Full transcript below:

Hello everyone, this is China Paradigm, where we, Daxue Consulting, interview seasoned entrepreneurs in China.

Matthieu David: Hello everyone, I’m Matthieu David the founder of Daxue Consulting and its podcast China Paradigm, and today I am with Yingzi Yuan. You are the executive Director of Europe China Foundation and you have a very strong interest – I can see that with all your different positions from your LinkedIn profile and from the information we got – in innovation between Europe and China and in connecting Europe and Chinese leaders. Thanks for being with us, Yingzi. My first question is: what do you sell with the  Europe-China Foundation? Who are your clients?

Yingzi Yuan: Yes, actually maybe it’s a little bit different from the other podcast guests from this show because the Europe-China Foundation is actually a non-profit organization. Our main goal is to connect Europe with China, connect Europe and Chinese leaders in terms of culture and innovation. So, currently, we are not selling anything. We do have this membership program that is either for individuals or companies. So, people who want to participate in our event, in our program, can support us with sponsorship and the whole amount will be used to implement and to optimize those programs in order to promote Europe-China business relationships. So, it’s not a for-profit business model, it is a non-profit organization.

Matthieu David: I see. So, in some ways, people will make you – help you run the business with resources. Our companies will sponsor your programs and your programs– I learned on your website – are supporting initiatives for young leaders for instance. Exchange, entrepreneurship, connecting Europe and Chinese leaders and from – you used the word Trans-Asian – I think I saw that on your documentation. Is it correct?

Yingzi Yuan: Yes, exactly. So, we have two focuses. One is culture, one is innovation. But around those two topics, we have different initiatives to not only talk about leveraging Chinese tech sceneor talk about cinema or theatre, but we have a very large scope to create Europe-China business relationships. So, we have different initiatives like connecting Europe and Chinese leaders. We encourage exchange between young people in Europe and China. So, we initiated this young leader program that is connecting Europe and Chinese leaders and  2020 will be the first year where we have this program. We have different other initiatives such as a research program in collaboration with Sciences Po (learn more about the project in collaboration with Sciences Po)!  which is a university, a very famous university, in France. We are doing research around the initiative and entrepreneurship ecosystem in China, because everybody is curious about how things can grow so rapidly in China and a lot of European companies or individuals, they want to learn from it. So, we are doing this research and we are going to publish a reference book. Actually, it’s kind of a guide book, for all those people who are interested in the innovation and entrepreneurship ecosystem in China, either they are VC’s in Europe or they are, for example, start-ups, entrepreneurs or government officials in Europe. Also, we have these different events where we invite those leaders in different industries to talk about the Europe-China business relationships or talk about their experiences and share their stories in order to connect Europe and Chinese leaders. So, that is why we have this very regular breakfast conference and annual Europe-Asia forum to promote Europe-China business relationships.

Matthieu David: I see, Sciences Po. For people who are not familiar with France, it’s a very famous university, one of the oldest ones actually amongst the Grand Colleges as we say in France. Going back to what you organize, it is linked a lot to innovation as you said before, and you’re working with Sciences Po on innovation between China and Europe. My first question is; how China is different regarding innovation compared to the rest of the world? It seems that – we are in a podcast called China Paradigm – that there is a China Paradigm and if I can share a little bit more about what I understand so far, China has developed its ecosystem, innovation hubs in a bit of a closed environment because of what we know – censorship and the big players who are not present anymore, those who have failed in China such as Google, Facebook, and Amazon in some way. So, they have created their own ecosystem, their own innovation (listen to another podcast to learn about the innovation ecosystem in China) and of course because of the size of the country and the resources, they have the tools to make it. Besides that, why do we need to extract China and compare it to Europe? Why is it so different?

Yingzi Yuan: Yeah so, the research that we are doing, the definition of innovation we are using is actually around entrepreneurship (learn more about challenges for entrepreneurs in China). Meaning that we are doing research around other stakeholders around innovation and entrepreneurship in China. I think that this part is the most special part about innovation in China, because the government, for instance, plays a very important role in either pushing or restricting the development of innovation. Of course, during the last 10 years, either the central government in China or local governments in China are using every resource they can, to push initiatives such as start-ups and to leverage the Chinese tech scene. So, that is one point that I want to highlight, that is government policy. It is one part of our research as well. We have a group of two students who are doing research only on government policies in China for the last 6 months. Also, I think, the other stakeholders are interesting and as very special as well in this ecosystem. They are VC’s, venture capitalists and also incubators. So why are they different from, for example, their peers in Europe? Because in China those incubators are active and they leverage the Chinese tech scene. They are very active and also in Europe, we can see a lot of private incubators that are pretty independent but in China, a lot of incubators are supported either by local government or supported by Chinese internet giants such as Alibaba, Tencent, etc.

So, there are a lot of other specificities offered by China’s makerspaces opportunities that we don’t find in Europe but we find it in China.

Matthieu David: So what you’re saying that incubators – more specifically, VC’s maybe a different case, but incubators get the support of government and big firms, where in Europe or in the US it maybe has never been the case to get support from the government but also very recently only from big firms because we see as well in Europe and in the US – big firms creating their own incubators in the space. But you feel – what you’re finding here is to say that, it has been actually at the beginning of the incubator’s growth in China, it wasn’t linked with the government and big companies.

Yingzi Yuan: Yeah in China it’s largely linked with government and supported by the companies and also because of the internet landscape in China, a lot of start-ups they will be invested or they will be acquired by big internet companies in the end, at least during the last two years. So, that is also the reason behind the current landscape of incubators (learn more about the role of incubators for multinational in China).

Matthieu David: I see, so one of the first specificity you are telling us, which is differentiating innovation in China from innovation in the West, is the role of the government. Supporting at the start incubators – and we interviewed some entrepreneurs in the past, as far as I understand, the way the government is supporting is by offering free spaces and sometimes even grants in order to grow your business and you have to commit to hire people and to do specific investments in a specific locality. What else besides the role of the government – you were mentioning maker space, would you mind telling us a bit more about why maker space seems to be more advanced in China than in the West?

Yingzi Yuan: Actually, this is a very Chinese notion, because if you want to find a maker space in Europe or in the US – you wouldn’t find a lot compared to China’s makerspaces opportunities. Maybe you can find some coworking spaces, maybe you can find incubators but maker spaces are kind of a notion that is in between. So, it is meaning that people are kind of like geeky hackers, kind of cool people who want to create things but who are also incubated and supported by this space. So, because of the policies towards incubators, you have to – the barrier of entry to becoming incubators is pretty high. So, a lot of other individuals or companies can do maker space to not – to do a complete service as an incubator but are supporting the creators as well. So that is why the notion of makerspace is so special in China and that there are a lot of China’s makerspaces opportunities.

Matthieu David: Very interesting notion, would you mind we go a bit deeper into the concept of maker space. My understandings so far are that makerspace is to create products and that China because of the links with factories – biggest factories over the world, especially let’s say Shenzhen and Guangzhou have very good space for makers and my understanding was that it’s linked to 3D printing and to this ecosystem of being able to build hardware. Am I correct to say so or I am narrowing down to something too specific?

Yingzi Yuan: I think notion actually shifted as well, in the beginning – because it’s called makerspaces and it’s like people who are doing hardware, making prototypes, but as the time changes the notion of makerspace also changes. I think it enlarged into kinds of an incubator of not only hardware but also software and because the notion of incubators is just to give the start-uppers, entrepreneurs some support around administration, accounting and to link them with different resources, that is kind of the services that were added into maker space as well.

Matthieu David: So, we’re talking about the government – we talked about the notion of maker space as specificities of China innovation compared to the West. What else would you add if any?

Yingzi Yuan: Yeah of course, so maybe people already know that the venture capitalists in China, they’re very special as well – because during one period they were – there has been a lot of US or foreign venture capitalists that were investing in China. But recently, pretty recently –

Matthieu David: Yeah, like Sequoia, right? Sequoia and Plug and Play right which are of the US.

Yingzi Yuan: Exactly, but now China also has some local venture capitalists, but it’s a very recent phenomenon and they are still trying to find the right Chinese model of investment instead of copying the whole US model.

Matthieu David: My question could be naïve, but I don’t feel we talk about a European model. I feel we talk about a US standard for VC, and you are talking about Chinese standard, but I don’t feel we are talking about really European standards and your foundation is specifically about Europe China – is my perception correct?

Yingzi Yuan: We all know that currently there is a US-China trade war, we can’t avoid it – but I think it’s actually an opportunity for everyone, and also we observe that in the meantime, European start-ups they want to enter into the Chinese market and they want maybe more Europe-China business relationships – China investors to maybe invest in the as well, but they don’t have the resources or let’s say the impact to the resources in China. And also, Chinese companies, especially internet giants and big companies are trying to enter into a foreign market, especially the European market to boost Europe-China business relationships. But they don’t know how to do that, that is why we are initiating this global incubation program, it’s exactly between Europe and China to let Chinese start-ups be incubated in Europe and also European start-ups to be incubated in China so that they can get into the market, they can get in touch with the local venture capitalists and they can also work with each other among them – such as for example if we have a European start-up that can be the supplier of our Chinese start-up, and thus leverage Chinese tech scene that will be a perfect match and then they can be a global start-up – from the beginning. That is the whole point of our initiative and why we are connecting Europe and Chinese leaders.

Matthieu David: Okay. To end the conversation on the specificities of innovation in China, or maybe to go further – you mentioned the role of VC’s and they are different from the US – you said specifically the US, the West – how different they are? As far as I understand, VC’s have become big in the US, compared to Europe because of a lot of tax incentive , because you can put your loss into their accounting and you deduct from taxes and so on –and that had made VC’s big and VC’s take more and more risk and worthy people take risks because they could deduct from taxes. And, I understood that in Europe they wouldn’t take off as much because this tax incentive wasn’t that strong. What about China – I’m not specifically talking about taxes, but what makes VC’s in China different besides the fact that they are based in China?

Yingzi Yuan: I think VC’s in China they are as I talk about – they are still growing (learn more about the recent trends in the VC industry in China). They are trying to find their own model, but there are a lot of individuals that are in the Chinese VC firms, they were actually in foreign VC firms, especially Japanese or American VC firms. So currently we haven’t been observing a lot of differentiation of Chinese VC’s in comparison with foreign VC’s but I do think that in the upcoming years we’re going to observe more and more booming VC’s like super VC’s that are going to be investing in a lot of emerging start-ups in China.

Matthieu David: A report which is dating back I think now it’s a bit older than 8 years or something like this, from McKinsey. While saying that innovation in China is more social, basically the go-to-market is quicker, the markets are faster, where innovation in Europe and the West is seen as more fundamental innovation where the research took longer and the go-to-market would maybe not be considered in total initially and would be at least delayed. Do you think this is the case now, or do you think China is also investing in fundamental innovation and is taking the time to perfect a product before going to market?

Yingzi Yuan: I think China is definitely also investing a lot in R&D and various scientific researches. In comparison to Europe, things are going very – even faster in china because the whole ecosystem is more eager to achieve a certain goal quickly in comparison with Europe. In Europe, we observe that a lot of initiatives are either governmental or they are being done by bigger companies and historical companies such as energy company ETF or Airbus, this kind of company. That is why I think you were talking about fundamental research in Europe – because of those sectors, isn’t it? In China, it’s more B2C sectors and that is because we have a bigger market of course. That is why the go-to-market is faster as well and why it is easy to leverage the Chinese tech scene.

Matthieu David: Yeah, I keep being surprised by the fact that we talk about Europe as – actually I said as well, like more fundamental innovation with big firms, wherein China you have very big state-owned firms but still the private sectors and innovators of the private sectors have been very dynamic. That kind of paradox I have a hard time explaining. Do you have any explanation for that?

Yingzi Yuan: Yeah, I think the nature of the big firms is different. In China, we are mostly talking about tech giants like Alibaba, Tencent or even today Byte Dance (learn more on Chinese Tech giants) , but when we’re talking about big firms who are investing in innovation in France, for instance, we are talking about energy companies, we are talking about Total, we are talking about EDF – those are more historical companies, they are changing slower than the tech companies, that is pretty normal. So maybe that is also one of the reasons why things are going slower but more steadily in Europe, and things are going faster in when it comes to leverage the Chinese tech scene.

Matthieu David: I’ve been in China for 10 years and what I’ve seen is that Chinese innovative products are not succeeded only in China, which was the case till five or six years ago, but not world-wide. Xiaomi is present worldwide, Huawei, of course, is present worldwide, longer, higher yield as well – but what I feel is very new is that China is also successful for cultural products like TikTok, and TikTok (learn more about the strategy behind TikTok) is a cultural product. It’s a product where you feed with content that could actually be very different from one country to another, from one culture to another. What are the next frontiers for China innovation in your mind, or the Europe-China business relationships? I have in mind the fact that I feel that Europe is not leveraging all the innovation in China but besides this one, what are the next frontiers for you?

Yingzi Yuan: Yeah from my point of view, as you talk about a lot of hardware’s – we’re going overseas let’s say because in Chinese we say ‘chuhai’ so a lot of companies and brands they are going overseas to search for the international market during the last let’s say 20 years already. But a pretty recent trend is that a lot of software companies or let’s say – services and apps are going overseas as well. In terms of the next frontier, I will say cultural and entertainment applications are definitely going abroad. They are already trying to enter and already entered into the Indian and South East Asia market and I think in the near future they will be in the European and the US market.

As you mentioned, TikTok is definitely the best example to illustrate this, because Byte Dance has been deploying this international strategy and its working very well. But I think byte dance is not the only one and will not be the only one that will succeed in international markets.

In southeast Asia market, we also see a Chinese giant called Waiwai – is localizing a lot of its services and apps and are succeeding in Indonesia, in Malaysia and in India- such as a gaming and social app called Huggle and also some other different apps for different kind of segments.

So, to answer your question I think – you’re right, it’s definitely the next big thing that we have to observe, an opportunity that we have to seize. Europe-China business relationships and the relationship between China and the world in general will be closer and closer in this sense. So definitely we have to look into it.

Matthieu David: As your project, where do you feel through your research and the meetings you had in this sector – where did you feel Europe is strong to watch China? When Chinese think about innovation in Europe – where they should look at?

Yingzi Yuan: Yeah, I think Chinese companies are definitely very interested in European R&D, research, and development. A lot of European universities have very, very advanced laboratories around research such as biological or medical research. And also, for example, air flights – how do you call it in English – aeronautic research, in France it’s very advanced as well. I think those kinds of sectors are definitely the strongest sector that is attracting the most attention from Chinese companies and investors and in recent years we can also see a lot of Chinese companies, they are either acquiring or investing in a lot of technology firms (learn more about China’s tech acquisition during the Covid-19 crisis in Europe), especially in Germany.

Matthieu David: So, with the patterns, you are seeing with Chinese investment in Europe is more fundamental R&D and would you say hardware world because you’re talking about airplanes, you’re talking about I guess robotic with Germany and factories. Have you found out some patterns in what China is doing in Europe in terms of investment integration?

Yingzi Yuan: I can give a quick example, very recently Chinese internet giants Tencent invested in French start-up called Lydia. This is not one of those companies who are doing hardware, who are doing research and development but very go to the market app which is used by a lot of people for peer to peer payment. So, this actually is part of the going overseas strategy of Tencent, of WeChat pay to have a part of the cake in payment – international payment as well. So, it’s definitely great news for at the same time the start-up, because they’re receiving a huge amount of investment but it’s good news for Tencent as well. So, we can say that other than the examples that we are giving regarding those sectors that are more traditional medical sector, biological sector, robotics, we can also see emerging trends of the other kind of start-ups that are being invested in by Chinese companies thus creating Europe-China business relationships.

Matthieu David: What kind of deal was it with Linda – sorry Lydia, Linda is an online learning software bought by LinkedIn? What was the deal between Tencent and Lydia? It was a full acquisition, investment partnership?

Yingzi Yuan: Yeah, I think recently, In January this year – last month, Tencent invested in fintech company Lydia, so Lydia currently has three million users in France, which is a huge number for the population of France, so that is why it attracted the attention of Tencent and WeChat pay. So, we all know that WeChat pays already tried to enter into the Indian market and South East Asia by acquiring or investing in local companies and this definitely is part of the international acquisition as well. It is an investment of 40 million euro’s so it is a pretty high price for the investment.

Matthieu David: On the other hand, so we talked about the Chinese companies investing in Europe when we look at Europe investing in China – you mentioned before through your incubator and your surveys as an incubator, that it’s hard for European companies to enter the Chinese market and to catch the Chinese innovation. There are many difficulties, barrier language, and ecosystem and so on – but how do you analyze the fact that a company like Amazon, for instance, failed. We understand that Google, Facebook failed because of regulations on censorship, but amazon is different. There was no censorship issue (read our latest article on internet censorship in China). Similarly, for Uber. It’s not a censorship issue, it’s a business. Its operations. How do you see the fact that so many tech companies have failed in China and not only because of regulations?

Yingzi Yuan: Yeah, those examples that you’re giving were actually very interesting, but there is also another example of European company Carrefour – Carrefour exited China last year in October as well, because Carrefour was kind of the first supermarket in China that was succeeding, so it was a surprising fact that is actually failing in China and it chose to leave the Chinese market. So, the answer for your questions would be that – a lot of companies they have a hard time adapting their pace to Chinese market because when – I talk with people in Carrefour as well, but maybe it’s not an official answer – so basically when we have to do a lot of decision making in the headquarter in Europe and we have to adapt it to the Chinese market, it will take a long time for the decision making and for local adaptation and sometimes it’s very hard to stay in Europe and to understand how things work in China – how things are changing fast in China. So that is why a lot of decision making – they are not adapted to the Chinese local situation, to the Chinese market and that is why a lot of the companies are failing in China. It is the pace maybe for Carrefour and for other traditional sectors because they didn’t adapt e-commerce and offline delivery fast enough. For Uber and for amazon it’s kind of like a calculation right – they are making less money in China as they wanted and it’s better to be bought out or to exit the Chinese market, it’s more the return of investment is better for them if they do so. So, it’s a choice – it’s a mathematical choice.

Matthieu David: Does it make sense and would you agree with the saying that – when you go to China, whatever the size of your business, even if you’re a macho business in the West, you have to start again. You have to reconsider your product. You have to reconsider your distribution channels. You have to reconsider how you acquire clients – for instance, businesses which build their dominance on search, on Google, would not be able to do the same on Baidu because actually, people in China don’t look for the same information on search engines, they would not look for a product to buy – they would go directly on TMall or Taobao. Does it make sense for you or you think difficulties are more structural than this?

Yingzi Yuan: I think it’s definitely right what you said and that is why I think Daxue Consulting is doing a great job, by introducing people to the Chinese market by actually localizing all the services and adapt things to Chinese consumer’s demands and thus also creating Europe-China business relationships.

Matthieu David: Thanks for the mention – our guests are sponsored now. Thank you. But what’s your view on it – does it mean that on the opposite, is it worth going into a market if you have to reconsider everything you do? I remember Harmony coming to China and they painted doors in red, looking Chinese and actually Chinese didn’t want to buy Chinese. They wanted to buy Harmony and they actually didn’t go to this shop. So, on the opposite changing all your product can basically make you worthless, worth nothing and – if the products were changed for China, they wouldn’t be successful in China – what’s your analysis on this aspect that what needs to be changed – adapted, and what doesn’t need to be?

Yingzi Yuan: Depends on the factors of course, in terms of services I think your distribution channels, your marketing definitely have to change, have to adapt to Chinese users habits, that is pretty normal and if you have to change or not your product, that really depends on the product itself. Sometimes you have to, of course, localize your product, especially when it comes to culture and entertainment products, but sometimes you can just stay the way you are, especially for European brands (learn more about how  to introduce a brand in China with Daxue Consulting), they always have this heritage and the brand image behind it and sometimes Chinese consumers they are buying the things for this kind of heritage and brand image, they don’t want a thing that is totally adapted to the Chinese style – Chinese market – such as for luxury brands, I think a lot of them have to do market research before implementing their product into Chinese market some brands actually failed because they were kind of doing a mixture of Eastern and Western style that wasn’t a very nice – even either for the European market or for the Chinese market, so it was a failure.

So, I think in terms of a product we also have to consider case by case.

Matthieu David: I think there is a keyword we have not used, its open innovation (get more information on open innovation in China). Have you looked into this topic through your research?

Yingzi Yuan: Yeah in our research with Science Po Paris, we haven’t been looking into open innovation, but I personally I’m very interested in this topic as well. It’s not in the scope of Europe China foundation yet but it will be a future topic that is interesting to look into. So, in terms of open innovation, I think a lot of European companies are making a great effort in doing so. Because as we mentioned, European companies they are – especially those historical industrial companies, they are very huge and they’re pace of innovation – doesn’t catch up with the evolution of innovation in terms of technology. So that is why they are trying to work more and more with different start-ups, to try to inspire their internal teams and also to learn from the start-ups, and also – that is also why we have this Europe China Incubation program so that big companies who are interested in the innovation in the incubated start-ups, can help the start-ups and can collaborate with the start-ups to get not only into the other part of the world or into the market, but also have the technology.

Matthieu David: For people who are listening to us and may not be familiar with the word Open Innovation – open innovation is for bigger companies to catch the innovation through smaller companies by opening up their door in one way or another, could be competition, could be investment, could be ascending people from this bigger company to the smaller company to interact with them in the office and see what kind of synergy they can have. That’s a very trendy topic ad actually we have been asked to work on this a few times and I feel that it’s getting bigger and bigger, especially foreign companies, not only Europe. Going through China and entering through open innovation by partnering with others, in the past we would call that joint venture, but here we are talking about more open innovation.

Now we are moving to the last questions I always ask –

Yingzi Yuan: What book do I like the most, right?

Matthieu David: Yeah, inspired you the most in your work, in your life?

Yingzi Yuan: Well I think a recent book that I really liked is the book written by Kai-Fu Lee which is about AI competition between US and China – it doesn’t mention directly Europe, I don’t think in the current trade war and AI competition between Europe and China, it’s definitely interesting for everyone in China and in Europe to read it. The book is called AI Super Power, China Silicon Valley, and New World Order. So, he mentioned not only historically how China advanced from a copycat to an innovation hub, but also mentioned the future, how China and the US will evaluate, in the AI sector.

Matthieu David: Yeah, the book has been mentioned by other interviewees. It has become a best seller. What do you read to be up to date on China?

Yingzi Yuan: In terms of websites, in terms of news, right?

Matthieu David: Yes, anything that could be useful for the audience to know, specifically in English, could be Chinese but more specifically in English.

Yingzi Yuan: Yeah, I think the website called 36KR is definitely very interesting. They have a lot of updated information every day about China and recently they have this going oversea special section, meaning that they are listing other news of Chinese companies or start-ups, the product who are trying to penetrate into a foreign market, either in South East Asia or in the world. So, for Chinese companies and foreign companies, it’s very important to read about those sectors because they are actually competitors or they are offers in the market.

Matthieu David: 36KR is in Chinese right?

Yingzi Yuan: Yes.

Matthieu David: Do you have other sources that the audience who may be English speaking could use?

Yingzi Yuan: Yeah, exactly this 36KR they have recently English version, the English version is called 36KR-Global, so it is the English version of the Chinese media.

Matthieu David: Yeah, the same as Taishin has Taishin Global. Do you know why they use 36KR by the way – why the name?

Yingzi Yuan: Actually, I don’t know, it’s a very good question, it sounds very geeky. It’s a technological medium.

Matthieu David: What book on China would you recommend for the audience?

Yingzi Yuan: For the audience – recently I was reading a book around the business ecosystem in China and another book about Four Types of different companies in China, both books have the same author – so, the author is Professor in a business school in Zhejiang – let me search for the book to see the author, so the book – Business Ecosystem in China talks about four companies – Alibaba, Tencent, Xiaomi, and LeEco – we all know that LeEco is not working anymore but it gives a very deep analysis, especially to Alibaba. So, this book I think it’s a great book that was written in 2017 for others who are interested in China. However, there is another book written by the same author called Mark J. Greeven that is around four types of innovators in China. It’s pretty recent, it was published in 2019 and the name of the book is Pioneers, Hidden Champions, Change Makers and Underdogs and it is about lessons from Chinese innovators and it’s written by the same author Mark and also George Yip and Wei Wei.

Matthieu David: If you had some extra time besides all you do, what would you work on?

Yingzi Yuan: Yeah so after helping other start-ups, after starting other start-ups, I’m very eager to actually create my own start-up as well, because I see others opportunities, I see others patterns, I think everybody who has a dream has to seize this opportunity to go global, to not only be a local start-up in Europe or in China but be a global start-up that is serving everyone. So, I think my next goal will be to do a global start-up from the beginning of the business.

Matthieu David: I see. What success in China you have witnessed and you wouldn’t have expected to be a success? I always ask this question – Peter Drucker the thinker of strategy says we can assess innovation and change through a success we were not expecting and similarly through a failure we were not expecting, which is actually assessing the best with a change in society.

Yingzi Yuan: Yeah, a success that I didn’t expect, I think many successes had their reason, but I’ve been witnessing a lot of young people, they are creating start-ups, they are setting up a business at a very young age and they are succeeding in the international market. I will just give a very quick example – but a very interesting example about a company in Shenzhen – it’s called Insta3060 – so they are doing this kind of 3060 camera, you can actually shoot a scene and then it can be shown in VR headsets for instance. It is let’s say a niche market and they are the leader – the top three let’s say in this market. And, a lot of video makers or amateurs or fans are using their different products and next year they might do IPO. So, they are a group of young people currently who are 27 years old or 28 years old, they created their company right after university, after a bachelor’s degree so around 22 years old. So, it’s a very tiny story, young people are collaborating, are creating and they’re growing very fast in the international market, and I think that is very surprising but well – no surprise either.

Matthieu David: So, what’s surprising to you is the fact that young people create start-ups or is it the fact that they go international very quickly?

Yingzi Yuan: I think both, are very young but they are growing very quickly internationally. At the same time, they have this support from investors in China, but also, they are benefiting from the fact that China is very strong in manufacturing so they have great suppliers and a very quick supply chain. Yeah.

Matthieu David: And the opposite, what failure in the Chinese market you have witnessed and you were not expecting?

Yingzi Yuan: Yeah, so I have a friend who actually has a traveling company, a tourism company in China and recently because of the coronavirus, the business was very well but it’s surprisingly failing because of the – irresistible factors. So that is one very sad story that I heard recently. Hopefully, everything will go better in China after this crisis.

Matthieu David: Yeah hopefully, we are recording on February 20th and it’s still going on. So, about failure, would you mind sharing a failure which is witnessing maybe something more long term – you mentioned one which is interesting is Carrefour, 10 years ago nobody would have thought that Carrefour would sell for such a cheap price, that all the hypermarkets and supermarkets in China and that the deterioration would actually come so fast. Do you have other failures that surprised you?

Yingzi Yuan: Well, in China I think as we say, 99% of the start-ups fail and we don’t remember those failure stories. I think not a very recent example but one example is Dong Dong website, so they were succeeding, they were supposed to be amazon of China, but because – they would have been Amazon in general by selling everything, but they kind of didn’t have the right strategy and now they are not the top ones when people are searching for books when people are searching for e-commerce, they are not looking at Dong Dong anymore. So that is one failure, and recently we also had the scandal between the founders so yeah – it’s a very interesting story that we don’t have time to dig into.

Matthieu David: Yeah, yeah interesting to see that JD.com which was not existing when Dong Dong was created, I think JD came later, took much more space and market share than Dong Dong at that time where it was the place to go to buy books, more than Taobao and TMall at that time. Thanks for being with us, it was very instructive on innovation and indeed we could do 2 or 3 hours on that.

Yingzi Yuan: Yeah thank you, Matthieu, for having me.

Matthieu David: Thanks and a few words for the virus, which is still actually heavy in China and we hope that things are going to back to normal very quickly and extend our support to people who suffer from it. Bye-bye, everyone.

Yingzi Yuan: Yeah, all the best to friends in China. Bye.

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

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This article China paradigm transcript #94: Connecting Europe and Chinese leaders in 2020 is the first one to appear on Daxue Consulting - Market Research China.

The most recent fashion collaboration in the Chinese market between Uniqlo x KAWS (UT collection) officially released in China on June 3, 2019, leading the same series in Japan for 4 days. The UT stands for Uniqlo T-shirt, this series presents the pop culture such as movies, cartoons, and art. Uniqlo’s Tmall flagship store was sold out in three seconds, which is not surprising for the new launch of trendy products in China. However, in all offline Uniqlo shops in China has been unprecedentedly snapped up and becoming hot news.

According to the result of WeChat Index, KAWS‘s search index has risen more than 180,000 times in the past month. Uniqlo’s search index, on the other hand, was exaggerated to nearly 80 million.

Interestingly, the brand collaboration in China is different from that in Korea and Japan. According to reports, Uniqlo in South Korea still has a large amount of stock left. It is undeniable that this kind of brands collaboration in China brought a hurricane in the Chinese world of fashion.

The emerging phenomenon of Co-branding in China: The fashion industry in China

In recent years, firms are actively experimenting with the strategy of Co-branding in China, and it seems the strategy is welcomed by Chinese consumers.

Win-win cooperation in China: What does it mean for consumers and brands?

Unlike in western countries, cheaper brands’ collaborations with big-name brands often have a stronger impact in China, because China’s strong fan base can help brands greatly enhance their brand awareness by word of mouth. Uniqlo chose China as the first country to release this product due to its strong follow-up effect. On the other hand, young people in China generally cannot afford luxury goods, but they are still eager to follow the trend. KAWS is famous for his unique graffiti style, and KAWS in China has worked with lots of big-name brands. It costs more than ten thousand RMB for one set of KAW’s toy. That’s the biggest reason why Uniqlo x KAWS have made such influence when consumers can’t afford KAWS’s product, and the T-shirt with Uniqlo only sold for 99RMB. As we can see, the smart Uniqlo x KAWS win-win-cooperation in China has brought great results: KAWS only needs to provide his classic elements without redesigning a new image, while Uniqlo as the fast fashion brand guarantees sales.

Fashion collaboration in the Chinese market: Exploring the success of a similar branding strategy in China

Uniqlo and KAWS launched their first collaboration in 2016 when the line sold nearly one million units a month. However, Uniqlo’s co-branding series is far more than just KAWS. Its UT collection has achieved cooperation with various IP (Intellectual Property), such as Disney,

Marvel, Sesame Street andLego. IP in the current context mostly refers to film, television literature, game animation, etc, which are in the hearts and memories of most young people in China. Uniqlo in China has established a brand image of taste, fashion, and quality. Meanwhile, what the UT collection is pursuing is that ‘More than just a T-shirt.’ The IP image help UT collection increase consumers’ sentimental value and social value.  This ensures that its co-branded collections are always accessible among Chinese consumers.

Is Co-branding in China always a successful strategy?

Compared to Uniqlo, H&M’s co-branding products are increasingly difficult to attract consumers. H&M started its first collaboration in 2004; later, famous collaborations include VERSACE, Balmain, Isabel Marant, etc. The series of H&M x Moschino in 2018 received a lot of exposure and drove consumers crazy similarly to Uniqlo x KAWS. Except H&M’s cooperative products have become less attractive since the collaboration with Alexander Wang in 2014. Sales of the co-branded line have deteriorated. An increasing number of customers were getting bored and questioned the quality of the clothes. The Versace x H&M has had a large number of returns. Therefore H&M has canceled the return policy in recent joint series.

Influence of Co-branding in China

Young customers are enthusiastic about brand collaboration in China

Whenever the fashion industry in China releases the latest brand collaboration news, it becomes a talking point for young people. When thinking of co-branding, the first thing that comes to mind are ’snap up,’ ‘limit’ and ‘queuing.’ But why are they crazy about it?  

Based on the analysis from OFashion, fashion brands consumption growth rate in China reached more than 50% in recent years. Young people’s pursuit of fashion has become an attitude. Based on that, fashion collaborations in China draw much attention. As mentioned earlier, one important reason is that consumers can buy ‘two brands’ at one price. The price directly leads to the difference in the influence of products in the Chinese market. At present, fast fashion cooperation with luxury brands is one of the most popular forms. In addition, the cultural factor also plays an important role. Specifically, it works in cases when brands collaborate with the cartoon, films, or even a place. Customers would prefer brands that match their feelings and values.

What do rational consumers think of Uniqlo x KAWS fashion collaborations in China?

According to a survey about attitudes towards Uniqlo x KAWS fashion collaborations in China by Morning news, 350, 000 people believe that the act of snatching clothes is simply following the trend and was influenced by others; 121,000 people think that the second-hand traffickers are pushing up prices and the remaining 103,000 people were wondering if the buyers really like it.

Based on the results, more and more Chinese consumers tend to be calm and looking more critically at co-branded items.

Brands collaboration in China: What advantage can be taken?

Co-branding in China often happens in two different fields; seldom competing brands would choose to initiate collaborations. Companies relate their co-branding strategy with brand development, and their pursuit is always to maximize economic benefits. The main reason for the fashion collaborations in the Chinese market is to enhance the popularity and influence of both brands. Both brands increase a lot of exposure through their co-branding process. This can be achieved by making full use of ‘fans economy’ in China to gather fans from different fields.

Since the first co-branding Uniqlo experience in 2007, the frenzied growth has been rampant. Uniqlo’s parent company announced the first half of the performance report until February 28, 2019. According to the performance report, Uniqlo’s parent company’s sales in the first half of 2019 increased by 6.8% to 1.27 trillion yen (converted to 76.3 billion yuan). Among them, the growth rate of income and profits in the Chinese market remained at about 20%. In the 11 years since Uniqlo has never stopped exploring win-win cooperation strategy.

The Chinese world of fashion: Achieving success in branding in China

Understanding the fashion industry and brand positioning in the Chinese market should be the very first step. What do Chinese consumers need? What can the brand bring to the customers? How can companies assess consumers’ needs? Try to find resonance with the target audience and keep sensitive to the China fashion trends. Do not simply attract consumers by the design or appearance, but also consider their inner emotions. Only those brands that truly understand the Chinese consumers’ beliefs may grasp their hearts.

Before starting a co-branding project, the company must conduct a comprehensive analysis to ensure the quality of its product: Whether the brand is mature enough to scale up and enter the Chinese market. With the rise of fast fashion brands, Chinese consumers are paying more attention to the price/performance ratio of products. There is a trade-off between price and quality that managers need to consider. Cost-effectiveness has become a key factor in their choice of fast fashion brands in China. Uniqlo in China is recognized as a cost-efficient brand in the fast fashion industry.

Brands collaboration in China: Choose the right partner

Find a suitable partner for co-branding in China could be harder than finding your customers. Two brands can come from entirely different industries. Of course, consider whether one brand’s fans are willing to pay for the other brand. What truly matters is not the domain of brands, but whether the two companies share the same values and goals. For example, H&M released lots of co-branded series with brands that have exaggerated designs such as Moschino and Versace. They all want to convey an amazing image to their customers. Similarly, the UT collection of Uniqlo try to evoke the memories of the post-90s generation. Consumers value culture and feelings, especially in China. The integration of elements should be in harmony and deliver a consistent concept. In addition to the sharing value, it should be noted that the reputation of the brands will affect each other.

The formula of powerful fashion collaborations in China

When will the trend of co-branding end? Indeed, co-branding in China always has a high level of heat these years. But at the same time, consumers tend to be more rational. What companies need to consider is whether value of their fashion collaborations in China is greater than the individual parts combined. Negative public opinions were produced in the Uniqlo x KAWS incident, which caused some fans’ disatisfaction. Many people think that the sparked product snatching is not an accident, but a well-planned marketing campaign. Some say, it is likely to lose a number of fans from the generation borafter the 90s generation.

Author: Rita Fan

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[Open innovation strategy in China – Source: Daxue Consulting]

In order to implement an effective open innovation strategy in China, companies must balance value created internally through innovation with the value captured through the commercialization of external sources/assets of knowledge.

Open innovation in China: Initiatives for Chinese economic development

In an effort to open endless frontiers of growth, China has announced many initiatives that display its global aspirations to develop and advance the notion of the innovative economy. In particular, instead of using its massive labor force to replicate goods and manufactured products developed mostly by Western firms like before, the government has implemented a large-scale organic endeavor to bring out the entrepreneurial spirit of China. Specifically, billion-dollar investments from the government and leading tech enterprises, a huge domestic consumption market, and a growing talent base have transformed the Chinese innovation process completely.

In particular, since 2015, the State Council of China has put forward several innovation-centric national strategic initiatives such as the “Internet Plus,” “13th Five-Year Plan,” “Made in China 2025” and the “New Generation of Artificial Intelligence Development Plan.”  These initiatives aim to encourage more digital innovations by leveraging the Internet of Things, big data, cloud computing and AI technologies to construct a “Digital China.” Backed by strong government mandates, incentive plans, and billions of dollars in both private and public investment, China has made significant progress in building a solid digital foundation to cement itself as a leader in the global innovation market. It now ranks among the top three worldwide for venture capital investment in key areas such as digital technology, including virtual reality, autonomous vehicles, 3D printing, robotics, and AI. China is also one of the world’s largest e-commerce markets and is already a major global force in mobile payments.

From Gartner Research, as of December 2017, the total number of internet users in China reached 772 million, representing a market penetration rate of 55.8%. Furthermore, the shared economy business, which integrates social resources to serve civilians, was booming in 2017. The number of users of shared bicycles, for example, reached 221 million. In addition, the number of people using mobile payments in China increased to 531 million in 2017, and users’ mobile habits are being further consolidated by the day. This large mobile user base and exponential growth in consumer data generated by the digital market are facilitating a future for even better and more advanced digital innovations. Thus, the integration of innovative digital technologies into various industries has led to the emergence of new markets. From this, we are also witnessing the creation of new products and services that will serve as the impetus driving China’s future economic development and new open innovation strategies.

China’s digitalized economy is the ideal environment for Open Innovation

China’s leading factors driving the development of China’s digitalized economy include one, a robust young market that enables rapid commercialization, two, well-capitalized tech giants building rich digital ecosystems, and three, a relaxed regulatory environment promoting innovation and experimentation.

[China’s tech ecosystem is ideal for welcoming new open innovation strategies – Source: Daxue Consulting]

Unlike their U.S. counterparts, Chinese tech infrastructures (software and platform solutions) can be easily tailored to meet a diverse set of client needs. Chinese platforms are also more scalable, open, customizable, and flexible compared to their MNC counterparts. This is where the two sides need to work together, an opportunity for foreign firms to tap into China’s open innovation market. However, it is important to understand that China’s open innovation strategy has largely been successful for Chinese firms due to the advantageous treatment they receive from the government. In addition, they benefit greatly on a policy level simply by being domestic and homegrown. Another factor foreign enterprises must take into consideration regarding their China-based OI initiatives.

Open Innovation Strategy: Riding the wave of China’s Digital Transformation

Digitalization is increasing the interconnectedness of business ecosystems, making it quick and easy to connect everything including organizations, machines, and individuals. This physical and digital interconnectedness is necessary for providing the intelligence needed to manage business complexity. As a result, digital technologies have underpinned and accelerated the importance of business ecosystems for modern and globally adaptive enterprises. A business ecosystem is a dynamic network of entities (people, businesses and things) interacting with one another creating and exchanging value. Business ecosystems offer firms unprecedented access to more business resources and talent on a global scale. This has set the stage for open innovation as enterprises have the ability to improve upon their business models and to provide new services, products, and customer experiences. In order to leverage business ecosystems, organizations will need to shift the entire paradigm of their enterprise model. Replacing the traditional supply-demand economic perspective with a more ecosystem driven perspective that sees the organization as a participant in a wider, more dynamic network of entities.

Therefore, in order to tap into the potential of the innovative Chinese market, or strengthen one’s position, firms must employ these tactics moving forward. The primary OI strategies used by global and Chinese corporates in the Chinese market that have accelerated them to the top of their league are: business ecosystem interactions, academic (knowledge) collaborations, application and platform innovations through 3^rd party developers, interacting with users, and collaboration with start-ups.

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1. Open innovation in China through ecosystem interaction – external resource integration

For a growing number of companies, it makes sense to base their entire operations in China in order to commercialize innovations and penetrate the local market. As a result, China becomes the head operational center within the businesses ecosystem, from which companies spread their firm innovations to other emerging markets in Asia and elsewhere in China. This not only benefits the firm geographically in having this proximity to their targeted consumers. But also, is beneficial in terms of having access to specified development zones and technology clusters where they can take advantage of China’s local talent and huge supplier base to accelerate innovation.

In these efforts, organizations are increasingly looking outward on their network and constantly expanding externally within their business ecosystems to drive innovation. To capitalize on these opportunities, CIOs must develop a proactive innovation strategy and select the right mix of business and technology tools to support this strategy. A business ecosystem can drive value as it enables various parties to expose another firm’s capabilities and leverage the capabilities of others to create new services, products, and customer experiences. As organizations can either run power ecosystems or participate in them, these structures and interactions become particularly unique in the digital age. Powerful conglomerates such as Alibaba, Tencent, Baidu, Amazon, Google serve as interesting open innovation examples of this framework.

[Alibaba open innovation strategy in China – Source: Alibaba]

Here is a diagram of Alibaba’s business ecosystem in China. As seen above, the diagram shows the deeply integrated network of Alibaba’s diverse portfolio containing physical retail, e-commerce, cloud infrastructures, and digital media

An open innovation example of foreign firms taking advantage of China’s vast digital ecosystems can be seen from the recent  Starbucks and Alibaba partnership to transform the coffee experience in China. Starbucks indicated that weakness in their China business was due to a change in the delivery environment and that they needed to become more aggressive on delivery by partnering with a third-party vendor. As a result, Starbucks will collaborate across the key businesses within Alibaba’s ecosystem including Ele.me, Hema, Tmall, Taobao, and Alipay to improve their brand. Particularly, they have established “Starbucks Delivery Kitchens” for better delivery order fulfillment. Additionally, they have integrated their presence throughout Alibaba’s multiple platforms in the creation of an unprecedented virtual Starbucks store, providing an unparalleled and even more personalized online Starbucks experience for Chinese customers. This announcement is a great example of implementing open innovation strategies in China as the two iconic, global companies build on their distinct retail and technological strengths to revolutionize the customer experience. Leveraging Alibaba’s ecosystem and ‘New Retail’ infrastructure, Starbucks will be able to provide a unified seamless Starbucks Experience between its store and online presence for customers.

[Open innovation example: LL’Oréeal China CEO Stéphane Rinderknech (left) strategy with and Tmall – President Jet Jing shake hands at a kick-off ceremony in Hangzhou for the companies’ new partnership. Source: Alizila]

[Open innovation example: L’Oréal China innovative strategy – Alibaba’s Tmall and L’Oréal China partner up to launch a new campaign for men’s grooming products. Source: Tmall]

Another company that has implemented a successful open innovation strategy in China vis a vis, external engagement with China’s digital ecosystems is L’Oréal China. L’Oréal China recently announced that it would partner with Tmall’s dedicated research and development arm to create male beauty products specifically for the Chinese market. The partnership aims to catalyze the consumer-to-business (C2B) approach and add a new value chain that better connects consumers, products, and channels. The deal will bring together the China division of L’Oréal and the Tmall Innovation Center (TMIC) to leverage insights from Alibaba’s over 600 million users to help the company tailor its product development and marketing strategies to Chinese consumers. TMIC guides brands through all stages of the production cycle—from discovery to design to development—including market research in China, sales and data analysis and even product testing. Alibaba’s Tmall will assist L’Oreal in providing access to new markets. With Tmall’s unparalleled customer insight, it serves as a great ecosystem partner to help L’Oréal China offer customers its best-in-class personalized product experiences.

As the number-one beauty company in the Chinese market, L’Oréal China will continue to deepen its collaboration with innovative partners locally to unleash the value of data insights and create value for their consumers. In both cases, L’Oréal and Starbucks have successfully engaged with the external ecosystems available to them in order to advance their product and innovate upon their business strategy. By partnering with Alibaba, both companies gained access to a whole new population of digital customers. This ‘New Retail’ strategy of infusing their mortar based operations with an established online presence has allowed them to digitally innovate and outsource a portion of their business while staying focused on their product. They are thus perfect examples of successful open innovation in China using different innovation methods to activate new growth drivers.

2. Open innovation through Inward Ecosystem Interaction

Innovation starts with insight. Typically, companies have formal innovation methods for generating insights such as from market research departments, R&D labs, and product development groups. These departments do market research, survey consumers in China, and run experiments to gather this knowledge. But there are many other insightful sources of innovation, both inside and outside the organization that companies often fail to use. One of those is the use of internal competition and expertise to generate ideas. Specifically, employees can be excellent sources of creativity that can inform future innovation directions due to their intimate understanding of the company and its products and markets.

3. Open innovation through Collaboration – Innovation and research centers in China

Complex problems demand collaborative responses, whether that’s creating an innovative new service or solving a firm-wide issue, no one organization or individual can do it alone. What’s then required is a collaboration among actors with complementary capabilities and assets, along with network proximity to prestigious knowledge hubs. When a business actor reaches out externally, whether to academia or sector-specific research centers to solve an industry problem, this allows the firm to gain exposure to previously closed sources of knowledge, and when utilized in the proper context, bring innovative solutions to the business.

L’Oréal again provides a great example of how product making companies have implemented an open innovation strategy using research centers in China. The company opened a Research and Innovation center in Pudong district, Shanghai to better adapt its global strategy to the specific features of the Chinese market. L’Oréal’s Research Centre is the first facility of its type operated by a cosmetics company equipped with a world-class team of chemists and physicists to advance the understanding of the unique properties of the hair and skin of Chinese consumers.  L’Oréal will leverage the valuable knowledge that is obtained from the research that is conducted at the Pudong L’Oréal Research Centre to develop innovative and better performing new hair care, skincare, and cosmetic products for a growing number of Chinese and Asian consumers worldwide. 

[Research Center in China, Pudong – Source: L’Oréal China] Researchers at the Research and Innovation Center in Pudong, China. Source: L’Oreal]

[L’Oréal innovation methods in China – Source: L’Oréal China]

L’Oréal and Ipsos carried out a study, “Portraits of Chinese Women” to unveil and better understand the beauty rituals of Chinese women. This study portrays L’Oréal’s China customer-centric approach with its research department focusing on the specific aesthetic features of Chinese women.

In addition, with China’s world-class infrastructure, abundant skills and strong support from the government, earlier this summer BMW China announced the opening of its new Research & Development Center in China, Shanghai. The center will be the spearhead of innovation for BMW’s R&D network in China and serve as an incubator for future technologies. The Shanghai R&D Center will focus on autonomous driving, digital services, and futuristic design, and will expand collaboration with leading high-tech companies. With its team of experienced and talented professionals, the Chinese Research and Development Center will bring more and more innovative technologies to Chinese customers.

[Research and Development in China: BMW China strategy is to go open source in its autonomous driving endeavor. Source: Computer Business Review]

It comprises four departments focusing on future mobility trends and innovative design: the Technology Office China, Digital Products & Services and Digitalization Customer Interface, a Connected and Automated Driving Lab, and the Designworks Shanghai Studio. It covers over 2,500 m² and features an open and flexible working environment that inspires employees and improves cooperation. The R&D team is made up of over 200 technical specialists and designers. More than 90% are Chinese. They come from diverse scientific backgrounds: big data, robotics, AI, human-machine interface, mechanical engineering, business model development, and economics. All the departments of the Shanghai R&D Centre work with other BMW R&D departments around the world as part of a collaborative effort to transform the BMW Group into a high-tech mobility service company. This endeavor by BMW showcases its superior business strategy in open innovation. By establishing a knowledge network of experts to test and improve their product, they can ensure for a consistent and top quality BMW vehicle customized for the Chinese market to be delivered. Furthermore, by incorporating digital and innovative tech labs for organically driven research, BMW strengthens its overall competitiveness in the market and diversifies its business through the assimilation of external innovations.

Within the automotive industry, in particular, companies operating in China are facing a diverse set of challenges in a complex environment. In order to stay competitive and relevant in their respective markets, companies like BMW have been integrating external innovations with emerging tech into their own business model. A trend is pointing towards the notion that the success of a foreign MNC operating in China depends on its ability to adopt an open innovation strategy.

4. Open innovation through Collaboration – Platforms

This node in the open innovation paradigm reflects the trendy rise of the platform business model. Platform business models have sprung up to leverage opportunities within the business ecosystem. A business-driven framework allows a community of partners, providers, and customers to share and enhance digital processes and capabilities. This framework enables for a different combination of business models, leadership, talent, delivery and IT infrastructures that power digital business ecosystems for open innovation. Thus, the platform simply presents organizations with a practical way to innovate and create new forms of value.

[Open innovation example in China: Apollo, a Baidu AI platform-Source: Apollo]

An open innovation example of a Chinese platform that foreign MNCs can take advantage of is Baidu’s Apollo.  In April 2017, Baidu announced a one-of-a-kind open platform — Apollo — for autonomous driving solutions, roping in partners from across the globe. As with other open-source platforms, the idea is to accelerate AI and autonomous driving research by opening it up to contributions from other players in the ecosystem. Making the source code available to everyone allows companies to build off of existing research instead of starting from scratch. Apollo delivers an open, complete and reliable software platform for its partners in the automotive and autonomous driving industry. Furthermore, the “Apollo” project offers a complete hardware and software service solution that includes vehicle, hardware and software platforms, as well as cloud data services. Baidu will also open source code and capabilities in obstacle perception, trajectory planning, vehicle control, vehicle operating systems, and other functions which will include a complete set of testing tools. The company will begin by initiating a partnership alliance, working with partners who will provide the best and most compatible vehicles, sensors and other components to achieve broad participation and collaboration. It will also provide references and recommendations to participants of a rapidly expanding ecosystem enabled by Project Apollo. This will be used to lower the entry barriers for research and development of autonomous driving technologies, making it more accessible to the general public and accelerating the overall pace of innovation.

 At the CES Asia 2018, BMW China and Baidu announced the signing of an agreement between BMW Connected and Baidu Internet of Vehicles on home-to-vehicle cooperation. The cooperation between BMW Connected and Baidu Internet of Vehicles provides further evidence of BMW’s “In China, for China” Research and Development strategy. BMW has been actively building and integrating China’s digital ecosystem, expanding the implementation of its open innovation cooperation with leading Chinese high-tech companies, and is committed to creating a diversified and smart mobility experience for Chinese consumers. BMW Connected seamlessly integrates vehicles into their users’ digital lives via multiple touchpoints, such as the iPhone and Apple Watch. It is powered by the BMW Open Mobility Cloud, a highly flexible, cloud-based system. With BMW Connected, mobility extends beyond the vehicle. BMW is committed to building a comprehensive mobility ecosystem and providing intelligent, seamless and personalized mobility services for customers.

[BMW innovation strategy in China: Display of BMW’s connected smart vehicle dashboard. Source: New mobility]

As a result, foreign companies have the opportunity to partner with Baidu and have access to their open-source platform of higher technologies for vehicles.  The Apollo platform ecosystem alliance has reached to over 100 partners, ranging from Original Equipment Manufacturers, Tier1s, core suppliers, travel service providers, emerging companies, hedge funds and investment firms, research institutions, and related governments. Thus, this platform merely serves as a small example of how firms can implement an open innovation strategy in China by engaging with other partners within a general ecosystem of diverse specializations.

5. Open innovation in China through Applications and APIs

Application leaders derive maximum value from new technologies like artificial intelligence, API programs, service-oriented architecture, and the five platforms for digital business: information systems, customer experience, data and analytics, the internet of things, and ecosystems. Therefore, creating APIs that enable ecosystem interactions is important if an enterprise is to benefit from digital business technology platforms and grow into markets that were previously beyond its traditional model of reach.

Applications are important for open innovation enterprises in China because they allow the business to engage in ecosystems that connect them to new partners. For this to be successful, enterprise leaders need to know how to manage APIs as products that their partners and customers wish to use. However, for many Western MNCs delivering business value via applications is dying out as firms struggle to deliver next-generation experiences using innovative application architectures, APIs and machine learning. Hence, application leaders must adopt a product-centric model to maximize the value they deliver on new digital platforms.

APIs are all about empowering users and creating partnerships. APIs have the ability to completely transform your product or an entire business into something much, much better, a platform. By turning your product into a platform (as Apple did to iOS with their app store) you can effectively crowdsource features and innovation from your developer community. There is one main reason why companies build an app ecosystem – to reach a wider audience. Every single app created by your community is another feature that puts you on par with or differentiates you from your competition. Every single feature in your product opens up new and wonderful use cases. Every single use case attracts users that can now use your product to solve their specific problem. Successful companies crowdsource innovation from their community by developing an app ecosystem. It’s an effective way of building a competitive advantage and growing your user base but only if you are ready to commit the resources.

[L’Oréal innovation strategy in China: ‘Makeup’ app lets women virtually try on cosmetics – of the Source: AdAge]

[Open innovation example in China: L’Oréal China bringing new, technology-driven innovative features to enhance the shopping experience for customers. Source: Alizila]

L’Oréal China has begun to promote its huge collection of brands in a high-tech manner through applications with the acquisition of Modiface. Modiface is a beauty tech company that has been teaming up with big cosmetics brands for over a decade to create augmented reality apps for mobile and desktop. Modi faces AR tech powers quite a lengthy list of beauty platforms, including an application where you can digitally try on Estee Lauder’s lipsticks, which you can see in the image below. Furthermore, Modiface also manufactures AR mirrors that superimpose makeup on your face in real time. These technologies are essential because by allowing customers to use AR to try on and test beauty products in the store, it allows for a more immersive and interactive experience that is more customer friendly and preferable to the individual. Thus, it creates value in two ways, firstly, via the commercialization of engaging technologies that enhance customer loyalty and attraction, and secondly, by cutting costs on inventory. For beauty companies, this second facet allows them to now save the products they had previously needed to allocate for testing and sampling.

3^rd party Ecosystem: Integrating the App into a platform

For example, a major part of Tencent’s open innovation strategy with WeChat is the development of the app alongside 3rd party internet services and developers. A large portion of WeChat’s success was Tencent’s open innovation strategy in partnering with 3rd party services and developers who were given free reign over Tencent’s platforms and large user base. This helped to develop Tencent’s WeChat into a more user-friendly and service-based app, as opposed to simply being a one-dimensional social media messenger. 3rd party services allowed for external enterprises to use Tencent’s platforms and mini-apps to attract users to their brand and make business transactions for profit. Thus, WeChat’s in-app code allows itself to serve as a hosting platform for other entities. As a result, foreign marketers now have the opportunity to innovate their business by integrating within this open platform and promote their product through social media and advertisement.

[Open innovation in China: L’Oréal’s China social media presence through on WeChat’s 3rd party social platform. Source: L’Oréal China]

6. Open innovation through User interaction

With ever-increasing connectivity, the number and density of connections between people, organizations and things are increasing almost exponentially. All organizations have the ability to connect to a diverse web of customers, partners, and even machines and this can be leveraged for your open innovation strategy in China. Bandwidth and storage are no longer limiting factors. From new insights provided by information and analytics, organizations now have the ability to access, process and analyze vast amounts of information. Analytics gives insights into complexity, revealing new patterns and insights making it possible to create and manage complex business ecosystems. This trend is making information about the organization’s most valuable asset. In accelerating the test, learn, and refine cycle to attain China caliber speeds, companies need to compress the time it takes to turn customer feedback and other data into new features or products.

Furthermore, user interaction allows for a way to engage directly with the Chinese consumer.  This relates to the API economy, where business models and channels are based on an exchange of data from the users of the app to an ecosystem of developers. Thus, the internet has provided a way to get instant feedback from consumers everywhere, and Chinese consumers are particularly eager to share their opinions. In online forums and Chinese social media sites, they talk about products they like, share advice, and voice opinions about features, pricing, or policies they dislike. Many Chinese consumer-facing companies have special websites for customers to share their opinions and personalized social media pages where fans can gather and research the product or service. Xiaomi, for example, regularly posts proposed features for smartphone software on an online forum for its fans. Consumers vote for their favorite ideas, and the company adds popular ones to the product development system, sometimes within a week. As a result, Xiaomi has more competitive products and more loyal customers.

7. Open innovation through Startup Collaboration

By working with startups through external digital platforms, Lenovo, for example, has been able to innovate its product line and better meet the needs of its customers. The “Lenovo New Business Development” platform is similar to a startup incubator and allows Lenovo to work with the world’s top start-up teams in exchange for access to Lenovo’s software, hardware development, market, channel, and other services in exchange for startup equity. The NBD has allowed the company to openly innovate its products with the help of startups who are focused on unique and innovative strategies in China. In addition, by adding specialized industry expertise in fields that the company has no previous experience in.

Chinese OI Technologies Forecasted to Disrupt the Industry

Given strong economic growth along with government mandates and incentive plans in digital innovation, enterprises in China now more than ever have the opportunity to digitally disrupt their industries. The exponential growth in recent years in the number of mobile users and online shopping has facilitated innovations in digital marketing that better digest customer behaviors and improve customer service. Also, the next wave of emerging technologies driven by AI has provided businesses with the potential to expand and enhance their products and services. The Chinese government has nominated AI as a major national economic strategy for the next decade. It has become an important driving force in the modern day technological revolution and industrial transformation that will profoundly change the means of human production and ways of life. Thus, businesses looking to capture the Chinese open innovation market must accelerate the adoption of new technologies, including BI and analytics, AI and cloud computing. Furthermore, they must increase their innovative, driven investments in order to be in the best position to capture the digital business opportunities of China’s tomorrow.

The Challenges in Establishing Open Innovation Initiatives in China

Despite the inconveniences due to China’s cybersecurity and data sharing related laws, along with concerns about a market being less welcoming to foreign companies, foreign companies operating in China nevertheless still plan to continue their businesses and increase their investments in China. From the AmCham China 2018 Business Climate Survey, investment in Research and Development in China rose 3%, with 32% of companies increasing investment. Although China has been actively encouraging foreign companies to establish R&D bases in the country, most companies still emphasize ‘development,’ and not the research part of Research and Development. Also noted in the survey, more companies in certain industries are upgrading their digital capabilities in order to overcome increasing market competition and rising operational costs. In particular, technology hardware, software, and services (79%) and automotive (70%) reported the most ambitious plans for Research and Development in China increased investment.

As China embarks on the path of restructuring its economy from manufacturing to knowledge-driven, export to domestic consumption driven, and from low-cost low-quality to higher-cost higher-quality, there will be more and more innovations that will attract greater interest from abroad. Presently, there are boundless opportunities for foreign companies with advanced technologies and products to enter the Chinese market. At the same time, however, the accelerating pace of digitalization has made it increasingly difficult for foreign firms to respond to and take advantage of the disruptive technologies needed such as artificial intelligence, IoT, cloud computing, automated manufacturing, and logistics, and blockchain enabled supply chains.

Furthermore, companies in China are facing challenges in adjusting to rapidly-changing markets, competing with local counterparts, recruiting and retaining high-quality talent, evolving their business models and supply chains, developing effective Research and Development functions locally and partnering with smaller local businesses. Thus, the need for more in-depth market insight and continued reforms regarding partnerships, fair treatment, and collaboration around technology for OI in China is greater than ever before.

Daxue Consulting has robust experience with open innovation in China

Daxue Consulting’s unique expertise in Chinese market research and niche insight into China’s technological revolution has afforded the ability to successfully assist clients in establishing open innovation initiatives. In the endeavor to implement an OI initiative, Daxue Consulting can produce an optimized research structure to understand the innovation within a particular industry in China. Our broad market oversight allows us to scout for specific innovations that can make your business more competitive and technologically up to date. Furthermore, being agile in market analysis, our service provides clients with a bespoke landscape roadmap that helps them navigate the complexity of their initiatives.

In particular, Daxue Consulting’s insightful knowledge of the current market situation combined with the ability to assess an industry’s level of maturity allows us to better advise enterprises on how to position themselves in China. Working on the ground in China gives an intimate understanding of where China’s geographical networks of innovation and alliances of guanxi are located is crucial to the success of your OI endeavor.

Daxue Consulting offers a strategic advisory for businesses at the micro level. Following initial research, we screen the industry for competition and potential startup collaborations. This process allows us to most effectively engage the traditional OI strategy of providing a touch point for business to interact with innovative ecosystems and partner with local startups. Our holistic offering affords us with a proper framework to break down the value chain and provide businesses with the ability to capture innovations they need and integrate them into their model.

Author: Jeffrey Craig

If you want to know more about Open Innovation strategy in China and innovation methods in China, do not hesitate to contact us at dx@daxueconsulting.com

This article Open Innovation: Transforming your Business in China | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Trade relations between Australia and China

[Source: Daxue Consulting]

The 5th round of tax reduction starts from the first day in 2019 leading to over 96% of total Australian products, approximately 5000 kinds of goods exported to China are free of tariff. Amid this round of tax reduction, wine, salmon, lobster, oyster, and honey will get free trade to China. In the meantime, all products from China traded to Australia are expected to be zero tax. In 2017, Australian beef accounted for 16.66% of China’s total beef imports. Seafood from Australia soared over four times than the previous year in terms of exports to China.

China is at the top list of tourism expenditure during the period from Feb.2107 to Feb.2018, valued $11.3 billion, up 26.5% year-on-year growth, occupying 52% of Australian earnings from international tourists. Averagely, each Chinese tourist spends ten days in Australia with 8,472 AUD expenditure.

In 2017, there are 800,000 students from abroad going to Australia to study. Chinese students account for 38% of the total population, climbing 18.1% over the previous year.

Trade relations between East Asia and China

South Korea’s business avenues to China: China is South Korea’s #1 Importer

[Source: Daxue Consulting]

Integrated circuits are the top bilateral trade product between China and South Korea, regarding both import and export volume. China is South Korea’s first largest cosmetics and beauty export destination. Beauty and cosmetics trade volume from South Korea to China surged a 23.1% growth in 2017, up to 13 billion RMB. Amore Pacific and LG Household & HealthCare among other beauty companies account for the top two trade share to China, 30.26% and 29.35% respectively. Also, free trade agreement plays a vital role in bilateral trade. Zero-tariff products have covered 50% of bilateral trade volume.

Cities in China such as Tianjin, Dalian, Yantai, Weihai have regular routes both for passengers and cargo to Incheon, Busan in South Korea. In 2018, over 5 million Chinese people traveled to South Korea, up 14.5% to 630,000 people from 2017. China takes a third of total foreign visitors, at the top list of South Korea’s visitors.

Trade relations between Europe and China

Germany’s business avenues to China: Germany is an exporter of many goods to China

[Source: Daxue Consulting]

Commenting on the preferences of the Chinese in beer, we turn to Yan Yuze, who is the owner of a local beer in the northeastern Chinese city of Shenyang – one of the largest Chinese markets for beer. He told to CGTN that many of his customers have been ordering German beer during this year’s soccer season.

What is important for car business is that China will steeply cut import tariffs for automobiles and car parts, opening up greater access to the world’s largest auto market amid an easing of trade tensions with the United States. China’s tariff move will be a major boost to overseas carmakers, especially helping premium brands such as Germany’s BMW, electric car maker Tesla and Daimler AG’s Mercedes-Benz close a price gap on local rivals.

Chinese become more and more global choosing tourism as one of the favorite activities. Chinese tourists are very interested in the different attractions that Germany can offer. In German cities, the Chinese are an important source of revenue for retailers. According to a survey conducted on the commercial behavior of Chinese tourists, in Munich, they spend an average of 513 euros (558 dollars) per day.

Spain’s business avenues to China: Chinese feelings for Spain

[Source: Daxue Consulting]

Another pride of the Spaniards and the fact that Spain strengthened its position in 2017 as the main supplier of pork to China, ahead of Germany, Canada, and the US.

Mediterranean products are becoming more and more popular in China as the Belt and Road initiative continues to go underway.  At the beginning of 2017, Spain accounted for 81% of the total olive oil imports to China, leading far ahead of Italy (13%), Greece (2%).

Spain is the second most popular tourist destination in the world, only after France. It attracted about 82 million visitors in 2017, 700,000 of them from China, a number which the United Nations World Tourism Organization (UNWTO) estimates will rise to about 1 million by 2020.

Trade relations between North America and China

Mexico’s business avenues to China: Peace or war

[Source: Daxue Consulting]

As Dezan Shira and Associates claim Mexico continues to seek to improve its participation in the Chinese market to achieve more balanced trade, despite the fact that approximately 70 percent of Mexico’s imports from China are intermediate or capital goods, which are used or repurposed for re-export.

Beer, one of Mexico’s main export products to China, grew 35.5% to US$38.59 million.

Vladimir Kocerha, economic and commercial counselor of Peru in Shanghai, said the avocado trade had benefited from China’s cuts in import tariffs and continuous increases in imports of Latin American fruit.

China imported 8,800 tonnes, 16,700 tonnes, and 6,700 tonnes of the nutritious-rich fruit from Mexico, Chile and Peru, respectively last year.

Trade relations between South America and China

Brazil’s business avenues to China: Chinese business investment

[Source: Daxue Consulting]

“We’re definitely going global,” said Didi Chuxing president Jean Liu in one interview. And the company is moving fast towards that direction, each partner or region at a time. Didi invested in Brazil through investment in local ride-hailing leader 99. The investment builds upon the deep existing partnership between DiDi and 99 to further accelerate market growth in Latin America and bring more transportation choices to the region’s citizens.

Chile’s business avenues to China: Chinese trade partner

[Source: Daxue Consulting]

According to President of the Association of Fruit Exporters of Chile AG (ASOEX), Ronald Bown Fernández, Chilean fruit exports during the recently completed 2017-2018 campaign reached a total of 2,781,092 tons. This entailed an increase of 6.7% compared to the 2016-2017 season. He said: “This increase has been achieved thanks to the record volumes of cherries and blueberries shipped, mainly in Asia and China”.

In conversation with Produce Report at FHC China 2016, Juan Enrique Lazo, General Manager of the Chilean Hass Avocado Committee, described the success, present and future, of Chilean avocados in China. “Chile will supply 60 percent of China’s avocado market this November, and the majority of avocados one finds in Chinese supermarkets and fruit stores these days originate from Chile.”

Talking about the upcoming plans, Chile will join China´s Belt and Road initiative, Foreign Minister Roberto Ampuero said, in a move to deepen economic and political cooperation with the Asian powerhouse. Ampuero emphasized that joining China´s global infrastructure initiative would make Chile more attractive to Chinese investors and position the Andean nation as the “landing point for investments in Latin America.”

Trade relations between Japan and China

[Source: Daxue Consulting]

In 2017, China’s importation of electric-mechanical products and parts from Japan rose 4.5% to $4.22 billion, accounting for 25.6% of the total imports. China is Japan’s second largest foreign automobile markets. In 2017, sales by Japanese carmakers Toyota, Nissan, Honda and Mazda in the Chinese market all hit record highs. Nissan reported a 12% rise in sales to more than 1.52 million units last year, while Honda sold more than 1.44 million cars, up 15.5 percent year on year.

Tourists from China’s mainland made more than 7.3 million trips to Japan in 2017, up 28% from 2016. Tourists from Japan traveling to China boosts 3% in 2017 from 2016 up to 2.68 million visits.

In 2018, the population of Chinese students studying in Japan had surpassed 100,000, achieving 40% of overall overseas students in Japan.

Daxue Consulting helps you get the best of the Chinese market

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

This article Prospects behind the Great Wall: Who are Chinese business and trade partners? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Cross-industry collaboration in China. Last month, the Canadian cosmetics brand M.A.C and the most popular Chinese mobile game Honor of Kings released five co-branded lipsticks, featuring the lip colors of 5 well-known game characters. This cross-industry collaboration has become a huge success and caused an enormous response from Chinese consumers. Over 14,000 pre-orders across all three platforms (Tmall, the official M.A.C. website and a WeChat mini-program) were placed; and all five shades sold out across all sales channels within 24 hours of the launch.

The most popular mobile game in China – Honor of Kings

王者荣耀 (Wang Zhe Rong Yao, unofficial translated: Honor of Kings) is a multiplayer online battle arena game developed by Tencent, which was launched November 2015. Tencent’s 2016 annual report stated that the game had amassed 200 million registered mobile users, including more than 50 million daily active users. Honor of Kings has shown a very interesting demographic of the players: according to an estimation by data firm Jiguang, more than half of the players are female by May 2017; and in 2018, 63 percent of the Weibo viewers of the Honor of Kings pro league games were female.

How did a world-class make-up brand and a Chinese mobile game decide to collaborate?

According to M.A.C China marketing director Weng Yanling, this cross-industry collaboration was inspired by the players of Honor of Kings. The cosmetics brand observed the players attempting to find lipstick shades that perfectly match the lip colors of their beloved game characters; these players mentioned M.A.C a  number of times. Moreover, the two brands share the same target audience, who are girls between the ages of 18 and 24.  These factors created a perfect opportunity for a cross-industry collaboration.

Also, five celebrities from an eleven-member Chinese girl group formed by Tencent in 2018, called “Rocket Girls 101”, participated in the marketing campaign. In the promotion poster, each of these five young stars presents a unique M.A.C lipstick color. In addition to make-up enthusiasts and fans of the game creating a stir, M.A.C and Tencent managed to make an even bigger buzz among Chinese young netizens through the celebrity’s endorsement.

Also, five celebrities from an eleven-member Chinese girl group formed by Tencent in 2018, called “Rocket Girls 101”, participated in the marketing campaign. In the promotion poster, each of these five young stars presents a unique M.A.C lipstick color. In addition to make-up enthusiasts and fans of the game creating a stir, M.A.C and Tencent managed to make an even bigger buzz among Chinese young netizens through the celebrity’s endorsement. As a result, these celebrities have had a huge impact on young Chinese consumers; each Rocket Girl has several million followers on their personal Weibo accounts. Two of them even have over 17 million Weibo fans; while one of the Rocket Girl’s Weibo page achieved 4.7 million views and caused over 120K discussions after a 15-second promotion video for the M.A.C lipstick.

Cross-industry collaborations in China: Takeaways for foreign brands

As we can see from the results on Baidu Index, the search index of M.A.C has been stable for the last 6 months. After collaborating with the popular local game, the brand has successfully boosted its brand awareness among the Chinese people. So, what can be learned from this successful campaign and how it can be implemented?

M.A.C search frequency on Baidu index peaked on the day of the product launch (Jan. 8, 2019) [Source: Daxue Consulting]

• For company/brand who is searching for more exposure, find a well-known Chinese brand with a similar target audience to launch a co-campaign. For brands already in the Chinese market, such collaboration could be used for new product promotion or just to boost the brand awareness; it could also be used for brands who seek a proper entrance into the Chinese market.
• Thinking outside the box might help your brand stand out from the crowd. Brands from the e-sports and cosmetic industries becoming partners is something consumers don’t see much. When you can literally use the same lipstick colors as your favorite game characters, things are really getting interesting.
• KOLs have a more powerful impact on Chinese consumers than their counterparts in the West. To further ensure the campaign’s success, recruiting the right celebrities/KOLs will help to push the collaboration to another level.
• It was consumers who first mentioned M.A.C in the context of the game character lip colors. M.A.C was attentive to what target consumers were saying on social media and seized the opportunity. So, never cease to research and understand your consumers. Through social media listening, brands can achieve the same level of consumer insight that M.A.C demonstrated.

Author: Chencen Zhu

Daxue Consulting helps you get the best of the Chinese market

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

This article An exemplary cross-industry collaboration example in China: What do lipstick and China’s most popular mobile game have in common? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

NextStep Collaborates with Daxue Consulting

Shanghai-based learning platform for Entrepreneurs and Managers, NextStep is partnering with Daxue Consulting to share industry expertise on relevant market in China. With the advancement of the local businesses in mind, Daxue Consulting and NextStep aims to assist entrepreneurs, managers, and businessmen through relevant insight and resources.

Nexstep Workshop in China:

For the love of learning

Nextstep was founded in 2007 with the goal of helping local and foreign professionals connect and gain access to a professional network that they can tap into according to their need. In three years after its conception, NextStep was able to create a network of professionals through more than 300 events. After a few year hiatus, NextStep is back, this time as a learning platform for the curious, with workshops and training ranging from how to find time to do what you love, learning how to read a balance sheet, and deciding on how to brand your creative ideas. Since January 2016, NextStep has conducted more than 20 workshops with a little more than 150 individuals in attendance.

Collaboration between Daxue Consulting and Nextstep Workshop in China

The aim of the collaboration between Daxue Consulting and Nextstep Workshops is to share industry expertise on relevant market in China. Daxue Consulting is a market research and management consulting firm that focuses on the Chinese Market. Experts of Daxue Consulting uses multiple methodology approaches to support clients’ needs, auctioning traditional methodologies as well as technology-driven tools. With that in mind, there was a mutual benefit for both organizations involved as both organizations have shared insights in the related industry.

“By partnering with Daxue Consulting, we believe that we will be able to provide our community with better resources and services. Working together with them will help us reach a bigger audience and also help share our love of learning with other entrepreneurs in and around Shanghai,” said Greg Prudhommeaux, Serial Entrepreneur and Co-founder of NextStep.

This collaboration has been beneficial for both teams. Daxue Consulting team members were able to attend one of the events organized by NextStep in April and May, in which they learned valuable insights about e-commerce sales and marketing for Luxury Fashion Brands. Daxue Consulting also provides NextStep with rich content that is shared to the community through its blogs and newsletters. Daxue Consulting has also published an article “Achieving Your Vision Through Goal-Setting and Planning” with the goal of promoting NextStep Workshops’ web optimization and visibility.

For more information about NextStep’s workshops and calendar of events, please visit the website: http://nextstep-workshops.com/

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This article Workshop in China: NextStep Collaborates with Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.