New World Order: The Urgency of the China Opportunity

5 minute read

By Jonathan Smith, CEO & Founder

Much has been made by China commentators in recent weeks of the fact that the Chinese word for “crisis”(危机 weiji )contains within it components of the words for “danger” 危 and “opportunity” 机. As a natural born leader, JFK was a fan of this cultural pearl.

While it is not entirely accurate linguistically speaking (the second character 机 ji is also part of words for “aeroplane” and “organic”), it is a useful metaphor for how China business has dealt with the current Covid-19 crisis.

Perhaps more relevant is the original Greek term krisis, simply meaning “turning point” or “decision” and does not imply positive or negative outcomes. When a situation reaches a turning point, it is up to each individual how they respond and whether the effect is positive or negative. 

By this rationale China has moved heaven and earth (literally in the case of Wuhan’s 10 day hospital construction) to minimise negative outcomes, embrace new modes of living, and ensure positive growth post-recovery.

Just a few short weeks ago, the talk was of delayed investments and uncertainty in China, yet the tides have now turned. The pandemic is starting to take its toll on global markets, while China is now well into recovery mode and many businesses are 3-4 weeks into implementing their recovery plans, formed in the peak of the crisis. 

How can global brands turn this to their own advantage?

 

The Outlook for Western Markets is Uncertain Long-Term

The unpredictable daily fluctuations of global stock markets are causing fear across Western markets.

Consumer sentiment is low, with expectations that spending will reduce dramatically on non-essential categories. Many consumer brands are reckoning with prolonged and severe dips in revenue. This is particularly true for brands where physical locations play a major role in their retail mix.

While China reacted rapidly on a national and local level to stem the spread of the virus, precautionary measures at a government level in Western markets have been much slower to take shape. The knock-on effect will not only mean that the virus is likely to be around longer, but that there will be a deep and prolonged deterioration in consumer sentiment and spending. 

Businesses from London to Milan to New York are yet to calculate the full impact of this uncertainty.

In the space of less than a month, China has become a safer bet for smart global brands to invest time, budget and resources in the face of a potential global recession. Indeed many are doubling down on their spend in the region.

What are the factors driving this redoubled focus on the Chinese consumer?

 

Reasons to Bet on China: (1) China is already in recovery mode

Key indicators of economic activity show that China is well through the worst of the crisis. HBR’s article makes for good reading on the underlying trends. 

Happily, a version of normal business life has also resumed on many fronts. Across a wide range of industries, hundreds of millions of employees returned to offices, factories and service hubs during the last 2 weeks (including Hot Pot China’s team in Shanghai).

 

(2) In China, eCommerce already dominates

Pre-crisis, China was already established as the world’s largest eCommerce market, representing just under 50% of the entire global ecommerce market by GMV. By 2023 this is predicted to be around 63%. Already, there are more than 60 billion m-commerce transactions made every year.

Interestingly, the catalyst for the movement towards eCommerce came during another crisis, the SARS outbreak of 2003. The months surrounding that crisis proved pivotal in Alibaba’s decision to launch Taobao as a C2C and B2C commerce platform. With the need for online ordering and home delivery being thrown into stark relief, Taobao and Alibaba initiated an explosive 15+ year run of building out eCommerce infrastructure.

Today, eCommerce and more prominently m-commerce are widely adopted across China and are supported by a fast, efficient and wide-reaching logistical infrastructure. 

For many consumers in lower-tier cities this infrastructure is a vital and established route to accessing global brands, few of which choose to establish flagship stores outside of the “known worlds” of Shanghai and Beijing.

When mapped against a health crisis that significantly reduces public activity, gatherings and therefore footfall to physical retail locations, China retail already has all it needs in place to mitigate risk.

Indeed aggregate uptake for B2C eCommerce in China actually increased for key brands during March across beauty and F&B sectors, with recovery predicted for apparel and leisure goods in the second half of March. Now that we talk of full recovery for Chinese society, we are reckoning with an absolute increase from an already impressive base performance in B2C eCommerce.

 

(3) In China, rapid adoption of new business models future-proofs revenue

In times of crisis, new ways of working and new business models are born. Often these are accelerations of pre-existing forms that are forced into prominence. 

Whenever this is the case, players that respond quickly have the most to gain. China businesses have time and again proven themselves to be first-movers, capable of turning on a sixpence to react to their macro environment.

One such case has been China’s ability to blur the line between online and offline sales methods. Livestreaming is not new for China, but it has come of age over the last 2 years with Tmall making live video sales a core part of the 11.11 singles day sales, as well as forming a standard tool in the playbook for brands on China eCommerce.

The most prominent extension of this development brought about by the crisis is the trend for brands to convert their physical retail and sales staff into live streamers and digital personal shoppers.

As an example – iAPM mall in Shanghai understood the impact of dramatically reduced footfall on their sales and used their own WeChat account to connect its audience with sales representatives from each of its brand tenants. 

Fans of the mall simply long-press the QR code in the message to pick up directly with sales staff from Versace, Coach, The North Face, Under Armour and others. The consumer gets to “shop” the mall while on lockdown in their own apartment, the mall retains its follower base, and brands benefit from direct connection with paying consumers.

Smart brands are already viewing their physical store space as both a brand experience and sales showroom to be leveraged through online channels. While this model has become a necessity due to restraints on movement, Hot Pot’s prediction is that this will be fully ingrained as the new normal for forward-thinking brands in China.

 

To Conclude

Combined with a background of ever-shifting consumer needs, the architecture of China’s leading digital platforms has allowed China retail to ensure the crisis is indeed a “turning point” for the better. 

As Western markets don’t yet benefit from the same underlying structures, responsive brands are turning up the focus on China to realise revenue goals.

Takeaways:

  • The impact on China’s consumer sector has been far less than is currently predicted for global markets, and key indicators are already showing strong recovery
  • While the outlook for the global economy is uncertain, smart brands are doubling down on China efforts to offset loss of revenue in home markets
  • China already has the digital prowess and back end systems in place to facilitate new business models – brands must adapt and adopt in order to benefit.

Get in touch with us to find out how savvy strategic planning, campaign management and in-market support can help you make the most of the enhanced China opportunity.