline channels, travel retailers are able to further increase personalized communication with customers at home, during their whole journey, and when they are at the airport.

Chinese traveling shoppers usually learn about duty-free products from shopping related content and other people’s comments on Chinese social media platforms. Understanding and adapting to the needs of Chinese tourists is critical. Chinese consumers have different shopping habits from other countries’ tourists. Duty-free retailers should have content and promotion activities that precisely target different types of Chinese consumers.

Key Takeaways

China’s travelers are increasingly sophisticated. The Chinese millennials (born in the 80s and 90s) are sophisticated, price sensitive, and usually search on social media and travel websites before tourism and purchase. They seek high value, unique and exclusive products during their trips.

Experience is as important as price. Chinese overseas travelers value unique experiences. Innovative store design, engaging customer service, targeting emotional connections and flexible payment methods can bring better shopping experience to Chinese duty-free consumers.

Reach consumers ahead of time and optimize convenience. Most Chinese tourists plan their duty-free purchases ahead of time. Brands and duty-free shops promote products by allowing pre-orders, remote fulfillment and mobile payments. This helps Chinese consumers move purchases from being impulse to planned, and reduce ‘inconvenience’ as a barrier of shopping.

Attracting Chinese consumers by exclusive deals. Many Chinese tourists want to buy products they cannot find in China. Duty-free stores can drive demand by having a greater array of limited-edition products, value packs, and duty-free exclusives.

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This article Chinese duty-free consumption: China as the World’s Largest Outbound Travel Market is the first one to appear on Daxue Consulting - Market Research China.