While reading through Mary Meeker’s annual review of Internet trends, I became intrigued by her analysis of Chinese Internet companies. Why? For one, having grown up in a Chinese-American family, the land of my ancestors has always fascinated me.
In addition, a few of China’s mobile-first companies could be considered “mobile disruptors,” or companies that are leading the pack in changing industries via mobile innovation. For a country that has traditionally limited free speech and communication, I can’t help but point out the irony about its forward-thinking use of mobile communications to expand and drivenew business opportunities.
Admittedly, my understanding of the unique forces that have shaped the country is limited. Probably yours, too. So before we explore the impact of mobile on China and what marketers can learn from its mobile disruptors--the theme of this new three-part series--I want to first set the stage with some context about the country. I think it’s important to get a high-level overview of the socioeconomic situation in China as it relates to the lessons that Western marketers can glean.
A Country Of Contradictions?
Chinese consumers are educated, they’re mobile, and they’re many. This is China’s Generation 2--the country's next generation of consumers. Harvard Business Review noted that in 2012, “23.9 million students attended institutions of higher learning in China—some 4 million more than the enrollment at U.S. colleges and universities.”
Another key article, “China’s next chapter: The rise of the Generation-2 consumer,” further explained some of the ethos that drives this generation: He (or she) may be the only child in a household due to China’s one-child policy. This generation consists of people born after 1992. They “come into the market with a very critical view about what they want and what they think is high-quality.” The G2 consumer is largely “looking for products that cater to individual needs and emotional benefits of the brands.” Since they were raised in single-child families, receiving personalized attention from a mother, father, and two sets of grandparents, G2 consumers expect brands to meet their highly personalized needs.
Furthermore, Chinese companies “can’t apply a mainstream standard to these consumers.” The G2 have created a “much stronger demand for individualized products, tailored products,” which is similar to the demand created by Western consumers.
While Meeker in her “Internet Trends 2014–Code Conference” report calls China a “mobile commerce innovation leader,” there are other opinions on the matter. In the Harvard Business Review article “Why China Can’t Innovate,” the authors explained a range of complex reasons that may lead to a lack of original thought, creativity, and innovation, such as the government’s regulatory environment, which doesn’t control licensing and copyrights for U.S. brands. For example, according to HBR, “China has opened entirely fake Apple stores filled with employees who think they work for the U.S. company.”
HBR also noted that the pressure to perform in Chinese schools—also known as “China’s examination hell”—has led to a “land of rule-bound rote learners.”HBR authors asked this relevant question: “How can students so completely focused on test scores possibly be innovators?”
On the other hand, HBR also examined the history of China as an innovating state. In 1985, the government created the first high-tech zone with support from regional governments “to further innovation commercialization.” Although China’s history of innovation is brief, it is fruitful. The HBR authors stated “there is perhaps no more potent demonstration of China’s ability to set, and often realize, ambitious goals than the government’s backing of high-speed rail and efforts to put humans on the moon.” Consequently, China exhibits a strong desire to innovate despite perceptions that it can only copy others.
China’s Urban Population Is Mobile-First
China’s urban population is exploding, which has a direct correlation with the explosive use of mobile devices. In “What the West Doesn’t Get about China,” HBR noted that China has approximately “90 cities with a middle-class population of 250,000 or more,” while “the U.S. and Canada together have fewer than 70.” What do people who live in cities generally have in their hands in order to navigate and live the urban lifestyle? Mobile phones. HBR explained that “mobile telephony is ubiquitous in urban areas, and most of its consumers have leapfrogged landlines.”
And, according to the Meeker report, out of the 500 million Internet users in China, 80 percent are accessing the Internet via mobile. China is clearly not desktop, but mobile. Meeker noted that this is a “more critical mass than any place in the world.”
In addition, a rising segment of Chinese consumers is the exploding middle class. According to McKinsey Global Institute’s (MGI) “All you need to know about business in China” report: “An additional 200 million people will enter the middle class by 2026, joining 300 million who have done so in the past 30 years.” In “China’s next chapter,” MGI further explained that this middle class is “already creating a significant demand for niche products.”
Along with the growing middle class and the demand for tailored products from the G2, China’s businesses have found a place for meeting this demand: the mobile Internet. However, in a country in which “the Communist Party requires a representative to be present in every company with more than 50 employees,” I would expect that government officials can influence and control the direction of what products and services are provided to consumers via the Internet.
Introducing Tencent: China’s Mobile Monolith
In 2013, Fast Company named China’s Tencent one of the top 10 most innovative companies in the world. What’s unique or innovative about Tencent? Well, take social media. Facebook is banned in China, but Tencent has created its own social networking platform. Tencent, founded in 1998, “embraced mobile years before Facebook, and has built a platform, used by 355 million active users, that functionally offers every popular service that Americans are familiar with—including Facebook, Twitter, WhatsApp, and Zynga, all wrapped up in one app.”
Think of Tencent as an umbrella or hub under which other mobile disruptors or innovative companies are organizedin the form of mobile apps. For example, in 2010, when Tencent released a messaging and social networking app called Weixin (pronounced way-shin, and is also known as WeChat), The New York Times reported “the messaging app attracted 50 million users within a year, and over the next two years reached nearly 300 million users worldwide.” Among other things, WeChat functions much like a virtual assistant, Meeker reported. Through the WeChat app and partnerships with Chinese companies, users can order a taxi, access a personal banker, and request a shopping assistant, “grocery getter,” or “personal chef.”
How is that for providing a premium experience that puts the mobile consumer first? I would say that someone at Tencent is certainly developing apps with the perpetually connected customer in mind. Also remember, these customers can be easily frustrated on mobile and have a low tolerance for mobile experiences that are not user-friendly, fast, and seamless (or low friction). They will go elsewhere if the load time continues to be intolerably slow or what they’re looking for cannot be found. Marketers, we can learn from Tencent’s cross-platform integration and premium user experience.
Up Next: Luxury Brands And E-tailers In China
I’ll close with words from Yang Lan, also referred to as “the Oprah of China,” who is an innovative business owner. In her TedTalk, “Yang Lan: The generation that's remaking China,” Lan explained: “China is soon to pass the U.S. as the No. 1 market for luxury brands—that's not including the Chinese expenditures in Europe and elsewhere. But you know what, half of those consumers are earning a salary below 2,000 U.S. dollars. They're not rich at all. They're taking those bags and clothes as a sense of identity and social status.”
More on this topic early next month, when this blog resumes. We’ll dive into some luxury brands that are thriving in China, along with China’s e-tailing or mobile commerce economy.