China has been the world’s largest automotive market for years. That is why carmakers around the world are fighting to sell their cars to Chinese consumers. However, in a market mainly dominated by Chinese brands (42%), what are the trends and growth drivers that international carmakers can follow?

The automotive sector is one of the top pillar industries for China’s economy and a major employer. In 2019, for example, the automotive sector contributed 9.6% of the total retail sales of consumer goods. The sector also accounted for around 10% of total employment in China.

COVID-19 impact on the automotive industry in China: decline in sales

COVID-19 placed significant burdens on the automotive industry in China. Hubei Province where the outbreak started, accounting for about 9% of the country’s auto production. Wuhan, Hubei, as one of the key development cities of the country’s six major automobile industrial clusters, not only gathers many vehicle manufacturers, but also has more than 500 automobile parts enterprises.

The auto industry is especially facing major challenges both on supply and demand side—new passenger car sales in the Chinese market slumped by over 80 percent in February 2020. Forecast shows that China’s automotive market will decline 15.5% in 2020.

Data Source: Statista, PwC, China’s auto market size

China’s first quarter vehicle sales saw the biggest impact. According to the China Association of Automobile Manufacturers, sales of passenger cars declined 42.4% year over year during that period. SAIC, one of China’s largest manufacturers, reported a 44.9% percent drop year to date in April. Its SAIC-Volkswagen and SAIC-General Motors joint ventures, dropped 50.4% and 47.7% year over year in retail sales from January to April respectively.

Government policies to help the automotive industry in China

To stimulate the automotive market, government launched some policies. 10 cities released incentive schemes. For instance, Guangzhou announced a subsidy of 10,000 RMB for New Energy Vehicles sold between March and December. Additionally, a State-level subsidy to New Energy Vehicles was extended until 2022.

Epidemic highlighted imbalance of car brands in the Chinese market

The epidemic has exacerbated the imbalance between the various car brands. From January to March 2020, the total sales volume of the top ten enterprise groups was 3.295 million units. It had a year-on-year decrease of 41.7%, which was 0.7 percentage points lower than the industry decline. It accounts for 89.7% of total car sales, which is 1.1 percentage points higher than the same period last year. This shows that under the impact of the epidemic, the market share of small brands has shrunk even more.

A phenomenon worth noting is that compared with last month, the sales of major foreign brands also showed a rapid growth, of which the growth rate of Korean brands is particularly significant.

COVID-19 boosted electric cars market

China’s reaction to the crisis shows a commitment to new technologies, signaling how the crisis could build resiliencies moving forward. The real opportunity after COVID-19 lies in the shift from internal combustion engines to cleaner, electric vehicles in China. China is set to keep its long-term strategic goals for automobile electrification and meet climate change goals set by the Paris Agreement.

In March 2020, the production and sales of electric vehicles were also significantly better than that of the previous month. The growth rate was rapid and the year-on-year decline was narrower than that in February. For example, electric car maker Wei Lai released the delivery data for March 2020. The delivery volume reached 1533 units, an increase of 11.7% year-on-year and an increase of 116.8% month-on-month.

The auto industry in China slowly rebounds back

On February 2020, due to China’s recovery from the coronavirus outbreak, car companies ushered in the first wave of resumption of work. They include Geely Automobile, Great Wall Motor, Changan Automobile, Xiaopeng Automobile, Weilai Automobile, Tesla Shanghai Super Factory and so on. The outbreak of the epidemic has also made car companies pay more attention to the online car sales model. Many brands have launched online car purchase activities during the epidemic, thereby stimulating consumers’ desire to consume.

In March 2020, as the industry’s orderly resumption of production, the monthly production and sales volume rebounded significantly, but still did not reach sales level of 2019.

Data Source: China Association of Automobile Manufacturers (CAAM), China car sales 2019/2020

Retail sales of light passenger vehicles also surged ahead in March, as reported by the China Passenger Car Association. Year over year, March 2020 sales were still below 2019 levels, but 26%, not the 80% drop seen in February. Sales in April 2020 have begun to catch up with just a 2% drop year over year.

Automotive brands show signs of recovery

From the perspective of different brands, Changan Automobile sales reached 119,000 in April 2020, an increase of 32% year-on-year, ranking first. In April, the company achieved sales of 105,400 units, an increase of 44% month-on-month and 2% year-on-year. Great Wall Motor sold a total of 81,000 new cars in April, an increase of 35% month-on-month.

Chery Automobile increased by 15% month-on-month in April 2020, but continued to show negative growth year-on-year. 

Volkswagen’s China terminal sales in April 2020 were 16.57 units, an increase of 9.9% year-on-year and an increase of 41% month-on-month.

Weilai (also known as NIO) delivered 1,533 vehicles in March 2020, an increase of 117% QoQ.

Data Source: China Automobile Association, Weilai sales January-March 2020

Therefore, key automotive brands show the signs of recovery, however this process will take time.

In 2020, mainstream automakers supposed to have many new models launched on the market. However, due to the impact of the coronavirus epidemic, it is difficult to carry out offline listing activities such as test drive, auto show, and press conference.

Data Source: China Automobile Center, Summary of originally planned models to be launched in the first quarter of 2020

Chinese auto industry still has big potential

Despite the significant impact of COVID-19 on China’s automotive industry, the market potential is still quite huge. China is still expected to become the largest vehicle market with around 260 million units in operation. At 173 units per person now, there is room in China for more light passenger vehicle purchases.

However, after COVID-19, the market will definitely not simply snap back to where it was before the pandemic. According to a forecast from IHS Markit , light vehicle sales will decline 15.5% in China for 2020.

Why 2018 was a turning point for car manufacturers in China?

For the first time in twenty years, sales in the automotive industry in China are declining

In 2018, for the first time in 20 years, China saw its new car sales decline by 2.8%. In 2017, 28.88 million cars were sold in China compared to only 28.08 million in 2018.

Sales in most provinces of the China declined in 2018 except Guangdong, which saw an increase of 5.3% compared to last year, which can easily be explained by the rapid development of the local economy (Guangdong has had the highest GDP for 29 years in China).

Despite this decline, China remains the world’s largest automotive market, accounting for about 30% of total global car sales in 2018. Compared to the 28 million cars sold in China in 2018, only 5.2 million cars were sold in Japan, 16.5 million in Europe and 17 million in the United States in 2018.

But then what explains this decline in car sales in China?

Alternatives to cars are increasingly successful in China

One of the main reasons for the decline in car sales in China in 2018 is that there are many relevant alternatives. Chinese car shoppers are increasingly value minded and open to the alternatives to buying new cars. Moreover, the younger generation of Chinese is increasingly sensitive to environmental issues and tend to consider more environmentally friendly options.

In recent years, car-hailing apps have been gaining popularity in China. By the end of 2018, there were more than 100 car-hailing platforms in China, and the total number of car-hailing app users has exceeded 330 million.

This is the success of car sharing apps such as Didi Chuxing or bicycle sharing apps such as Mobike, which have seen their number of users increase in recent years:

Didi Chuxing

Didi is now one of the main alternatives to owning cars in China.

The business model of this Chinese transportation network company can be compared to Uber’s model. The cost of fares is very low and the simplicity of the service, easily ordering a fare on the app, make China gradually becoming the largest ride-hailing market in the world, with a value of US$30 billion.

In 2018, Didi held more than 80% of China’s ridesharing market.

Mobike

Mobike, a fully station-less bicycle sharing company in China, also offers a great alternative to private cars in China, especially in big cities.

Bikes are often used to connect to buses and subway stations, what we can call intermodality. For example, in Shanghai, approximately 1 in 5 users take bikes to make subway and bus connections (Mobike, 2018).

Thus China has now become the leading country both in terms of ride sharing and bike sharing in 2018, and this can be bad news for car manufacturers in China.

Second-hand car market shows growth in China

The Chinese craze for used cars is also an essential reason for the decline in car sales in China in 2018.

In 2018, second-hand car sales in China rise with a growth of 11.5%. Sales are even expected to reach over 20 million in 2019.

As consumers prioritize value for money, they become more price conscious and lose confidence with spending. Online marketplaces for second-hand cars, like Renrenche (人人车), Uxin (优信) or Guazi (瓜子), are also developing fast and allow customers to find the best price quickly without having to visit multiple brick and mortar shops.

Despite this, consumers continue to buy private cars in China, whether for practical reasons or for pleasure. According to the graph below, 58% of them buy a car to travel comfortably on holidays. Driving has been a very popular way of travel (average 300km) in China. In Tier-3 and Tier-4 cities, the school bus hasn’t been very popular, so many parents also need safe and convenient transportation for their children.

New-energy vehicles in China have become very trendy

Electric cars sales are increasing

Electric or hybrid cars have been very successful in recent years in China, thanks in particular to the support of the Chinese government but also because buying an electric vehicle avoids the cost of purchasing a license plate, which is a considerable saving.

In 2018, the sales of new energy vehicles in China consistently grew reaching 1,25 million units sold.

Buyers of new energy cars in China are mostly urban and young: 40% of China’s electric car sales in 2018 came from 6 large Chinese cities which are Beijing, Shanghai, Shenzhen, Tianjin, Hangzhou, and Guangzhou because of the awareness of the pollution problems inherent to combustion vehicles and the gasoline-car restrictions that have been implemented in these cities. Most of them are also the first person in their family ever to own a car.

China’s biggest electric carmaker: BYD

BYD Company Limited was China’s top-selling electronic car manufacturer in China in 2018. Created in Shenzen in 2003, the brand launched its first electric car model, the E6, in 2011.

In 2018 BYD sold a total of 520,687 cars in China including 247,811 electric vehicles, achieving a year-on-year jump of 25%.

The best-selling BYD model in China in 2018 is the Song, 91,426 units sold, for an average price of $28,000.

BYD’s marketing strategy in China is to develop a flexible and segmented offer to reach a wider audience: BYD then decided to go on all-in on hybrid rather than pure electric with one of its model, ‘Qin.’ It is a more flexible option for consumers, who can drive it as an electric car for their daily commute and reach much farther distance without having to worry about charging.

Thanks to its various plants in China the company also has a competitive advantage to integrate all of the key components in-house. And with the help of subsidies, BYD has been able to build economies of scale, pushing down their cost per unit and allowing them to spend more on research and development.

High-connectivity: Cars in China have to be mobile-first

Connected vehicles in China have to be mobile-first

A connected car is a vehicle connected to the Internet through its communication system. It allows the driver to connect his smartphone to the car, but also the car itself to connect to the surrounding cars and infrastructure.

Since China is a mobile-centric nation with mobile commerce representing a quarter of the country’s overall retail market ($1.5 trillion in sales in 2019), it is normal to find this requirement in the 2018 car trends in China.

Thus the global connected-car market in China is expected to grow 270% by 2022 and 41 million people will make use of in-car connectivity by 2021.

According to a 2017 Kantar TNS study, 79% of Chinese respondents plan to buy a connected car in the future, compared to about 50% for Americans and Europeans.

According to Jack Ma, Alibaba’s chairman, there is no doubt that the future of cars in China is high-connectivity:

‘’Today, 80% of your smartphone’s functions are not relevant to making phone calls or conversation. I believe that in the future, a car will have 80% of its functions not related to just transportation.’’

But Chinese consumers are more and more difficult to please in terms of connectivity services; they are seeking innovative in-car services and are even ready to pay subscriptions for content.

Which is why automakers and tech giants are all racing peers to new tech horizons!

Integration of Alibaba’s Tmall Genie in BMW vehicles

The partnership between BMW and Alibaba is an excellent example: Alibaba Group’s smart assistant, Tmall Genie, will launch in select vehicles from the BMW Group in China by the end of the year.

Tmall Genie will be fully integrated into BMW vehicles, offering drivers several entertainment and shopping options in the car. Drivers will be able to use Tmall Genie to buy online, watch movies, listen to music, check the weather or make appointments appointments in BMW.

Top innovative car brands in China

Volkswagen in China has delivered its 30 millionth car to Chinese customers

For the company which connection with China started in 1978, 2018 was a real milestone. They achieve sales record with 4.21 million vehicles delivered to customers in China including 196,300 imported cars, which corresponds to a + 0.5 % evolution compared to 2017.

The best-selling Volkswagen model in China is the Lavida with 504 000 units sold in 2018, a 4-door sedan which has been sold exclusively in China since 2008. Depending on the generation, its price is between 110,000 RMB and 160,000 RMB.

Because Volkswagen was the first foreign car manufacturer in China, it can now compete directly with Chinese competitors. And the brand’s communication strategy is really to emphasize this authenticity and improves its reliable brand image.

To do that, SAIC Shanghai Volkswagen wants to show how close to Chinese consumers it is.  At the end of 2018, a campaign announcing the launch of new models then revealed a desire to align the brand’s image with China’s powerful economic growth:

The timing of the publication, that was the 40th anniversary of the policy of openness and reform, was ideal.

To attract the growing target group of young, middle-class customers, Volkswagen also decided to launch JETTA as a brand in February 2019 (it was only a Volkswagen model before). The idea is to target first-time buyers, who account for 81% of the customers in the entry segment, by offering high quality, safety, stable value, and fresh design. In 2018, the brand also announced the launch of the SOL brand in partnership with the Chinese auto manufacturer Anhui Jianghuai Automobile, whose first model is an electric SUV.

Geely in China: ‘’Making Refined Cars for Everyone’’

Geely enters the automotive industry in China in 1997 and is now among the 500 largest companies in China. In 2010 Geely group bought the Swedish carmaker Volvo.

In 2018 Geely sold 1,500,838 units in China, an increase of 20.3% from 2017 and had a 6.9% market share.

The brand has a very young customer base with 51% of customers born in the 1990sor later, it’s a new generation of young innovative consumers who have a global vision and a global mindset. Thus, Geely communicates on high connectivity and ultra-modern design to directly target this audience. They often highlight their design teams and the famous designer Peter Horbury they work with to show their modernism.

The best-selling Geely model is the Bo Yue, a compact crossover SUV with 255 695 cars sold in China in 2018.

Geely is now trying to expand internationally by developing its battery manufacturing business with CATL Geely Power Battery Co. Ltd and acquiring new foreign brands like Proton’s Norwich-based subsidiary Lotus or Daimler recently. The brand also invests heavily in new energies cars with its ambitious project Blue Geely, wanting 90% of its sales to be consist of Evs in 2020.

Landrover in China: designing ‘’China SUV of the Year’’

Jaguar Land Rover entered the Chinese automobile market in 2010 and has witnessed exponential growth each year until 2018. A total of 492,388 Jaguar Land Rover units were sold in China in 2018.

Land Rover’s strategy in China is to demonstrate a commitment to the Chinese market by offering unique designs and models that meet consumer requirements and preferences. That is why in 2012, JLR entered a joint venture with Chery Automobile Company to manufacture Range Rovers to build vehicles designed specifically for the Chinese market (Jaguar XFL and XEL are good examples). Thanks to this, Land Rover in China has won numerous awards that allow it to raise brand awareness:  recipient of the 2018 ‘China Reputation Award’ for the second time, Range Rover Velar wins ‘China SUV of the Year’ and ‘China Car Design of the Year.’

How do carmakers promote their cars in China?

Offline promotion: How to keep a substantial brick and mortar presence for car manufacturers in China

Offline promotion remains very important in the automotive industry in China today. Indeed, despite the development of the massive development of e-commerce and m-commerce in China, nearly 90% of car purchases were made at 4S stores in 2018. This means that Chinese consumers still appreciate contact with sellers and want to be able to go to offline stores to get information and buy a car.

• 4S stores in China

4S stores are today the most popular distribution channels for the vehicle brands in China. There are more than 28,000 4S stores in China. They have dominated the offline purchase channels in tier-1, tier-2, and tier-3 cities; now they are expanding to tier-4, tier-5 cities and rural areas.

Consumers choose 4S stores as they provide all in one service: ‘‘4S’’ means Sale,  Spare part, Service and Survey. So, they cover all business related to vehicles such as sales (new cars and second-hand cars), maintenance, car wash, auto finance, car rental, etc.

It is also interesting to note that the competition among 4S stores is increasing, trying to fight on price, discount activities, test-drive services and insurance.

• Exhibitions, events, and shows: the entertainment marketing strategy

There are more and more events and exhibitions in China that attract millions of people each year. For instance, Auto Shanghai, the Shanghai Motor Show which has made its mark among international shows, host every two years more than 900,000 visitors from 18 countries. The 2019 edition is currently being held (April 23-28).

Automotive shows are an excellent way to stand out from the competition and showcase its best models to demonstrate the brand’s research and development capabilities.

Despite their international scope, the domestic players are most active at these shows with more than 70% of new products produced by Chinese carmakers.

• Showrooms, storefronts and flagship stores

Car manufacturers in China are now investing more and more in showrooms in major cities to impress consumers: stores are no longer just places to buy cars but luxury spaces to live a real experience.

In 2018 NIO invested CNY80 million (USD11.7 million) in a store in the iconic Shanghai tower and paid more than CNY100 million annual rent.

The brand also pays a yearly rent of about CNY80 million for a shop in Beijing’s Oriental Plaza mall.

Online promotion: Using KOLS and social media to boost your sales in China

In China, websites and social media are dominating the promotion channels for vehicle brands in 2018.

With a perfect online service layout, automotive E-commerce platforms have real marketing advantages. Automotive E-commerce represented by Youxin, Emao, and Taobao makes full use of the business sector (new cars, used cars and auto finance). They are user-centric, E-commerce data-based, product and service innovation-oriented, aiming at creating a  full life cycle Eco-marketing platform. It is a good source of information before buying a car in China.

Also, almost half of consumers obtain information about cars from automotive websites, since those websites usually have comprehensive knowledge about car brands and models.

On social media, young auto enthusiasts (post-90s and younger) have a stronger willingness to share content about vehicles with others. Half of the auto enthusiasts spend 5-15 minutes on every online post (website and social media) about vehicles.

Social networks have therefore become strategic for car promotion in China. This is why many brands now use KOLs (Key Opinion Leaders) to convey messages in a more subtle way. Indeed, more than 70% of vehicle consumers follow at least three KOLs, their purchasing behaviors are highly influenced by KOLs’ opinions and experience.

New retail: How the Alibaba strategy applies to the Chinese automotive market

New retail in the automotive market in China is more consumer-centric.  This is a trend that has been widely followed by car manufacturers since the success of Alibaba’s New Retail strategy launched in 2016.

By collecting consumers’ data (such as interests, price and design preferences), vehicle brands are able to provide cars, auto-configuration and services based on consumers’ requests. Thus, the consumer’s journey is shorter because the touch points are blended: for example, Wechat content is now a touch point for each step of the car buyer journey in China.

This is the strategy that Ford decided to implement in partnership with Alibaba: they launched the Super Test-Drive Center in Guangzhou to allow people to buy a car from a staff-less machine in under 10 minutes.

Customers just have to go to the Tmall app and choose the model they want to test-drive via the online catalog. To register, customers must take a picture of their face and once in the store, once the customer shows their face to facial recognition,the car chosen online arrives from the multistory structure. Then, the customer can test the car for a few days (3 days max) and order it online.

How could international carmakers improve their marketing strategy in the Chinese market?

Target a young audience

New cars buyers in China are young and connected consumers. As they gain purchasing power, they are the future of the Chinese automotive market.

Do not neglect offline communication channels

The paradox of the explosion of e-commerce in China is that buyers are still demanding physical presence or human contact. Thus, offline channels must be up to the task.

Keep a close eye on your online reputation

Control your reviews and comments and opt for an influence marketing strategy because brand reputation plays a vital role in the buying cycle of a car in China.

Rely on well-made design

Content and design provide an important first step in customer experience in China in 2019: work on a modern and sophisticated design for your website, your products, and your communication.

Leverage to e-commerce and new retail

For automakers, innovation linked to the e-commerce platforms and deepening relationships with end users will be key to benefit from the increasingly technology-enabled car market in China.

Author: Steffi Noël

Daxue Consulting offers further analysis of the automotive market in China with a forward-thinking approach to topics such as digitization, high-tech implementation, artificial intelligence, and many others. To know more about the evolution of the automotive industry in China, do not hesitate to contact our project managers at dx@daxueconsulting.com.

This article Automotive industry in China: How carmakers compete for first place is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Matthieu David: Hello everyone, I’m Matthieu David, the founder of Daxue consulting and its China marketing podcast, China paradigms and today I am with someone I’m very impressed by when I looked at their resume, Dr. Renata Thiébaut. You are a partner and head of the business intelligence of Web2Asia since 2013. On the side, you’re a researcher at Harvard University and you have a Ph.D. from Jiao Tong University in Law. So that’s why I’m saying that I’ve been very impressed by your resume.

But we are here to talk about Web2Asia. Web2Asia is a TP – so Taobao partner or Alibaba TMall partner agency– you will tell me which formula we need to use, which is an official name for companies that are able to represent companies and sell on their behalf and manage marketing budget and media buying on Alibaba. So, you need to be accepted by Alibaba to get this name to be an Alibaba Tmall partner agency. Size of business, you started in 2006, it’s about 200 people now. You can work in eleven languages and you have worked for companies like Marks & Spencer, Esprit, Bausch, Swarovski, Intersport and one I’m very interested in – Metro, Aldi, and JellyCat which you won a reward for by Alibaba, and I hope that’s something we can talk about. Thanks, Renata, for being with us, and could you tell us more about Web2Asia?

Renata Thiebaut: Thank you Matthieu for welcoming me today. Web2Asia is a full e-commerce service provider in China, so we have three different core services. The first one is the market entry strategy for foreign brands that want to open an online shop in China. The second service is the e-commerce operations in China and sales. As you said, we have around 200 staff that take care of the design of the shop, also customer service and company preparations. So, we have the whole ecosystem to offer to our clients, especially foreign clients that want to come to China. And the last service, as an e-commerce service provider in China, is digital marketing, because it goes hand in hand with e-commerce to leverage the sales.

We’ve been in the market since 2005 and we were doing more marketing at that time. Around 8 years ago we switched to do more e-commerce operations in China and we were one of the first ones to do cross-border e-commerce in China. So, let’s say we have very deep expertise, especially in cross-border e-commerce in China, since the beginning that everything was manual – we need to collect ID cards manually. It was a bit complicated in the beginning but now we narrowed down the whole process. And we’ve been awarded a couple of prizes from Alibaba group. The latest one was with Aldi and we won the innovation prize from ele.me which is Alibaba’s food app, and most of our clients are from Europe, are from North America so we focus more on foreign clients that want to come to China.

Matthieu David: For all the revenues, could you share a bit an idea of number of clients, revenues, some idea of where you are now? 200 people is not small, so I believe you are a sizeable business now.

Renata Thiebaut: Yeah it is very interesting that when we started we had roughly 15 people right, so we had a very start-up mindset and a do it yourself – we had a lot of struggles in the past but because of our positioning as one of the few foreign owned TP’s in China – also our management is all done by foreigners, myself and other partners as well, so we could tackle better different foreign markets, especially Europe right. So, we have many German clients, many British clients because of our background. So, it was a matter of positioning, of having a clear strategy of how to position our business and define where we want to go to, and I think 5 years ago we started growing a lot. Now we have clients either for consulting or e-commerce operations in China and we have more than 30 fixed clients let’s say.

Matthieu David: About 30 clients now you manage operations for?

Renata Thiebaut: Yeah for operations only for TMall but we have other services as well.

Matthieu David: I see, that’s something I’d like to know more about is that you mention a lot TMall, you mention a lot TP – that’s something I’d like to understand if Pinduoduo or WeChat is part of your work as well, but let’s go back – let’s talk about this later. So, what you are doing is to mainly manage – you started in 2003 when Taobao just started. I think TMall was not existing, just to think about it – it was pre-iPhone – the iPhone is 2008. 2003 I think Taobao started, Alibaba was started in 1999 – it was a B2B marketplace and they had no C2C, and Taobao was C2C, then TMall appeared much later (read about setting up a Taobao shop). You seem to talk about the beginning as if you were at the beginning, but I think you joined later. So at the beginning what was the vision? Was it about selling on Taobao which like eBay or like the C2C platform? What was the vision initially?

Renata Thiebaut: Well the vision was purely C2C platform and I was working at that time with Taobao, so I have a Ph.D. in law and I was doing a lot of IT protection, so my role was to shut down all of the stores on Taobao that were selling fake products. So at that time, it was very interesting because there were no rules or regulations to tackle this issue and we had to do everything manually, we had to do mystery shopping and contacting the store to ask them to close. So, my first big client for this type of service was Swarovski. There was a very good finding actually that most of the products were actually not fake. They were original. So, there is a big problem with the supply chain that the factories leak the products. The products are original from the factory.

So, there are many situations like these that China has this problem with in the past, but it has improved a lot. So yeah – at that time Taobao was clearly C2C but now you can even have some brands opening on Taobao, a store on Taobao. Miranda Kerr – the Australian model for example, she opened her brand first on Taobao and then she migrated to TMall Global. So, this is a tendency actually from all of these platforms. They do not only adopt one business model; they try to follow consumers and see the tendencies to shift their business and it happens quite often.

Matthieu David: Initially, so Taobao is a C2C platform that’s maybe where some people would sell products, some Chinese companies would sell products, but at that time in 2003 I don’t believe there were many European and American companies which wanted someone to help to sell on Taobao, so initially when Web2Asia was started – what was the vision? Was it to be a TP? It could not be because it was not even existing. Once TMall was created the word TP emerged. So, what was the vision initially – it was to create websites? To be in the digital space? And then it evolved into a TP? Is this the story?

Renata Thiebaut: Yes, this is the story. At that time, we were doing more websites and more marketing on Baidu for example, and then we had to shift our business model because we saw e-commerce was booming and there would be many opportunities in this industry. So, we became Alibaba certified Tmall Partner agency when e-commerce started in China basically and now, we are one of the top three TP’s from Alibaba, so most of our clients are referred by Alibaba. We have a very close relationship with Alibaba, because they are the marketplace and we do the store operations. So, there is a lot of coordination we have to do on a daily basis.

Matthieu David: So let’s talk about some of the rewards you got from Alibaba – one of them is of course attracting the eyes of everyone, reading your presentation which is JellyCat.  Would you mind sharing a bit more about what you did for them as a case study for those who don’t know JellyCat, it’s a British toy, but in China it seems that what you have done is that you’ve found a different market in China. You a massive amount of the product on TMall, I read in your presentation double digit million USD if it’s correct, within a year I believe, and you have been rewarded by Alibaba for those campaigns’ management of this shop. Would you mind telling us some more about what you did and how it was successful?

Renata Thiebaut: I think JellyCat is our biggest store – biggest successful case actually, because it is a small brand out of the UK and when they started in China back in 2015, they had no awareness in China- yet their price point is a bit higher compared to other local products. So, we had to position ourselves very well to have a very strong storytelling to prove to consumers they should pay around 300 RMB for that instead of 50. So, we used a lot of UK related elements to show the product was premium and to create a storytelling, and the royal family was the theme that we used at that time. We could use also some pictures because some Hollywood actors or actresses, they give JellyCat to their kids, and also the royal family itself, they use JellyCat toys. So, we could use all of this materials to show to consumers that for foreign people and for famous people as well they all love JellyCat.

So, Alibaba created a video for us, we were featured in one of the best case studies of Alibaba group, and the video was very interesting because the story was all of the JellyCat were coming from the UK to visit shanghai. So again, content was the key for JellyCat to be successful here and they have cute products. Chinese culture is a cute culture – so the product is good. Sometimes of course we cannot make miracles if customers do not really like a product or if it’s not suitable for the Chinese market, but JellyCat we could adapt the content, we could create new content, we are very flexible about that. Also every year we launch the animal of the year, that is related to the Chinese zodiac and this is very important, this localisation to the Chinese market. So, within one year we became the top one plush toy in the Chinese market and we keep winning awards for JellyCat, expanding their business here in China, so now they sell on different platforms and also, we are going offline with them. So JellyCat I think for me is the best successful case because it’s a very small company. So, if you have limited budget and if you are not well-known, it’s much more difficult to develop your brand in China, which was the case – so that’s why I like sharing JellyCat’s story.

Matthieu David: And Alibaba like it too – they share it and they gave you a reward. May I summarise and see the key point is that the royal family is using JellyCat, was it the key point? I feel it is something when you have an endorsement from a very famous and very respected people, Chinese would tend to buy it. Second question you said in your presentation that it’s not used as a toy, would you mind sharing then what it’s used for?

Renata Thiebaut: So, we even had a Chinese artist using JellyCat. We never paid for any KOL for any artist to showcase the plush toy. It was purely because of its cuteness. So, we had for example Angelababy, the Chinese Kim Kardashian – she was holding a JellyCat in one of her TV shows, so of course it was a free PR for us.

Matthieu David: Incredible, it’s incredible. For people who are listening and may not know China very well, she’s one of the most famous person – KOL I would say – people would love to have, would give millions of USD to have her as a KOL.

Renata Thiebaut: Yes, so as soon as they like a product, they can do some free advertisement and we were not even aware of that and we got a lot of feedback from consumers and we were like – oh what’s going on! So, we found out that she was with a JellyCat in one of her shows. So, it happened quite often in China actually, not only with her, but even with some others. So, we could grab all of these materials and use as a marketing material to promote our brand, without having any extra cost.

Matthieu David: The thing which is surprising and in some way it’s something – it looks random. The way you talk about it, it looks that by chance you were successful, but I don’t think that’s the case, I think it requires a lot of work and a lot of thinking. So, what’s the strategy behind it and the tactics which were not costly, but made a big effect?

Renata Thiebaut: The first thing that I believe was the key milestone for JellyCat in China was data. We saw in the beginning that our approach was wrong. Our strategy was wrong. So, within 6 months we had to re-shift and to re-strategize the brand, because like you said – we thought it would be a toy for a kid, but in the end most of our consumers were 25 years old plus. Young women going to work and they had the need because they work so hard, they had the need to be with a JellyCat either inside of the bags, to bring their JellyCat around, to go to a coffee shop, or also go to work with a JellyCat. And this is so true because most of my colleagues they have a JellyCat on their desks and they work holding the JellyCat.

So, we positioned ourselves at that time – we had to change our mind-set and also our strategy to show that JellyCat is a fashionable accessory. So, you have these smaller ones that you can carry around, put inside of your bag. So, if you go to a coffee shop or if you go to work and also of course we cannot just eliminate the case that it’s a good gifting for new-borns. So, we had to differentiate different audience and to work in a different communication message to these different audiences to show that the product is 100% safe, you not have allergy with the product. So content was the second thing that we really, really worked hard on to position JellyCat at the top plush toy in China.

Matthieu David: How did you find out that you had to change the positioning, because you were targeting children and it seems that it was not working, so you found out that the few sales you had were actually more 25 year old and from that – with the few sales you had, because I believe it was not many – you tried to differentiate and started a campaign targeting them and that worked. And then you scaled that and you put even more investment into it because you saw there was a momentum – is that correct?

Renata Thiebaut: It is correct – so in the first 3 months sales were very low, but we saw this tendency that most of the buyers and the visitors of the shop for example – the ones who would put the product in the basket but not convert — were 25 year old plus. I think the most important factor that year in the first year was 11/11 – we were definitely not prepared for the campaign.

Matthieu David: Which year was it?

Renata Thiebaut: It was in 2015. So the first 11/11 we sold so much more than we expected, let’s say 10 times more, 15 times more and the warehouse of JellyCat in the UK they were shipping the products 24/7. So you know in Europe usually people do not work on weekends right, you have restrictions with even transportation, trucks are not allowed to transport during the weekend and especially on Sundays. So, it was very stressful but we managed to deliver all of the products we had and from that time on, the first 11/11 on, we became the top one plush toy brand in China. So, I want to say that – 11/11 was very helpful for us as well.

Matthieu David: As I’m listening to you I understand that the shop is managing the cross-border e-commerce in China, so it is TMall Global right – and the warehouse – for people listening to us who are maybe not very familiar with TMall and the ecosystem of e-commerce in China — you can sell in China when you have a warehouse outside of China, and this is called TMall Global, JD is doing the same, JD Global, and you don’t need to have the registered company in China – you ship from the warehouse which actually could be a free trade zone as well in Shanghai, maybe as what you do now, with the free trade zone in shanghai or in Hong Kong to ship, and at that time it was UK.

Renata Thiebaut: Yeah, so that time it was the UK – we are using Alibaba’s logistic network which is called Cainiao to ship the products out of the UK to the final Chinese consumers, but then we were only on TMall global at that time. So JellyCat started expanding. And this is what I tell all of my clients, I do not think it’s a good strategy for you to come to a new market like China and have many sales channels for example. Sometimes they want to open on JD, on TMall and on different platforms like Kaola, The Little Red Book – it’s always good for you to start slowly, to choose first the best platform and then you do a trial in the market – if the product is not good you can adjust or the communication because you need to select a hero product for you to push the brand in the Chinese market.

So, we started first with TMall global shipping out of the UK but as soon as we expanded our business and we opened a JD store, then we open on TMall domestic that business model was no longer valid. We needed to again re-strategize. So, this is the message I think with JellyCat we always needed to rethink your strategy and think fast actually because e-commerce is so dynamic in China.

Matthieu David: It took you about 3 months before changing – as the sales were not good, 3 or 6 months I don’t remember how many months. Initially when you have a new product –and let’s take JellyCat as an example, how do you get clients? It is said by many people that when you need to get a client and you’re not known – and JellyCat was not known at that time in China I believe, you have to spend a lot of money in marketing, and you said this was a small company that did not have a lot of money to spend, so how did you get your traffic on your TMall? Was it still on Baidu what you were doing initially? Was it purely on Alibaba platforms? Could you tell us more about how you drive traffic and the specifications of JellyCat?

Renata Thiebaut: The best way for you to drive traffic to your online shop when you have a limited budget is to focus on the marketplace. You have a banner display, you have keywords, you have many different ways of driving paid traffic to your store, plus all of the free traffic that you can also have if you join a campaign for example if you do corporation with other brands. So, there are many ways for you to drive traffic.

So, I do not think Baidu would be a good strategy in the beginning if you have a limited budget because you might not convert. So, the focus should be to do marketing within the platform. As a rule of thumb, we suggest a marketing budget of around 20% compared to your sales target to be invested within the platform. So, it is a bit high but as soon as you gain more free traffic, you can drop it to let’s say 15%.

Matthieu David: I see, I think the next question for someone listening to us and who would like to have his shop on TMall is – yes, I’m spending 20% but then do I have the data, or is it owned by Alibaba, and can I retarget them? I believe you can retarget through Alibaba platforms and everything which is owned by Alibaba, including ele.me and so on, but I don’t believe you can really drive your traffic and convert them through WeChat or email because I believe it’s still the ownership of Alibaba. Would you mind sharing about this investment that companies do – 20% as you said of sales – it’s sizeable, and then do they own the data?

Renata Thiebaut: The company does have access to the data. If you have an online shop, you have access to the industry data and also to your shop’s data. So, you need to be able how to use this data for you to understand what is wrong and what is right in terms of strategy. So that’s why we are 100% data-driven and especially myself, I am in the business intelligence unit of Web2asia so my role is really to take data and strategize the business or re-strategize the business of our clients.

I can give you a very clear example of what I did with Aldi. We are selling milk – fresh milk and UHT milk of 1 liter in China. Sales were good but we noticed that we are not selling as well as other brands, especially European brands and I tracked all of the attributes of this type of product in the industry and also the top-selling brands or Chinese brands as well, and we saw a trend that Chinese consumers would prefer two different types of milk. One was 250ml instead of 1 liter, and the second one was milk with enhanced calcium for kids.

So, if you do not have this data, you are not able to understand the consumer’s behavior, right.

Matthieu David: I’m sorry to interrupt but you got this data through the fact that TMall or Alibaba is sharing with you industry data because you have a shop on TMall. When you have a shop on TMall you have access to data on the industry – but you cannot access all the industry but only your own industry. One thing I’d like to add about Aldi – people may be surprised by listening to us that Aldi is selling through a platform – a marketplace. Like Aldi is not selling on amazon or – but TMall is a place where you open a shop. It’s like a street. It’s like a department store and you open a shop. So, you find out the data on TMall which helps you to reallocate your effort and maybe redesign the product?

Renata Thiebaut: Yes, we needed to redesign the product, we needed to be able to follow all of these trends and see what the Chinese consumers want. We localize a lot of products as well. Aldi is a German supermarket so we are very, very strong in Europe, but European food consumption is very different from China. So, in China, we sell hotpot for example, that we do not sell back in Europe. So, we need to do this – whenever you go to a different market, you need to have a certain level of adaptation and localization of the product as well.

Matthieu David: My understanding is that the key advantage of Aldi is the ability to source European products which are more qualitative and maybe at a discount price because Aldi has a bit of image of discount in Europe if I’m correct, and the ability to actually bring in a hotpot – European vegetables, European products would be the asset – that’s what you concluded?

Renata Thiebaut: Yes, so we adopt a very different strategy in China, we wanted to be very competitive with lower prices just like in Europe, but also offer products that Chinese consumers are used to, like hotpot, or noodles. Chinese noodles. We ship from Australia because of the cost. It’s much cheaper to ship from Australia than Europe, but then our Aldi started procuring within the Chinese market as well, but with European standards. So, for the Chinese consumer, food trust is the key. So, you can manage to leverage what you do in Europe, cheap products but very high quality, and to adapt to the Chinese market as well. Because there were many food scandals recently in China, so this is very important. And Aldi like you said, they started with a TMall Global shop. I think this is their standard strategy so you can test the market first. Then you move to TMall domestic, then you start opening your own shops. So our first store was launched in June last year in Shanghai, and right now we have a few of them in shanghai, around 5 and we plan to expand to other cities as well, for a couple of thousand shops within the next 3 years.

Matthieu David: Yeah, for people not to be confused when you’re saying shop now – you’re saying offline shops.

Renata Thiebaut: Yes, simple shops.

Matthieu David: Yeah and it started with the TMall global and then they had a beautiful shop actually – very well designed – are you managing them at all?

Renata Thiebaut: We manage the shops and we integrated our system with the physical shops and the online shops as well on ele.me or on TMall, for example, because we also need to understand the consumers, if they were repeated buyers – how we could target these offline consumers to drive traffic to our online stores and vice versa. And, our key strategy for Aldi is O2O, online to offline (more on O2O in China here). With the integration of this data, from all of the sources that we have of the sales channel from physical stores, online stores to also social media on WeChat, Little Red Book – that’s what we use to strategize the business.

To give you a concrete example – we were expecting to grow around 23% this year, it was our very let’s say, simplistic way of thinking last year to take things slowly and really use data to grow the business more in China. But because of the corona virus I think our projections are off and they are going to expand much faster and much, much more than this. Only in February and in March we saw that the sales grew 20 times more than the average.

Matthieu David: So, the crisis was beneficial to Aldi because people were delivering home.

Renata Thiebaut: Extremely beneficial. For some industries we could see an impact of let’s say 40-50% in their sales. Fashion industry – perhaps a bit less, and shoes for hiking for example – we saw a drop of 40-50% in sales. As for other mummy and baby products and also food related products, there was a big increase. So, in Aldi’s case I can tell you, it was around 20 times more than our standard sales.

Matthieu David: Interesting. What about now, the post coronavirus because – people who may listen to us who are in Europe or in the US may not know, but in Shanghai now we are going out, bars are open, even night clubs are open, everybody’s wearing masks but everything is working. Is it back to normal or people keep their habits?

Renata Thiebaut: Right now, we’re still very, very up because not being the whole of China is normal. So big cities like Shanghai are slowly going back to normal. Even though it’s not 20 times more than the usual sales, it’s going to be much higher because you gain awareness, so people who did not shop from Aldi before now know Aldi, and they’ll probably keep shopping from Aldi. That’s why it was also beneficial in the sense that the brand will gain awareness and also more buyers. Our delivery is very fast, it’s up to 30 minutes in Shanghai for example if you’re nearby. Since we are going to expand to other cities in China, this will spread all over the country. So, we’ll keep these 30 minutes – our consumers should be comfortable. If they either want to shop online and receive their products in their office or at home or if they want to pick up offline.

Matthieu David: How did TMall react to the fact that you opened offline shops? Because in some way you are driving traffic out of their shop, I mean you are getting your independence which is something that I think Alibaba tries to avoid, even working with JD, they may try to avoid that their brands work with JD.

Renata Thiebaut: Now I do not think that the market places are as concerned as before for two reasons. One is we are facing a new era of new retail. So, this is the trend, even Alibaba is doing the same with Hema for example. So, we needed to change the mentality that offline compete with online. It really goes hand to hand, because the more people know your brand, they can also go and shop online, so you can leverage also the data you have from offline to convert to online. So there are many ways to do this, if you offer QR codes with coupon discounts for example or when you do an online campaign you can have offline events to drive traffic to your online shops so you really need to be creative when you do O2O when you have different sales channels instead of thinking that it will hurt your online business, but actually it will create more awareness to drive more traffic and business to your online shop.

Matthieu David: How do you organize your team? That’s one thing I’m curious about – you seem to expand in very different directions and to do a lot of different things. Managing a TMall shop is not only setting up technically speaking the TMall shop – it’s creating banners, it’s about managing PPC, managing media buying, it’s about also doing brand reputation on Baidu and it’s listed on your presentation, for instance, social media, and now offline shops! How do you organize your team to have the talents? Could you help us understand do you have designers’ insight or do you actually partner with other company’s?

Renata Thiebaut: We do mostly in-house, and actually we did a change management implementation in the company. Before it would be a very up-down model that we had in the company and let’s say you had a director – an account director, then you had the manager and you had different people like a designer, customer service representative to do different tasks and nobody would be aware of what the other ones are doing, which is not too good for e-commerce because we all need to speak the same language and to be 100% aligned to grow the sales and avoid returns or problems that may arise with e-commerce.

So, two years ago we changed our management structure to be more project-based and it is called flat management. We divide the teams by different projects and they only take care of projects that are in similar categories, so they can have more expertise. For example, if you have a food client, all of the team members will take care of food-related clients, or mum and baby, or fashion, because if you do food and fashion at the same time, you cannot really focus and have a concise strategy because it’s completely different. So that’s how we work. Even though we have people to do different tasks, all of them need to be aware of what they are doing.

Matthieu David: In terms of talents and functions, how is a campaign organized? You have a creative person, who is going to design the campaign, then you have some people who activate the campaign? Would you mind describing a little bit the different steps of a campaign and the different people involved in it? It seems to be a lot of different talents and resources.

Renata Thiebaut: Yeah it requires a lot of resources. I’ll just say between 7 – 10 people per project because customer service is so important in China to not only upsell the product but for crisis management as well if the product is broken to avoid bad reviews. So, we start with customer service and you need to train them, they really need to understand the brand and all of the characteristics of the product. Because they are the face of the brand – they really represent the brand.

Then it goes to design, you cannot write the wrong price on a design for example to set up the wrong price within the shop. So, you always need a double to triple layers of double-checking, because the campaign period is so stressful that you need to have everything in place before midnight. Right. If the campaign starts at midnight. So, you need to allocate one project manager who will coordinate with all of these different people in the team.

So we divided the campaigns to give you a concrete example into stock first, we do the stock preparations and also the pricing strategy. And then you have the pre-warming campaign, so only a few selected products will be part of this pre-warming campaign. Consumers pay a deposit and they get extra discount or they get a special gift, limited editions, and things like that, and then you have the campaign day which might have another set of discounts, another set of gifting. So, you need to prepare the campaign through different phases and to be ready before the campaign starts.

It was very funny actually – well, of course, it was interesting, very stressful, but thinking back at the beginning, especially cross-border e-commerce in China, or even e-commerce in China, the campaigns they were so stressful, when a lot of manual work that we had to do and the system – like the marketplace system would freeze for a couple of minutes and you would not be able to buy the product and then by the time the product was online, it was sold out. So, these were the type of issues we would have before with the campaigns but every year it becomes much better. I would say around 6-7 years ago, the system would freeze for about 30 minutes, so each year it was less and less. 20 minutes, I remember 2 years ago it was only 3 to 5 minutes. So, this 11/11 in 2019 it was nearly perfect.

Matthieu David: Yeah, you’re talking specifically about Double 11 campaigns which are nationwide campaigns (learn more about the online record-breaking sales “Singles Day”).

Renata Thiebaut: Well 11/11 is the world’s largest campaign. So, we are talking about trillions that are sold within these one-month long campaigns. But it is not the main campaign. For some industries, you sell much more in other campaigns than 11/11 itself.

Matthieu David: Which one would you emphasise, there is 9/9 for one, there is 12/12 – which one do you think is interesting and not well understood?

Renata Thiebaut: The main campaigns in China are mainly for the Queens Day which is March 8^th, then you have 6/18 – then you have 11/11 and Chinese New Year, but Chinese new year campaign is very good for food and beverage, for example, it’s not too good for other industries, so we see sales really down in that month for different industries, and very high for food and beverage. So, these are the main campaigns, and then you have the smaller ones, like Black Friday type of campaign, 12/12 and then you have Chinese Valentine’s Day. Back to School is a very good campaign for kids for example, not only for backpacks or products that you usually buy for your kid to go to school, but also shoes and clothing for kids. So you need to think also that your campaign is not only 11/11 driven – so there are many campaigns, let’s say once a month or even more, that you need to consider, and Flash Sales as well that you can be a part of, it drives a lot of traffic for your brand. So, when I talk about preparing for a campaign, it’s not only 11/11 – it’s pretty much every month you need to have everything ready before a campaign starts.

Matthieu David: Does it mean that it isn’t worth making a campaign on your own, does it mean that you have to target those moments? Doesn’t exist some independent campaign – you want to celebrate? Maybe the brand is from the UK and they want to celebrate the UK’s day and then you do a campaign on your own. Is that something which is existing or it’s something you don’t even have to care about, you have to focus on those big days organised by Alibaba?

Renata Thiebaut: No it really exists, you can do your own internal campaign. Especially if you have a CRM system in place, you can target your silver, gold, platinum members and you can offer different discounts but it is not as big as being part of an official campaign because you are going to get all of the traffic from a bigger campaign. So, this is the difference – traffic-wise, and being part of an official campaign will give you much more visibility within the marketplace than just doing on your own.

Matthieu David: To share one data on Metro, one of your clients, and again the same as Aldi. People will be surprised that Metro has a shop on TMall. That’s very common, so you go through another distributor to sell and within one day in your presentation, it was 11/11, Metro sold 17 million renminbi, if I understand the graph correctly, because next week you put TMall, which is 91 billion and we were thinking, you made 91 billion! And then I saw it was TMall. So Metro did like 2 -3 million USD within one day, for 11/11.

Renata Thiebaut: I think it was within one hour, because usually what shops do for 11/11 are much more than these, let’s say 50 million or 20 million, depending on shops like Zara, Uniqlo, it’s nearly 1 billion renminbi.

Matthieu David: Yeah, I don’t understand then the graph correctly, it should be more you say – or maybe it’s in USD I don’t know.

Renata Thiebaut: Yeah it should be in USD because the campaign starts one month before, so it is not a one-day campaign. So the way that TMall does is, you need to have the pre-warming part. Let’s say 11/11 starts around October 20, so people start putting products in the basket, or they pay the deposit, and then before the campaign starts you have another round of the pre-campaign phase, and the official campaign starts at midnight of 11/11 and it will last 24 hours. So, from midnight to 1 AM, we have a huge peak of sales, and then it goes down a lot so around 1 AM, who paid the deposit will have to pay the remaining one at 1 AM. So, this will be much less – we’ll have fewer sales at 1 AM than at midnight and then again – sales will slow down and in the morning around 10 AM, you’ll have another peak and before the campaign starts around 8 PM or 9 PM, we’ll have another peak. So, we’ll have let’s say different peaks of sales throughout the campaign, but the main one that you have most of the sales, most of the traffic is at midnight.

Matthieu David: We talked a lot about TMall, we talked a lot about Alibaba, but now JD has emerged, I think it’s been already 8-9 years that JD was created. WeChat is selling; you have also Pinduoduo; you may have Douyin preparing something to sell online. What’s your take on those other platforms? JD is very similar to TMall, but what about WeChat, Pinduoduo and other platforms?

Renata Thiebaut: The best platforms in China are the ones that are more relevant but you need to consider also your type of product. So, if you compare TMall global and JD worldwide in terms of let’s say health supplements, for example, TMall global is much stronger than JD worldwide. So then when a brand wants to select a platform, they would prefer TMall global because there you have more exposure.

So, you need to see that JD is very good with electronics, I actually think they can be better than TMall for this, even though TMall is trying to catch up, JD is very good I think with logistics, first of all, and also with electronics and house appliance. There are other platforms that are doing super well in China, one of them is Kaola, especially for cross-border e-commerce in China.

Matthieu David: Owned by Alibaba now. I didn’t mention it because it has been bought by Alibaba at the end of the day, I wanted to talk about other platforms, but let’s talk about Kaola because it has been recently bought by Alibaba.

Renata Thiebaut: Yes, so Kaola is a very good example, they are out of the Tencent, JD, Alibaba ecosystem, and they are from NetEase which is their traditional business model is to have the search engine and online games. So Kaola adopted a direct import business model to sell foreign products, especially beauty products and supplements, and they started growing a lot. So that’s why they got acquired by Alibaba, but only their cross-border business branch got acquired by Alibaba, especially because they were doing very well.

And the same happened to The Little Red Book, it is a social media app, or it was a social media app, but now its social commerce. You can also open your e-commerce website within The Little Red Book, but it’s very good only right now for beauty products or health supplements. It’s not good for house appliances or other products. So, you need to see these categorizations (find the ultimate guide to leading digital platforms in China). Some platforms are better for some types of products and others are not. So, Alibaba also acquired Little Red Book –

Matthieu David: Oh really? I didn’t know that. Very, recently right?

Renata Thiebaut: Yes.

Matthieu David: So, what you are saying is that platforms are segmented now. The maturity of the internet in China makes it possible to segment with JD, with its origin in electronics, to keep this identity into electronics, maybe male-oriented. TMall is a lot of fashion and so on and there is a platform for health supplements. Is it what you’re saying?

Renata Thiebaut: This is what happens in the industry, especially because of JD’s background, they were purely an electronics platform before, but this is not what they intend to do. JD really wants to grow their business to fashion and to cosmetics, to beauty. They are doing a big push also to expand their categorization, so people do not think that JD is very electronic-driven and it is happening very often with many marketplaces in China. Suning was also very electronic-driven with home appliances, then you have Yihaodian, which was very food-related before, a top food seller marketplace in China, but now they sell everything as well. So they really want to adapt and move very fast to cover different categories.

Matthieu David: It’s evolving fast. We are at the end of the interview and I’d like to ask you more personal questions. My team found out that at Harvard you published some papers, how do you find the time to cover topics like an analysis of the US-China trade war, how the section 301 China intellectual property case may impact new directives to promote the Made in China 2025. Seems so technical, how do you find the time? How do you organize your days?

Renata Thiebaut: I know that e-commerce customers are a lot of work and also energy from my side, but I am at that stage of my life let’s say that I really want to pass the knowledge I acquired as being one of the first ones to do, especially cross-border e-commerce in China. And I do believe that this is very helpful for business in other regions as well. So, whenever I publish something, either a book – I have published a book with them and I just finished the second book, our second series and I really try to be very practical.

Matthieu David: What’s the name of the book?

Renata Thiebaut: The book is about the digital supermarket, One Belt One Road, how we can bring cross-border e-commerce in China show to this area. So everything is related to my work, which makes it very easy because I want to write about something very practical, like how governments and how companies can learn from China and what we have done in terms of cross-border e-commerce in China strategies, for them to also grow their domestic business to disrupt technology in their countries. So, this is for me more of a contribution to the students and governments to learn from China and apply these strategies or business models back home.

Matthieu David: It’s interesting and I do the same. You are saying, we are Chinese, and I do the same with Chinese people living overseas and they say, why do you say “we”? Do you consider yourself as Chinese?

Renata Thiebaut: Well, I’ve been in China for 14 years, so I am very proud of being half Chinese, let’s say, I do not look Chinese but I really consider myself as a local and I am very proud of being able to represent China somehow in my own way.

Matthieu David: I have a few last questions. You have been contacted within my team and we sent you the usual questions that I ask interviewees, what books inspired you the most in your China journey and entrepreneur journey?

Renata Thiebaut: I like a lot of philosophical books, for example, Sun Tzu was the very first book I read about China.

Matthieu David: Art of the War?

Renata Thiebaut: Yeah. So, I really try to take the main meanings and the main teachings to my career, so this is a very good book, The Art of the War, to how you strategize your business and also your career plans, your goals.

Matthieu David: What would you like to share, what did you learn from The Art of the War?

Renata Thiebaut: You should not compare yourself to your competitors, for example. So, I think this is very good learning, even at Alibaba, Jack Ma repeats this, I do not want to be like Amazon, right. So we need not copy each other’s business model, but also try to innovate and to bring different perspectives, different offerings to consumers. Everything is about the consumers, right. If you are stuck at being like your competitors, you’re not going to provide the best you can to your consumers. So, I think this is the meaning I got from the book, that even though he does not directly say like this, but this is how I translated this into my business and into my career. I keep pushing hard in terms of data, for example, to really innovate what we currently do.

Matthieu David: I remember a conference I attended where the founder of 360 was saying — I kept looking at Baidu because at that time 360 was also a search engine and it failed, it was actually just an anti-virus software at the end because it was too much focusing on the competitor. We have this actual feedback from Chinese entrepreneurs as well. What do you read to stay up to date about China?

Renata Thiebaut: We need to read daily, right, all of the news about e-commerce, regulations. Well, I have a lot of background, I really need to actually know all of the new regulations, the new laws regarding e-commerce and cross-border e-commerce in China, advertisement law. So there are some good sources. Some good websites like TechNode, even your reports from Daxue Consulting – I read them a lot with consumer trends. So, I would suggest your reports, for example, McKinsey, PwC like the ones that we can trust. Because you see so many things online, sometimes they are not necessarily a good source for you to be inspired by. You need to be very careful when you read things and the things you can really trust and take that as learning as well.

Matthieu David: What book on China you would recommend to someone who wants to know more about China? Maybe it’s not a book, maybe it’s a movie or something else, but what would you recommend to read, to watch, to do, to learn more about China?

Renata Thiebaut: There is one very good book about AI and China in the US – so I would suggest this book because it is about the future.

Matthieu David: AI Superpower by Lee Kai Fu?

Renata Thiebaut: Yes, AI Superpower, it is a very good book for you to understand the future and how to adapt your business to the future as well, because many businesses – you know, you need to go tech. you need to implement AI for you too – let’s say, survive in the business. You cannot just keep˙ having the same traditional type of business as before.

Matthieu David: Yeah, I was speaking to someone on the podcast mentioning this book and it has been really a very best – it’s a bestseller right, has been very successful.

The two last questions I would be very interested in your answer because you have been in China for 14 years and you have been in a spot where you could witness a lot of things and see a lot of evolutions. What unexpected success and unexpected failure have you witnessed in China which was a surprise to you? As an example, I always use Carrefour. When I arrived in China it was successful, they were all over the place,˙ and then they left. They sold to Suning and I was crossing Carrefour there were two logos, that was so surprising to see the two logos.

Renata Thiebaut: I think failures can inspire us more because we have to avoid committing the same mistake, and mostly it’s the same mistake that they do. They do not understand the Chinese market, so most of these foreign companies, especially the big ones, when they come to China, they adopt the same business model as in Europe or in other countries or in the US. Marks and Spencer, they had a very wrong strategy for China. We worked with Marks and Spencer before with the social media, for their content, but the thing is, if you are not willing to adapt to Chinese consumers, you are prone to fail and that’s what happened – they had to leave China.

Matthieu David: Yeah, they had an offline shop as well close to People’s Square in Shanghai right? And, what’s surprising you actually is that even though big companies who are making so much efforts to succeed don’t make the efforts to actually really understand the Chinese market.

Renata Thiebaut: Yes, this is true, plus the competition. So, you are competing for price with other Chinese brands as well. If you do not want to change your style because Chinese consumers, they do not exactly dress the same as British consumers. So, they were very classic, everything was black or grey or white, so nothing different that they could buy from Taobao for a cheaper price or nothing that it would strike the eyes for the Chinese consumers to buy. So that’s why they didn’t adapt, plus price point – that’s why they failed in China.

Matthieu David: And the opposite, what success has been surprising to you in China? I’m asking this question because the thinker and consultant Peter Drucker was looking at unexpected success, unexpected failure, to assess innovation. I think your perspective is very interesting to that concern, to see what success you have not seen coming and which came?

Renata Thiebaut: I will say Intersport is a very good example, because they resell other brands, like Nike and Adidas, and this is a very difficult thing for you to be a reseller in China, especially if the brands you are reselling, they have established business in the market. Nike, Adidas is very well established in the Chinese market. So, what Intersport did to be the first one sports brand in China or retail in China was to focus on limited editions for example, or products that Nike and Adidas official stores would not have. Also, they did a partnership with Alibaba to implement technology and to give a better consumer experience to the buyers. For example, in Beijing, they have a big screen that is automated, so whenever you pass by, let’s say it’s a woman that is passing, they offer women related products and you can see the products. Then you enter the store, in which everything is touch base, you can try on the products, you can shop online, you scan the QR code; so this is very AR driven. They use a lot of technology to leverage their business in China to be more competitive and to be more well known. So usually consumers could buy from Intersport instead of the brand itself.

Matthieu David: Intersport was a success you were not expecting initially to be as big as it is?

Renata Thiebaut: I would not expect because they resell other brands. That’s the reason. So, I worked with them for this consulting strategy on O2O and how to leverage their brand. We had to do product selection, push different products, and then they signed this agreement with Alibaba to do special technology to leverage their brand in China. I think they are doing very well, it’s a very cool brand, a very cool case, let’s say, that we could learn from.

Matthieu David: Thank you very much, was very, very instructive, was very interesting. I have to say – I was a bit nervous before interviewing you because of everything you did and you do and you are doctor, you have time to write papers, you are a researcher at Harvard and you work on e-commerce in China, managing a business. That’s very, very impressive. Thank you for spending time with us and I hope that you enjoyed it and I hope everyone listening to us also enjoyed it.

Renata Thiebaut: Thank you very much, it was my pleasure.

Matthieu David: Bye – bye everyone.

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This article China Paradigm transcript #101: Managing cross-border e-commerce operations in China: Successes and failures 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 the business and experience in the country.

Matthieu David: Good morning. I’m Matthieu David, the founder of Daxue Consulting and its China marketing podcast, China Paradigm, and today, I am very happy to be with Liang Sun. You are the founder of a company called Generate and you founded it 7 years ago, in 2013. Generate is focusing on supporting businesses, especially B2B businesses, but I feel you do more than B2B, especially focusing on B2B sales networks in China. So, supporting B2B businesses in their sales in China. You are very close to Belgium. You have an office in Belgium, an office in Shanghai and you are very involved in the Belgian community. And as for now, you are up to 100 or even actually over 100 independent sales and marketing associates. So, as far as I understand, for people who are listening to us, your company, Generate, has a B2B sales network in China of sales associates, whom you call sales associates or salespeople in China. You are in 6 cities, as far as I understand, and those people have a duty to develop the businesses of the clients you have, especially in B2B. So, thank you very much for being with us and the first question I ask is, about the size of the business and you can always correct me if you think there is additional information to add, but what is the size of your business?

Liang Sun: Thank you very much for inviting me. It’s my pleasure to share our experiences and expertise. So, as I said the core competencies of Generate is our B2B sales network in China, the network of independent salespeople. For Generate itself, we have a small team of four full time in Shanghai and a handful of part-time staff. So, in total, we have roughly seven people and capabilities internally, and half of them are managing the independent sales and the other half of them are siding sales support for our customers or project management for our customers.

Matthieu David: I’d like to understand better on how you work, and I really liked your website because when I went on your website, I saw your very organised way of working and that is matching quite well with my way of thinking. You have sales navigation, sales outsourcing and management, and sales recruiting. It looks like very thorough, very organised and very systematic. Could you tell us more about the service you provide to your clients?

Liang Sun: Sure. When a company wants to export their product or technology to China, whether they are experienced already, whether they have some projects already, we feel like they need help when it comes to sales, localizing the sales force, and therefore, our solution here is we help you, starting with the sales navigation program. We help you select the market segments. For example, the other day my clients told me they have three market segments: material handling, theme park and machineries. I said, “Let’s start with material handling.” Then we would help them understand what is the market competitive landscape. What are the key players? What are the channels to market? How do customers make their buying decisions? Who are the decision makers and influencers?

Then, instead of going on with the tech search, we start mobilizing our independent sales force. They are either networkers or experienced key account managers. We would bring the products to their portfolio, which are usually complimentary products, for them to sell the different products to the same key accounts that they have been serving for the past years or decades to monetize their B2B sales network in China. Once there are a few deals going through, the customer would want to hire their own salespeople, but then they may not have the legal entity to do it, nor do they have their offices to do it. Then we help them with recruiting the right person and then putting them in our payroll and our offices for a couple of years until the customer wants to set up their own office and their legal entity and then we would do the rollover to let them go on with it themselves.

Matthieu David: Got it. I feel you are a very systematic person. I looked at the website and the way you express yourself. I feel you are systematic in organizing your services in very clear steps. How do you charge your clients? For instance, we are talking about sales navigation, sales outsourcing, and sales recruiting; I believe you have a very clear way of charging them and a way of incentivizing on success, as well. What is your business model?

Liang Sun: Yeah, indeed we have our pricing scheme and we are structured as we believe that even small companies should have a process or structure in place. In the meantime, we are flexible, and the small companies, medium companies, and enterprise customers may have different preferences on how they want to pay for our services. So we work on hourly rates, or we work on their rates or we work on project fees, plus commissions. So, it is flexible.

Matthieu David: What is the typical way for a B2B sales network in China? I believe the first step is… sales navigation would be like a product. We look at the product, we investigate the market, we talk to the associate. What kind of channel could work? What kind of channels would not work or maybe your product is not ready for China? You need to work on a new product and come back to China. So, I believe that this is a project. It could be I don’t know, 100 000 RMB, 200 000 RMB, but I feel it is a product and then you have recruiting. Here, I feel that it’s more like a percentage, maybe of the salary of the people you recruit, like head hunters do, which is very typical of headhunting and then you have the sales outsourcing and management and I believe as far as I understand that it would be a retainer, plus performance fees (learn more about recruitment). Would you mind sharing a bit more about, if someone is listening to us and would like to project himself in working with you, what should he expect in terms of investment, and at the same time, an incentive to you?

Liang Sun: Sure, as you said, the sales navigation program is a product. It has already indicated a certain level of commitment, should the customer choose the product, and before that, usually the customers have experience in navigating the sales themselves or through us, so, often than not we would start with a day or two’s work. They would give us a clear mandate. “Liang, can you talk to three potential customers or three sales? Give us feedback on our product. Could you investigate this competitor?” What are their products? How do they sell? How do they charge? So, then for us, it is quite easy. It is a few phone calls because we have a professional network for B2B in China to get the information.

Matthieu David: This navigation is a few days. It’s nothing exceeding a week, right?

Liang Sun: No, sales navigation as I said, it is a certain level of commitment. It could take three months. Before the customer commits three months, we want them to have a feeling about how does it look to work with us. So, if a mandate is a few hours, we will take it with an hourly rate. If the mandate is two days, we will take it and then deliver a one-page report. That takes us two days to work on.

Matthieu David: I see, so sales navigation you feel that within three months is enough. Three months is a pretty sizeable amount of time for a company when they want to make decisions. It’s not short either. So, three months is good for you to go through different aspect, to explore things with different associates. So within those three months, are you dividing the different steps or you spend time and explore whatever you can? How do you organise those three months?

Liang Sun: Yeah, so the scope is to select the market segments, contacting the market competitive landscape research, and mobilizing my sales force. So, in practice or operationally we would induct my full-time project manager for up to a week and let him or her get familiar with the product mandate and then what we would do is up to 5 independent sales associates to the project manager, for her or for him to induct those sales associates. Then those sales associates would bring the product in front of their customers over tea or dinner after their own product is selling, they will say, “Hey, would you like to see something else that is cool?” for their feedback. If the Chinese customer wants to initiate their business discussions or put their customer in the shortlist. So, after three months, we would be given our European principles. The feedback from the sales associates, the feedback from the customers, the shortlist of the prospective partners or customers and a cost indication on how you want to move forward and usually, the sales navigation program would end with a proposal for a one-week commercial agenda arrangement in or near Shanghai for the European process to come over here to meet 10-15 potential partners or customers.

Matthieu David: I see. I am on your website and indeed, so you talk about the scope and then the deliverables and so it’s a few pages of feedback and prospects and so on and then you have the options and options is more of activation options, being exhibitions, commercial agenda or execution of the program and it would be more what you would do next, which is to actually sell for them; sales recruiting in China and so on. Is it correct?

Liang Sun: Yes, because sometimes the customer wants to participate in an exhibition, sometimes they need us to induct them on the Chinese business culture and so we have add-ons for them to choose from. 

Matthieu David: I see. So, that was the question I often have for people who do exhibitions. We have clients who go through exhibitions and we know companies who only organize exhibitions for them and so on. How useful is it to go to exhibitions, because every time I go to an exhibition, I see someone who wants to sell me something and I want to sell something to him. It’s a one-way talk only. So, everyone is here to sell, but nobody is here to buy. So, what is your feeling on exhibitions? Do you still feel it’s useful? What do you feel or maybe I was not at one of the good ones?

Liang Sun: I am very glad you asked me the question. We don’t believe in exhibitions to put it in a simple way, although most of our clients still want to participate. It is good for them because they can have a feeling about what the industry looks like in China just by talking to the people during the exhibition, and if we were the European company and we want to go to China, we would not have a booth; it’s an unnecessary cost. We would simply walk around. We did a test with a customer when we said, “Could you give us half of the budget for the booth and let us do something creative?” I asked my entire team of 4 people, wearing the customer’s T-shirt and then we brought cardboard with our tops and we had lollipops or mint or flower or whatever, the promotional products in our pockets, just to catch random participants or visitors for a few minutes’ conversations. “Have you heard of this product? What are you doing here? Would you be interested in our product or could you give me some feedback? We are new here. We don’t know what to do. Where should we go?” Often than not, it is so much more efficient. You have no idea how willing the visitors or participants are willing to share as long as they don’t consider you as a competitor. So, rather than sitting in our booth, waiting for the people to come and sell us something, we mobilize our team to walk around actively looking for buyers.

Matthieu David: Yeah, I feel though to add on, exhibitions could be good to understand your competitors. I have a sense of partners or people who may have additional products to sell with you, as you said with your sales associate and their B2B sales network in China, you make sure that they don’t sell them products as a conflict of interest, but they may sell a door because actually, a door system or entry system because they are in the building industry and the new mall needs an entry system, but that’s not their core business, so, it is complimentary. So here, you may find complementary partners, but indeed, trying to find clients within exhibitions, exhibitors should not sell on it, right? They shouldn’t talk about finding clients for exhibitions. That doesn’t exist, right?

Liang Sun: Actually, more often than not, our customers leave the exhibition with a few solid prospects or even purchase orders. So, it works. Whether the purchase order is solid or not is another matter. Still, they find that their return on investment is fine, but what I want to say here, is the follow-up after the exhibition is more important than the exhibition experience itself because when they are back in Europe, how are they going to follow through with the process, given the different language, the different time zone, and the different response time expectations. It is quite challenging and that’s why we provide sales outsourcing so that our project manager can be their part-time or full-time representative in China following up with the process.

Matthieu David: Going back to your sales associates and the B2B sales network in China, I have the feeling that something you emphasized, you mentioned on average that they are 42 years old and so that means they have experience and they have at least 15 years of working experience. There are several questions: How do you recruit them and how do you make sure they are good ones. And finally, how do you make sure there is not a lot of conflict of interest, because you may have one guy who may want to have a lot of things to sell, but actually within the different things he is selling, you may have a conflict of interest selling the same products as competitors.

Liang Sun: Yeah, let me answer the question in this way. First of all, it is a private network. It is a network built upon trust. I would say everyone in our team, including me, work with less than ten sales associates directly and our sales associates may have their sales associates. So, we know each other. It is not like we only have a few phone calls. We meet each other on a weekly basis and working with sales associates is a cost-effective way, meaning more variable costs than fixed costs and also, it’s easier to get started with and easier and also less commitment. Your full-time sales know a lot more about your company than the part-time external sales force. Whether you want them to avoid conflict of interest or not, you can’t control them because they are out meeting customers. So, working with part-time and external sales force it is safer.

Coming back to your questions about conflict of interest and overlaps, it doesn’t matter to us because we sign the non-compete, non-circumvent, and confidentiality agreement with our principles and then we co-sign the confidentiality and the non-compete with the sales so that they can get on with it. We gave them a questionnaire for them to pre-qualify the Chinese customers’ interest. Once there is a qualified lead, we nominate the leads at our European principles. Once the nomination is accepted, we bring the buyer directly in contact with the seller for them to initiate the business discussions and our project manager may assist in the communications and our sales associates, who are closer to the customer over dinner, over drinks or karaoke, often than not may influence the customers buying decisions. That’s how it works. So, as a result, more qualified hot leads coming and also, the deal closing rate gets increases.

Matthieu David: I see. Your clients are incentivizing you to the volume of sales you do and also the number of leads you bring, or the time you spend because it could be a very long process in B2B sales in China. They may spend a lot of time to translate, it may be technical. It may be very costly for you, and if they pay only with the volume or most of your earning comes from percentage of sales. You may have to wait for a few years before being profitable. How do your clients reward you?

Liang Sun: Yeah so, we are a consulting company and we are not a sales agent working on commission. So, we do have our overhead and expenses covered. In the meantime, we are result-oriented, and we consider ourselves pricing quite aggressive. We often describe ourselves as street fighters, helping customers find shortcuts on signing deals, and getting projects. So it is competitive and yet, we cover our overheads and expenses and make a small profit on those fees already.

Matthieu David: So, the second step is sales recruiting. When you say sales recruiting in China is it that you recruit full-time sales for your clients or is it the associate you activate?

Liang Sun: Yes, so after the three-month navigation program, often than not, there are prospects that are ready to buy or that are already buying, and then we would say you need a full-time salesperson and to follow up closely or to serve your existing customers. We can help you find one and we can put them in the office. The principal would pay us a monthly fee, which includes the offices, employment, and sales support. They can stop the project and the whole recruitment with a months’ process and then we will take care of the hassle. So, again, for them, it is less commitment, but faster setup and same results.

Matthieu David: So, you recruit for them and you hire the people for them with your structure, right?

Liang Sun: In the accounting book, yes. They are on our payroll. The customer pays us a monthly fee to cover the employment and also the cost of our sales support and payroll services.

Matthieu David: I see, but when they sell actually… the company in Belgium, where you are going to involve the client because you cannot invoice for them.

Liang Sun: No, so what I do is I invoice the customer in China. They get the project fees, they share a commission with us because we also charge a commission, so that our fixed or upfront fees are quite aggressive and we want to get rewarded by commission mainly. Then we would give part of the commission to the sales because the sales representative has a job. It is a low risk for them and it is comfortable. But we take all the risks and so we have a higher sales commission than the full-time salespeople that we employ for our customers.

Matthieu David: I see so, so what’s going on is that those clients you have don’t have to create their own company in China. If they do sales, they would invoice directly from Europe, their end-client, and then they would give you some commissions as a reward, or percentage of sales. You are consultants and so you are a consulting company, advising on how to negotiate a dealing and supporting them, but you are not invoicing for them. Am I correct?

Liang Sun: Nope, unless their customer requires it, but sometimes the Chinese customer will require RMB invoices. Typically, it is a service contract for IT serves, project management services and we will assist because we have legal entities both in Belgium and in China and so we can help in that.

Matthieu David: I see. Then, the tricky aspect of your business is that, if you are successful or if you do well in your job, you should lose your client. Your client at some point would start a company in China, have their own structure and so on and that is actually what you say, that after 12 months or until your objective that your client has a company in China and he is successful in his company, what is the next step after the recruitment of a sales advisor and sales in China, by your structure?  

Liang Sun: So, we consider ourselves successful if the client wants to leave us within 24 to 36 months because that means that we have succeeded in helping our customers enter into the China market and have a solid footprint. We usually don’t charge a rollover fee, which means after 24 months, our sales can become your sales. They are free to go and please, refer other customers to our business. This is the way that we believe, and in two years clients are already better than a market research firm’s three months clients. You will be surprised how often our customers come back to us for due diligence support or other supports because they trust us. 

Matthieu David: Is it the reason why you have now digital marketing, brand strategy, design, and social media campaigns, trading? It seems you expanded and that I think I was not very clear on. Those words, digital marketing, brand strategy, design, social media campaigns and talk about Weibo and WeChat, are B2C? (read about optimizing Wechat marketing in China)

Liang Sun: Not exactly, because B2B sales and marketing in China also need WeChat.

Matthieu David: Can you elaborate on it? I think it is a misconception with a lot of B2B businesses, thinking that WeChat is B2C.

Liang Sun: Okay so, the reason we started the digital marketing exactly, is because our clients were asking for it. We have succeeded in helping them sell and they want to market because they have a budget to spend, to create a brand, and market awareness. We tell them honestly, the path on WeChat you need to outsource the work to professional firms and more often than not, we outsource to Chinese firms because we believe they are cost-effective and their foot is on the ground, they are local. Then the customer needs our support on project management and language communications, and they believe in our model. We work on project management fees and to answer your question on the B2B marketing and sales in China, yes, WeChat is a good B2B marketing tool in China (find a guide to B2B marketing in China).

I will give an example. We are helping one of the largest Belgian companies in industrial machinery sector on managing their China marketing and the starting point is starting up a WeChat account, they have a factory in China, for their sales people in China to use as a tool. So when they are done with meetings, they can say this is our company brochure. There is our QR code, please subscribe to our WeChat account to see our project references and news and exhibitions that we are attending. With WeChat, it is so much easier to share news or project references or information to the prospects who can then share internally or externally to other people because everything in China is on WeChat these days.

Matthieu David: I see, so basically even B2B when you are at an exhibition, people follow you on WeChat and that means that it is also used for B2B sales network in China because you build a connection, not only through a dinner and lunch, but also through WeChat and people keep your contact and follow you, right?

Liang Sun: Yeah.

Matthieu David: Talking about sales recruiting in China, how do you recruit a good sales person in China? What is a good sales person in China? To give you a bit of what people think, it’s that a good sales person is someone who is good at networking and relationship building in China. So, basically you would always favour people who are 50 years old with a lot of experience, more than someone who is let’s say very inventive, more than someone who is actually a good speaker. I found that a lot of people tend to think in terms of sales people and recruitment by their guanxi, network, which is very often difficult to assess (learn about leveraging guanxi for business in China). People may say, “I know this one and a lot of people,” but how do you assess it? So, basically an open question: how do you assess a good sales person in China?

Liang Sun: Yeah, let me start by saying that we believe sales is a service, it is an art and most importantly it is a process and we divide the process into three aspects; the lead generation part, the sales follow-up part, which is usually technical and the deal closing part, which is where the network comes into play, guanxi. It depends on the principal’s needs. If they need a sales engineer to follow up on the existing leads that they have, or they need a lead generator, a door opener to get new leads, or they have leads and engineers, but they need a super networker and client relationship manager to close the lead, spend time with the customer to understand what they want. So, typically one person can be very good at one or up to two of the three parts in the process, and we think we can do the sales recruitment because over the last 7 years we have done many cases. We only recruit sales people, because we as a company or me as an individual are sales person in the core and we believe it takes a sales person to understand what a good sales person is.

Matthieu David: Maybe I should have started with this question, but I really want to understand your business first and I think the people listening to us also want to go in depth in understanding what you do and how you serve your clients. But if we go back in time, 7 years ago, what made you start this business?

Liang Sun: That’s a very good question. I started the business 7 years ago because I was lucky enough to have a mentor and he taught me one day, he said, “Liang, never hire sales people.” He came to China for the first time in 2013 to close down a factory and office because the sales people were turning the company inside out. The invoices and goods were going out, but they never saw the money and so they fired everyone. Then this general manager, my mentor, turned the payments terms from 60 days post-payment to 100% pre-payment and because of that, they lost 80% of the customers and kept 20% of the customers, and then the company started to be profitable. So, he taught me, Liang work with sales agents. Let them get on with it. Give them commission. Don’t tell them too much. Hence, I started this model because we believe in partnerships. We respect people’s privacy and we work in teams. We believe in incentives and transparency, and we share referrals.  

Matthieu David: How do you build this professional network of references in China because what you described from outside looks like a perfect world, but in fact when you have intermediaries, you have people you need to share with and so on, it is something difficult to have a contract with someone. It is somehow difficult to make everyone happy and to make sure that everyone understands what you are doing as well. How do you work with all this?

Liang Sun: Yeah so, I started business when I was 26 years old; just a fresh graduate from grad school in Belgium. So, the same mentor introduced his best sales person to my network. Now, we are talking about the sales person that was generating the best revenue, whether the revenue cancelled or not was another matter, but a great sales person in their own way; they make money for themselves and their customers. Then, I spent enough time with them to let them understand what products I have. They were in the construction industry, selling floors, selling roofs, waterproof membranes, selling walls, paintings and then I said, “Would you like to sell Belgian roof top solar panels? Do you want to sell the warehousing racks?” It is all to the manufacturing facilities or project directors, general managers. So, clients and our sales people were motivated because they are money driven and they want to be more helpful in front of the customers and at the same time, they are very careful about sharing their professional network for B2B in China. So, I have to pre-qualify the credibility of my European principle so that I will be comfortable to bring a mandate to them because we care about our relationships and our reputation. This is how I started and this is how I work.

Matthieu David: What direction of the leads you meet with when you may describe those kinds of networks? I believe some European or US companies believe it is a bit too blurry now to go through networks, or guanxi and relationship building in China. It may create a bit of anxiety and people may be a bit nervous about not understanding what’s going on and you talked about trust again, trust enough to contract. American and European businesses want to contract. They want everything clear and written, transparent. I mean transparent by the end client and everyone to be and here, you have to protect their own network, their own wealth, right for the people who introduce you, the good salespeople? So, how do articulate this?

Liang Sun: So, you mean the cultural difference, one is contract-driven and in China it is relationship-driven, right?

Matthieu David: It’s kind of culture, but it is basically a business practice. The business practice is that people own networks. They don’t want really to share it because of the wealth they have, it’s a property, and to go further I longed so that LinkedIn could not have been as successful in China as in the West because people don’t want to show who they are connected to. I studied in Beijing University and I really have this feeling that people wanted to show that they are connected and are relationship building in China, but they don’t want to tell with whom.

Liang Sun: Yeah let me give an example. We were mobilising ourselves here to sell the Belgian rooftop solar solutions and we let ourselves introduce a prospect factory in Suzhou, and all of a sudden my sales people and sales associate disconnected and disappeared for one week and after a week I called them up and said, “Hey, what happened? Are you okay?” He said, “Liang, sorry, I was busy with managing the relationship with the security guards at the door and the decision-makers. We had a lot of fun and they are ready to sign a contract.” He gave me some invoices after dinner and said, “Look, you guys had a lot of fun. Good. Let’s sign the contract then.” I am result driven. I don’t ask questions too much. I trust my sales, but they do bring results.

Matthieu David: Yeah typically, I mean fortunately you are here because a lot of European and American businesses would not be comfortable by this kind of absence of communication, having to spend so much money on entertainment, when you have so many regulations in Europe on the amount you can spend on entertainment, for instance.

Liang Sun: Yeah that’s also why we exist, because we can be localised when it comes to our operations and also, we comply with the European and American anti-bribery or anti-corruption act. So, to give our European principles and production and comfort that they need.

Matthieu David: What is the expectation in terms of timeline to get some sales? What is your experience when you entered B2B sales network in China? Should your client expect to get some momentum after 3 months, 6 months, 1 year? I know it can depend on the kind of business. It can vary from one industry to another, but could you give a sense of what expectation they can get?

Liang Sun: Yeah, B2B sales network in China and it really depends on the sales cycle. It can be as short as 3 months; It can be as long as 3 years and the customer understands it. The company that I mentioned that has 3 market segments, material handling, machinery and theme parks, for the material handling, for example, they want to sell to China Railway and they know it is after 3 years.

Matthieu David: It depends, but I think what we can remember is that minimum 3 months basically you are saying it is not serious to expect results before 3 months. It is a minimum of 3 months to get a bit of something and it can go up to 3 years when it is a very large partnership unit with like China Railway where it will take time and we understand it.

Liang Sun: Let me give another example. If the European company sells floors or furniture, then if we manage to give them the right contacts to the distributor that wants to try the container, then the deals can go through very quickly. So, it really depends.

Matthieu David: We are in April 2020 and everyone is talking about the same thing in all the media. It started first in China and now it is Europe talking about it, impacted. It is the coronavirus. How did it impact your business and your clients?

Liang Sun: Let’s talk about our clients. If they are in manufacturing settings in Europe, then they are busy with business continuity planning. Overall, they are quite busy conducting the business the best way they can and therefore so are we. We decided not to take new projects for the foreseeable future to focus on supporting our existing clients to go through the crisis. At the beginning of the year, we signed a few new projects and for the sales navigation program and after the virus outbreak, we gave the customer the option to postpone the project or even cancel the project because we told them simply, we are not comfortable with conducting the market research because it may not be valid in 6 months and the people in China have other priorities. Thankfully all of them took their money back, so our burden is off. To give you a question, it is going to be a very hard year for us which is fine, because we are financially strong. We believe in long term. We believe in value we create and the money will come, eventually, but so far, we focus on the existing projects and we don’t take new clients for the next say three to six months.

Matthieu David: The clients you were representing with your sales associates and your B2B sales network in China, those people that you hire for them, what is the situation now? Do you feel we are back to business in China? I am currently in Shanghai and I see a lot of people in the street walking. I see all the shops open, but I see a lot of shops are also closed, who didn’t get back to business. It could be restaurants; it could be coffee shops. I also see much fewer or people in malls and stores. I was checking the Apple store and it was pretty empty. Maybe it was too early. I went early to check, but I think it is not back exactly to the level we were before the crisis. What about you in B2B? Do you feel business is back?

Liang Sun: People in China are going to all places, which is a really good sign and whether the business is back, I still think it is too soon to tell because the impact on the businesses and the revenue loss, which is negative, but the government subsidies are positive. How will it impact the industry on the macro level and the individual businesses on the micro-level? It is too soon to tell. It takes a few months. So, right now we feel like the business conversations are still going forward, but whether they would make a buying or selling decision, would still take some time to go back to normal.

Matthieu David: I saw on your LinkedIn profile that you are lecturing and among the topics you are covering, there is made in China, 2025 and this topic seems very wide and a bit theoretical. So, my question is what practical do you get from this made in China, 2025. What practical conclusions do you get that you could bring to your clients and in your lecture?

Liang Sun: In a nutshell, we believe that made in China would help the Chinese manufacturers to export more and more high-value added products to the world and those products are created in China and they are made in China. This is also a business that we are starting to get involved in. We ourselves, buy and sell high-value products from China to Belgium and we also have our clients finding not sourcing and not manufacturers, but we call supply chain partners from China. Because of the incentives, it’s a trend that we believe and we ae spending more internal resources supporting the European companies buy high-value products from China.

Matthieu David: So, the next step for your business would be actually to do what you did from foreign businesses in China, to do it for Chinese companies in the west?

Liang Sun: We decided not to think of it that way. We decided to keep our clientele as the Europeans and the Chinese companies that we introduced to the European companies are our stakeholders, but now some of them are becoming our suppliers because the relationship and trust is there. We told them that there is a market opportunity in China and our European clients may become our clients again, but not for export into China, but for buying from China. It is all about relationship building in China and trust and product and the money flow and good flow from an operational level. The network is built upon trust.

Matthieu David: Very interesting. It is time for the last questions and you received them before the interview. Typical questions that we ask at the end of the interview, what books inspired you most during your entrepreneur journey?

Liang Sun: I would say it’s the Robert book, Rich Dad Poor Dad. You probably have heard of the book. I only worked for a company 6 months in my life and I will never work for a company again. Part of the reason is the book. I believe my capabilities in managing my money more than the government and I equipped myself with good lawyers, accountants and bankers and so, this book made me start and continue and made me keep my head up when I had bad times, because I will never work for someone again and I may fail, but I will never go back to another company and I believe eventually I will succeed because I need to succeed once. 

Matthieu David: Can I ask you a personal question because I understand the desire of working on your own and as an independent, but it sometimes is made at a price. The price being that you postpone some decisions like getting married, like having kids. Are you married? Do you have kids because I believe when you’re an entrepreneur that is something you think like 10 years after others?

Liang Sun: I totally agree with you. A lot of people say that they want to keep a work/life balance. I don’t believe it, or a work/family balance. I also don’t believe that. I believe that either you go fully committed to your business or career development or you connect to your family more. I don’t have kids, but when I do, I want to sell my business and be a freelancer so that I can afford to be a good father, which is the most important job of all time. Right now, my business is the most important job.

Matthieu David: Yeah so, the good side is that you are independent and you make your decisions and reach that conclusion you have in mind. The down side is that indeed, you have to postpone some things in your life. Some people don’t realise when they start a business just after studying that it will cost a lot of things. What do you read to stay up to date about China? What are your favourite newspapers or magazines, even Chinese ones? Are you reading  Caixin, Renmin, SCMP?

Liang Sun: All of them. I would say I only read the titles nowadays and I do read the Economist and CNN, BBC and then I read the titles in the Chinese media channels so I can make my own judgement, which news is true or false, in my opinion, but most of the time I keep being informed by talking to my network and the successful people in the industry.

Matthieu David: What kind of resources would you trust more or what newspapers would you trust more in China to get very accurate numbers, good information? I tend to like Caixin. How about you?

Liang Sun: I would say I remain skeptical on all news channels. Every media outlet has their own agenda and they are trying to be as objective as possible. So, all the numbers and the data and opinions I use them as a reference and combine those resources with my network and my own judgment, and then I can make my business decisions. 

Matthieu David: What book would you recommend on China? A book that you would recommend to foreigners to understand China better or a book that you liked because you understood your own country better as well?

Liang Sun: Well, I think if you ask a foreign entrepreneur living in China, they can answer the question so much better because I believe there quite a few good books in English, written by foreign entrepreneurs living in China and so I read them. What I do is, I live in the country I do business with and now I am spending a decent amount of time in Belgium, because that is what I believe is the best way to understand how business is done in Belgium and living in the country itself is like reading books. I learn so many new things everyday by talking to the people there.

Matthieu David: What productivity tool do you like best? I don’t think WeChat is that productive. We waste a lot of time on WeChat, I feel. What productivity tool do you like to use in your daily work?

Liang Sun: My team uses quite a few tools that I introduced them to: Monday.com and Pipe Drive as a CRM tool, Trello as a management tool. I still use Trello every morning or what I do is I put less than 3 things on the to-do list of the day and the other 5 forecasts I have is urgent and important, which is what I do today. Urgent and unimportant, I let my team get on with. Important, not urgent I schedule another day to do it and another thing is the unimportant and the unurgent, then I will remove them. So, the reason I make sure there is less than 3 things is that I want to be free before 10am. I start my day very early. I start my day at 5am. In China I start my day at 7am, after the workout. It is quite cool and then I a full of energy and so, the purpose is to empty my to-do list and forget about all the tools before 10 am and from 10am to 6pm I do the things that my mind tells me to do and usually I am very productive. I call the customers or suppliers I need to talk to. I call the team I need to talk to. I call my government officer contacts for tea. It is productive and it is the way I find productive.

Matthieu David: It is very interesting. I am happy we met through the nonimportant, nonurgent for the podcast. I am glad you considered it as important to schedule the call. I am very curious about the tools you are using, Monday.com, Pipe Drive, and Trello. The first thing I am surprised of is they are all western tools. Second thing I am curious about is, how do you learn about them? I knew Monday.com because it’s everywhere on YouTube. I know about Pipe Drive because I listen to a lot of podcasts and I think they were sponsoring one of the podcasts. I know about Trello because I will use it at some point. My third question, sorry, I have questions on this because I feel that you have a very organised mind, so I am sure you have a process. So, the third question is how do you choose one tool over another one? Pipe Drive is in competition with Salesforce, with Zoho, with so many other CRM and so on. I understand it is more B2B here, so how do you choose? The first question is, why only western tools? The second question, how do you find them and third one, how do you select them?

Liang Sun: Yeah so western tools is because we have both a European and China team and the China team are English speaking. The European time may not be Chinese speaking. So, we have western tools and all the tools that are mentioned, including Google Docs, Drop Box. They are high Chinese alternatives, equally as good, if not better and we don’t spend too much time on making choices because we believe how we use them is more important than choosing the tool itself. So, now we have been using Pipe Drive for a couple of years. We know there are better and cheaper ones, but we don’t change because we are used to it and it is good enough.

Matthieu David: Interesting. I always have a hard time choosing software because I would go with it for years, and if they go bankrupt, I don’t know why they don’t raise money to go on. I have to start again. I always look at the exit strategy to be able to extract all the data easily. I’d like to have your opinion on an unexpected success or an unexpected failure you witnessed in China? The reason why I am asking this question is because Peter Drucker, the thinker and consultant of business strategy, he wrote many books on business strategy. He says we can assess innovation when we look at unexpected success happening or an unexpected failure happening and this unexpected success or failure gives a sense of direction of what is changing in society or in business. What would you say over the past 3 or 5 years as an unexpected success you witnessed or failure in China which can give us an idea of the changes that are happening here in the country?

Liang Sun: Yeah, I know the book you mentioned. I know the person. I have heard of him and he is from the innovation perspective, from the entrepreneurship perspective. I consider myself more a businessman than an entrepreneur. So, the way I see it, the unexpected failures and success is more than the right time and the right place or the wrong time at the wrong place. So, I believe luck plays a large role in a business success or failure. If you ask me the recent success, I will say the medical companies or the medical supply companies are masks manufacturers. They don’t need to do anything. They need to be at the right time and at the right place, they will be successful for a year or two, at least. The failure is the same. I mean, so many good companies are not going to go through with this because it is not a good time for them, but the good ones will go back up after the crisis is over because we believe the best time to start a business is after the crisis.

Matthieu David: That is interesting. Basically, you don’t believe what Peter Drucker is saying because what you are saying is that an unexpected failure or an unexpected success is based on timing, is based on luck and not necessarily showing a change in society or business. That is an interesting way of seeing things because that’s in some way, how much timing is important in success and it is random. Facebook succeeded, but MySpace failed in a few years of difference and we can see many, many examples like them. Thanks Liang, for your time. It was very, very instructive. I really enjoyed talking to you. I really enjoyed when in the podcast I see that there is a process in mind with the person I am talking to. They have thought about what they did. They chose tools, they know about what they do and they have a process and clearly, you are this person. So, thank you very much for spending time with us on to China Paradigm, the China marketing podcast where we interview entrepreneurs in China, and I hope you enjoyed it.

Liang Sun: Thank you very much Matthieu.

Matthieu David: Thank you everyone for listening. Bye-bye.

Liang Sun: Cheers.

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This article China Paradigm transcript #100: Behind the scenes of a B2B sales network in China is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Hello everyone, welcome to China paradigm, the show powered by Daxue Consulting where we interview seasoned entrepreneurs and experienced managers in China about their business and experience in the country.

Matthieu David: Hello everyone I’m Matthieu David the founder of Daxue Consulting and its podcast China Paradigm and today I am with Gordon Dumoulin. You are the founder of three companies and one of them being food, one being education with your wife. You have been in China for more than 10 years now, more specifically in Beijing. The first company we are going to talk about is in the food business, it’s called Dumoco – if I pronounce correctly – and it’s focusing on ingredients, very rare ingredients with specific effects on health, memory, basically health – how it can affect your health and I have a lot of questions about it. This is not a small market in China when we talk about health and ingredients to eat, we always think ingredients for traditional Chinese medicine and we talk about a Chinese herbology market which is about 150 billion to 200 billion USD of which 15%-20% is exported. It is growing. In some way, there is a paradox. The sales volume is growing but the number of TCM doctors and TCM health buddies are actually decreasing when we look at the numbers. It has been decreasing until 2010 and now, since then, it’s increasing again but still not at the level it was in the 1990s. So, it’s a very interesting segment because we have interviewed a couple of people before who were in health supplements and I believe you are very close to this market (learn more about the health supplement market in China).

The second business you are contributing to – because I understand that it was initiated by your wife – is education, Easton Bridge Education. So, it is based in Beijing, providing education centers in China such as English teaching and also art, science, and so on in Beijing to – I would say those upper middle class, middle class Chinese who are living in Beijing. I will have a lot of questions about this market too later on. Thank you, Gordon, for being with us. Would you mind telling me, if you want to add anything about the introduction of your two businesses and tell us more about what you do?

Gordon Dumoulin: Yes. Thanks for inviting me. It’s a nice opportunity to talk more about China, about doing business in China, and also about understanding China more. As you introduced very well, first I’m from Holland, the beautiful city of Maastricht in the South of the Netherlands and I’m living since 2009 in Beijing. Indeed, I’ve been doing the business with Chinese natural ingredients market called Dumoco. I set up the business myself in 2009 – operational 2010 and actually that came from a more Chinese natural ingredients market course or race. I have always been in the food business when I was living in Europe and when I moved to China some people and some business relations were asking me about some specific ingredients for traditional Chinese medicine and when you start a new business you need to take all the business what you can get to start up. So, I dived into some specific Chinese natural ingredients market and then I expanded to a wider range of natural ingredients. Basically, it’s indeed like you mentioned, related to ingredients for traditional Chinese medicine, functional herbs in which they come in many ways. We can use them for herbal teas, we can extract them, we can make powders and many of those are indeed coming into supplements. So, what we do here at Dumoco, we have different ways. First of all, we have our own export of different natural ingredients to Europe, to the States, Australia and to some other countries. Secondly, we do consultancy for the Chinese herbology market, Chinese companies, Chinese herb farms, cultivations, and also processing companies to consult them in quality control, which is usually expected in Europe and the type of quality control which is expected. So, we also do consultancy works in different provinces in China. The most important in this way is – as you mentioned, it’s a very interesting segment. You specified a little the TCM and also the TCM doctors, but we should look at more widely that – especially Chinese natural ingredients. Functional, medicinal, herbal ingredients are not only used in TCM. Actually, when we go to the States, in Europe, we go to many pharmacies, even to supermarkets and to other shops where you see many kinds of supplements, for sleeping, for being active, for focusing and for many other things. Actually, these are all already related to ingredients for traditional Chinese medicine, but not only to TCM, in Europe, but we have also had – now it’s much less –, many herbal remedies and still, today learning from our grandparents and even from our parents, that take these herbs or take ginger with lemon whenever you have a cold. So, there are many relations in this aspect, and the marketing, the model of marketing in recent decades, is that, of course, many modern fashionable companies who are doing supplements, but at the end of the day it’s all about the Chinese herbology market, it’s all about tradition and the history in this (learn about the push for Chinese medicine during the Covid-19 crisis).

Matthieu David: So, something I understand now, your market is overseas right, and you represent some producers from China, you help them to get the certification, do it the right way and you export their production overseas.

Gordon Dumoulin: Yes, yes. So, there are two ways, we do consultancy for Chinese companies. We help them in – among others quality control also in some export how to do business overseas and secondly, we have our export department where we have distributors in Europe, in the States, other countries who sell our products, which we manufacture in corporation with our partners in China.

Matthieu David: I understand that some of your people you know, wanted your help to buy those products in China because you were in China. What is surprising me is you have been able to also actually get the producers as clients for consulting to understand how to manage those productions and to export. Would you mind telling us more about how this articulated? Was it from the beginning that you were advising them and supporting them in production or was it in a later stage? How did you get this knowledge and how did you do it and how a foreigner can help them to do – to produce something they are used to producing.

Gordon Dumoulin: Actually, you are a link on both sides. You benefit from both sides. First of all, when you talk about the Chinese side, how you do business in general – we all know that. Its relation, you build up relations. So, at the beginning of 2010, I took night trains – 70% of my time going from one Chinese herb farm to another (learn more about China’s agricultural strategy). Going to productions who extract botanicals or pulverize to powders and you focus these people and it’s a way of doing business in China that – we hear there are many ways – also in the media, but it’s true it’s always about the win-win corporation. You also have to think about either your supplier or your customer, how they can benefit, and how you can benefit. Because if one doesn’t benefit, the relation will not last. So then it’s a natural growth that – of course with some people, you have a better relationship than with others, but you want to help them to improve because also for my benefit, because I’m buying products from them, so I want them to improve, so I can sell better products to my clients in Europe.

On the European side of the American side – European side they feel comfortable because Gordon is in China and I can speak a little bit the same language. And for many people in Europe or outside China, China is very far away and very unfamiliar so they don’t get a comfortable feeling, so this is what I can bring to them, and transparency is a very big word in this – because we are transparent. Our customers in Europe, they know the Chinese herb farms, they know the productions. They know everything. While many other people in the States or Europe, they try to hide because China is their treasure, so they say okay we deliver products, but we don’t tell you where or how – just the product is good.

But we did it the other way around. We are transparent and we build on trust. We built trust from all sides. So, it’s more like a community where we are in one way or the other the glue and the control and also trying to improve the whole community that everybody gets better in this way – and everybody makes money of course.

Matthieu David: I see. Talking about the product. When you talk about Chinese Chinese natural ingredients market, would you mind being more specific about what it is and especially what’s the difference between having supplements, what is the difference between ingredients for traditional Chinese medicine

 – CTM – one thing I didn’t say about Chinese medicine, Chinese traditional medicine – the World Health Organisation, WHO said, they accepted Chinese traditional medicine as a medicine and in June 2019 – the very recent was last year so I believe that may change a little bit your business and the perception of your natural ingredients by the West. By overseas markets. Would you mind sharing some more about Chinese natural ingredients market and how different they are?

Gordon Dumoulin: Yes. I’m not sure if this influenced the West, but I can explain a little bit more about TCM in general, I will not go into details. TCM, in general, it’s a different philosophy at looking at health. It’s also a more preventive way of looking at health. I’ll give you some examples. For example, they – a lot of people here in Beijing – eat radish after eating and you know when I just came here I said I’m full – I don’t want to eat radish or I’m not in the mood for radish. I better have dessert or some French teas but I looked it up, a radish has specific substances which make the probiotics start working. So, digesting your food. This is the same for nuts and seeds. You see Chinese people all over China and they eat a lot of seeds especially after dinner. And this is for the same reason. Chinese dates, the tribe dates they are often eaten before dinner because it lessens your appetite, so you don’t eat too much. So, in many ways subconsciously even many Chinese people will not have the straight answer why they do that, because it’s a tradition but generally eating or food in China is much more closely related to health and this is also coming back in TCM. In TCM there are many preventive measures, now, of course, you have many medicines which hardly exist in Europe and then you really talk about medicines concentrated syrups and other things, but the link is coming to supplements because supplements in Europe they have also a prevention. You don’t get sick, you have to eat vitamins, tablets every day or you have to drink lavender tea at night because you sleep well. So, there are many ways that you prevent something to happen. This is also in TCM – the value and WHO indeed appraised the TCM as being a medicine but is a different way and I don’t think it’s fully comparable. When you go to Chinese hospitals for example, usually for acute diseases which need to kill something and so to say in your body, you take a killer and it’s usually a Western medicine and you are cured. While –when you are for example having symptoms of something, you feel uncomfortable or you are having headaches or different kinds of symptoms, people often tend to look more to Chinese medicine to see how they can reduce the symptom. Not only to the medicine but to treatments and to behavior. So, the doctors will also tell you how to behave – the same as in Western societies, run more, walk more, do more exercise, sleep early, etc.

Matthieu David: I had a question about Chinese herb farms. Finding factories in China in some way it’s linked to overseas. It’s linked to foreigners and even that – finding the right factories, understanding the factories, how to work with them – it’s not easy. A lot of people struggle with that and you have been able to connect with entities which are Chinese herb farms which are much more remote, usually, I believe don’t speak English and I don’t believe they are used that much to export. Is my analysis correct and if it is – how did you handle it?

Gordon Dumoulin: Yeah first of all it is correct. The first question is actually why people are having problems finding the right partners, the right companies, right suppliers is – first of all, you have to be there. Like I said in the beginning, at the first year I spent 70% of my time in night trains really going to the countryside, visiting many companies, visiting also many Chinese herb farms and look – many were not qualified so –

Matthieu David: How did you find those Chinese herb farms. You can get a train to go to the countryside and then what do you do? How do you prepare?

Gordon Dumoulin: Oh, first we do some research.

Matthieu David: So, research how do you do it because it seems so unclear, so remote, so local – would you mind sharing a bit more?

Gordon Dumoulin: Yeah, I mean we are not going to the local, local Chinese herb farms – we are not going to a local farm whose producing vegetables for their village, but we are going to specialized Chinese herb farms because we are looking for the Chinese natural ingredients market. I’ll give you an example – for example, ginseng root which is familiar to many Western people, the area of the ginseng root in China is in Jilin province. Actually, at the border of North Korea so the famous mountain Changbai mountain is actually the homeland of the ginseng, so you study first. To come back a little early before I went to China, I didn’t know anything about the Chinese herbology market. So, I studied day and night, learning more about ingredients for traditional Chinese medicine, also studied – actually very simple, spending time on the internet talking to people, trying to find out – okay where is this, where is that? So, it’s also about relations, you talk to somebody and they know. Okay, we have a good company that has a plantation for ginseng. So, you take the train or the plane and you fly to Jilin, and you have a look around and you are amazed every day because you learn and then you find out this whole city is all about ginseng. And it is not the only plantation, there are 120 other plantations. So, you go to study more and you go to study more.

Of course, I have also Chinese people with me, who spoke Chinese at that time, because I didn’t speak and I still don’t speak very well, but they can communicate with the local people and we can find out more relations, more companies how to find out, but it takes time and you have to be here.

Matthieu David: So, your clients in the West, would you mind describing a bit more – are the restaurants? Are they more individuals? Are they doctors who are using it for traditional medicine?

Gordon Dumoulin: No, the majority are supplement manufacturers. So, the majority are – there are even big companies who produce actually natural supplements. Then, some of them are also cosmetic companies who are producing natural skincare (learn more about natural skincare market in China). So, we cannot supply to individuals because the quantities are too small because when somebody needs one kilogram and we have to fly that over, it will be very expensive for people. That’s why we also work with distributors. We have distributors in different countries like in the Benelux, in Germany, in France, Spain and we work with them – but they usually also of course target the larger companies and like I said, most is going into supplements, syrups, tablets, capsules, products like this and I think about 10 -20% maybe into skincare (learn more about the skincare industry in China).

Matthieu David: It’s more and more interesting what I’m discovering because I have – we are used to talking to people who are doing import and export businesses, but not at all in  Chinese natural ingredients market, not at all in food from China, but more from factories and we see plenty of people in this industry. So, I believe your business is very unique and your position is very unique. I’d like to understand more about – because you said transparency is very important – your clients know where the farm is. How do you handle the transparency on pricing if they know so much about the sourcing and so on – how do you work on the pricing?

Gordon Dumoulin: We move on the pricing together with our suppliers here in China. So, they know what we are asking in Europe and we also discuss this together. We don’t have any exclusivity, so our model is – actually, we have our own brands and that’s the local brand, so the end-users at the end of the day do not know where it’s coming from. Our distributors they know. If we have a very big customer who wants to visit a plant or wants to visit a plantation – he’s most welcome. They can come but we have to deal and we have the agreement with the suppliers that they know our customers and they will not touch our customers and even – so actually we put the security and that sounds strange for many Western people – we put the trust with the Chinese suppliers as – to be honest, I haven’t been cheated in 10 years. So, if any customer from Europe – and they know for example from which factory it’s coming, or even from which plantation – they need for example ginseng for an herbal tea if they would contact the Chinese herb farms directly the first phone call is coming to us. This guy is calling and how should we handle this? So, it’s in a way a matter of trust we can put and to be honest – we don’t have any legal agreements with this, because you don’t want to go into legal anywhere, so it’s a matter of trust and it’s again about relations what I said before. You build up relations with the people, you show them trust, you show them support, mutual support from both sides and a feeling that we are here to stay and we are going to make a good relationship together and also a pleasant relation together, for the purpose that we can sell and we can have some market.

Matthieu David: I understand. I feel that you are acting like an agent for them, an agent who will actually manage their exports and their overseas relationship. Does it make sense to say so?

Gordon Dumoulin: In one way yes, in one way, yes, but even some of them are large companies. They even have their own export department, so it’s not the only one – we are not working only with small companies, we are working with some leading companies in China for plantation, for processing and even there we have our relations and we do our own business with our own branding. We have good relations and we also support them as I said in the consultancy, in improving their processes and our processes together.

Matthieu David: You are involved in another business I mentioned initially, which is education. Business called – Easton Bridge Education. To give an idea to people listening to us how big this industry is – it is said that private schools account for 35% – let’s say 1/3rd of the total number of schools in China in 2018. So, it’s massive. I believe that the number of private schools in proportion is much higher in China than in Europe for instance. 53 million students are studying in private schools in 2018. That’s also a very fragmented market and when we look at the English language learning market for 2018 globally, China represents a third of it. Like 29-30% of the total. Final thing is that education for kids is one of the segments of the market where parents want to spend. They are eager to spend. When we look at some statistics in Shanghai, so private bilingual schools on the time of education of the kid, parents who were affluent could spend 100 – 200 thousand USD – of course, that’s over many years, but that’s a sizeable amount of money that Europeans, for instance, are not spending. Most Europeans don’t spend, even the affluent ones in Europe. Would you mind telling us more about what you do in the education business in Beijing and a bit more about your clients as well? I’d like to know if what I just described corresponds to what you see.

Gordon Dumoulin: Yes, actually the education has been also born from a – in a natural way. Like you mentioned my wife – we started up Dumoco together 10 years ago. She is from Beijing and at that time she was not my wife yet and we set up the business and we were business partners. She helped me and as we all know the business at the start is a difficult one, so we were fighting for Dumoco for the extract, for the Chinese natural ingredients market, and for the export network and at one point we were – living in the outskirts of Beijing and we had an office at the time, a small office and so my wife at that time said – there are two kids here on the floor and they want to learn English from a foreigner and me was a European mindset, focused and I didn’t study for this and I don’t want to do this, I need to spend time on Dumoco, and then I came to one of my first confrontations of Chinese ways of thinking because she showed me the balance sheets and she said – you still want to pay me or not? So, that was a good one and so she – so I said actually its good. Let them come and we can teach them at the weekend. So that was actually her education. She’s an English teacher, she has an English teaching degree and her passion, her dream is her own school – her own English school (learn more about China’s language school industry).

So, we started this for two kids and we expanded, we rented an apartment here in the Tongzhou district in Beijing and fast forward we 8-9 years later we had a full program in our apartment, so we rented another apartment, ran a full program. Especially in the weekend, and also after school – with me teaching in the weekend to support her and she taught during the week and we had two other teachers and since last summer we moved – we found a corporation and an investor also with a license because we were not actually official, so we found an investor with an education license, we moved to where I’m sitting now, we moved to a new school – 400 – 500 square meters, with also more teachers and now we have about 150 – 200 students running and besides that we are doing international summer camps. So, in the past year, we have organized summer camps to Boston, to London, to Holland. Last winter, just in time before everything was closing – to Singapore. So, this is – yeah this is in a nutshell where we came today.

Matthieu David: I see – what you do is an education center based in Beijing and also education – how do you say that? Education travel?

Gordon Dumoulin: Yeah, we call it winter camps, summer camps, English summer camps, so we find corporations with schools abroad, in the US, Europe, Singapore last winter and then we send them on training there together with some – of course with some other educational culture tourism natural aspects as well.

Matthieu David: How would you describe your clients? Are they very wealthy? Are they affluent? Are they themselves parents have degrees or the opposite, they want the best for their kids because they don’t have degrees? How would you describe them? How would you qualify them?

Gordon Dumoulin: We have many different kinds of clients, of course, you need to spend – I mean they spend quite a lot of money on English courses. Usually average you spend for a 60-hour course as frat you spend about – and then you are not expensive, this is for normal smaller schools you spend between 1 -1.5 thousand USD per kid and then you are talking about group classes. When you have one to one classes you spend even more, but many of them – we are building actually also a very large social environment because most of the parents are here so we get to know them and when it’s clicking we are eating together and drinking some wine –we see that many – of course first of all people need to be able to afford, because some of them taking three classes and then they also have a piano class in the music school and they have an art class in the art school – so they are quite filling, but many of them are entrepreneurs, they have their own business in many different ways, in many different sectors. Some of them work – I would call it the upper-middle class because – no actually the whole middle class. We have some lower – we also have a girl she’s living in a village; she’s coming by bus really 45 minutes by bus, just to spend 45 minutes here and they’re really struggling for this, the parents – both are really struggling for this but the average is middle class. The upper class will have their own really higher private education because then it’s what the price counts – so I would call it you know, average middle class and to be honest, the middle class in China is doing very well and is very much comparable to European middle class – I think you know as well and even in some ways better off in terms of spending power. On what can be spent. So, yes, the clients are all families, most of them all go to public schools and the children go to public school and to our education center based in Beijing. I have a son of 7 years old, he’s going to public school here and many of our kids are his classmates, at least in the same school and to be honest, just as an example how still rare it is also – I’m living really in the outskirts of Beijing, my son is in a public school and this is – it’s a huge public school, I think about 1500 students and I’m still the only foreign parent in the whole school. So, it’s also like an imagination for the listeners that you’re still a minority as so to say but a blissful minority. It’s not something negative at all. But you get close to the people, you get close to the residents in the compound, also with the school – the school has its social factor in this.

Matthieu David: What are the parents looking for? Are they looking for opening the mind of their children? Are they looking for core competencies like English – being fluent in English, or are they looking also now and because the education market may be more mature than before – are they looking maybe also to learn how to play a piece of theatre? How to learn instruments? How to do liberal arts, drawing, and so on? What’s your perception of it and the evolution of it over the last 10 years? My perception and I’d like to know if you agree with that is that – 10 years ago it was much more about core skills, learning English – learning maths, learning whatever core subjects and now it opening up to the drawing, dancing, music instruments, playing theatre. Is my understanding correct? Do you see that with your clients?

Gordon Dumoulin: Yeah, I see that and you are correct. It’s more – you have specific courses, when you talk about English, you have specific courses but our general courses have the aim that the students and the kids are able to express themselves and they feel comfortable to express. We do – in our education center based in Beijing, we do many ways, we play Shakespeare, we have many jokes, we do games and all in English and it’s all about that they can feel more comfortable in expressing themselves. I don’t correct them every time when they make a mistake. Let them talk, let them express, let them speak – and this trend what you just mentioned is correct, people are looking for – you know, kids who are more able to express themselves, to be more diversified in many ways, also internationally that they learn more. We also talk a lot about cultures in other countries so they learn more about this. I’m amazed about what the kids know here about other cultures in comparison to what I learned in Europe about China which was a big mystery at that time. But I’m amazed at what they already know and I want to give it a more attaché that they also see and feel. So, yes and then we have specific courses also of course – I mean for example when a kid needs to have an exam for a certain school, for example, Cambridge or Toefl or things like that, we have specific courses to prepare them for this, so there’s also, of course, a specific target course and then we have the general language course.

Matthieu David: I see, so still you feel that there’s a functional need for education to pass the exam, but it’s opening up to more liberal arts and more non-core skills. One other thing you are mentioning on your LinkedIn profile – it’s a bit another topic, but you say change is inevitable. You have written that – why do you say so, because I wanted to ask you because Peter Drucker who is a consultant we look into a lot at our company Daxue consulting, invented the name of strategy and business, is saying – what’s in common with all entrepreneurs? It’s not their education, it’s not where they come from, it’s not their social background, what they have in common is that they think change is positive. They see change as full of opportunities when none entrepreneurs would see change as a threat. As something which is threatening their position. So why are you writing change is inevitable?

Gordon Dumoulin: Because first of all this – how you look at it, it doesn’t matter. Whether you take it positive or as a threat, but I do believe that change is inevitable. We have a very – unfortunately not a lot of positive situations today, all over the world because of the coronavirus but change is inevitable and that’s what I learnt also here in China. Indeed, in Europe, many people see change as a threat, but in China, you have to change, you have to adapt. There is a certain – I don’t call it negativity, there’s a certain nervousness that you need to improve, you need to change, or this doesn’t work so we need to go another way. There’s always something happening and this is also coming to my third passion what I’m doing, I’m also doing a blog of 5iZ – actually started, I’m no longer on LinkedIn. For me, it’s cross-cultural awareness about different cultures and different societies what the change is there, and what are the differences there. And so, what I learned in China – change is inevitable, but I also see that in other societies that this applies also to other societies and if you see it as a threat it holds people back and societies as well.

Matthieu David: I wanted to talk about 5iZ as you mention it, and especially about the name, I found it very interesting and shows how deeper you know China. You named 5iZ because China is not talking about North, South, West, East only – but also North, South, West, East, and Centre like Tiananmen being at the center of China and the center of the world. Would you mind telling us more about what does it mean for you?

Gordon Dumoulin: Actually it has been – you know, before I went to China I was most of the time in expert management jobs, so I traveled for about 15 years all over the world, meeting many cultures and doing business there, coming to the homes and so you know – culture was always a passion for me and seeing different cultures, and I had been in China before I had moved here, also many times but just being here for a week is something else and plunging in a black hole and start to live here. And China gave me – China as a country, as a society gave me so much learning that you can look at things in so many different ways. We have been brought up which is normal, as Chinese have been brought up here and Europeans have been brought up in Europe, you always have some kind of mindset in the culture and the society where you grow up, and this is natural and this is normal. And having the opportunity to live here, spend time here in a practically almost Chinese environment it was really – I’m very grateful having that experience and banging many walls because you have your own mind-set and like everybody is stubborn and everybody wants to have their right. So, you have many different learning experiences about how people think and how other people can think and approach new things. So, it’s very important that people start to realize all over the world that there are many differences in culture and cultural intelligence in how to do things. Also in business and when we go then into the business side you have many fantastic models on how to do business, but at the end of the day, it’s about feeling the people and about feeling the country and also knowledge about what worries those people – what is their daily life. What’s it all about and how they approach problems, and opportunities as well. How they teach their kids, how they live at home. I’ve been grateful in this and I wanted to share that and coming back to the name, 5iZ – yes center is a very basic thing which I feel also a little now. You know I mean – all the changes happening for example today – also with the virus, but Chinese society 10 years ago and today is completely different almost. You go through many changes and you learn to be more resilient. You learn to be calmer and tackle problems, threats, or opportunities in a calmer, resilient way and if it doesn’t work – fine, you go to the next opportunity.

Matthieu David: It’s close to 1 hour, I have a few questions to end the discussion. The first one and I often ask these questions – what books inspired you the most when understanding about China?

Gordon Dumoulin: For me, one book generally, not only about China – and I read it last year, I’m still reading it again – it’s The Silk Roads, from Peter Frankopan. It’s a fantastic book about the history and about the world history but through a very different perspective and the message what you learn there is that the history what we learned as a kid, in our society is very different from the kid in another society. Such as China or anywhere in the world. And so, this is a book I really recommend – also in understanding China. First of all, you cannot understand China completely – no one understands China, you don’t understand France – I don’t understand France completely – you all have these few items which characterize a country but this is nothing to make this diverse society clear because it’s very diverse. So, just for the perspective – read this book and know that you know nothing about the country. So be objective when coming here.

Then some other books – first of all, there are many books about how to do business, how to be successful, get your things, e-commerce – digital retail, new retail – all this. Read those books, some of them are great but it’s not about understanding China, it’s about understanding the market because China is a society and its people. This is what I’m always telling many people – because people want to know about China – I say why do you want to know about China? Because I want to do business – I say either you find a good local partner, then you don’t need to understand China. If you want to understand China you need to know the culture, you need to spend some time, you need to read about it. Few books that I have on this one is – first of all, a very old one and but still, it grasps a good feeling, its Red Star Over China – from Edgar Snow. Red Star over China- he was an American, he was actually the first foreigner who met Mao Zedong and this story gives you an insight also how people think and we are not talking about the historical events, but how people think and many thoughts are still applied today – how people think in terms of the collectivity of pragmatism in many – the many characteristics which are not defined, but which indicate as the characters of Chinese society is coming back. Secondly, I think – I don’t know if people have seen the Wandering Earth – the movie, the Chinese science fiction movie, a great one last year – I’m not sure if it’s not Netflix already – because I don’t have Netflix here, but read his book, it’s from Liu Cixin, he is one of the biggest science fiction writers in China – so in general, read either fiction or non-fiction biographies if you want to learn about China more.

Matthieu David: If I say more, The Three-Body Problem is written by him as, well right?

Gordon Dumoulin: Yes, exactly.

Matthieu David: And it has been popularised by Obama who read it before it was published and The Dark Forest the other one which was – yeah – I think he’s buried in Peking University and he was the first one – maybe the only one, but he was the first one I’m sure to be the member of the Chinese communist party and he lived in China all over the different periods of China, including during the controlled evolution. What are the most surprising success for you in China and the most surprising failure in China you have witnessed? I’ll give you an example of mine – I’m very surprised how e-commerce developed, because when I arrived people were paying cash at the front door when they get delivered and they didn’t want to use their credit card and now it seems that they use their phone to pay with a QR code that could be scanned with another number, taking more money than what you really want to pay. So, it’s a change I wouldn’t have expected to go so fast and so far.

Gordon Dumoulin: Yes, coming to your example this is very true and we always think about Chinese 10 years – 15 years ago with piles of cash because they wouldn’t trust anything else and they wouldn’t trust other people – while this is totally gone in 10 years, in less than 10 years even. But yes – I mean the daily change, as an example the daily changes that are happening – but also the daily changes and the daily speed what’s happening to yourself. You are really coming in to – you are forced to keep moving, to keep moving either by new regulations, by new opportunities, other companies like you say the new retail is coming. We are forced today, we are forced today with the quarantine or the confinement – our school has been closed for 2 months because we are not allowed to open and we don’t want to open because we want to be safe. We are already working, we have now our video classes at the weekend, we have our online classes. My wife is teaching almost the whole day online classes. We have set up an online library – we all did this in a matter of weeks. As for the surprising success is indeed the fast change which is happening and that you can adapt to that. So actually, this success is not more like business success, but it can come out in the business – the success is that you must break yourself open. You must be more adaptable and you must be more wide looking in things which you might be stuck in the business – for example, you have been doing business for 10 – 15 years at home or Europe or even here in China and you say I cannot do anything else. This is what it is. No, this is not true, even within your own business you can innovate. You can differentiate. As for the speed of differentiation of innovation is stimulated – also even forced upon you because – not forced in a negative way but you go with the flow, and you also want to lead some of those flows. So, this is I feel really a success in myself that you are much more wide – open-minded in doing business.

Matthieu David: Last question – what do you read to stay up to date on China? What are your sources? I believe that’s a common question for foreigners – what kind of sources can they use? It’s hard to read the Chinese newspapers, even for people who have a very good Chinese level HSK 5 or 6 – it could be hard. So, what are the other sources you are using to stay up to date on what’s going on?

Gordon Dumoulin: First of all, I think – of course, you have some English language – like China Daily, Global Times – many people see these newspapers often as not very objective but actually there are many interesting articles and there are many insights which can teach you more about China. Also, about society, also about governance. Some more other sites – there’s also one site – it’s called Sixth Hong and they have some social articles, articles about society, about what’s moving the people and different kind of aspects, they touch these topics and you have similar sites of this like RADI China, Sub China – so you actually have different sites where you can find – so to say non-mainstream insights of China. Because the mainstream – people know but there’s actually – it’s not very interesting because it’s always coming back to the same, and it doesn’t give you an image of society and when you want to do business here or when you want to be interested or when you are interested in China, you need to know more about the people and what’s moving the people – because they are your customers or your suppliers and you also want to trust your suppliers. So, try to find some other news agencies which diversify the news. Of course, go to my blog, I post almost every day different things about Chinese society. LinkedIn is also a fantastic medium with many people telling their own experiences and their own insights and so – this is usually the sources what I’m using, and then, of course, you have the Chinese twitter – Weibo, you have WeChat where you find the trends, what’s happening in China.

Matthieu David: What’s the link for your website?

Gordon Dumoulin: 5iz-China.com.

Matthieu David: Thanks Gordon for your time, thank you very much it was very instructive, very interesting to see how you have been able to develop your business on natural ingredients, a very unique business I believe. I wouldn’t have the chance I think to interview someone who has been able to go into this industry which looks very, very local. Thank you everyone for listening and stay safe during these times of virus outbreak. I hope you all stay safe.

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.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article China Paradigm transcript #98: Doing business in the blossoming Chinese natural ingredients market is the first one to appear on Daxue Consulting - Market Research China.

China is a traditional fishing country that accounts for two-thirds of worldwide aquaculture. With the growing middle class and the rise of disposable income, the Chinese purchase a progressively more diverse basket of seafood products and the premium seafood market in China is expanding.

Demand for luxury seafood products has increased significantly in China over the past few years. For example, in 2015, China accounted for approximately 20% of the luxury seafood consumption globally. With polluted and overfished waters at home, China is importing a lot of premium seafood. Wealthier Chinese consumers who can afford to avoid scandal-plagued chicken and pork have in some cases switched to seafood. 

Chinese consumers are looking more and more to foreign countries for premium seafood products. For instance, according to the Norwegian Seafood Council, the value of Norwegian salmon exports to China reached $54.8 million in the first half of 2018. This was a rise of 544% year-on-year.

[Data Source: Global Times, ‘Norwegian salmon exports to China’]

Luxury seafood products on the Chinese tables are becoming more easily accessible

The list of premium seafood on the table is becoming longer with the increase of luxury seafood imports to China. According to Eva Kam, Project Manager at Daxue, all the high-end seafood was from Hong Kong before but China has now its own providers in foreign countries. Luxury seafood appreciated by Chinese consumers include lobster, crab, salmon, oysters, sea cucumbers and many others. The luxury seafood consumers are not only rich people but also the emerging middle class in China. The rising incomes and the growing middle class contribute to an attractive outlook to the premium seafood market in China.

Imported premium seafood is more welcomed in China

Most seafood advertisements use the words fresh and live (鲜活), France（法国), imported with original packaging （原装进口, Ready to eat （即食). They highlight foreign origin of seafood, as Chinese people tend to trust it more.

Source: 5tu.cn, Advertisement of seafood, both using word “fresh”

The pollution of China’s own waters create demand for imported seafood, especially for the higher-value species like crabs, lobster and salmon. Chinese consumers have also become more food safety-conscious. This underlines the importance of clear and precise information about seafood products.  For example, Canada and Denmark are famous for its caridean shrimp (pandalus borealis), Russia and Chile for king crabs, France for oysters and Norway and Australia for salmon.

Data Source: Under Current News, China’s fresh salmon imports by country

The perception of Norwegian salmon is positive in China

Norway is one of the primary countries of origin for seafood by Chinese consumers. Over the past few years, awareness about Norway as a seafood producer has grown from 7% in 2012 to 22% in 2018. In the same period, awareness of Japan as a seafood nation fell from 52% to 28%. Salmon is probably the most famous Norwegian product in China.  About 44% of Chinese consumers prefer Norway as a country of origin for salmon, an increase of 25% compared with a few years ago.

Australian seafood is gaining momentum

Australian seafood enjoys an extremely strong reputation in China. In particular, Australian rock lobster and abalone are held with a high regard.  Such perceptions express local media and WeChat discussions that promote the quality of Australian seafood. In Ningbo and Qingdao in 2017, for example, local media reported with excitement about the first direct sales of Australian rock lobster. Specific promotional events help to highlight Australian seafood, for example: an Australian lobster tasting event in Chongqing; Lobster fest in Shanghai; and the Australian Lobster Festival in Yongcheng, Henan.

Exports to China from Australia reached $658 million in 2017–18, making China the most valuable export destination that year for Australian fisheries products. The increase in export value was driven by an increase in the value of Rock Lobsters, Salmonids and Abalone species.

Data Source: Australian Bureau of Statistics, Australian seafood exports to China

Australia’s coronavirus-battered exports of premium seafood are recovering as China gradually moved out of lockdown. China’s demand for premium seafood is gradually on the rise again, though it remains sporadic and prices are much lower compared to pre COVID-19 levels.
Barry Dun, CEO of Australian Reef Fish Trading Co (ARF), told the company’s exports to China had recovered to 15 to 25 percent of the pre-outbreak volume.

Foreign oyster brands are popular in China

The perceptions of French oyster brands are very positive in China. For example, oysters of Gillardeau (吉拉多) brand have the reputation of “Rolls-Royce in oysters”, having strong salty tang of the sea. Another French brand Belon promotes their oysters as “rare”, “expensive” and “king of oysters”. Other popular French oyster brands include Fine de Claire (芬迪克莱尔), Ostra Regal (皇御) and Fleurdeseaux (水中花). All of them highlight the exclusiveness of their products.

Most restaurants selling premium seafood are western-oriented

Analyzing restaurants that sell oysters in Shanghai and Beijing, we can see that mostly they sell imported oysters, and most often as a side dish. Only some places exclusively sell oysters as a key element of the restaurant. The price varies from 30 to 150 yuan per dish. The key feature of the restaurants selling oysters is that most of them are western-oriented. For example, popular Beijing restaurant Maison FLO awarded as Michelin Plate, sells oysters as a side dish for 118 yuan.  Most restaurants sell cooked oysters rather than raw.

Source: Dianping, Western-oriented restaurants with oysters in Shanghai

Some examples of restaurants in China serving oysters:

• The Plump oyster       
  • Gillardeau: 89 RMB
  • French L’emeraude Oyster: 69RMB
  • Providing cost-effective combo of oysters
• OTTIMO
  • Gillardeau: 78RMB
  • Special oyster cooked by three ways: 78RMB
  • Famous for oysters and wine
• Oysteria
  • Fresh oyster:10RMB for each
  • Cost-effective combo of oysters

Premium seafood restaurants use VIP membership to attract customers

Seafood restaurants in China actively promote on social media with discounts and offers. For example, some restaurants offer VIP membership for those who order for more than 500 yuan. Also, customers who order for more than 300 yuan get free beer and soft drinks.

Some restaurant in Dalian came up with the advertising campaign on Valentines’ Day in 2018 offering discounts to people coming with their significant other. They could have a discount up to 65%. Through this well-planned marketing campaign, the restaurant created double the sales volume and attracted 5,000 customers.

Social media contribute to the growing premium seafood consumption

Seafood promotion in China increasingly relies on social media platforms such as Dianping (大众点评) or WeChat (微信). Thanks to the boom of e-commerce in China, consumers can buy their favorite premium seafood on electronic commerce platforms such as Tmall and JD, which are both reputable and reliable operating systems. For example, Canadian lobsters are available on Tmall.com as well as fresh Australian lobsters and oysters too. Chinese consumers can also buy raw oysters on WeChat.

[Australian fresh lobster on Chinese E-Commerce Platform Tmall]

Taobao and Tmall as e-commerce channels for the premium seafood products in China

During the severe epidemic period, the sales volume of seafood online declined by 55.8%. Once the epidemic was alleviated in March, the sales volume bounce back with a great growth of 136%. However, the sales volume of seafood dramatically dropped by 62% since the Xifadi incident. Two breakouts of coronavirus in seafood markets exerted negative impact on seafood industry, since people associate seafood as a channel of transmission, even though there was no evidence to prove it.

Data Source: Taosj.com, The sales of seafood in Taobao and Tmall Apr-June 2020

The price range of seafood is from 10-150RMB, most of price centers at 50-150 RMB, meaning online sellers mainly target middle and working-class consumers. Those online consumers prefer domestic brands to foreign brands.

Crawfish is the most popular seafood on Taobao & Tmall. In terms of oysters, mainland ones are the best sellers in Taobao. The sales volume of mainland oysters are 95 times that of French oysters. The sales of oysters on Taobao and Tmall in April 2020 was 27 million (27,588,327) RMB, the volume of sales was 465,441 items. In May there was a slight decline, the sales of oysters in Taobao and Tmall in May were 16 million (16,253,835) RMB.

Hema supports seafood farmers

Since the beginning of the year, the entire seafood and aquatic industry has been affected, and the recovery is still slow. Recently, a new round of outbreaks has caused consumers to worry about imported seafood, and it has affected the entire aquatic product category, and sales have declined significantly.

Hema app launched activities related to agricultural assistance. Oysters and crabs farmers have suffered heavy losses. During the New Year, they suffered a 70%-80% decline in sales from previous years. In June, only 40% of the previous year’s sales recovered. “Save Domestic Seafood” on the Hema app has about a dozen types of seafood sold at a reduced price. For example, the price for gentian grouper has been reduced from the original 59.9/piece to the current 39.9/piece. The price for abalone dropped from 11.9 yuan/piece to 6.9 yuan/piece. 

Food bloggers and KOLs promote premium seafood consumption in China

Many Chinese food bloggers pay attention to premium seafood in their blogs. For example, popular Chinese blogger Mi Zijun (密子君), who has 6.15 million followers on Weibo. She went to the famous Xu Ji Seafood restaurant in Changsha and ordered 60 pounds of seafood including shrimps, hairy crabs, oysters and ate it in one hour. She shared her experience with followers and advised to visit this restaurant. 

Source: Eat More, Chinese blogger Mi Zijun tries seafood

There are several food KOLs in China each with their own approach. What they all have in common is they like to take photos of food or restaurants. For example, 羽萱的妈妈 had some posts about some seafood, such as shrimps and crabs.

Source: Weibo, Dragon Social, Example of post of blogger 羽萱的妈妈 on weibo

Douyin (TikTok)

Many people use Douyin to share their seafood experience. So-called “mukbangs”, which is a Korean term to describe those who eat a large amount of food during live-streams, are especially popular.

Answering the question on Zhihu “Why are videos about seafood are so popular on TikTok?”, one user claimed that there are a lot of ways to eat seafood (raw, cooked), so bloggers can gain the attention of audience. Besides, many people eager to try it, but not many have a chance, so they watch videos about it instead.

For example, girl from a small town in Jiangsu province named Zhang Xiuling (张秀玲) became a celebrity with 440,000 followers on Douyin. Jiansu is not only a place for seafood, but also a large seafood distribution center. Over the years, wholesalers have transported the seafood to all parts of the country through trucks. In recent years, young people in the town have started selling seafood online using Douyin for promotion.

Source: Sohu, Douyin, Blogger Zhang Xiuling promotes seafood on TikTok

Weibo and WeChat offer new ways of promotion for the premium seafood market in China

Very premium seafood such as sea cucumbers sell very well on Taobao.  However, Taobao’s algorithms make it so high-selling shops can get more orders, additionally, the promotion cost of Taobao is very high. Therefore, many premium seafood producers are developing some new sales ideas, such as promotion through WeChat. In addition, WeChat can also allow old customers to attract their circle of friends.

Source: Zhuanlan.zhihu, Sea cucumber advertisement on Weibo

Besides, at present, there are many manufacturers of sea cucumbers, crabs and other seafoods promoting through Weibo. The advertisement adopts the sales method through WeChat and offers delivery. The purpose of the advertisement is to attract more users in WeChat. During the process of the advertisement, it has received a total of 718 reposts, 1,327 comments and more than 5,000 likes. 

Premium seafood is a seasonal product in China

Chinese primarily consume seafood at banquets, events and other social functions. The close associations between luxury seafood and banqueting is partly because of the increased importance of Cantonese cuisine. The strong influence of Cantonese cuisine affects the types of seafood served and the ways they are prepared. Some of the important dishes at these banquets typically include: lobster, geoduck, crabs, abalone, shark fin, sea cucumbers, and reef fish.

Imported premium seafood is increasingly taking a place at the Chinese New Year dinner table.  Not only are Chinese families spending more on seafood at Chinese New Year, but the variety of imported and premium categories such as lobster and king crab is also increasing. In the past two years, large-scale imports of shrimp, as well as high-end lobster, king crab and salmon have witnessed “explosive growth” during the Chinese New Year.  For example, prices for king crab rise by as much as 30 percent before the Chinese New Year.

Baidu index: search frequency for “lobster” peaks during Chinese New Year

Lobster market in China

China’s lobster industry is booming

A new generation of Chinese consumers attaches great importance to health, and they have higher requirements for lobsters. Therefore, the lobster market in China tries to ensure the quality of lobster and sends them to the consumers faster. New refrigeration logistics help to transport lobster to reduce damage and maintain high quality lobster during long-distance transportation. In addition, established tracking systems have created an open and transparent market environment. It helps customers follow the production process from farm to table.

From a national perspective, the main lobster producing areas are the Yangtze River Delta region as well as Hubei, Anhui, Hunan, and Jiangxi provinces.

[Data Source: Baijiahao, ‘Share of lobster production in China’]

According to statistics, yearly lobster consumption in China in 2018 reached 1.3 million tons, an increase of 22.56% from the previous year. 80% of retailers sell lobster through dine-in channels (including supper stalls). 20% of retailers sell lobster through Internet channels.

[Data Source: Aquatic Products Association, Guanyan World Data Center, ‘Lobster market in China’]

Big cities have larger lobster consumption

At present, the consumption of lobster in China has appeared all over the country. In recent years, the consumption of lobster has developed from large cities to the south and northwest China. This progression is due to the development of e-commerce in conjuncton with lobster cooked food products. Currently the lobster market in China in the northwest, south, and northeast regions continues to grow. However, cities such as Beijing, Hangzhou, Shanghai and Changsha still have the highest levels of consumption.

Baidu index: searching frequency for “lobster” in Chiense cities

China is the fastest growing market for Boston lobster

The premium seafood market in China is one of the most important for the American lobster industry. In 2016, total US lobster exports to China had reached around 8 million kilograms, valued at $136 million, accounting for 14% of total US lobster exports. In 2018 import of lobster from the US to China reached 1,232 metric tons. However, in 2019 this value was down 91% year-on-year over the period, due to Chinese tariffs.

[Data Source: UCN, ITC, Chinese customs, ‘China’s imports of American lobster’]

The Chinese New Year is the busiest season for the American lobster industry, as demand is growing. China’s monthly lobster imports peak before Chinese New Year. In January 2019, China imported 2.3 metric tons of live or fresh lobster. In February 2018, during the end of the festival, the figure was 2.4 metric tons. This is a rise from January 2017, with 1.9 metric tons.

Increasing consumption of premium seafood in China

Crab market in China

According to statistics, the output of crab reached about 800,000 tons in 2018 in the premium seafood market in China. The industrial scale was 64.8 billion yuan in 2016. It was about 77.8 billion yuan in 2017, with an annual growth rate of about 20%. In 2019 China’s crab market reached 100 billion yuan.

[Data Source: Baijiahao, ‘Market scale of crab industry in China’]

The top ten crab production areas in China are Jiangsu, Anhui, Hubei, Shanghai, Jiangxi, Henan and Taiwan. The total output of Jiangsu accounts for about 44% of the country. Hubei accounts for 22%, Anhui accounts for 13%, and other regions account for 21%. 

Due to the entry of e-commerce giants, the industry scale of crabs is increasing year by year. For example, JD.com adopts the “airline + refrigerated truck” transportation matrix. It adds air routes, airport express lanes and truck transportation routes to ensure that the delivery time of crabs is not more than 48 hours. SF Express sends them directly from multiple lake areas. It opened more than 22,000 shipping directions, ensuring the supply of crabs and safe delivery.

Data Source: Baidu Index, Search frequency for “crabs” 2017-2020, search frequency for crabs peaks during hairy crab season in the fall

Data Source: Baidu Index, Search frequency for “crabs” in 2020, Chinese new year is also a primary occasion for crab consumption.

According to Baidu index, the demand for crabs in 2020 was quite low, comparing to 2017-2019. The reason could be the coronavirus outbreak in China. In 2020 the demand was higher during Chinese New Year, as people tend to eat premium seafood during that time.

Sea cucumber in the premium seafood market in China

Sea cucumber is a premium product with large popularity in China. Asia is the largest consumer market of sea cucumber in the world, with a market share of more than 70%, followed by North America.

The Chinese sea cucumber industry shows an overall stable trend. Farm-gate prices have continued on an upward trend in the past two years. Production volumes and stocked amounts have also increased significantly. The growth in consumption of sea cucumbers increased from 3.8 million tons in 2014 to 4.1 million tons in 2018. By 2025 the consumption of sea cucumbers in China will be around 5.9 million tons.

Data Source: Baidu Index, Search frequency for “sea cucumber” 2017-2020

Data Source: Baidu Index, Search frequency for “sea cucumber” in 2020

Due to coronavirus outbreak in China, the demand for sea cucumber in 2020 was lower comparing to 2017-2019. During 2020 the demand was quite stable, except increasing during Chinese New Year period.

Caviar industry in China

With the development of China’s economy and improvement of living standards, the caviar industry has also developed rapidly. By the end of 2014, there were 63 sturgeon farming units in China, including 40 raw sturgeon farming units. From 2006 to 2012, China’s production of artificially cultured caviar increased from 0.7 tons to 28.8 tons, with a compound annual growth rate of more than 85%.

In 2018, world caviar output reached 271 tons, while China’s caviar output was around 100 tons. China plans to rely on artificially cultured sturgeon to become the main exporter of caviar in the world.

Data Source: Baidu Index, Search frequency for “caviar” 2017-2020

Data Source: Baidu Index, Search frequency for “caviar” in 2020

The demand for caviar was stable during 2017-2019, however due to COVID-19 outbreak, in 2020 it saw a decline. 

Oysters industry in China

Chinese consumers are more and more demanding about the quality of oysters they buy. Therefore, they are willing to pay a high price for high-quality oysters. Chinese consumers tend to choose imported premium seafood products. Imported oysters come from Japan, the US and Australia.

Eating raw oysters is a relatively new concept in China. Data from the China Fishery Statistical Yearbook 2019 shows that China’s oyster aquaculture production reached 5.1 million tons in 2018, a year-on-year increase of 5.3%. In 2017 it was 4.8 million tons.

[Data Source: China Fisheries Yearbook 2019, ‘China’s oyster production’]

The main producing areas of Chinese oysters are in Fujian and Guangdong provinces. Fujian has a long history of oyster farming and has so far become China’s largest oyster farming area. In 2018, Fujian oyster aquaculture production reached 1.8 million tons, ranking first in the country. Guangdong oyster production was 1.1 million tons, taking second place.

Despite the outbreak of coronavirus in 2020, demand is gradually returning to the 2019 level. During the peak of COVID-19 outbreak in China (February-March 2020), the demand for oysters decreased significantly. But since mid-March, it showed stable dynamic. Analyzing Baidu index from April-June 2020, we can see that the demand for oysters was stable during April-May. However, there was a slight decrease in June due to discovery of COVID-19 on the chopping board of a seller of imported salmon at Beijing’s main wholesale seafood market.

Data Source: Baidu Index, Search frequency for “oysters” 2017-2020

Data Source: Baidu Index, Search frequency for “oysters” in 2020

Data Source: Baidu Index, Search frequency for “oysters” April-June 2020

COVID-19 impact on the premium seafood market in China

Fall in prices for lobsters

Lobster prices have plummeted to the lowest levels in four years after the spread of coronavirus halted charter flights to Asia. It happened at a time when sales usually boom for Chinese New Year celebrations. That is why the lobster industry was particularly affected. Prices for a whole lobster weighing 1.5 pounds have tumbled 17% since January 20, falling to $8.10. This is the lowest price since 2016. Demand for live Canadian lobster has dwindled to 5% of normal volumes in mainland China.

After the coronavirus outbreak in China restaurants started canceling reservations and people stayed home. When it comes to premium seafood exports, the most affected countries were the US, Canada and Australia, as they are the main exporters of lobsters to China. For example, the US company Lobster Co saw an inventory loss of 40% of its value as shore prices dipped from $7.45 to $4.38. They had to sell 50,000 pounds at a loss. In Australia fishers and wholesalers began trying to offload the premium product in local retail markets.

Salmon industry saw the decrease in sales from COVID-19

The discovery of COVID-19 on the chopping board of a seller of imported salmon at Beijing’s main wholesale seafood market is set to disrupt demand for product in the Chinese market. Carrefour in China and Wumart were among the supermarkets to stop selling the product.

It may be possible for salmon to be contaminated by virus-contaminated water during processing, transportation or packaging. Despite this, the outbreak in the seafood market will inevitably impact demand, with consumers fearful of any possibility of transmission.

Chile, Norway and the Faroes are the main suppliers, with rapid growth in the market in recent years playing a key role in producers’ strategies. Norway held 45 percent market share of fresh salmon to China from January to April 2020. The Norwegian Seafood Council claimed last week of June exports fell to 240 tones – a decline of 34 percent.

“As the probe into the cause of the latest outbreak is underway, salmon business around the world will be affected,” Cui He, president of the China Aquatic Products Processing and Marketing Alliance (CAPPMA), told the Global Times Sunday.

The premium seafood market in China after COVID-19

According to the statistics, import of seafood in China in the first quarter of 2020 fell by 27% from the fourth quarter of 2019.

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

By the first quarter of 2020, consumption was almost stagnant. Besides, the import and transportation of Chinese seafood was blocked. Although China’s premium seafood imports slowed in 2020, consumption has a potential to grow.  The coronavirus epidemic in China will have a serious economic impact on the Chinese and global premium seafood market and supply chain. It will also have an impact on both supply and demand of seafood in Asian countries.  However, the Chinese market has recovered earlier than other countries around the world. There is hope that once the supply chain of seafood regains balance, the industry will function normally.

After the epidemic is over, experts expect that the public will experience retaliatory consumption. Gradually the demand for seafood is returning to normal. For example, the frequency of searching “lobster” on Baidu increased after the epidemic situation got better.

Baidu index: search frequency for “lobster” increased after COVID-19 outbreak

Key takeaways for China’s luxury seafood market

• The premium seafood market in China has great potential due to rising living standards in the country.
• Although premium seafood is particularly popular during the Chinese New Year, it may soon become a regular meal in middle-class Chinese families.
• The coronavirus outbreak had a huge impact on the premium seafood market in China. It interrupted the supply chain and reduced consumption. However, the trend shows that China is returning to normal life and demand for premium seafood will soon be restored.

See our report on China’s seafood market:

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China’s mattress market overview

The consumption of mattresses in China is relatively low compared to other countries. The brand concentration is also low, with international brands taking the premium spot and domestic brands taking most the market.

China’s mattress market is the largest in the world

Data Source: Qianzhan, total Consumption of mattresses in China from 2013 to 2018

With the consumption increasing fourteen-fold since 2002, the mattress market in China is now gradually entering a mature stage. With the CAGR of 17.77% for the last decade, China’s mattress market surpassed that of the United States in 2015, becoming the largest in the world.  

International mattress brands are premium players in China

Data Source: Qianzhan, Competitor Overview of the Chinese mattress market

In the Chinese market, consumers generally perceive the imported mattress as premium. Thus, the high-class competitors are represented by international brands. The leading competitors in the Chinese market are the middle-class competitors, which are the domestic brands. The low-class competitors consist of generic brands from local mattress manufacturers.

Data Source: Chyxx, Import of spring mattresses, bedding and similar supplies in 2017

The Chinese mattress industry  focuses on export instead, the trade surplus between the import and export of mattress reached 1.7 billion dollar in 2019. When it comes to imports,  China imported the most bed supplies from Thailand.

Data Source: Qianzhan, Market share of the mattress industry by brand in 2018

The market concentration is low in this market and there is no obvious leading brand. Based on China’s mattress market share in 2018, half of the top twelve brands, including the top four brands are domestic brands. Foreign brands that are outstanding in the market are from the United States, accounting for five out of the top twelve brands.

What do Chinese consumers look for in a mattress?

China’s economic development head lead consumers to reflect on the quality of regular household items, which is known as the consumption upgrade. Growing awareness on the improvement of living standards has prompted people to have specific requirements for their sleeping environment, mattress quality and appearance. The emergence of mattress production technology can meet the needs of a variety of people. To succeed in this market, it is crucial to understand Chinese consumers’ preferences, spot their needs and provide value adds-on service to win the consumers.

Key factors on mattress purchase decision

Data Source: Wenjuntech, Key factors that matter to consumers on purchasing mattresses

While purchasing mattresses, consumers mainly focus on the material and sustainability. In China, sustainability is not only an environmental issue, but there is a perception that it has less pollutants. After price, brand name and after sales service, comfort and softness are less important to Chinese consumers.

Data Source: Wenjuntech, Key factors that prevent consumers from purchasing mattresses

About 80% of the respondents stated that the negative review on the mattress brand would affect their purchase decision. This is what brands need to watch out for when it comes to Chinese negative reviews: 40% of the respondents identified ‘air impermeability’ as the main problem, which would lead to skin disease. ‘Low-quality spring’ and ‘formaldehyde’ are the following problem identified by the respondents, accounting 41% of the total responses.

After sales services are important to many Chinese mattress consumers

Data Source: Wenjuntech, Consumers’ favorable additional services on purchasing mattresses

Data Source: Wenjuntech, Consumers’ perception on cleaning mattresses

Products and services are indivisible. Home delivery, free installation, free return, free cleaning and removing mites are about equally distributed as preferred as additional services. Digging deeper, more than a half consumers value regular mite removal. However, the process is too complicated to consumers to do it by themselves. Regular cleaning services would be a powerful selling point in China’s mattress market.

Common mattress materials in China

Latex mattresses are the top selling mattress in China. Consumers appreciate that are porous and have high elasticity, they are highly sought after because of their ability to conform to the curves of the human body and improve sleep quality. In the first half of 2020, latex mattresses made 1.3 billion RMB in sales on Tmall and Taobao.

Palm mattresses are also very popular in China, making over .5 billion RMB in sales on Tmall and Taobao during the same time period. Palm fiber is woven with good flexibility and moderate hardness, but natural materials may have worms or mildew.

Spring mattresses also made around .5 billion RMB in Tmall and Taobao sales during the first half of 2020. However, negative reviews of spring mattresses suggest brands need to watch out for having springs collapse.

Future growth depends on how often consumers replace mattresses

Changing in consumer perception

The results of a study by Kingston University in England showed that a mattress have an average of at least 15,000 bed mites and dust mites. The number of bacteria on a double-bed mattress that has not been cleaned in three years could exceed 1 billion. And experts suggest changing mattresses every five years. It is the frequency of changing the mattress which will lift the market from maturing to mature. As of 2020, a majority of Chinese mattress consumers do not change their mattress as much as recommended as a research shows that 50% of Chinese consumers only change the mattress when it is broken. It is much lower than that of the United States. In the United States, 50% of consumers stated that they generally change mattress once three years and 30% of consumers stated that they won’t use the mattress for more than three years.

The China’s mattress market is dynamic as changes in consumer perception are constantly evolving. With the increasing awareness on living standard and sleeping quality, the frequency of mattress replacement is speeding up and will be a driver of market growth once market penetration is at the max.

Functional mattress: mattresses matter for high quality sleep

In light to the research in 2018, only 25% of post-90s Chinese have acceptable sleeping quality, above 75% respondents stated that they had poor sleeping quality. Around 20% of the respondents chose to change mattresses to improve the quality of sleep, and 27% of them showed interest in intelligent mattresses.

Following that, post-90s consumers are the main consumers in the mattress market in China, the concept of upgrading sleep quality is expected to trend and prompt the sales of mattress supplies. Functional mattresses working on improving sleeping quality would be able to catch this market opportunity.

Rental housing renovation trends

With the increase in home ownership costs and government policy support, the rental industry has entered a new era of development. Data show that the rental population in Chinese service rental market has maintained steady growth since 2017, with 210 million people in 2018, and 220 million people in 2019, 220 million in 2020, and 240 million in 2022.

Renovation of rental housing is trending in China, as demonstrated by frequent hot discussions on Weibo. Mattresses are seen as a key component of improving the living quality. Therefore, purchasing new mattresses for the rental houses is spurring. When a question raised in Zhihu about whether it is necessary to buy a new mattress for apartment rentals, the top answer stated that people should not settle for uncomfortable mattress and get a new mattress for quality sleep and quality life.

Data Source: Weibo: hot topics related to rental house renovation; Zhihu: Is it necessary to purchase a new mattress for the rental house?

Learning points

As the size of mattresses market is growing in China, and the trend for premiumization is beginning with after sale-services and sustainable material. The market is lacking an obvious leading brand, hence there is potential for an existing brand, or even a market entrant, to step up. Companies need to pay attention to the consumers’ needs and find the way to understand and satisfy them.

Author: Dongni He

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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

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Data source: ASKCI, An analysis of the growth of China’s wool import volume and amount from January to July 2018

Among the different types of wool, Australia Merino wool is the most well-known and prestigious. Australian Merino wool is much better than traditional types of wool because it is comfortable on the skin and can regulate the body temperature. Furthermore, it has a natural antibacterial protein that keeps the hair from accumulating odors. All these qualities make Australia Merino wool stand out from other types of wool materials.

Future developments in China’s merino wool market

According to the free trade policy, China increased the free-tax quota of Australia imported wool. In 2019, the total CTRQ is 36,936 tons of New Zealand wool, 665 tons of New Zealand wool, and 34,729 tons of Australian wool. Due to the currency uncertainty and trade friction between China and the US, the wool market in China could experience a slowdown.

The 10^th Global Wool Summit in China delivered two messages to the wool market in China, especially for Merino retailers. First, the Merino fine wool (美利奴细支毛) price increased sharply in 2018 and will continue to increase due to the market demand and quality. Second, innovative design is the key to push the development of the wool market. For instance, wool is also now used in sportwear. Sportswear requirements differ from fashion apparel and fibers are often blended to utilize the combined effect of two or three fibers, a typical example will be wool, polyester and elastomeric fibres.

Making wool available for sportswear and underwear

AClink International Pty Ltd

Creative design and technology make wool a trendy material for sportswear. Two brands in particular that produce these kinds of wool athletic clothing have become popular in China. AClink International Pty Ltd holds the largest wool products factory in Australia. It has established a mature supply chain that includes importing, wool cleaning, carding, dyeing, spinning and weaving. The Auzwool Family, a subsidiary of AClink, produces a series of wool-made products that used innovative technology that allows them to produce wool T-shirt.

According to the interview, the founder Kim Tang says the standard wool products can keep the body warm however the fine wool can adjust the body temperature and make the wool feel light and breathable. This series also contains sportswear, socks and scarves. In terms of design, Auzwool chooses to corporate with famous designer Amy Jones. Moreover, Auzwool very focuses on innovation. It uses different kinds of fibres, such as Possum and Alpaca to blend with Merino wool to diversify the product. As of 2020, Auzwool has a 50% market share of China’s Australian wool products market.

Particle Fever

Particle Fever is a Chinese designer sportswear brand. Collaborating with The Woolmark Company, the exclusive Merino wool athleisure collections are designed to be worn during a workout as well as outside the gym. Under the theme of Fitness x Fashion, the Helen Lee and Particle fever collections are available exclusively in Lane Crawford stores across China and Hong Kong and the campaign also features Chinese supermodel and fitness enthusiast He Sui.

Source: Sohu.com, Particle Fever’s athletic clothing in China

Merino wool sportswear e-commerce marketing

Decathlon and Smartwool were ranked the first and the second in the research results for ‘Merino wool sportswear’ on Tmall.

Source: Decathlon Tmall shop

The keywords are breathable, soft touch, anti-ordor. Smartwool, an outdoor American brand, also frequently mentioned about the idea of breathable fibre and anti-ordor characteristics of merino wool.

Source: Smartwool Tmall shop

Other than product description and perks of Merino wool, Naturehike and Handragon both include diagram explaining what it is, while other brands seem to generally promote where it is from, the design, why Merino wool is good (dry, anti-odorl, warming, anti-UV). Naturehike and Handragon also has more than 50% Merino wool in that specific product.

Challenges and opportunities of Merino wool market in China

There are several reasons China’s merino wool market relies heavily on imports from other countries. First, China has a limited amount of sheep. The price of the Merino sheep is usually very high, and the output of wool is less than other sheep breeds. The second reason is the lack of technological support. Chinese farms have less knowledge and experience in the wool industry than Australian. As a result, with less professional farmers to organize the breeding areas, the yield is lower quality. On the other hand, this is good news for Australian wool producers who want to enter China’s merino wool market. However, the quality and output of merino wool are influenced by the weather, market price, and stock.

Top 5 merino wool exporting countries had a significant decrease in output in 2018 and 2019. Producers from Australia say the drought has a very negative impact on the output of wool, and many farmers need extra funds to deal with the drought. The wool price was push higher than other competitors such as Uruguay. The output of Australian wool in 2018-2019 was the lowest in 90 years.

In contrast, Uruguay increased its wool output in the last two years given the stable weather condition. Wool farms in Uruguay also have improved their technology that enables buyer to trace back the origins of the products. This not only guarantees the quality but also increases the competitiveness of Uruguay wool worldwide as it is traceable and certified.

Additionally, environment policy sometimes contradicts with wool production. For instance, “one billion trees” is a political slogan by New Zealand government in 2019. This programme aims to be achieved by 2028. One billion trees programme may hinder wool production as ranches convert to forests.

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China’s position in the  global API market

Pharmaceutical products have drastically varied features, some being patented and customized, while others generic and bulk manufactured. The production of pharmaceuticals, therefore, is heavily reliant on outsourcing and import and export. According to Results Healthcare analysis, the worldwide outsourced manufacturing market reached $71.5 billion in 2015 and is growing steadily. Since drug products are likely to be assembled where they are patented, API represents more than two thirds of the outsourced pharmaceutical market.

Compared to India or Europe, China is best at bulk manufacturing unbranded chemical API, according to sinolink securities.

Source: Sinolink securities, Segmentation of APIs. The API industry in China focuses on unpatented, bulk products.

China is world’s largest producer of pharmaceutical ingredients

Globally speaking, the chemical and generic APIs account for 70% of global API, while biotech APIs account for the remaining 30%.

China is the source of 40% of the global APIs, according to Optima insights. In addition, chemical APIs dominate theAPI industry in China. In 2017, the global API market size was at $156 billion, according to Sinolink securities. Chinese chemical API manufacturers had in total 500 billion RMB, which corresponds to approximately $74.6 billion. Thus, China takes 68.3% of chemical API market worldwide in terms of value.

Asia and Europe are the main export destinations of the  API industry in China

According to China Chamber of Commerce for Import & Export of Medicine and Health products (CCCMHPIE in short): in 2019, APIs produced and exported by China reached 10.12 million tonnes (+9% year-on-year), worthy of $33.7 billion (+12% year-on-year).

The destinations of APIs produced and exported by China comprise of 189 countries and regions, mainly in Asia, Europe and North America. Over 2019, API export grew in Asia and Europe, but dropped in America, largely due to the Sino-US trade war. In fact, the volume of API produced and exported by China to the U.S. decreased 11% year-on-year. So much so that an increase in average export price of 11% did not compensate enough for the trade friction.

Data source: CCCMHPIE, Chinese API export destinations

To be more specific, the leading export destinations by country are India, the U.S., and Japan.

Data source: CCCMHPIE, leading Chinese API export destinations

APIs take up 81% of total value of Chinese pharmaceutical exports

The majority of Chinese pharmaceutical exports are APIs. In 2018, according to China Chamber of Commerce for Import & Export of Medicine and Health products: APIs exported from China accounted for 81% ($30 billion over $37 billion) of total value of exported Chinese pharmaceutical products. The rest of Chinese exports are pharmaceutical preparations, finished drug products (11%, $4.1 billion over $37 billion) and biochemical drugs (8%, $2.7 billion over $37 billion).

Data source: CCCMHPIE, composition of Chinese pharmaceutical exports

When it comes to API exporters in China, private companies take the lead. According to China Chamber of Commerce for Import & Export of Medicine and Health products, in 2019 there were in total 12,462 API manufacturers and exporters in China, an increase of 1,056 from 2018, almost all privately held.

Data source: CCCMHPIE, Segmentation of Chinese API exporters by ownership

India is both competitor and customer of the API industry in China

The trade statistics suggest that nearly 75% to 80% of the APIs imported to the United States are from China and India. These two countries have well-established manufacturing facilities and an abundant talent pool serving the pharmaceutical industry.

India is a fierce competitor for API production

India is by far the world’s champion of drug master files (DMFs). What is a DMF? According to FDA, Drug master files (DMFs) are voluntary submissions to the import country authority, and contain confidential information about human drug products. APIs belongs to the Type II of DMFs, which is concerned with drug substance, material used in their preparation, or drug product.

While China holds 12% of DMFs from the U.S., India holds almost half of them. Being the largest holder of DMSs gives India the edge to export higher-value APIs, enlarging the industry’s attractiveness.

There are several reasons for India to outcompete China for API export in the last decade. Firstly, India normalized the API production with drug production, gaining bargaining power in the global market. Secondly, Indians generally speak better English than Chinese, which facilitated pharmaceutical trade with developed countries. Lastly, India adopts Common Law system, making the legal activities more fluid when dealing with western clients.

Data source: Thomson Reuters, Sinolink securities, Distribution of U.S. DMF holders

India relies heavily on China for API imports

India’s API imports are valued at $3.5 billion to per year. Of which 70%, worth $2.5 billion, are APIs produced and exported by China. 

Data source: BCG analysis, Sinolink securities, Indian API imports from China

The Indian government has long advocated “API independence” and invested in API industry. Nevertheless, it is difficult to cut back dependence on China due to its climate characteristics. India mostly relies on China for APIs related with fermentation (发酵类产品),  for which China represents 70% of global production. At around 10°C higher than China, fermentation is way more costly than in India.

Value and volume of China’s API exports tell two different stories

A quick example is to compare the API produced and exported by China in terms of both value and volume. Interestingly, even though the Association of Southeast Asian Nations takes 41.1% of volume of China-manufactured API, it only accounts for 9.8% of the value exported by China. Inversely, Europe and North America are the destination of 41.5% of the value of China-exported API, but in terms of volume, that only amounts to 28%.

Data source: CCCMHPIE, Chinese API export destination based on value

Data source: CCCMHPIE, Chinese API export destination based on volume

Sino-American API trade

There has been a question mark over whether or not China is the major supplier of APIs to the United States. Whereas the U.S. Food and Drug Administration data shows only 13% of its API is imported from China, other sources points to the opposite.

Both assertions are likely to be true and not necessarily contradictory, depending on whether we refer to volume or value, or the number of manufacturers.

On the one hand, China is indeed the world’s largest pharmaceutical producers and the biggest supplier to U.S. by volume. The observation that “China is the world’s largest producer of pharma ingredients and the world’s second largest pharma market” is confirmed by National Medical Products Administration in 2017. China in 2019 exported over $37 billion of pharmaceutical products, including APIs and DPs. In comparison, India’s total pharmaceutical exportation amounts to $20 billion in 2019/20.

On the other hand, USA seem to well diversify its import in terms of value. USA imported $78.9 billion pharmaceutical products in 2019, and China only accounts for $4.22 billion in terms of API value, a mere 5%. In addition, approximately 28% of manufacturing facilities making active pharmaceutical ingredients (APIs) for the U.S. market are based in the U.S. The remaining 72% of API manufacturers supplying the U.S. market are outside the U.S., this includes 26% in EU, 18% in India, and 13% in China.

Even though the number of China’s API manufacturers supplying the U.S. market is not great, the bulk API volume they manufacture and export can be high. Due to large-scale manufacturing capabilities, cost efficiency and adequate availability of commodity bulk drugs and intermediates.

China is positioning itself to capture a greater portion of the global industry

In summary, the massive API industry in China is an important global player of production and export. With the aging population and the growing pharmaceutical demand, China is positioning itself to capture a greater proportion of the global API manufacturing industry.

Author: Della Wang

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China is also an exporter of coffee. In 2017, China exported $237 million of coffee beans. As of June of 2019, China has exported around 1.4 million 60-kilogram bags of green coffee beans. Export of green coffee beans shows a stable growth, as quality is improving.

Data Source: qianzhan, China’s export of coffee beans

On-trade sales of coffee mainly go through three types of establishments: coffee shops/cafés (independent and chained), Internet cafés and fast food restaurants. Currently, both in the instant coffee market and China’s coffee shops chain market, foreign brands occupied a large amount. It happens due to lack of domestic coffee brand in the coffee bean market in China.

The coffee commodity chain in China is still developing

Dry processing is simple to operate and is the most traditional and cheapest coffee bean processing method. It is the most common method in China. The deep processing of coffee includes roast and ground coffee processing. This way is the most suitable for making espresso, which is the type of bean most used in Chinese coffee culture. With the rapid growth of coffee beverage consumption, many manufacturers across the country are currently actively working on the coffee processing industry. Such companies as Dehong Hougu Coffee Company, Hainan Lishen Company, Baoshan Orchid Company, Yunling Coffee Company are focusing on building commodity chain that will let them to be competitive in the coffee bean industry in China.

The assistance of Nestle and Starbucks

China’s primary coffee growing region is in Yunnan Province, accounting for 98% of production in the coffee bean market in China. Nestle had established agricultural assistance services across Yunnan and has since been the largest single buyer. Another international lead firm, Starbucks, followed Nestle by established its own sourcing operation in Yunnan in 2009. Nestle operated several collection stations across Yunnan, while Starbucks also established a smaller-scale farmer support center.

Source: ResearchGate, China and the changing economic geography of coffee value chains, ‘Main coffee production areas in China’

Starbucks plans on roasting facilities in China

There are few roasters in China compared to in Western coffee-consuming countries. However, their number is growing due to the increasing popularity in coffee and demand for more specialty coffee companies. There are big commercial roasters in China that focus mostly on mass production for instant coffee. Alongside this, there are also single-shop roasters that often aim for higher quality and roast on a small scale.

In 2020 Starbucks China announced that it will invest about $130 million in China to open a roasting facility in 2022. The project is set to handle Starbucks’ largest roasting capacity, including a roasting plant, warehouse, and distribution center. It will strengthen the coffee industry in China. Beyond roasting, once in operation, the park will integrate green coffee bean warehouse management and processing. With plans to co-locate a highly automated and “intelligent” distribution center that will become the heart of the Starbucks distribution network in China. The facility also will serve as a training ground for coffee roasters.

Coffee bean market in China is entering a stage of rapid development

Increased demand for coffee beans

The demand for coffee in the Chinese market grew in the past five years.  At present, the Chinese coffee market is entering a stage of rapid development. According to statistics, the per capita coffee consumption in China was 6.2 cups in 2018. In 2019, China’s per capita coffee consumption was about 7.2 cups. As coffee consumption is rising in China, the demand for coffee beans will also grow.

Data Source: Prospective Industry Research Institute, ‘China’s per capita coffee consumption’

In 2019 the most consumed coffee types among coffee drinkers in China  were single origin, espresso (including espresso drinks like Americanos and lattes), and cold brew. That is why espresso beans in China make up a large part of coffee bean exports to China.

China’s coffee bean imports have been on an upward trend

In the past four years, China’s coffee bean imports have been on an upward trend. From January to November 2017, China imported 110,000 tons of coffeebeans.

QYResearch predicted that coffee bean export to China will grow to 124,000 tons in 2020. In terms of origins, the biggest supplier of coffee to China is Vietnam. In 2018 the export volume of green coffee beans to China was 84,300 tons, and the export volume of roasted coffee beans and instant coffee powder was 28,800 tons. The slight decline happened in 2018 has rebounded in 2019.

Data Source: Zhiyan Consulting, ‘Exports of green coffee bean and roasted coffee bean to China’

Vietnam, Indonesia, Malaysia, Brazil, and the US are the key countries in coffee bean exports to China. In 2017 Vietnam accounted for almost half of all imports. Based on these origins, and information from external sources, Robusta is the most common imported coffee to China. Robusta is also known as espresso beans in China. However, imports from Colombia and Central America have been increasing significantly in recent years, growing at over 25% per annum. Now it makes up around 5% of the total.

Data Source: International Coffee Organization, ‘Coffee bean exporters to China’

Coffee bean industry in China: the quality is improving

China produces 138,000 metric tons of coffee beans annually. However, although China’s coffee production is high, it is difficult to directly associate coffee with China. This is because the coffee beans in Yunnan used to be of low quality, mostly used as raw materials for instant coffee. However, China already can produce good quality coffee beans.

Yunnan coffee plants is the key producer of coffee bean in China

A French missionary brought coffee to Yunnan province in the late 19th century, marking the crop’s introduction to China. Nestlé also arrived early in Yunnan to encourage the cultivation of coffee. Hogood Coffee, the largest domestic instant coffee maker, appeared in 2007. It has been responsible for cultivating much of the coffee in the Dehong region. In 2013, Yunnan Coffee Traders became the region’s first dedicated specialty coffee exporter. In 2018 they were the largest exporter of Yunnan specialty coffee in China. Much of the Yunnan coffee is exported to Germany and Japan.

Other centers of coffee bean market in China are Fujian and Hainan. Fujian and Hainan mainly grow Robusta. However, the domestic production is too small and these espresso beans in China are usually coming from Vietnam.

Coffee bean brands in China

Illy: A market leader in China

Italian roaster illycaffé has been in China for 15 years, in that time establishing itself as a clear market leader in the coffee bean market in China. It accounts for 30 percent of the imported roast and ground coffee segment in China. With a long and celebrated history as an innovator in the coffee industry, illycaffé is perhaps most famous for its signature blend of nine varieties of Arabica coffee selected from the best harvests in the world. Along with the introduction of new products, illycaffé is taking its products to the market through several channels. The company works with more than 1,000 clients in China in the hotel, café, and restaurant segments. In addition to this, the company’s Italian-style café franchise Illy Caffe has three outlets across the country, and there are another nine illycaffé retail outlets providing full range of Illy products – beans, ground coffee, and capsule machines.

Lavazza: Premium coffee grounds in China

Yum China Holdings has entered a joint venture to develop the Lavazza coffee shop concept in China. As the first step, a Lavazza flagship store in Shanghai, has opened its doors to customers in Asia. Recently, the Lavazza Group has embarked upon a process of international development aimed at tapping into new markets. Meanwhile, Yum China has made encouraging advances into China’s coffee market. In 2019, this brand sold 130 million cups of coffee to Chinese consumers. More than just the classic Italian espresso, Lavazza employs a variety of roasting and extraction techniques, introducing unique coffee creations to China for the first time. Bel Paese Coffee is an exclusive line-up created for the Chinese market, offering a “unique journey of tastes from across the different regions of Italy.”

Rwandan coffee enters China’s market

Rwanda was the first African nation to join the Alibaba-led Electronic World Trade Platform. Organized by the Alibaba group, the online event aimed at promoting Rwandan coffee which is available on the Chinese e-commerce market. Event featured coffee from Gorilla Coffee – a brand from Rwanda Coffee Company, promoted to about 20 million fans that were following online. By the time of buying, up to 3000 pieces (about 1.5 tonnes) of the coffee were bought online in a space of about 1 minute. Besides, as a result of the agreement, Rwandan coffee is available on Alibaba’s platforms. Coffee lovers in China also can access the product through Tmall.

Prospects of the coffee bean market in China

Due to growing middle class in China and the popularity of coffee among younger generation, coffee bean industry in China has a great potential. Forecast predicts that the average annual growth rate of coffee consumption in China will reach 15% in 2020. 

Data Source: QYResearch, ‘Annual growth rate of coffee consumption in China’

With the improvement of the living standards in China and the recognition of coffee culture, it may stimulate domestic coffee consumption. Forecast shows that the size of China’s coffee market will reach 217.1 billion yuan in 2025.

Data Source: qianzhan, “China’s coffee industry market size forecast’

As the size of coffee market in China is growing, it offers boundless potential for coffee bean industry. In the future China can become a major coffee-consuming country. Due to the growing gap between supply-demand in domestic coffee market, foreign producers increase a variety of exported coffee beans to China. Furthermore, with the constant improvement of domestic living standard, the consumption and demand of coffee will expand rapidly.

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