Most of our clients are keen to get ready for the Chinese market because visitors from China are increasing dramatically in recent years. The case study from #Aurora Hotels Resorts Attractions shares some key points through their practical experience to engage with China include:
1. Continually review your position – talk to Chinese visitors and not just the ones who visit your property but also those that don’t. Find out how they made their travel decisions and why
2. Work with your industry and state and territory governments to promote your destination
3. Be realistic about the issues you face, particularly if you are in regional Australia, then work to remove them or find ways around them.
Since 2008, Adam O’Neill has been working to connect International and Asian businesses from LG Electronics, RedBull, Rolex, Unilever and Tourism Australia. Over the past 5 years, he has helped Australian tourism businesses address the rapid evolution of change in Asian markets. How can a tourism operator connect with Chinese, Korean, Japanese, Indian and South East Asian tourists? Which travel platforms to work with? Is it better to focus on one market, or list with as many partners and countries as possible? Asia Advisory’s strategy offers insight and clarity for a challenging tourism industry problem.
Adam’s story is a great example of a Clarity or Strategy Story. They are one of the must-haves for you and and your business because they answer key questions.
Do you understand the changes happening around you?
Do you understand how this effects your clients and customers?
Do you have a coherent value add for them to resolve these challenges?
It only took Adam and I 90 minutes to get his strategy story straight. He was blown away by the power of our story frameworks.
Last month, we joined a group of Australian Startups on a study tour to Shanghai. Asia Advisory was one of eight finalists in the Haymarket HQChina Canvas Challenge and we had spent the last seven weeks preparing our startup plans for entry into China. The program follows the lean startup canvas methodology and culminated in a study tour of Shanghai to learn from companies and advisors operating on the ground.
Looking beyond the 1%
China is rapidly evolving from a place considered as the factory of Asia to an interconnected digital and service economy. In 2017, service imports accounted for USD$471 billion of imports, and this is forecast to exceed USD$10 trillion over the next 15 years (Source: World Integrated Trade Solutions).
There are many businesses who come to China without a clear understanding of why it’s the next step for their growth, nor the consideration for what it takes to get China market ready. There is a well-worn assumption that if your business can sell to just 1% of the target population in China, it will lead to unprecedented returns. However, there are many nuances to targeting Chinese customers which may not be apparent at first.
Looking specifically at the travel industry, China is well serviced by large online travel agents, catering to a discerning but well-researched customer. Getting a product-market fit aligned with such a large but diverse audience takes more consideration than just looking at audience size. Sure, cities such as Beijing and Shanghai with populations in excess of 25 million people may be the first step, but they are not representative of the Chinese population.
From a product perspective, Chinese online travel agents take a different approach to price comparison and booking: moving earlier into the planning process with destination information, reviews of traveller experiences and suggested itineraries of what to do. Consider a product hybrid of Tripadvisor combined with Expedia, Skyscanner and the travel section of the weekend newspapers, all in one. The pages are visually busy with text and graphics, a strong comparison to the minimalistic ‘white space’ layout of International Online Travel Agents. These websites act more like an encyclopaedia than an online travel agent which demonstrates that Chinese audiences seek and evaluate a large amount of information from a range of travel products available.
There are two other fundamental considerations I’ve observed for entering the Chinese market as a new business.
Firstly, allow yourself and the management team the time and funds needed to research, get time on the ground and talk to your potential audiences. Large businesses often task a Global or Regional Manager with China in their KPIs and then struggle to allocate enough time to visit and actively progress their local operations.
Secondly, and this may be oversimplifying, but don’t underestimate the challenge of forming the right partnerships on the ground. This goes deeper than Business Development and Sales, and into Distribution, Financial capability and Scalability.
When selecting a local partner, don’t rely on the first person you encounter who speaks English well. Someone you meet at a trade show, a friend, relative, a girlfriend or a person with self-claimed government connections, doesn’t always mean they are the partner you need. A Chinese partner should add value back to the business, demonstrate a proven track record of performance, show that they have skin in the game, and demonstrate a business network beyond their personal connections.
You wouldn’t select a business partner at home without this scrutiny so don’t feel tempted to commit to the first partner you find who speaks English.
One of our first sessions in Shanghai was with a business services consultancy PTL Groupled by Arie Schreier and Jun Peng. PTL Group calls on twenty years of learnings from foreign businesses entering China and assists foreign companies with Market Entry, Growth support, Importing, Finance, HR, Logistics, and Licenses. According to Arie, most companies only come to him when they have a problem, so engaging a consultant early in the process may help you avoid the common challenges and find a strong local partner.
Identify your Chinese customer segments
There are 87 cities in China with a population of over 5 million people, so localisation presents a unique set of challenges. According to a report from Boston Consulting Group, there will be 50 million homes entering the middle classes over the next 25 years, and in many cases, it is Third and Fourth Tier cities which are developing at the fastest rates.
30 years ago, Shenzhen was a small fishing village called Bao’an County. But, with a large transient migrant population in the 1980s, it was reclassified as the first special economic zone of China and is now home to approximately 20 million people. International companies selling fast-moving consumer goods through supermarkets have found growth in emerging cities that can be up to three to four times faster than Tier 1-2 cities which already have large populations.
The young generation of Chinese customers is quite open-minded when it comes to international culture and brands. According to Pew Research, 59% of Chinese aged 18 to 29 had a favourable view of the United States. “I’m very in tune with American values, the openness and individualism, unlike our collectivism,” said Susan Deng, a 31-year-old office worker. However, they also see both sides of the political spectrum. “We’re too interdependent economically now to have major conflict, but political tensions are unavoidable,” Ms Deng continued.
The mindsets of these younger generations are also shaped by their experiences. Chinese born post-1990’s have seen a prosperous and developing China. Many have studied abroad and returned home. In some cases, returning to China can be humbling when the salary and personal growth prospects of working for a Chinese company are taken into account. However, the spending power of this generation born after 1995 accounts for a 15% proportion of household spending which is four times the amount of their peers in the United Kingdom.
Agricultural and food products made in Australia have long benefited from a clean and green image, but Chinese customers are showing more concern about the corporate and social responsibility credentials of the products they buy. New Zealand lipstick brand Karen Murrell has successfully promoted its brand in China based on natural credentials. This success was amplified with a PR campaign that claimed the lipsticks natural ingredients allowed it to be safely used for pregnant Chinese mums (https://vignette89.wordpress.com/2015/02/20/karen-murrell-lipsticks/).
Cross Border e-Commerce as a test & learn approach
According to Statista’s Digital Marketing Outlook, China’s retail e-commerce exceeded USD$633.9 billion in revenue in 2018. Alibaba, China’s largest e-commerce company, had 654 million active buyers on its platforms in Q1 2019.
With an abundance of Chinese logistics services and an increase in disposable income, more Chinese are using e-commerce platforms, particularly people living outside of the Tier One cities. The appetite and awareness of international brands are also supporting a rise in cross-border online shopping. With additional security guarantees and convenient electronic payment, China’s consumers are buying the high quality and competitively priced products more easily, opening up direct to consumer opportunities for international brands.
Finding a distributor and importing products into China can be a challenge, but e-commerce platforms may be the fastest way to prove a product/market fit. There are more than 5,000 e-commerce platforms across China and e-commerce specialist Marcella Daviesuggests working with the top three platforms. Alibaba’s T-mall, JD and Kaola are just a few platforms. Australia Post even has a T-mall store which helps promote Australian brands.
There are some additional benefits of working with one of the larger platforms, such as support for marketing and distribution. Products listed on T-Mall can be sent from Australia to one of the fulfilment centres and Alibaba then looks after the logistics. Registration with an e-commerce platform can help test product variants, monitor customer feedback and enable online to offline sales without the need for registering a Chinese company.
However, e-commerce does have some limitations. Some customers are particularly cautious of brands sold online, especially if there is limited information about the company or brand. Up to 40% of products sold on e-commerce platforms have been found to be counterfeit or fake. Online sellers can quickly copy an international brand and list a fake alternative, possibly damaging your sales and brand reputation. A possible solution is to include videos, photography and background information to help customers understand your brand, how you make your products, and other facts to help consumers determine that you are a legitimate brand and a trusted seller.
Another distribution channel used by international exporters is to work with Daigou, who purchase your products and import them, ultimately selling to Chinese customers online. Whilst this may help raise sales in the short term, selling via Daigou also has its challenges. Using Daigou channels may give exporters a false sense of market sales in the initial year as many rely on their own networks of businesses and personal contacts for sales. Once these initial sales have been made, it may be difficult to continue the trajectory of growth into a second year.
Daigou importers are also coming under additional government pressure for importing without paying taxes or import duties, so having an import partner may not only offer diversification of sales but also help to build your distribution network. A combination of online (e-commerce) and offline sales may help diversify risk and develop a depth of Chinese customers.
Building an on the ground support network
Australian companies have access to a number of support organisations that assist with entering China and provide networking opportunities and introductions once in the market. The Australian Chamber of Commerce has a team of 16 people in Shanghai supporting industry associations and peak bodies to get established. AustCham is a membership-based organisation which run networking events, host trade visits and offer support with project management and referrals for Australian businesses. In collaboration with Westpac Bank and China Skinny, AustCham China has released a 2019 Australia-China Business Sentiment survey which offers insight into the Performance and Investment decisions of Australian companies in China, along with insights on e-commerce, the regulatory environment, and the opportunities and challenges Australian businesses are facing in China.
Based in Shanghai, China Skinny is also an agency worth connecting with. The team provides Marketing and Digital Strategy, Branding and Research services regarding the China market, particularly to help international brands. We spent an afternoon at their offices covering a broad range of insights from demographic trends to understanding Chinese consumers and looking at case studies.
Caroline Bridges has a strong collection of case studies on how international brands are using Chinese social media channels to build their brand campaigns, run promotions, and convert these into online sales. A great example is a Chinese company CoffeeBox, who are gamifying e-commerce via WeChat, allowing customers to design their own virtual coffee store and sell to friends. In return, store owners receive discounts and rewards points for products which are delivered to customers within minutes. http://www.coffeebox.com/
Austrade, a part of the Australian Government, also have a number of offices across China to assist Australian companies and promote trade. Austrade has published a collection of industry reports to help understand trends and how to get started.
Join a Startup Incubator or Accelerator
Austrade operates a Landing Pad in Shanghai out of the XNode coworking space. This program includes 90 days of free co-working space, mentoring, introductions and a training program aimed at Australian startups coming into China. During our time in Shanghai, we visited the space and met with Emily Ma who is the Landing Pad Manager.https://www.austrade.gov.au/landingpads/Locations/shanghai
Chinaccelerator is also a place worth visiting in Shanghai. Shanghai is one of six accelerators operated by SOSV Venture Fund and is focused on Software, Hardware and Biotech startups. Their program offers international and local startups 6 months of shared office space, USD$150k of investment in return for 6% equity in the business.
Chinaccelerator connects you into over 300 mentors and 150 startups who have participated in the program. A strong benefit in joining this accelerator is their historic success rates. 70% of their startups raise follow on funding and get additional support with corporate matching. The program is based on the Lean Startup method and adopts a data-driven approach to accomplish market entry into China. Applications are now open until 2nd August for the next program
For more information on our experience with the China Canvas Challenge or Marketing in Asia please contact Adam O’Neill email@example.com
This facility is conveniently located in the Gongdeok area, North East of the Han River and features large co-working spaces, dedicated company offices, seminar spaces, rooftop garden, food & beverage test kitchens, 3D printing and prototyping facilities, numerous business support services, an on-site Cafe, 7-Eleven, video/podcast recording studio, idea generation areas and a massive stainless steel slippery slide. The office areas were undergoing re-development but from what I saw during business hours the co-working spaces on the ground floor we mostly full. An excellent space for businesses regardless of the stage of their development.
pangyo TECHNO VALLEY, korea’s answer to silicon valley
Features: Large Facilities, Close proximity to Korean Tech companies; Ahn Labs, Cha Group, Kakao, Daum, Nexon, Naver, Paymentwall, SK Chemical, SK Planet, Yura Corporation. Financial Support, Incubation, Korea Startup Grand Challenge, Prize Money
The first week saw a field trip to Pangyo, Korea’s answer to Silicon Valley. This area is particularly well known for Korean Technology companies and is a joint private/public funded area which offers some significant incentives to startups. One of the most prominent being the
K-Startup Grand Challenge. Every year they offer a pitch and support competition for 80 startups from around the world. The incentives include 3 ½ month accelerator program, free office space, mentoring, business support services and networking events. There is also a financial aid component to help cover your living costs in Korea. Based on a “Demo Day” competition later in the year there is also a $22,727 financial contribution for the top 40 companies and an additional 6 months of free office space and additional support from the Korean government to help get your business established in Korea.
All that is good and well but it’s the prizes from the Demo-Day that really grab the headlines, based on the 80 international startups accepted into the program after the first incubation period they are asked to pitch to investors for a Demo-Day. First prize is $100,000, second prize $40,000, third prize $20,000 and fourth prize $6,000 – all highly valued sums for businesses in startup mode.
T.I.P.S stands for Technology Incubator Program for Startups and is a Public/Private funded program in the Gangnam region of Seoul. There are 4 offices operating over 20 floors of space and support services. Although the entry criteria are limited to a specific range of high-growth tech startups the financial contributions are very significant and in some instances up to nine times the initial venture capital input. One of the key points of difference of this space is that up to 10% of the funding is provided by the Korean government R&D fund. Yes, investment is exchanged for equity but the volume of funding can be significant, up to the equivalent of USD$500,000 from the Korean government and USD$100,000 from the TIPS partners. In some cases the investment received can be matched by the Korean government between 1:1, 1:3, 1:5 and up to 1:9 times, so if your business receives $100,000 from Venture Capital you could receive up to $900,000 from the Korean Government. One of the conditions of program entry is that the business has at least one Korean co-founder, this is to help ensure the future success given the significant level of investment provided.
As the name suggests this is a corporate sponsored incubator funded by Naver Corp. This incubator offers space and support networks and a public event space for up to 150 people. The focus is very tight towards high growth tech-based companies; primarily in AR/VR, Mobility and Heath-Tech. Being a dominant Search engine, Naver Corp are obviously keen to look for businesses that can fit into their existing Tech ecosystem. Again the criteria require a Korean co-founder. It’s worth noting that the website and application forms are all in Korean only.
No questions about what this place is but worth adding to you’re next visit to Busan. It’s primarily an event space but also offers a number of business support facilities. Funded by the various divisions of the Busan Government it’s one of the largest destinations in Busan for startup seminars, meeting spaces and collaboration. The Startup Cafe also features a photography studio, private offices and breakout rooms.
CENTAP is a startup accelerator based in Busan, the 2nd largest city outside of the Seoul area and based right down the bottom of the Korean peninsula. It may seem a long way away but Busan is famous for Haeundae beach and the local waterways give the place a unique and more relaxed feel. Kind of like the Korean equivalent of Australia’s Gold Coast. CENTAP is part of the TIPS program and provides support as mentioned above. However, they also provide some support and shared office space for non-tech startups. The facilities have ten investment and support companies and twenty five startup tenants. Since opening they have held over 759 events. One of the features of this centre is their advanced 3D printing capability and prototyping centre. The area provides commercial-grade 3D mapping and printing facilities to help you get up and running. CENTAP also features a large rooftop entertaining / breakout area and a large lecture hall. Again worth noting that the website is only available in Korean.
If you are considering taking your startup to Korea I’d strongly recommend getting some time over in the market. Take a week to go and visit the spaces, talk to the locals, talk to other foreign startup founders, start to build your network. We’re even happy to make some introductions if you like. Please email firstname.lastname@example.org for more information.
In terms of timing, there will be further Seoul Startup Hub market access programs with dates to be advised. The other milestone worth aiming for is the K-Startup Grand Challenge which opens up applications between May-June with successful participants joining August – November.
Hopefully this article has been helpful. Please take a few moments to have a look at our other articles on the Korean Startup Ecosystem
Australia stands divided, unsure of whether to continue close ties with the USA and risk the loss of its largest trading power China or to continue to tow the line of Nationalism with the US. As part of a recent forum we participated in at the hashtag#AKBC2018 we are encouraged to look beyond bi-lateral relationships and consider multi-lateral partnerships. The TPP still has significant advantages for Australia, even without the US participation. We are pleased to hear Australia has joined the TPP and will step up to support our role in the APAC Region. This will help support $5.7Bn in Travel revenue (excl Education) and $4.1Bn in Education related Travel for Australia.