Xiaomi enters Italy, what makes it so successful?

Xiaomi, the smartphone and tech gadget manufacturer from China announced that they are expanding their reach to France and Italy the end of this month, after opening its first Mi Home store in Barcelona, Spain, late last year. The first Mi Home store is confirmed to be located in Milan and set to open on May 26, bringing more than 70 products carrying the Mi brand, from neck pillows and ballpoint pens to air purifiers and smartphones.

Xiaomi released its first smartphone in August 2011 and has rapidly gained market share in China to become China’s largest smartphone company in 2014. As of 2017 Xiaomi was the world’s 5th largest smartphone company. As of the start of Q2 of 2018, Xiaomi has now become the world’s 4th largest smartphone manufacturer.

 

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Xiaomi’s founder and CEO Leijun. Photo: GIULIA MARCHI/BLOOMBERG/GETTY IMAGES

 

Xiaomi has grown from a startup to a company with 15,000 employees and 100 billion yuan (US$16 billion) in sales in seven years. Initially, it relied on a business model that allows Xiaomi to sell hardware at zero or low profit margin, but monetize through complementary online services such as movies and shows, as well as games and other offerings. The hardware creates a platform for the company to sell services to their customers.

The model worked and caught a considerable number of fans, especially young tech-savvy workers in big cities, who appreciate Xiaomi’s affordable smartphones, tablets, laptops and online service. However, as smartphone and internet penetrated into China’s remote rural areas and small cities, Xiaomi’s exclusive reliance on online sales couldn’t quite compete with other mobile brands such as Vivo and Oppo, which heavily invested in partnership with retailers in those areas.

 

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Xiaomi’s Mi Mix 2 smartphone sits on display. Photo: GIULIA MARCHI/BLOOMBERG/GETTY IMAGES

 

2016 was a tough year for Xiaomi with smartphone sales decline to a rumored 41 million, from a reported 70 million a year earlier. Xiaomi’s billionaire founder Lei Jun — sometimes called “the Steve Jobs of China” — blamed the slump on supply-chain problems associated with the company’s rapid growth. This forced Xiaomi to retreat from several overseas markets, including Brazil and Indonesia.

But Lei Jun was not going to give up that easy. With determination, they found their solution: create an ecosystem of some 100 startups as partners to provide Xiaomi with other internet-connected home and tech products that would draw customers to its stores.

Xiaomi Senior Vice President Wang Xiang, who used to run Qualcomm’s China business, explained how the ecosystem strategy drives traffic in an interview: “Buying a phone or TV is a low-frequency event. How many times do you need to go back to the store?” he said. “But what if you also need a Bluetooth speaker, an internet-enabled rice cooker, or the first affordable air purifier in China — and each one of those products is not only best-in-class, but costs less than the existing products in that category? Our ecosystem even gives customers unusual new products that they never knew existed. So they keep coming back to Xiaomi’s Mi Home Store to see what we’ve got.”

All its ecosystem products, from pillows to air purifiers, and from rice cookers to portable Bluetooth 4.0 speakers, aim to resolve similar price-to-performance “pain points” for customers. They find out what current products’ shortcomings, such as high retail price or low battery capacity, fund a startup to devote themselves to solve that problem. Their products are inexpensive, but not cheaply designed or manufactured. They’ve won more than 100 international design awards.

 

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A Mi Home store in Shenzhen.

 

And the number proves its success. The first 10 months of 2017, Xiaomi has shipped 70 million smartphones, completing its shipment target for 2017. It also opened over 300 Mi Home stores across China to boost its offline sales and planned to have more than 2,000 by 2020. This month, Xiaomi filled to go public on the Hong Kong Stock Exchange and aims to raise $10 billion in IPO which is expected to be the world’s biggest IPO raise since 2014.

Guangdong-Hong Kong-Macau Greater Bay Area: A World-Class City Cluster is Coming

Part of the Belt & Road initiative, the Guangdong-Hong Kong-Macau Greater Bay Area was signed between the National Development and Reform Commission (NDRC) and the governments of Guangdong, Hong Kong and Macau in July 2017 with Chairman Xi Jinping’s presence. This ambitious plan aims to transform the Pearl River Delta (PRD) including Hong Kong and Macau to a dynamic hub of innovation and services with a GDP of US$4.62 trillion by 2030, which will overtake rival bay areas in Tokyo, New York, and San Francisco to become the biggest in the world in terms of GDP.

Where is the Area exactly?

It includes Hong Kong, Macau and 9 cities of Guangdong: Shenzhen, Guangzhou, Dongguan, Huizhou, Zhaoqing, Foshan, Zhongshan, Zhuhai and Jiangmen, all located around the PRD region.

Since the “Reform and Opening-up” policy taking effect in 1978, Guangdong has led the country’s economic development of modern day, earning the name of “The Factory of the World” and taking up 12 percent of China’s economy last year with RMB 9.35 trillion (US$1.38 trillion) of GDP.

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Photo: Fung Business Intelligence

However, as the region is facing increasing competition from countries such as India and Vietnam for low-cost manufacturing, the PRD must develop its advantages in openness and innovation to continue to take a leading role in China’s next stage of economic development.

The goal

This landmark initiative aims to bring together the key cities of the Delta region to build a new powerhouse–one that is comparable to other city clusters such as Greater Tokyo Area, San Francisco Bay Area and Greater New York.

One of the GBA’s key objectives is to improve the level of cooperation within the region. This includes identifying the core competitive advantages of the cities within GBA and exploring ways for them to complement one another. One example of this is to build on the strengths of Hong Kong’s financial and professional services sectors, Shenzhen’s high-tech manufacturing and innovation skills, and the manufacturing strengths of Dongguan and Guangzhou.

The development of the area should also act as a catalyst for China’s Belt and Road initiative–an ambitious strategy that aims to link the economies along the Silk Road Economic Belt (Central Asia to Europe) and the Maritime Silk Road (South Asia to Africa and the Middle East) together.

It’s on the move

As cities in the GBA fall under different customs zones as well as legal and administrative systems, the most pressing issue for local governments is to collaborate on a broad range of topics including economic policies, environmental and transport issues, and regulatory harmonization. The alignment of infrastructure development is already on the way.

There are three key infrastructure projects. Firstly, there is the Hong Kong-Zhuhai-Macau Bridge, which will likely open in 2018 and significantly reduce travel times from Hong Kong to Zhuhai and Macau. Secondly, there is the Express Rail Link, which is due to open in 2018 and will connect Hong Kong to Shenzhen and Guangdong, and subsequently to China’s vast high-speed rail network. Finally, there is the Shenzhen-Zhongshan Corridor, which is an eight-lane highway that will reduce travel time between Shenzhen and Zhongshan/Jiangmen by approximately 30 minutes after its completion in 2024.

Another project in the pipeline is the Guangdong free-trade zone, which was launched in 2015 across 60 square kilometers of the Nansha New Area in Guangzhou, 28 square kilometers of the Qianhai and Shekou areas in Shenzhen and 28 square kilometers of Hengqin in Zhuhai. It will make the region more open to international investment in the targeted industries.

This was followed by the proposed development of the Lok Ma Chau Loop when Hong Kong and Shenzhen signed an agreement in January 2017 to transform a stretch of land on the border between the two cities into an innovation and technology park.

Challenges

According to a survey done by KPGM China, Hong Kong General Chamber of Commerce and YouGov, the top three challenges facing the development of the GBA are protectionism (ranked as first, second or third by 60 percent of respondents) and silos between and within governments (53 percent).

If the GBA is to live up to its potential, it will be important to overcome such challenges. Concerns as to whether this is possible or not were reflected in the third-ranked challenge–an over-dependence on government’s foresight and planning capabilities (ranked as first, second or third by 47 percent of respondents.

A Look into China’s Food & Beverage Industry

Consumer trends in China’s F&B industry

China accounts for US$700 million market-share in the global food and beverage (F&B) market relying on its rapid economic development. Key drivers shaping this consumer market growth is the increasing GDP and greater consumer spending power, which in turn facilitate rapidly changing lifestyles, a growing aspirational middle class, and rising interest in health and wellness.

Foreign businesses entering the country must take into account the structural and cultural factors that shape Chinese consumers’ demand. An important factor that foreign brands often overlook is the difference in regional markets. For instance, first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen are better developed, have higher incomes, population, and a more Western lifestyle than other provinces. However, many tier-two areas are facilitating smart growth to accommodate new business so stepping down a tier or two – focusing on these less saturated markets may just offer up a lot more potential.

Companies entering China’s regional markets must continually invest in research and development to determine local preferences and offer customized products that suit Chinese palate.

With health awareness on the rise, more Chinese are paying closer attention to the ingredients in the food and drinks they consume. It’s important for F&B brands to consider consumers’ eating habits, the importance of safety messages and ‘healthy option’ labeling when promoting their products in China.

Companies entering China’s regional markets must continually invest in research and development to determine local preferences and offer customized products that suit Chinese palate. For example, Starbucks has managed to retain a stronghold in the largely tea drinking China by offering a unique menu that is suited to tastes and predilections of many Chinese consumers.

Market studies suggest that 82 percent of consumers from upper-tier cities prefer to buy foods and beverages online. To serve the growing internet population, over 59 out of 100 retail chains operating in China had established online stores by the end of 2011. This trend has only grown.

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The F&B industry in China has a US$ 700 billion share of the global market

Step-by-step licensing for import of food

China has a multi-layered food regulatory system to ensure the quality and safety of imported food items. The regulation also varies for different types of goods, and while there are common laws, it is important to know what legislation affects your products. Here is the procedure for obtaining licensing for import, and how the changes to China’s food safety law can affect importers.

Step 1 – Complete exporters and importers registration

As an overseas manufacturer and exporter of food, you must register with the State Certification and Accreditation Administration (CAA) if the food product being exported is on the ‘List of Food Imports Subject to Enterprise Registration’. Some of the food products that have heightened safety requirements such as meat and health products require additional registration.

Moreover, as of October 2015, it is mandatory for exporters to register each shipment of food products online with the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) department for tracking purposes.

 

Step2 – Complete documentation and pre-import licensing

Before the shipment of products, you are required to submit a series of documents, which are reviewed only after the shipment reaches China. Therefore, you must ensure that all your documents are complete and authentic to avoid any delay and storage cost.

Although the documentation requirements vary between products and product categories, you may prepare the following documents to import food products into China:

-Commercial invoice;
-A detailed packaging list;
-Bill of loading;
-Certificate of export from country of origin;
-Hygiene / Health certificate;
-Certificate of bottling date (for drinks);
-Certificate of free sale;
-Sample of original label;
-Sample of Chinese label; and
-Inspection certificate.

In general, food products entering China do not require pre-import licensing. However, if you are importing poultry or dairy products, you need to obtain the Automatic Import License issued by the Ministry of Commerce. Food items subject to import tariff quotas such as wheat, corn, rice, and sugar are required to obtain the Agricultural Products Import Tariff Quotas Certificate.

 

Step 3 – Ensure label compliance

Every food product imported in China must be labeled in simplified Chinese characters to complete the Customs clearance. In general, a label must provide following information:

-Standard name of foodstuff;
-List of ingredients as percentage;
-Name and address of manufactures, local agent, or distributor;
-Production date, best before, end date, and guidance for storage;
-Country of origin;
-Quality grade;
-Code of national standard/industry standard for production; and
-Special contents, if any.

 

Step 4 – CIQ food sanitary inspection and customs clearance

Once the shipment arrives in China, the food products are inspected by Customs officials for review of relevant shipping documentation and labeling requirements. The CIQ sanitary certificate is issued only if the documents are complete. The certificate is issued for every product shipment.

 

Licensing for import alcohol

For the import of alcohol into China, exporters must work in collaboration with a local import entity that is in possession of a valid business license, and personal and company customs and CIQ certificates. Once conditions are agreed upon, a contract can be signed with Chinese import agent and registered with General Administration of Quality Supervision (AQSIQ).

Then, the beverage for import must be labeled according to China’s food labeling standards. At customs, a country of origin certificate, health certificate, product ingredients list, product sales approval registration document, packing list, invoice, contract, and bills of lading will be required. Once customs receives the documents, customs will release the goods to the agent. Customs will then levy customs duties and other taxes, and will release a customs clearance document. At this point, the importer can collect the goods and proceed to deliver to the distributor.

Market strategies for foreign F&B companies

To know how to market and brand your products effectively in China, you need to take into account regional market differences and the ever-evolving dynamics surrounding consumer attitudes and behaviors.

Three takeaways for your China launch

-Your China market strategy will deviate from your home country strategy, and will vary depending on the type of product, location, and choice of distribution channels.
-You need to create a meaningful product, pack and activation strategies that engage and resonate with local consumers.
-After activation, don’t rest on your laurels, be agile on strategy, and plan for reinvestment of resources in order to maintain strong market position.

 

Source: China Briefing

 

 

Why Guangzhou is the future for the wine industry?

With increased westernization of Asia in general and East Asia in particular, not to mention the rise in the living standards of the middle classes, the wine industry has seen a tremendous growth in Asian economic powerhouses like China, Japan and India. Despite rice wine having been a common commodity in East Asia for centuries, grape wine is relatively new to the masses.

However, as has been the case with most of the financial developments of the decade, it is China that continues to steal the limelight as it is gearing up to overtake the likes of Britain and France to become the second-biggest wine consumer in the world in terms of value, behind the US.

The growth of the Chinese wine market has been mainly supported by regions and cities like Hong Kong, Beijing, Shanghai and Guangzhou. In this article, we shall evaluate the contribution of China’s traditional wine hub, Hong Kong, and the rising importance of Guangzhou as wine fever takes over the Red Dragon.

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Visitors enjoying and exploring new wines at Interwine May 2017

The huge Guangzhou market

Home to nearly seven million people, Hong Kong has a highly developed wine market meant to cater to its affluent inhabitants besides underlining its own reputation as a major export hub in the world. However, with a much larger population at its disposal, Guangzhou is, in no way, lagging behind.

On the other hand, the relatively lower competition in an area stretching to a monstrous 11,000 kilometers, along with the ever-increasing purchasing power of its inhabitants (both permanent and temporary), make Guangzhou the future capital of the Chinese wine industry.

With nearly 20 million inhabitants equipped with a high purchasing power (this figure goes up to a whopping 60 million if the neighboring cities of Dongguan, Foshan, Shenzhen and others are included, all of which together make up one of the largest urban agglomerations on the planet), Guangzhou offers a huge market for any product with a decent price-quality ratio.

The Guangdong province, of which Guangzhou is the capital, is home to nearly 110 million people. These numbers, along with the fact that Guangzhou is located in mainland China and has, therefore, direct access to a much larger market than Hong Kong, underline the growing importance of the Rice City. Located at just a stone’s throw from Hong Kong (one hour to be precise), Guangzhou finds itself in an enviable position as far as trade potential is concerned.

Hong Kong:  The region’s wine trading and distribution center

On the other hand, having a strategically perfect location with respect to the foreign market, Hong Kong is undoubtedly China’s best bet for boosting its exports. However, the same domestic location has proven to be a double-edged sword for Hong Kong, which means Fragrant Harbor in Cantonese, as the sub-tropical climate there is not favorable for growing grapes, which explains its negligent domestic exports. Almost all exports and re-exports (98.5%) are directed at Asia. The Chinese mainland and Macau make up for 95.1% of those exports (85.9 and 9.2, respectively).

Hong Kong’s unfavorable climate for grape cultivation necessitated the need for importing wines from other parts of the world. Major partners include countries like France, Italy, US, Chile and Spain. Australia has also made deep inroads in the Chinese wine market in the recent years.

The differences among different customer groups in terms of cultural background, income level and consumption preferences are reasons that explain why Guangzhou is a vibrant wine market in the making.

With an eye on the ever-increasing demand for wine in the Asian market, the Hong Kong government took the major step of removing all duty-related customs and administrative controls for wine in February 2008. The move was aimed at not just making Hong Kong the region’s wine trading and distribution center, but also boosting other wine-related businesses such as auction, catering, retailing, transportation and warehousing. The deregulation of the wine market turned Hong Kong into the world’s most important market for ultra-premium and iconic wines.

Deregulation has thrown up some really fast and astonishing results, with an 80% surge in the wine imports in the first year itself being the highlight. Another area in which Hong Kong seems to have the upper hand over Guangzhou is the CEPA.

Signed between the Mainland and Hong Kong, the Closer Economic Partnership Agreement (CEPA) confers a special status onto all products of Hong Kong origin, including wine. This translates as a tariff-free treatment with effect from January 1, 2006. Under CEPA, wine imports can go into China without any tariffs. On the other hand, non-Hong Kong made wine is subject to a maximum tariff rate of 20% when entering the Mainland. But Guangzhou more than makes up for this handicap with the one crucial ace it has up its sleeve.

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Guangdong province ranked the second volume of wine market in China with 25% and No. 1 regarding total value of wine with 42%! Thousand of FCLs are entering everyday to Guangdong!

Why Guangzhou is the future?

Years of dominance as China’s (and Asia’s) wine capital has taken Hong Kong to its saturation point. As of 2009, Hong Kong had a total of 3,550 wine-related companies, underlining the cut-throat competition prevailing in an area encompassing around 1,000 kilometers only! On the other hand, the relatively lower competition in an area stretching to a monstrous 11,000 kilometers, along with the ever-increasing purchasing power of its inhabitants (both permanent and temporary), make Guangzhou the future capital of the Chinese wine industry.

The highest urban annual disposable incomes

In addition, the Guangdong province boasts of one of the highest urban household average per capita annual disposable incomes in the country, recorded at 26,897 CNY in 2010. An average individual living in Guangdong can spend as much as 216 CNY per annum on wine. In 2013, the per capita disposable income of the highest-income households stood at 74,712 CNY, whereas the per capita consumption expenditure of the highest-income urban households stood at 56,181 CNY. Given the huge target market and taking into account the fact that low-end Chinese wine amounts to somewhere between 30 and 50 CNY, Guangzhou is an unexplored market in all regards.

With French wine having registered its presence across all price spectrums in China (including the low-end price segment), there is no reason why other international exporters cannot dream big in China. And what better place than Guangzhou to start from?

A booming private economic sector

Furthermore, Guangzhou boasts of a booming private economic sector. The mega-city recorded an astounding 709,000 individually-owned businesses, a rise of 5.3% from the end of 2012. Being arguably the biggest hub in Southern China, Guangzhou witnesses a heavy flow of people, goods, capital and information. For a city whose total imports and exports amounted to USD 130.6 billion in 2014, the nascent wine industry has a huge potential to tap on. If that is not a reason big enough to invest in Guangzhou’s booming wine industry, having a look at Guangzhou’s demographic profile will certainly be.

The population structure

China’s sixth population census threw up an interesting figure. 81.9% of the city’s permanent population was aged between 15 and 64, the ideal target market for wine sellers. Another peculiar feature of Guangzhou, also famous as the Southern Gate of China, is its large migrant population. With a registered household population of just around 8 million, Guangzhou is truly a migrants’ city. The city’s transient population of tourists from other parts of China and overseas, business travelers and many migrant workers is a testimony to its diverse wine tastes. The differences among different customer groups in terms of cultural background, income level and consumption preferences are reasons that explain why Guangzhou is a vibrant wine market in the making.

Another interesting point about consumer behavior in Guangzhou is their predilection for food items and beverages. They enjoy fresh, novel and distinctive food products. So, if your wine can really whet the appetite of a highly appreciative market, Guangzhou is the place where you ought to be plying your trade.

Let’s see the opinion from those who participated in different wine exhibitions in Guangzhou and Hong Kong.

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①Fernando Silva, from Chile, is the China Office Manager of a famous Chilean winery named Agroverdi (or Casa Verdi). He has been selling wine in China for more than 5 years and the business seems going well thanks to his wines and beautiful smile.

Regarding your experience in both cities, what are the main customer’s sales channel in Hong Kong? And in Guangzhou?

Fernando: In Hong Kong, they have direct distribution to fine wine shops, and agents, but not many due the market is not so big as Guangzhou.

In Guangzhou, the distribution is with their own franchises stores, other wine shops, distributors and also agents (not only in Guangzhou, also to other provinces ). One interesting thing is that during the last few years in Guangzhou many of our customers are opening new sales channels, for example online sales, growing and growing very fast!

Do you appreciate any difference between Hong Kong and Guangzhou wine market?

Fernando: Here we have to consider that between Hong Kong and Guangzhou, although they are very close from each other, we can find some differences (we have to consider that the Hong Kong population is very small compared to Guangzhou).

In Hong Kong many of the importers who visit the exhibition are looking for one of the main brands of our winery. On the other hand, in Guangzhou many of them are looking for some new, interesting and attractive designs. Fortunately, we can offer both, and with same good quality wines.

For us, Hong Kong and the Guangzhou market are important and we can offer what customers are looking for, quality wines, beautiful label designs and a good service.

What are the main differences for you after participating in Hong Kong wine exhibition andInterwine Guangzhou? (number of visitors, industry, quantity and quality of visitors, events,..)

Fernando: Both exhibitions have a good number of interesting visitors from the wine industry, professionals, importers, agents, etc, all this makes us happy and keep us busy, That’s good!

In Interwine the organization is very professional, they care about all, and during the exhibition the visitors can attend to wine tastings and some master classes, they have the chance to lear more about different countries wines.

We have the chance to introduce our products for different markets, while in Guangzhou we have the chance to meet customer from different provinces of China, in Hong Kong we meet people from other Asian countries.

We are very happy with Interwine and that’s why we will attend again, and we will wait for all of that people who want to learn a little more about our geography, climate and and enjoy our quality wines.

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②Víctor Coll comes from Spain and he is the CEO of Vinita Wines, a well-known importer representing 5 excellent wineries from different regions of Spain. He has been selling wine in China for more than 4 years and he has established offices in Shanghai and Hunan. He is a regular customer of Interwine participating for many years.

Do you appreciate any difference between Hong Kong and Guangzhou wine market?

Víctor: At a first glance it seems that Hong Kong market is much more mature in the wine knowledge and consumption of wines from around the world compared to the Guangzhou market, but I feel year after year Guangzhou (and the South of China) wine knowledge is increasing a lot. As for the average price and be able to have access to wines of higher quality, the exemption of taxes influences a lot because in China Mainland are higher compared to Hong Kong.

Regarding your experience in both cities, what are the main customer’s sales channel in Hong Kong? And in Guangzhou?

Víctor: The sales channels are similar, mainly all of them sold to distributors, as well as catering, and also to companies and individuals. Importers are increasingly trying to serve all channels as distributors are leaving less and less room for the oversupply that exists on the Chinese market and the number of options available to distributors to find importers of wines from anywhere in the world.

At least in the South of China they open new sales channels while in Hong Kong they just keep their traditional channels. Lot of Hong Kong wine companies depend of Chinese customers and many of them cross the border to find customers in the South of China, more and more developed.

What are the main differences for you after participating in Hong Kong wine exhibition and Interwine Guangzhou? (number of visitors, industry, quantity and quality of visitors, events,..)

Víctor: In both fairs we can find as visitors both distributors and “wine lovers” who buy wine for their own consumption and for friends.

Interwine is a fair more focused on the Chinese market as in addition to numerous wineries exhibiting. The reason we participate in Interwine is because we can find our target at the same fair, very near to us and we really appreciate it. Furthermore, in Interwine they organize a lot of tastings, events and Gala Diner. Excellent way to meet new importers or distributors with the perfect atmosphere. The market in the South of China is more dynamic.

Source: Interwine

If you need a reference to import wine or food into China, or set up companies in Hong Kong and Mainland China, or participate in exhibitions and find retailers, we are here to help you. Contact us here.

The Taiwanese Incubator with A Dream

One advantage of China to stay as an economically strong country is the capital it accumulated through the last 30 years of rapid development. But thinking in the long term, the government understands that the traditional manufacturing industry is going downhill and if they don’t seize the chance to advance in new technologies and industries, they will be kicked out from the game soon. So it’s not surprising to see that incubators and startups are flourishing throughout the country.

In Dongguan, the renowned world factory in the south of China, almost every official incubator gets a certain government subsidy, policy preferences and fund. We visited some of them and here is our favorite.

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Rickey Lin (right), Director of Inno17 Space, at the Startup Weekend.

Inno17 – The Breeding Ground of Startups

Located in Songshan Lake—Dongguan’s proudest national hi-tech development zone—Inno17 Space is one of the 64 incubators in Dongguan which solely dedicates to Taiwanese startups. We sat down with Director Rickey Lin to talk about this business.

As soon as we stepped into the place, a relaxing common area welcomes us with coffee aroma and colorful, cozy sofa and tables. This is the birth place of good ideas and bold thoughts. We can imagine youthful mindsets exchange ideas and debate different opinions right inside this room. Rickey greeted and led us to a table in front of their presentation area.

As one of the most Taiwanese-populated cities in the country, it makes sense to launch the project here.

Talking about how the incubator was started, Rickey mentioned that this is one of the dozens of state-funded projects that exclusively help Taiwanese entrepreneurs to set up companies in Mainland China. As one of the most Taiwanese-populated cities in the country, it makes sense to launch the project here. The local government sought cooperation from the Taiwan Businessmen Association (TBA) and they found Rickey and his two partners.

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A Startup Weekend held in Inno17

The formal Chinese name for this incubator is Dongguan Young Taiwanese Entrepreneur Alliance Management Service (DG Young T.E.A.M.S.), while Rickey prefers to use an easy name called Inno17 Space. In Chinese, 17 (yī qī) sounds like together (一起 yī qǐ). So, the name means innovate together. Having such a creative and meaningful name already differentiates it from other incubators.

Relying on the government fund, Inno17 provides seed money to selective startups, as well as offering working space, dormitory, legal, financial, technological and marketing resources and consulting. Currently, 54 startups are hatching under Inno17 and over 20 standing in the line. Events such as roadshows and startup weekends are held frequently to attract investors; Educational programs like workshops, seminars, salons and training are arranged to prepare the amateur entrepreneurs with necessary knowledge and information.

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Inside Inno17 Space, one of the 64 incubators in Dongguan which solely dedicates to Taiwanese startups

 

The Dilemma

Speaking of the biggest difficulty in running the space, Rickey confessed that it’s not from any daily operation, or struggle to decide which startup they should include, but from the government. In order to maintain a consistent fund for a startup, he needs to communicate with both the government and the startups to ensure them understand each other’s situation. A new project, especially a pioneer one, requires time and energy to do considerable marketing research which could last for half a year to a year without any solid results. As an investor, the government puts tax and value return at the first and somehow lacks consideration to the new players. Acting as a bridge between the two, Rickey could easily get stressed out.

The former one lines up with closed, separated offices because they are afraid to share information, the latter creates a friendly environment where the fear does not exist.

There are two universal ways of doing businesses. One is to sell a product and earn the price difference, buy low and sell high. The other way is to create added values to a product. You establish a company because you want to make money or you want to create something new? This theory can also apply to building an incubator. One kind of incubators, like the ones we saw previously, occupy several six-floor buildings and hire abundant staff dressed up in suits and jackets. The other kind is like Rickey’s, where a casual coffee shop and a humble shared office are the place to generate and exchange new ideas. The former one lines up with closed, separated offices because they are afraid to share information, the latter creates a friendly environment where the fear does not exist.

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The Inno17 team

Thinking of influential tech giants like Facebook, Google and Apple, none of them started with the idea to make big money. Their philosophy always emphasizes in creating a revolutionary product and a new way of life. To some incubators, their goal is to maximize their profit, pick the most profitable idea, hatch them, grow them and sell them at a high price. Other incubators, like Inno17, their mission is to try their best to realize entrepreneurs’ dreams. They grow up together with the startups, like a family.

During the talk, Rickey and one of the Point Linkers Carlo created a special connection, because they shared the similar experience and dilemma in their lives. About 10 years ago, Rickey was tired of the shoe industry which his father has been succeeded in and wished him to carry on with. He wanted something new, fresh and excited. He wanted challenges and to see what he could do without father. Carlo found himself in the similar situation like Rickey now, walking out from his family’s industry and seeking something that can enthuse him.

The talk had been energetic and inspirational. Rickey is friendly and helpful. If you also want to talk to him about China’s incubator and startup scene, or any new ideas, we would love to be the Point Linkers.

Chinese Entrepreneur Nurtures E-Commerce Talents

As the largest e-commerce economy in the world, China is seeing a new wave of boom in national and cross-border online shopping in recent years, thanks to a higher standard of living in China, a greater exposure to, and knowledge of, foreign products and of course, convenience of online retail.

Predicted jointly by Alibaba and Accenture, China will become the world’s largest market for buying and selling products online by 2020, with the total value of commodity sold by e-retailers to overseas consumers likely to reach a whopping US$994 billion. Under the One Belt One Road initiative, companies will be encouraged by various preferential treatment and considerable fundings in developing foreign trade with cross-border e-commerce.

“Therefore, I think I could set up a virtual incubator to recruit university students worldwide to set up individual companies together to participate in this fast-growing industry.”

Under this background, overseas returnee Vivian Chen is quite confident about her newly-launched e-commerce incubator business in Songshan Lake, Dongguan. We talked to her during the Augmented World Expo. Her office is located right above the venue.

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University students gather around to learn how to do e-commerce.

An E-Commence Incubator

Graduated from University of Victoria, Vivian spent eight years in studying and working in Canada before returning to China in 2009. She had been working in international companies and marketing projects, and gained PMI’s Project Management Professional (PMP) certification, the most important industry-recognized certification for project managers.

In China, she founded several companies including a business consulting company and a new material company. However, the e-commerce incubator called Creative Campus has attracted our attention.

The idea of the incubator is to attract fresh and young university students, train them to be e-commerce specialists. When they are ready, they can establish their own trading companies with the help of Creative Campus and conduct real international transactions.

What the students appreciate the most from the program is the free consulting services and valuable resources the company is going to provide.

“I realized that running a successful e-commerce business requires a lot of resources and training/skills, but most university students or young people lack them,” said Vivian. “Therefore, I think I could set up a virtual incubator to recruit university students worldwide to set up individual companies together to participate in this fast-growing industry.”

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Overseas returnee Vivian Chen created Creative Campus to train e-commerce talents.

The Birth of E-Commence Talents

She personally hand-picked each candidate. There’s no reason to include someone without the passion in e-commence into the program. The potential qualities of candidates could be open-mindedness, certain knowledge in trading and business and most importantly, the strong will to start a business.

At the beginning of July, the program kicked off and 15 students from local universities settled down in the office to learn what it needs to be an online dealer. Real operation in major e-commerce platforms such as Amazon and eBay, entrepreneur mindset, teamwork, industry and commerce laws and regulations, as well as basic English are the core lessons of the training.

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A regular meeting in Vivian’s incubator

What the students appreciate the most from the program is the free consulting services and valuable resources the company is going to provide. They will get to know government policies, market analysis, tax and accounting, sales instruction and marketing strategies. They will also get resources of consumer goods supply chains, national and international logistics and warehouses, overseas after-sales services and so on.

The students who establish their own companies only need to invest 100 RMB starting fund to buy their first batch of products. It’s almost risk-free. Yet not every participant of the program will reach this step. In September, three companies will be established. No matter what, they learn a lot.

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Vivian and her students

“Cross-border e-commerce is growing at a speed of 30% per year in China,” commented Vivian. “This fast-growing industry requires a lot of well-educated and global talents to participate and contribute to making this industry more diverse and better. This kind of talent is only in place less than 5% currently. There is a lot of room for growth in the future.”

We thought this is a non-profit government-funded project. Surprisingly, Vivian confessed that she’s investing it from her own pocket. She believes that this is a win-win approach and she’s also planning to expand the program to Shanghai.

China’s Facial Recognition Leads the World

Apparently, Chinese is not so satisfied with the speed of mobile payment, they want to just lay eyes on the camera and finish the process. As the whole world is talking about the new iPhone’s facial recognition, China has been commercially adapting to this technology for the past several months for a number of different purposes ranging from shopping to public safety.

On September 1, Alipay, the online payment giant, announced a new service with KFC’s Hangzhou branch, located in the east of China, to allow customers to pay their bills by faces. Dubbed “smile to pay”, the video rollout showed how the order was completed in two seconds, and how smooth the procedure could be whether the female model was in a wig or in heavy makeup.

In fact, two days before Alipay made the headline of Chinese tech blogs, its rival JD.com had secretly launched the similar technology in one of their offline shops in Beijing. After users upload their face images to JD’s app, they can go straight to an iPad setting up at the cashier and finish the purchase with their faces.

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Facial recognition used in airport security check.

As early as May 2017, search engine giant Baidu has utilized the technology on their own cafeteria to pay for meals; In 2016, China Merchants Bank launched face recognition in ATMs in 106 cities around the country; Recently, Agricultural Bank of China also initiated the technology in over 100,000 ATMs. They both allowed users to withdraw money without inserting their bank cards or ID cards.

Airport security inspection is another field that properly exploits the face detection.  In Changchun Airport, the northeast part of China, four cases of using fake ID cards for boarding have been detected thanks to the facial recognition added since August. The system quickly compares the real person’s snapshot with their ID card image and makes a decision to let them pass or not.

According to data provided by Forward Industry Institution, the market size of facial recognition industry in China reached over 1 billion RMB (152 million USD) in 2016 and it’s estimated to achieve more than 5 billion RMB (763 million USD) by 2021.

Although the face detecting itself is very fast, the technology alone can’t finish a whole identity recognition process. It’s usually assisted by a second mean of confirmation such as providing your phone number, which greatly slows user experience.

We criticize that it will probably and eventually become another insignificant technology like fingerprint recognition, which has been developed for a while but still not quite widely applied. Plus, all the doubts in how it will work in conditions like poor lighting, sunglasses, beards and twins. Whether a true facial era is coming or not, time will tell.

China’s Cashless Kingdom Expanding Overseas 

China’s mobile payment has penetrated to every corner of people’s daily life across the country. With a smart phone in hand, you can finish literally every payment you come across every day. From luxurious brands to street vendors and nonnamed flower shops, payment through the third party is as valid as cash, only with faster and less of a hassle.

Research showed that the value of third-party payment reached RMB 57.9 trillion (US$8.5 trillion), and the mobile payment market was RMB 38.6 trillion (US$5.7 trillion), nearly 50 times of the US market. Alipay, one of the two most popular payment methods, bragged about its 450 million users, compared to Apple Pay’s pathetic 1.2 million.

Chinese Outbound Tourists

As the domestic market tends to be saturated, the expansion of mobile payment is seeking opportunities overseas. Known as the world’s most voracious spenders, 135 million Chinese outbound tourists spent a total of US$261 billion in 2016, according to World Tourism Organization.

So it makes sense for the two payment giants, Alipay and WeChat Pay, looking for overseas partners to promote themselves as a commercial solution.

Countries and regions like Hong Kong, Thailand, Japan, and South Korea are most visited by Chinese. Thus, they were the first batch of territories to be conquered. Airports duty-free shops, restaurants, tourist attractions, and convenience stores have been targeted by Alipay and WeChat Pay for a while.

Soon, a group of Chinese experts from Ant Financial landed in India and taught Paytm how to succeed in the cashless market. They copied the Chinese model and introduced restaurants, food delivery, group purchase, car-hailing service and movie tickets to the platform.

By July, throughout Southeast Asian and European countries, Alipay and WeChat Pay has connected with over 120,000 and 130,000 establishments respectively.

Local Overseas Users

After accomplishing these top priority, the second step is to develop a partnership with local third-party payment companies to take over the local overseas users. In the last few months, Alipay’s operator Ant Financial has aggressively invested in East, South and Southeast Asian countries.

Ant Financial’s overseas expansion strategy is not hard to spot. First, it targets countries with a large population such as India and Indonesia. It somehow eliminated America due to its heavy penetration in credit cards. Brazil is also not an ideal choice regarding its unstable economy.

Second, Ant Financial obviously bet on developing countries where their economy is similar or worse to China, so they can just copy the successful model. Reality told them that the more popular the credit card payment is in a country, the less chance it will convert to mobile payment.

With these principles in mind, since 2015, Ant Financial invested a series of local e-wallet and fintech startups including Paytm (India), Kakao Pay and K-Bank (South Korea), Mynt (the Philipines), Ascend Money (Thailand), HelloPay and M-Daq (Singapore).

India’s Cashless Revolution

Take India for an example. India is far behind in banking system. According to latest data released by Reserve Bank of India, by February 2017, India has issued 29 million credit cards and 840 million debit cards. In 2015, China had 432 million credit cards and 5 billion debit cards. Since the two country’s population is close, we can roughly calculate that China’s number of credit card issued per capita in 2015 is 15 times more than India, and six times more than India in debit card.

The small number of bank card issued in India gives mobile payment a bright future and a broad stage. In addition, Chinese mobile phone brands like Huawei and Xiaomi have been building more and more factories in the country, selling local Indians cheap and quality smart phones. The popularity of smart phones provides a crucial hardware for mobile payment.

The cooperation between Alipay and Indian e-wallet Paytm dated back to 2014, when the founder Vijay Shekhar Sharma visited Alibaba’s founder Jack Ma in Hangzhou. By September 2015, Alipay and Ant Financial became Paytm’s biggest investors with up to 40% sharings.

Soon, a group of Chinese experts from Ant Financial landed in India and taught Paytm how to succeed in the cashless market. They copied the Chinese model and introduced restaurants, food delivery, group purchase, car-hailing service and movie tickets to the platform.

By April 2017, Paytm released that its total user number reached 220 million, ranking the third in the global market after Alipay and WeChat Pay.

Except for direct investment in partnered companies, Chinese payment giants also export necessary technologies and share marketing and operational experiences in this area. It’s no doubt that the expansion of Chinese cashless method greatly improves these countries’ mobile payment development.

Chinese Style Sharing Economy

The Shared Bikes

Since this year, the rainbow-colored bicycles have taken over the streets and sidewalks of cities in China. They are operated by different startup companies. By downloading an app and scanning a QR code, you can easily rent a bike at a price as low as 1 RMB/hour (US$ 0.15).

Assisted by latest technology, the brilliant essence of these shared bikes is that you can take and return them anywhere publicly. In a country with large population, high penetration of smart phones and mobile payment, shared bikes have gained tremendous progress throughout the country.

There are over 20 brands of shared bikes in the market, but MoBike and Ofo are two most well-known ones which pervaded all the first-tiered cities such as Beijing, Shanghai, Guangzhou and Shenzhen.

When nothing can’t be shared, people start to question: Is it really a shared economy or rental business?

Shared bikes and Didi Chuxing, a local ride-hailed app squeezed out Uber last year, are two miracles of China’s sharing economy. China was seen a whopping US$500 billion worth of transaction in sharing economy in 2016, according to a report released by State Information Center.  The size of this field is expected to grow by 40% annually in the next few years, accounting for over 10% of domestic GDP by 2020.

Other “Shared” Businesses

If you think Chinese’s imagination only goes this far, you are totally wrong. After the success of shared bikes, more and more rental commodities emerge in the market. Shared power band, shared umbrella, shared air conditioner, shared fridge, shared basketball and shared folded stool are just a few odd examples.

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Shared power band

The shared portable battery is probably the best student of shared bikes. Placing in shopping malls, coach/railway stations, restaurants and other public locations, they have the same concept as shared bikes. Scanning a QR code with a mobile app, you can rent a battery to charge your phone at the cost of 1 RMB for an hour of use.

Barly launching for half a year, shared power band startups had received generous funding from venture capital. Laidian secured US$20 million in series A funding earlier this year while Ankebox raised US$14 million in series A funds.

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Shared umbrella

Shared umbrella and folded stools are facing a critical problem. They have been reported stolen. Over 300,000 shared umbrella were lost shortly after they were launched and nearly half of stools appearing in Beijing’s bus stops and railway stations had gone missing.

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Shared basketball

Share or Rent?

When nothing can’t be shared, people start to question: Is it really a shared economy or rental business? The godfather of sharing economy Uber and Airbnb created their business models based on the idea of making full use of people’s idle resources like spared apartments, cars and time. They don’t actually own the property or commodities. The core value of this business model is to relocate the existing social resources to increase efficiency.

The Chinese startups possess their resources and rent them to consumers via online apps. They first see a demand for certain products or services, such as power band and basketball. Then they produce them to cater the market. This is different from the original meaning of sharing economy.

The misconception is one of the reasons that turns sharing business into an uncontrollable glorified sector. In China, the majority still earn a low salary and these low-priced commodities attract them to spend less in a short run. The market size can go to 1.3 billion of potential consumers.

Some people pointed out that another reason behind the hype of China’s sharing economy is the ability to collect big data. This is also the reason why venture capitals favor rental business startups so much.

 

 

China’s Cashless Kingdom

Anyone who spends a day in China will notice that Chinese don’t carry cash around. But instead of using credit cards, WeChat Wallet and Alipay are two default payments. Chinese has jumped the credit card phase and directly landed in the next step–mobile payment. For China, the concept of credit card never gets as popular as in developed countries.

The Online Payment Numbers

Tencent (the creator of WeChat and QQ, two of the most important social media platforms in China), published a joint report with other two institutes detailing the penetration of mobile payment in the country.

More than 6,500 people were asked about their payments for a range of foods and services, including take away food, restaurant dining, telecommunications, and transport. About half of them used cash for about 20 percent of their monthly spending, and four in 10 carried less than 100 yuan (US$14.84) in cash when they left the house. About seven in 10 respondents said they could go for more than a week with just 100 yuan in cash, and 84 percent were comfortable going out with just their mobile phone to pay everything.

Launched in March 2014, WeChat Wallet gained wide publicity thanks to the Chinese New Year of 2015, when people sent virtual hongbao (red envelope) to friends, relatives and in WeChat groups to celebrate a new year. WeChat Wallet allows just about anyone with a bank account and a smartphone to make electronic payments.

On the way to her metro station, she grabs two baozi (steamed buns), paying 4 yuan (US$ 0.6) by scanning the QR code of the vendor’s WeChat. It takes less than five seconds.

Data from research institution iResearch shows that the value of China’s mobile payments market tripled to more than RMB 38.5 trillion (US$5.6 trillion) in 2016 and is predicted to reach RMB 55 trillion in 2017.

Enough for the numbers, let’s have a look at an ordinary white-collar worker’s one day of life.

A Real Example of Mobile Payment

Chen Peixiao lives in Dongguan, a southern manufacturing city between Guangzhou and Shenzhen. About 8 o’clock in the morning, she leaves her house in Shilong–a northern town in Dongguan–for work. On the way to her metro station, she grabs two baozi (steamed buns), paying 4 yuan (US$ 0.6) by scanning the QR code of the vendor’s WeChat. It takes less than five seconds.

At the metro, she passed through the gate swiping the Dongguan Tong card, which can be charged with WeChat. When the train arrives in Dongcheng the city center, she hops on a shared bike (paid in WeChat), off to her office in five minutes.

For lunch, she chooses her favorite restaurant, a local steamed food shop. She orders delivery via mobile app and pays with Alipay.

Around 4 o’clock, she decides to relax tonight and watch a movie with her friend. So, she opens her WeChat again and selects the latest Hollywood blockbuster. From choosing a movie, selecting a time, picking a seat to purchase tickets, it’s all done in WeChat.

Before the movie starts, she and her friend dine in a fancy restaurant near the cinema and of course, pay by WeChat. Finishing the movie, she takes a DiDi home, China’s most popular car-hailing app and pays via Alipay.

She can go like this without cash for days. In Dongguan, and many other cities, commodities and services rarely require cash. Even tips in a restaurant offer two ways of payment. One is a normal jar with small changes inside, the other one is two QR code (one for WeChat one for Alipay) printed on a paper, allowing people to pay the tips via smart phone. The young people enjoy this way of life. Instead of taking a wallet, a phone and a power band are all they need.