The Negotiation

Today on The Negotiation, Michael Zakkour returns to discuss the impact of COVID-19 on the state of retail in China and the rest of the world.Setting the context for the discussion, Michael says that it is not a question of which retailers are doing well, but which integrated systems are. One of the factors that held China together during the worst of the crisis was the “ecosystems for retail, commerce, and communication that Alibaba, JD, Tencent, Pinduoduo, and Kaola had built.” These ecosystems reliably put products into the hands of consumers regardless of distance and are made even more seamless via technologies such as contactless delivery.Michael warns that the tail end of the COVID-19 crisis will only hasten the demise of those companies who are “just hanging on”, along with physical retail in general. Specifically, malls and department stores were already in decline before the outbreak—their future does not look any better.The eCommerce landscape, on the other hand, will experience both positive and negative developments. “The difference between eCommerce, digital commerce, and the New Retail,” says Michael, “is that, in the New Retail, physical retail actually matters.” The clicks will not spell the demise of the bricks. Rather, the key is in how a brand will integrate their physical and digital presence. To stay in the race, digital should directly influence physical.Some consumer behaviors in China have been permanently altered. Ecommerce solutions will obviously be on the rise. A “stay-at-home culture” will also emerge as more people realize how efficiently they can continue to live and work in the comfort of their own living spaces, solely using the power of the internet.Even as lockdowns around the world are lifted, the way we do business will be completely different in the new normal. In order to thrive in this upcoming reality, brands will be wise to “rethink how they make, move, sell, and buy” by reevaluating their business model from the perspective of four different Cs: consumer-centricity, customization, convenience, and contribution.

Today on The Negotiation, Todd speaks with Bay McLaughlin, Co-Founder, and COO at Brinc.io, an early-stage venture accelerator. He describes his partnership with fellow Co-Founder Manav Gupta as unorthodox in that they were not wholly familiar with each other’s backgrounds when they first met. What they did have individually, however, was the self-confidence needed to dive headfirst into a new venture. This attitude of purpose over profit drives many of Brinc’s thoughts on the IoT startup space.The founding of Brinc goes against the grain of conventional startup journeys. For one, Bay and Manav invested their own money in the business, having had no institutional backers for their first three-and-a-half years. They also decided to focus on and establish bases exclusively in developing countries as they foresaw immense growth in these locations in the coming decades.When it comes to the modern-day investor’s thought process, Bay notes that physical products that require longer and more complex R&D cycles will almost always receive more funding. Investors are also becoming more vertically-focused. That is, they will look at specific problems that businesses are looking to solve within specific industries.Historically, traditional software companies take around 7 to 10 years to go public. IoT companies go through a long life cycle: around 10 to 12 years, according to Bay. However, he does not see a good reason for any business (IoT or otherwise), who is vying to be a market leader, to go public too quickly. The fork-in-the-road decision is whether a founder intends to grow on its own effort (i.e. via fundraising) or to seek outside corporate aid in solving its problems.COVID-19 negatively impacted the IoT startup world from both the supply chain and investment perspectives. The least affected parties are those consumer IoT teams that strive to stay as lean as possible with their inventory. From an investment standpoint, companies now need to consider how wide their nets are with their LPs. This goes back to Bay’s previous point that businesses who play the long game—instead of looking only at their valuation—not only have the best chance for survival but may very well thrive in the new normal.

Today on The Negotiation, Todd speaks with Dr. Julie Klinger, an expert on the rare earth elements industry whose research focuses on finding solutions for current and potential sustainability issues.Rare earth metals are, in fact, not actually rare. They are as common as copper or lead in terms of their occurrence on the Earth’s crust. The term refers to a family of elements located in the lanthanide series, which makes up the top bar of the “island” found south of the periodic table.Each rare earth element is distinct and unique, but what they have in common are magnetic and conductive properties. It is these properties that make certain technologies possible, particularly any type of technology that requires energy generation. These include fossil fuels, nuclear, and renewable energy. Drastic innovations and increased demand for such technologies naturally contributed to increased demand for rare earth metals in the last 30 years.Since the 1980s, China has been the primary source of rare earth elements worldwide, with over 100,000 people employed in the industry. However, just about every country in the world has sufficient rare earth deposits that could, in theory, be mined. The primary reason they stay untouched is that it is expensive to mine them safely: The geological conditions under which they coalesce happen to be exactly the same as those of radioactive materials. This means that, quite often, rare earth mining creates a radioactive waste management situation.China has a huge influence on global rare earth research and development, as well as applications. Julie divides China’s role in the rare earth metals world into roughly three phases. The first phase took place during the height of the Cold War in the 1950s, where tremendous amounts of research were put into potential rare earth applications. The second phase was post-1978 with Deng Xiaoping’s economic reforms, when other countries were encouraged to relocate their industries to China, effectively making the country “the industrial platform of the world”. The third phase started in 2003 when China’s central government started to impose quotas on the export of rare earth oxides. This is because the country had begun to turn its focus to value-added processing and environmental cleanliness.

Today on The Negotiation, Todd speaks with Rick Watson, founder, and CEO at RMW Commerce Consulting. With over 20 years of experience in the eCommerce industry, Rick shares his thoughts on industry giants in China and the U.S.Asked how different Alibaba is from Amazon, Rick starts off by addressing the Western notion that these two eCommerce companies essentially share the same business model—the only difference being that they were founded in different countries. It is inaccurate to assume that Alibaba is simply “China’s Amazon”. Relating Alibaba to the West, he refers to the company as a combination of Facebook, Google, and Amazon. Even then, this would only be an approximation of Alibaba’s true scale.Not only is Alibaba a more “expansive” e-commerce company than Amazon, but it is also “pure to the marketplace model as opposed to Amazon who is developing its own products and buying inventory.” Alibaba considers it a huge risk to buy inventory. The fact is that third-party sellers are taking home more profit than the platform provided to them by Amazon—a fact acknowledged by Jeff Bezos himself.Different eCommerce platforms offer different experiences for both buyers and sellers. Customers need to be particularly cautious on Alibaba as buyer protections are said to be lacking. Tmall is described as the “eyes closed experience” since there is very little chance of being defrauded on the platform. You are also expected to invest in your brand on Tmall. On the other hand, sellers on Amazon are basically “paying rent” to host their products on the platform, which means that you are Amazon’s customer, not the seller’s.“You are replaceable.” This is an unspoken motto that Amazon abides by. Since Amazon sellers have few options in the way of marketing, their products may be buried by the search engine, which is wholly influenced by customer activity at any point in time. “Sellers are lucky to be there, at the blessing and bidding of Amazon,” says Rick.

Today on The Negotiation, Todd speaks with Joshua Eisenman, an Associate Professor of Global Affairs at the University of Notre Dame and a senior fellow for China studies at the American Foreign Policy Council.Joshua goes over his four published books on the topic of China and the developing world: China and the Developing World: Beijing’s Strategy for the Twenty-First Century (2007), China and Africa: A Century of Engagement (2012), China Steps Out: Beijing’s Major Power Engagement with the Developing World (2018), and Red China's Green Revolution: Technological Innovation, Institutional Change, and Economic Development Under the Commune (2018).Joshua describes China’s relationship with the developing world as “emerging and reemerging.” In explaining these relations with African countries, as well as almost all developing countries (with the exception of India), Joshua uses the term “comprehensive asymmetry.”Having an asymmetric advantage means that China has power over these developing countries on three measures: the international level (or comprehensive national strength), the state level, and the working (or human) level. Taken together, these three measures shed light on imbalances in trade, capital aid, and the resources available to policymakers. In a nutshell, the importance that China places on developing countries is evidenced by investing in their ability to rise as a major power in today’s world.Another important factor is that China views its connections in terms of “relational power”. This means that China expands its network of contacts because, the larger and stronger that network is, the greater China’s influence is. The goal of the Communist Party of China is to develop relationships with as many high-quality parties as possible in order to enhance this relational power and, by extension, its comprehensive national strength.The One Belt One Road initiative has evolved from a debt-driven finance strategy to enhance infrastructure development throughout the developing world, into a powerful means to push its overall power on the world stage. That is, One Belt One Road initially did not include countries such as Africa or Latin America as it was an entirely Asia-based strategy. Today, beyond the construction of roads and other lines of communication, the initiative now forwards the development of high-tech infrastructure to create Smart Cities. These include 5G networks, facial recognition software, security.In short, One Belt One Road is China’s strategy for the developing world.

Today on The Negotiation, Todd speaks with Sarah Weyman, Chief Growth Officer at Dentsu Aegis Network. She discusses the impact of COVID-19 on Chinese businesses and the future of marketing as the whole world marches on towards the new normal.The outbreak of Coronavirus at the beginning of 2020 fundamentally changed the business world. A few months into the pandemic, those who continue to not only stay afloat but thrive are those companies that, according to Sarah, are the most authentic. These are the brands that have managed to keep consumer needs at the forefront of their strategy moving forward.Sarah names the sportswear brand Lululemon as an example of a brand who focused on its customers first since the outbreak. Seeing that people wanted to continue exercising even while staying indoors, Lululemon provided a list of trainers who livestreamed workouts. Another example is Microsoft who, not long after the outbreak, announced a package for Enterprise users that gives free access to Office for six months.From a long-term perspective, “preference should not be presumed” when it comes to foreign brands in China. Being a western company used to be an advantage as such brands were usually associated with high-quality. This is no longer true since there is a greater diversity of choice in today’s market. Many modern brands in China are not only at the cutting edge of quality but are able to maintain that cutting edge due to the speed of their operations. To thrive in China today, any brand, local or foreign, must now match this speed.Asked how companies should tackle the remainder of 2020 in the wake of now-outdated marketing plans and budgets, Sarah says that short-term action should include shifts in messaging and platform selection. Long-term, companies should closely monitor how consumer behavior continues to evolve in the following months, which means that CRMs will be more important than ever before. Also, eCommerce solutions—and social commerce in general—will undergo rapid developments throughout the year.Food, beverage, and entertainment will see the fastest rebound once the dust settles because consumers will crave social interaction as soon as the new normal emerges. The travel industry will be one of the slowest to get back on track due to the massive losses that such companies are currently suffering. However, it is predicted that family destinations (Sarah cites Disneyland Shanghai as an example) will have the fastest rebound, also because of the aforementioned social factor.

Today on The Negotiation, Todd speaks with Ben Robinson, Merchant Success Manager at Shopify Plus. He shares his experience working with a growing number of large Asia-Pacific brands on the ecommerce platform, with a focus on the Japanese market.Many of the brands Ben works with today are generally “high-growth, high-volume stores that are looking to increase their presence in different markets.” Ben and his team evaluate each company’s business model and operational capability in order to help them maximize the platform’s features. Two examples of brands who have successfully gone global are Koala Mattress and Allbirds.To successfully localize products for the Japanese market, Ben says that it all comes down to three factors: trust, presentation, and knowing what is important to the Japanese consumer by region. Regarded as one of the most insular and protective markets globally, consumers generally prefer Japanese-made products and brands. He explains that the three consumer trends unique to Japan today are cost, space-saving, luxury, and eco-friendliness and sustainability. Ben recommends foreign brands to work with local influencers through social media to help grow their level of trust and relatability.Foreign brands should research the already-established ecommerce ecosystem that is unique to Japan. They must then tailor their marketing, copy, and brand message accordingly, with a focus on describing your product’s features, since the Japanese tend to do extensive research on new brands before making a single purchase. It will also greatly help to tailor your SEO per region by understanding different writing systems and styles. Ben notes that Yahoo is as prevalent in Japan as Google is; so SEO must be optimized for both search engines.To build brand loyalty using social media, it is important to first understand that the Japanese use social media differently to Westerners. Line is more widely used over Facebook. Twitter and YouTube also have a large presence, and Instagram is slowly catching on as well. It helps to drive consumer interactions post-purchase. After a sale is made, the brand can encourage consumers—even incentivize them—to leave positive reviews or share their experiences either through writing or video. This can go a long way in nurturing loyalty.

Today on The Negotiation, Todd speaks with Ann Lee, author of What the U.S. Can Learn from China (2012) and Will China’s Economy Collapse? (2017). Having risen to fame for predicting the market crash of 2008, today she is a leading authority on international finance and economics.Ann worked on Wall Street soon after graduating from business school, but made the transition to academia in 2006 once she foresaw the credit crisis. In 2008, she was invited to teach on credit markets and credit derivatives as a visiting professor at Peking University in Beijing. Chinese policymakers quickly caught wind of Ann’s expertise in this area once the market crashed, and she was subsequently approached to help them navigate the financial crisis which followed. She published her first book a few years later, which received worldwide acclaim and instantly gave Ann a global following.When asked what readers can expect to learn from What the U.S. Can Learn from China, Ann says the message is to “stop demonizing [China]. As wonderful and as powerful as the U.S. is, it does not have a monopoly on good ideas.” She adds that the book is not meant to endorse one country as being better than the other. Rather, it is meant to help readers open their mind to cultural nuances present in the way each country approaches different issues.Ann was able to predict the global financial crisis thanks to her experience working on Wall Street. To her, the biggest problem was that there was too much power in the hands of the federal reserve, big banks, and other prominent financial institutions of the time. In other words, innovation was nowhere near as important as money. China, on the other hand, approached finance as a tool for nation-building, similar to the attitude displayed by the Founding Fathers of the United States.“Doing business in China is like doing business anywhere else.” The important thing is to do your due diligence before making any sort of investment or negotiating with a local business. China is actually ranked as one of the most open countries to do business with. Hypercompetitiveness is the only factor that Ann highlights—there is a lot of ambition in the country. At the same time, there are fewer regulations in China than there are in many Western countries. Ann goes as far as saying that “it is almost too capitalistic in China.”Ann also touches on the attention-grabbing title of her second book, Will China’s Economy Collapse?. In 2015, many on Wall Street believed that China was on the verge of collapse due to a highly volatile stock market and rapidly shrinking currency reserves.

Today on The Negotiation, Todd speaks with Marian Danko, founder of the tech innovation platform weHustle; and TECOM, a conference for tech entrepreneurs. A native of Ukraine, Marian experienced culture shock upon arriving in China, particularly when it came to the rapid speed that defines the nation’s startup ecosystem.Speaking on Shanghai’s tech startup landscape, Marian says that “the ceiling is very high and the floor is very low”. That is, while Shanghai can be regarded as “an expensive city”, from an entrepreneur’s perspective, it can actually be a wellspring of highly lucrative investment opportunities compared to Silicon Valley, London, Dubai, or Singapore.Secondly, if a business owner wishes to put together an international team, the visa process is easier in China versus in the US. This means fewer costs and hurdles to have an international team based in one location.Asked about the investment landscape in China, Marian notes that a distinction should first be made between local and foreign early-stage startups as each has very different challenges to the other. Foreign companies will not be able to avail of bank loans as easily as local ones, simply because they cannot be trusted to remain in the country after a few years.With this context in mind, Marian says that venture capitalists are beginning to experience a “capital winter” in the country. He attributes this to the market becoming more mature. In the early days of tech startups in China, investors would actually lose money by banking on every trend that came their way. Having learned the hard way, they are now more savvy to the types of startups that are worth investing in. In other words, today’s investment landscape is defined not by quantity, but by quality.Next, Marian discusses “mobile-first, mobile-only”. 90% of startups in China create apps and mini-programs. Some startups do not even have websites; instead, their first and primary focus is mobile solutions. He adds that there is also a lot of reliance on WeChat nowadays, adding to this culture of “mobile-first, mobile-only”.China will lead the way when it comes to VR and AR. A lot of startups today are focused purely on VR and AR solutions. More than one startup is incorporating these technologies into marketing and advertising, and they have already created successful and cost-effective campaigns as a result.Likewise, a lot of Chinese startups are focusing on AI. Much of that influence can be attributed to the government. This is because, in order to dominate the market, China’s government is pouring funds (i.e. for grants, incubators, etc.) into AI-related ventures, giving startups the opportunity to constantly innovate in this industry.

Today on The Negotiation, Scott Laprise discusses his transition from a career in diagnostic medicine to a financial analyst and researcher for emerging markets specifically within China.Scott considers Chinese languages the most important to study because of the country’s position as a key player in world business. Additionally, it is not enough to converse in English because the Chinese express themselves in a way that is fundamentally different from how Westerners communicate. Scott, therefore, always seeks to understand the Chinese point-of-view on any given topic before negotiating or simply engaging in conversation with them.Asked whether China can still be considered a “communist” country, Scott brings context by explaining that, at one point, China (specifically Mao Zedong) sought to partner with Russia, adopting elements of their political philosophy as a result. Today, however, Scott actually thinks of China as the most capitalist country today: While there are semblances of a planned economy, the Chinese themselves are very business-oriented and are masterful negotiators.Scott also touches on the term guanxi as a cultural aspect that is uniquely Chinese. “The more you know people, the more you can ask things of them, and the more they can ask things of you.” He also notes that time also plays a big role, considering the long-term worldview of China. That is, the longer you have known someone in China, the stronger the reciprocal dynamic present in the relationship.Scott goes on to talk about the ever-growing consumer culture in China. The speed and bottom-line-oriented nature of the economy mean less customer loyalty and a higher amount of unregulated pollution, but all of it speaks to China’s ability to pivot and become a dominant player in the market with relative ease.On that note, Scott states that China is not actually innovative but adaptive. The Chinese do not care all that much about patents because they do not focus on novelty. He believes that countries that impose patent laws “are the rich countries that have a lot to lose”. China’s point of view, on the other hand, is to simply “catch up”.Scott shares his point of view on the complicated situation around the US-China “Phase 1” trade deal, as well as what gives him an edge as a financial analyst. His viewpoints on these subjects are obviously influenced by the fact that Scott is a Westerner who lives locally—boots on the ground—in China, with business experience in both cultures.