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From the Concept Library, concepts for this article are:

• Ecommerce
• China

From the Company Library, companies for this article are:

• Ctrip
• AliExpress

——–transcript below

Episode 230 – Digital China.1

Jeffrey Towson: [00:00:00] Welcome, welcome everybody. My name is Jeff Towson and this is the Tech Strategy Podcast from TechMoat Consulting. And the topic for today, three e commerce lessons from China’s, let’s call them hyper digital consumers. Now, over the last couple weeks I’ve been bouncing around China. Lots of company visits, lots of interviews.

Kind of a who’s who of digital China, but definitely focused more on B2C, e commerce, things like that. And you know, arguably this is the frontier for all of that stuff. Things just happen faster, companies are more innovative, and partly because it’s more competitive, and partly because Chinese consumers are just sort of digital first in their behavior at large, large scale.

So, it’s a great place to hunt for lessons, what’s coming next, and I’ll go through sort of my [00:01:00] three takeaways from the trip, and that’ll be the topic for today. Let’s see, standard disclaimer. Nothing in this podcast or my writing or website is investment advice. The numbers and information for me and any guests may be incorrect.

The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment legal or tax advice. Do your own research. And with that, let’s get into the topic. Now, I don’t really have any concepts for today. This is all just sort of Digital consumer behavior meets e commerce, meets marketing, meets influencing, meets logistics.

All of that gets sort of wrapped up into one topic, which was really the goal of this trip. I’m sort of calling this a research trip. And yeah, that all, you’ll see it all kind of blends together. Now we just had a, well, I had a phenomenal time. I just had a ton of fun. I took, literally filled up a whole notebook full of [00:02:00] notes.

We basically flew into Hangzhou. Went to Shanghai, then down to Hong Kong, then to Shenzhen. I then basically wrapped up, flew to California, and I’m sitting in Mexico City this morning recovering basically and looking at all my notes. So, it’s been a great trip, but companies we visited people we spoke with.

Some of these are off the record. Some of them are on the record. Not that I really have a record, but some of them I can’t talk about explicitly. NetEase, Signing Out. AliExpress, really all of sort of Alibaba International. Alibaba Cloud. I interviewed a vice president there, sort of the senior person.

I’m going to write that up and that’ll be an article on the way. Ant and Alipay. Ctrip in Shanghai. Amore Pacific in Shanghai, leading sort of South Korean beauty group, but doing a lot of cool digital stuff. So, lots of sort of these [00:03:00] digital first entities and then went to some pop-up stores and some interesting retail spaces.

Zara has pretty cool stuff in Shanghai. Minisou, PopMart, and a couple others. So, sort of ran the whole spectrum. Anyways, I’m going to write up a lot of this and for those of you who are subscribers, I’m going to send you kind of a lot of detailed thinking on all of these, but I put it all under the general category of, look, this is sort of the leading edge, the frontier of e commerce, media, video, influencing logistics, even gaming.

Covered all of that to some degree, so I’ll write all that up. That’s what’s on the way, but I thought for this podcast, because I’m kind of recovering from the trip, is I’ll just do sort of three quick lessons, which were my takeaways from all of this. I literally have tons of notes. It’s going to take me a while to go through them.

Okay, so let’s go to lesson number one. [00:04:00] AIGC. AI generated content is accelerating and intensifying the fight for attention and the fight for e commerce. I mean, now if you’re doing B2C e commerce, anything consumer facing, you’re, you’re going to have one foot in both of these camps. You’re out there every day trying to get attention, trying to get views, trying to get clicks.

You’re trying to convert. You’ve got e commerce on the back. Everybody’s playing this game and there’s good news and there’s bad news. AIGC, let’s call it just generative AI, but people in e commerce refer to it as AIGC. If you look up Alibaba, they’ll say AIGC. It’s really just generative AI. Good news and bad news.

Those tools are giving you tremendous capabilities you never had before. Bad news is everything’s getting faster. Everything’s getting more intense in terms of competition, both [00:05:00] for getting attention, getting views, converting, getting sales. So good news, bad news. One of the numbers that really stuck out to me was talking with one of these companies I mentioned and, you know, how many influencers are you tracking, you know, working with, looking at the data, contracting them, and they basically said 175, 000 influencers within China.

Just on their list, there’s a lot more than that, but that’s the list that they’re gathering data on, tracking, working with, promoting their product services, all of that, driving them to their websites their e commerce shops on, you know, Taobao and all these places and converting. Okay. That’s a lot of people trying to get attention, getting views.

And within that, we can put them into three buckets. We can talk about KOLs, which everybody talks about. They tend to be mass market can be pretty expensive in most of the world. There’s not that many of them that command huge views. [00:06:00] A lot of people talk about KOCs, Key Opinion Consumers, KOLs, Key Opinion Leaders, KOCs, Key Opinion Consumers.

These are people who buy your stuff, who talk about your stuff, and you know, your average KOC might have 100, 200, 500 followers. That’s a good strategy to work with them. And then KOSs, Key Opinion Sales, KOLs. You’ll hear this term more and more by companies like JD and Alibaba, which is, you know, these are your sales agents and various other sort of intermediaries that are getting what we’d call superpowers.

So, the net net of all of that is this idea of capturing attention is being democratized. Because we’re giving people better and better tools that everyone can play this game. You don’t need a studio anymore. You don’t need editing staff. You don’t need all this data driven strategies. No. The e [00:07:00] commerce sites, the generative AI tools, they’re letting everyone play the game that YouTubers and KOLs used to be able to play.

Now it’s everybody. So, if you’re trying to get attention, okay, you’re going to do your own thing. You’re going to generate your videos. You’re going to do all of that. And you’re going to work with various influencers. More and more of whom are going to be KOCs and KOSs, not KOLs. And a good company to look at for this is JD.

They’re rolling out a whole suite. of Merchant and Brand tools that rely on generative AI. They’re very impressive. The simplest ones are we can generate content for your products, you know, tags, things like that. More interesting is we can make the people that generate videos for you more productive because the tools make them more effective.

Fine. That’s all in the efficiency bucket and greater personalization bucket. [00:08:00] The one that JD is talking a lot about. This is under their chat Rhino, which is the new name for their generative AI tools is basically digital influencers, digital avatars. So, if you’re a typical content creator, you’re making videos, you’re editing your videos, you’re adding transcript, you’re adding text, you’re posting it on TikTok, you’re posting it on Instagram, you’re posting on Taobao live Xiao Hongshu.

It’s a bit of work and. You know, that’s a bit problematic, especially for large brands, let’s say like Amore Pacific, Nike and all of these because, you know, they have to basically work with external influencers because when they post their own content, it tends to be a bit corporate. Now that works if you’re talking about a new beauty skin care regimen.

But it’s, it’s, it’s a limitation of the major brands, is they can’t do what [00:09:00] individual influencers can do, which is create personal, authentic content. Well, up until recently. Unfortunately, these digital influencers, where you can basically create a person online, you can create the image on MidJourney or, you know, using JD tools, you can create videos of that person speaking, you can create the scripts, and you can have a stable of a hundred individual influencers that are really you.

But you really can’t tell that they’re digital anymore. You still kind of can, but it’s getting hard to tell which influencers are real people and which are not. So, these big brands are creating hundreds of influencers that they can just have there all the time, creating content, creating followings. And they’re hyper efficient, unlike traditional influencing, which takes a lot of time and effort.

It just all happens automatically for the [00:10:00] most part. So, digital influencers, digital avatars, which JD is leaning into yeah, they’re going to democratize the influencer game. And instead of 175, 000 influencers in China, you’re going to have millions of them. So, again, what does that mean if you’re a brand or a merchant?

It means you’re getting some new superpowers. That’s great. It means the speed and the intensity of the competition to get eyeballs is going to increase again. Okay. That’s just kind of the way it is. Now I talked to a couple of these companies about this. The tools are amazing. And I kind of asked, you know, who was the first adopter of these new generative AI tools?

And I thought they were going to say e commerce because these are already digital creatures. And they actually said it was gaming, that the major gaming companies, which in China, there’s Tencent, there’s NetEase and a couple smaller ones [00:11:00] Genshin Impact, which is based in Shanghai is very good. No gaming was ahead of the curve.

Because. For them to create content. is a lot more difficult and expensive than your average merchant or brand creating videos and things. So, they were first, but then arguably e commerce was second, and then we’re getting everyone else third, fourth, and fifth. So gaming is an interesting sub bucket here.

E commerce is a, a powerful one. And then the other one that got my attention was cross border. So, if we go to Southeast Asia, we’re looking at Lazada, we’re looking at AliExpress, we’re looking at Xi, and we’re looking at Temu. There are actually some really interesting use cases for generative AI when you start talking cross border.

First of all, you’re usually dealing with a different language. You create the content in Paris, you create the content in China. Well, you can now use tools. to convert it to [00:12:00] 25 different languages. And I could do videos. I can do this with my videos right now. I can make me speaking French. And it’s not just speaking French, it’s speaking it in my voice.

And it’s creating subtitles. And it’s quite effective. And I can now take my videos and hit a hundred different markets I’m not hitting. Cross border e commerce, it turns out there’s some interesting use cases. One of which is language, one of which is custom, one is which of, usually when you’re making videos and content to get attention you’re trying to piggyback whatever’s trending this week.

That’s why everyone comments on whatever’s trending. Okay, what’s trending in Indonesia is very different than what’s trending in China and Paris. So, the generative AI and the traditional AI tools are very good at identifying local trending topics in various countries, then creating scripts that speak to those topics, [00:13:00] then basically translating the videos and making custom videos for every market for a topic.

You can do all of that now. So cross border e commerce is actually a pretty cool sub bucket for this and a lot of people are asking questions like, you know, I’m making good content in English, why don’t I just make it in Spanish as well, which is the second largest market. It’s sort of English, Spanish, Chinese.

And that’s something Mr. Beast did a couple years ago. He had all these videos in English and he hired people to translate them into Spanish and he, I mean, he got massive views. Well, we can all do that now. You don’t need to hire people. Anyways, that’s lesson number one. Generative AI, AIGC, Towson, Jeff. The tools for merchants and brands in e commerce and content creation are pretty spectacular.

It’s accelerating the fight. It’s intensifying the fight for both attention and e commerce. That’s lesson number one. All [00:14:00] right, lesson number two. Cross border e commerce is growing. It’s a massive opportunity and the Chinese companies are leading. So, As I just kind of said, like, look, if you’re looking for the next sort of wave of growth for your e commerce business or for your traditional business with an e commerce channel, omni channel, or if you’re sort of video or blogging first, you know, okay, you’re in your core market.

Maybe you’re in English, maybe you’re in French, maybe you’re in German, maybe you’re in Thai, maybe you’re in Chinese, fine. Bye. The biggest potential next segment of growth is to take your products into another market. You know, you’re only hitting a part of the world. Rather than going for let’s take some market share from my competitors, which is difficult in my market, why don’t we just start selling in Southeast Asia?

Why don’t we just start selling in Europe? Why don’t we start selling in the [00:15:00] US or Canada? Well, That’s Sheehan, that’s Temu, that’s AliExpress, that’s Mr. Beast going into Spanish. It’s not that hard anymore. The content tools are there, as I just talked about. But now the logistics are there as well. So, I met with, you know, Cainiao, AliExpress Lazada.

These are all cross-border plays. Cainiao, the big logistics arm of Alibaba. They got some scale, massive scale, domestically, and then they immediately started going cross border. The first five years they were kind of China focused, and the next, they were founded about 2012. The first five year was China Network, 1917 2018, they start going cross border, which for them was China to the world China to Southeast Asia, China to the EU.

Okay, but there’s other types of cross border. You could go Southeast Asia [00:16:00] to the EU. You could go EU to Latin America. Those are all cross-border legs. And it turns out, that’s a pretty good thing to do, and a lot of the success stories we’ve seen, Xi’an, Temu, and now AliExpress Choice, are cross border stories.

Okay, totally doable now. China is better at this. I don’t know why they are; they just are. Probably a couple reasons. One, they have tremendous scale back home. So, you can leverage that scale into another market. Like, if you’re big with Chinese consumers, why don’t we start by selling to Chinese consumers who are in Paris or Southeast Asia, of which there’s a tremendous amount of them.

So, you have an advantage there. Two, the home market is so hyper competitive that when you move into somewhere like the EU or the US, it’s like everyone else is in slow [00:17:00] motion. I don’t know why, it just is. So, it’s not surprising that TikTok just rocked and rolled in the United States and ran circles around Facebook.

It’s not surprising that Shein and Temu went into Latin America, Southeast Asia, EU, and are doing spectacularly well. It’s not a surprise that TikTok went everywhere. They’re just faster. And then, maybe the third point is, they have a logistics network that they can leverage into these plays that others don’t have.

So, Cainiao, JD Logistics, Alibaba Express can basically go to Spain and France and say, anything you buy on our platform can get there in 5 days for 10. Okay, FedEx and DHL can’t offer anything like that at that price point. Now they can get it there in two days, but they’re going to charge you 50 bucks. So, they’ve [00:18:00] got multiple advantages.

And here’s the part people aren’t talking about. The domestic scenario is getting harder. The politics are much more of a risk than they used to be. A, the growth rate is not what it was. So, the domestic game is intensifying. There’s more political risk. Well, what do you do to that? You go international.

It’s a new growth channel you can go for and it diversifies your political risk. So, there’s a lot of that, especially for gaming. You don’t hear that in e commerce that much. The gaming giants of China, I wouldn’t even call this political risk. Let’s call it regulatory risk. If you want to release a new game in China, you need regulatory approval to release.

And if the ministry is not approving games this month, you have to sit and wait. Well, if you release your game in Southeast Asia, you don’t have that problem. So, it’s a way of, let’s say, diversifying [00:19:00] regulatory issues, costs, timing, things like that. So anyways, the net net of all of that, cross border e commerce is a great idea.

It’s a huge growth channel for most businesses, and it’s an increasing part of the game. Chinese companies are kind of on the lead in all of this, and I expect that to keep being the case. You know, one of the numbers that’s being floated around now because the U. S. is talking about e commerce from China into the U.

1. TikTok shop is, is dealing with this. You know, depending what numbers you believe, 30 to 40 percent of the merchants on, Amazon US are Chinese. So, it’s, it’s everywhere. It’s been everywhere for quite some time, about five years. Okay, so that’s lesson number two. Let’s get to the last lesson here. Now the last lesson is, is much simpler.

This is basically that discounts and promotions are still king in e commerce, [00:20:00] and Ctrip is awesome. So, one of the more interesting discussions I have, when you look at Alibaba and Express, I mean, discounts and promotions just cut across everything. It’s just a big lever to pull. You know, sometimes it’s easy to overthink all of these things in e commerce.

You know, let’s do customized content, let’s personalize, and those things are all very important over two, three, four years. But you want to move the numbers in the next 30 days, promotions and discounts. People love a sale. You can do promotions and discounts to move GMV. You can do that, I think, more smartly, which is to get people to sign up to your Rewards and Loyalty program.

That’s a very good hook to get people to sign up. Within the Loyalty and Rewards program, you can offer people discounts all the time. It’s a very good way to keep them engaged. It is usually for most companies, [00:21:00] one of the primary sources of data that sort of informs their personalization and other activities.

And discounts and promotions don’t have to be 30 percent off skincare products today. You can be smarter than that. You can do well that’s actually a good idea too, but you can do like free delivery today. People love free delivery. Even if you bake the cost into the product price, you know, a real discount versus a perceived discount is a bit of a gray area.

Pretty true though. Anyways, it’s still a huge lever to pull, especially if your competitors are doing it. Now within that, as a strategy, if you go into any airport in Southeast Asia, Bangkok, Singapore, Hong Kong. I guarantee you; you’re going to see big ads for Ctrip, which is now going by Trip. com. In China, it’s Xiecheng. [00:22:00]

I think they’re one of the greatest companies that people don’t pay attention to. Like if you were looking for, like investors, if you’re looking for a Chinese company or a digital giant, not just a China one, a global digital giant. That’s off the radar. Look at Trip. com, which is publicly traded. They were rocking the numbers in the past 12 months.

Daily active users, you know, one of the problems I’ve talked about a lot with these travel sites is you don’t get a lot of daily engagement because people don’t buy you know, they, they don’t buy plane tickets that often. Expedia, Booking. com. You know, they don’t get that much daily traffic, but if you look at Trip.

com, their daily active users appear to have jumped 80 percent in the last year. Now, don’t hold me to that number because I’ve heard that, but [00:23:00] I have to check it in their filings, but I think it’s safe to say they have had a massive jump in in sales, daily active users, sales within certain segments, daily active users overall in the last 12 months.

And they’re global. I mean, they’re China based. That’s their biggest market, but Southeast Asia, I would call them an Asian e commerce company at this point. And then they’re focused on Europe right now. Very interesting company. So, I was kind of looking, okay, I’ve heard they’ve jumped their numbers.

Let’s look into that a little bit. And one of the things they do, which most of these online travel agencies don’t do, is they do a lot of content. They do a lot of their own content, either at the brand level or the product level. They do trips, which makes all the sense in the world, because if you’re a travel site, travel videos get great views.

So, they do their own in-house content, but then they have user generated content, [00:24:00] maybe with influencers, maybe just, you know, casual content. So, you can go on Trip. com and there’s content everywhere. It looks like a cross between Expedia and TikTok. Which is a great strategy. So, I was kind of looking like, okay, how did they pop their numbers?

Was it the content? Is that what got you more daily engagement? I think that’s part of it. I think it’s pro I’m guessing here, so don’t hold me to any of this. I’m guessing it has more to do with the promotions and more to do with the deals. You go into any Asian airport, you’re gonna see Trip. com branding advertisement, but if you open up like Tik Tok, anywhere in Asia, even Twitter and things like that, you’re gonna see Trip.

com ads. Like, take a look. Next, you’ll notice them. They’re there all the time, and they’re always doing promotions and various things and great deals, and here’s a cheap trip you can take, and [00:25:00] here’s a hotel discount. They’re incredibly good at promotions and discounts, as far as I can tell. So anyways, that was kind of my third lesson, which is like, look, you know, I love digital strategy.

I think it’s fascinating. At a certain point, you don’t want to overthink it. If you want a really solid strategy, it is do lots and lots of promotions and ads, discounts make them data-driven and personalized and drive people into your loyalty program. That is a solid strategy for building your business and internally.

You know, the operating strategy, the simple solution would be, be data driven and get faster and faster. Make decisions faster, put it into your ops faster, that’ll get you 60 percent of the way there for most standard merchants and brands. Now, there’s a lot more to it, obviously, but [00:26:00] that’s not a bad core strategy, and it’s what most people are doing.

So anyways, that’s kind of lesson number three, which is like, discounts and promotions are still king in e commerce. Bye bye. Ctrip looks really interesting. Like if there’s two companies I think people don’t pay enough attention to out of Asia, I would say it’s Ant Financial and Ctrip. Maybe Alibaba Cloud would be third on my list.

Those are ones that are a bit off the radar. That I think are pretty compelling. And maybe, let’s see, one more, Xiaohongshu. Red is pretty interesting. Anyways, that’s sort of my list. Okay, so those are the three lessons for today. Hope that’s helpful. One last topic. I won’t go into much, but I did go around to these pop-up stores which tend to be in Shanghai.

That’s a place where people put pop up stores and they’re sort of retail flagships, which are much more about brand building than they are about moving product. Of them. If you go to Shanghai, sort of Nanjing Donglu, which [00:27:00] is historically, for those who don’t know Shanghai, the Bund Waitan is kind of the phenomenal, picturesque spot.

It’s a great place to have drinks. We had steak dinners there, which were great. If you kind of go west down Nanjinglu, the first part of that is Nanjing Donglu, Nanjing Eastlu Street. We never used to go there when I was living in Shanghai. It was kind of a tourist trap. It wasn’t that nice. There were lots of scammers and promotions and we used to basically skip over that and go to Nanjing Xilu, Nanjing West.

which is luxury stores, high end malls, and if you keep going, you need to get to Jing’an Temple. And that’s where I used to live, which is beautiful neighborhood, like beautiful shopping malls. But within that picture, Nanjing East was kind of a place you skipped over. It’s gotten a lot better, because it’s become [00:28:00] a place where major brands open their flagship stores.

You know, Huawei has a three to four story flagship store with their cars and their watches. I went there. It was fantastic. Xiaomi has a great store. Apple has a store, which is not that good in my opinion, because it’s always the same five products every year. But on that street, two stores that got my attention were PopMart.

And Miniso, PopMart for those, I’ve talked about this, the toy store with lots of little Deemu and Molly, these Japanese characters that have the little toys and it’s blind boxes and it’s an interesting business model. Their store was really kind of interesting. I’ll put pictures in the show notes.

Kind of like you went into like a cave and you would walk up these little staircases and there was lots of hidden stuff and it was kind of like [00:29:00] exploring a maze. Not bad, kind of cool, I give it a 7 But then we went down to Miniso, which 10 out of 10 it was like a, they almost created like a Disneyland type experience where it’s multiple floors, it’s games and toys everywhere.

And half the store, it seemed to me, was young women taking photos of themselves and then posting it, right? It was like, well, one, like the products, they’re all cute. Miniso, I mean. Whenever I walk by a mini sale with the girlfriend, we have to stop, right? It’s just mandatory. She can’t walk by one without going in and looking for cute stuff.

Toys, umbrellas, scarves, whatever. You go in the store, it’s full of young women, usually in pairs of two. Sometimes it’s a young woman with a guy being dragged [00:30:00] along, the boyfriend. Within the store, I was the least relevant customer. I was arguably Whatever the target demographic is, I’m the exact opposite of that.

I was like the worst person in the store. It was noticeable how much I didn’t belong there. But it was young couples, young women, all taking photos everywhere, having a great time. Really great store. And the takeaway from that was, like, why do these brands open physical stores? It’s because they are so limited in telling their brand story online.

On a phone screen, you’re a thumbnail. It is so hard to tell a richer story. So retail is a place you can tell their story. That would be Zara. We went to a nice Zara pop up store. It was very pleasant, and you get the sense of what Zara is. Miniso took it to the next [00:31:00] level. They weren’t just compensating for the limitations of online.

They took it to the next level. It was like you entered a completely different world. It was like entering a new universe or entering a Disneyland like experience. Not only were they telling their brand story, but they were also overwhelming you with it. It was like you entered their brand. And you were surrounded by it.

It was noticeable how much more powerful their brand came across when you were surrounded by it. So, I think the retail story like that was my takeaway was retail is not just something that compensates for the limitations of online. If you do it right, you can take it to the next level and it’s really quite powerful.

I view Miniso dramatically different after walking around this three floor Store. It was very interesting. Anyways, that was my takeaway. Mini cell was awesome. Pop Mart was pretty good [00:32:00] and Huawei was pretty good too, but not as compelling. Okay. That is it for me. I hope that was helpful. I’m going to be in Mexico for a couple more days, just doing some administrative stuff.

Hanging out, maybe go to a museum or something like that. But I’m going to catch up on content. Cause I was sort of, I fell behind last week, so I’m going to catch up this week. Yeah, but that’s it for me. Hope everyone is doing well and I will talk to you probably in about two days. Bye bye.Video Nov 22 2024, 18 00 52 Video Nov 22 2024, 18 04 04 (1)

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