The Negotiation

Today on The Negotiation, Doug Pearce discusses the rapid transformation in recent years of the media and advertising landscape in China.Doug says that the media scene in China “is like nowhere else”. In place of Google, Facebook, and Amazon, the country has BAT, Baidu, Alibaba, Tencent, and now TikTok creator ByteDance. The difference between these Chinese companies and their Western “counterparts” is that investments made by megabrands in China give them a huge number of platforms for advertisers to buy into. “They leverage everything to secure as much investment as they can from advertisers.”Any company looking to succeed in China needs to be nimble. Consumer culture in the country is ever-changing, and the Chinese are known to expect speedy and efficient processes. They are also not brand conscious. Agencies can no longer rely on traditional media to do their marketing. Data and eCommerce are two other important factors to focus on. So is making use of Key Opinion Leaders (KOLs) and social marketing.Because today’s Chinese market is driven largely by eCommerce, social networking is an incredibly important tool for brands to leverage. Trends come and go quickly in China, so focusing on network effects versus corporate advertising is paramount.When it comes to pitching in China, Doug notes that the market is highly competitive and price-conscious. Keys to a successful pitch include having a deep understanding of both local partners and consumer habits, as well as focusing on business outcomes and long-term results instead of just listing features and budget plans. Todd aptly summarizes this with: “Don’t just give me a design for a better mousetrap. Draw me a line to where the cheese is.”Doug says that his number one “secret to success” is partnering with the right agency; particularly one which has a senior leader who really understands the brand’s vision-mission. In addition, “Have deep pockets, and go big, go bold, and go fast.” Brands thinking of entering the market will drown if they start small and slow. Achieving massive scale early on will keep a company afloat. “If you can crack it, the price is big.”

Today on The Negotiation, William Bao Bean discusses what makes China one of the most competitive markets in the world. He points to the quick adoption of new technologies—particularly artificial intelligence—as one of the main drivers of the country’s economic growth. William says that machine learning allows for personalization of consumer experience on a virtually infinite scale, and many Chinese companies are using these resources relentlessly to their advantage.            William observed that internet entrepreneurs in China operate with the mindset of, “Let’s see what worked somewhere else and make it better.” He refers to it as “Lean Startup with Chinese characteristics”. That is, assumptions are made and tested in the market repeatedly, with each iteration more refined than the last. Chinese entrepreneurs are unique in that the speed at which they test and refine assumptions (typically in two to three-month cycles) is second to none. Also, unlike the American application of Lean Startup where non-existent products may be brought to market for purposes of observation, the Chinese actually make their assumptions purely through real products that are ready to be sold.            The world of angel investing in China can be best understood by actually having experience in starting up and managing a company. In addition, it helps greatly to be surrounded by a community of fellow VCs to ensure that you are constantly supported and on the cutting edge.            William is a big believer in “Mobile-first; mobile-only.” William refers to a relatively recent phenomenon called “leapfrog effect” which occurred in a large number of non-Western markets. These countries never had a huge, fixed economy-driving infrastructure that was forced to evolve with the times. This turned out to be a key factor in their quicker adoption of eCommerce technologies on a countrywide scale compared to the West. These countries—with China leading the charge—have no problem with disruption from the outside, because they are already used to disrupting themselves.

Today on The Negotiation, we talk with Bessie Lee, founder of Withinlink. She shares her experience working for WPP, a marketing and communications holding company. She discusses WPP’s challenging journey as it steadily grew into one of the leading advertising groups in China, from its timely entry into the market during the foreign investment boom in the mid-1970s to the rise of the internet and digital marketing in the country. It was during this latter period, in which online transactions drastically altered the economic landscape when Bessie Lee realized the difficulty of updating the mindset of large traditional advertising companies.The marketing game truly changed when eCommerce rose to prominence. This became a rough transitional period for traditional media holding companies, including WPP. Previously, the entire advertising process ran purely on human capital. Today, becoming a leader in the fast-paced eCommerce world requires integrated marketing. This means working with automated technology to constantly acquire data to be able to do continuous A/B testing. Bessie discovered that large holding companies such as WPP found it challenging to quickly adapt to these rapid changes, and so she left the company to focus on helping startup digital agencies.Today, Bessie runs Withinlink, “a uniquely-positioned strategic investor and incubator of marketing technology startups in China. We insisted on a boutique portfolio, so we can spend more time helping our portfolio companies expedite their growth.” A vertically-focused agency, Withinlink currently has 16 companies in its portfolio. This relatively small number is key to helping Withinlink put more focus and care into each individual company.Bessie has a pulse on the latest marketing innovations in China, which influences which startups Withinlink adds to its portfolio. The “core” mediums utilized by consumers are social, mobile, and, most recently, artificial intelligence. The PC is no longer relevant. Chinese consumers have evolved from mobile-first to mobile-only, making speedy innovation a must for any company looking to thrive in today’s market.

Today on The Negotiation, Elizabeth Campbell discusses her experiences working in marketing communications in the Chinese market. She considers building up her businesses’ digital marketing capabilities as a “critical part of the overall growth strategy” in the country.We start out diving into the differences in Pay-Per-Click in China vs. the West. When Elizabeth began looking into digital marketing in China, she and her team started by working with paid search in order to raise awareness and drive traffic to their websites. This was followed by a focus on SEO. As per her experience doing marketing in the west, her team had expected around 30% of their traffic to be drawn in via paid search, with the bulk of it coming in from SEO. However, she quickly found that the opposite is true in China. SEO brought in fewer leads compared to paid search due to the sheer amount of competition they faced for organic ad space. So, while PPC was used to “augment” traffic to her brands in the west, in China PPC is many companies' “bread and butter”.We then asked Elizabeth to talk about her experiences building marketing teams in China. The danger for any global team is to strictly apply marketing practices from their home market to a foreign one. While sticking to certain fundamentals is a good idea, the team working in the foreign market must keep an open mind and be prepared to make use of tools and strategies that their company may not be familiar with.Elizabeth started out with a small team in China that did not have the digital expertise required to compete in the market. She, therefore, partnered with an agency to put her on the right track. This is key for any foreign brand looking to invest in China: look for local partners who know the market and target segments inside and out—not just economically but culturally as well. In this case, Elizabeth made sure to partner with people who understood the current digital landscape.Lastly, we covered data gathering in China. For the sake of consistency, Elizabeth usually utilizes the same marketing platforms across every market she is involved in, which includes Google Analytics. China is an exception. Here, she made use of Chinalytics, a platform built by her partner agency which gave her team the deep insights they needed to see what was working and what was not. Chinalytics gave her confidence in the data they gathered, more so than with traditional platforms.She notes, however, that the Key Performance Indicators she tracked with Chinalytics are the same ones she always tracked using other platforms. Of these KPIs, she did not focus on measuring Cost Per Click but instead focused on the end result: the Cost Per Lead and how those leads actually converted to revenue. Focusing on these fundamentally changed the keywords, ad copy, landing page, etc. that her team used.

Today on The Negotiation, Sally Zhang, a certified lecturer at Alibaba Taobao University, gives us a masterclass on the largest company in China today. What impresses Sally the most about Alibaba is its big data capabilities. “They know their customers, where their customers go, what they like, and what their habits are,” she states.As a lecturer, Sally notes that a lot of new vendors do not know how to run their own e-commerce stores, with regards to legal, logistics, and supply chain know-how. At the same time, while Sally is a lecturer to many “students”, she learns just as much—if not more—from a number of them about running a business. Her students, in fact, include a number of CEOs.Sally speaks on a variety of topics, including Alibaba’s winning edge with regards to their ability to retain competitive prices (Chinese consumers, after all, tend to opt for the lowest available prices). She also discusses Alibaba’s loyalty program, which she believes to be one of the key tools the company used to maximize its 11.11 sales.Sally is then asked about the difference in tactics between how platforms drive traffic versus how the brands using the platform drive traffic. What stands out here is integrative marketing—or “Uni Marketing”, as Alibaba calls it. They reach their customers through a large variety of ways, from traditional to social media advertising.The next major consumer group in China are those generations who have the freest time and are the most mobile-savvy. These are the later millennials and Gen-Z, who were born in the 1990s and the 2000s.For the upcoming Chinese New Year (also called Spring Festival) in 2020, Sally forecasts an increase in wine sales—exceeding even those of 11.11. She encourages wine sellers to take advantage of this occasion, likening it to “cutting the grass” or cashing in after accumulating a large customer base over time.Adaptation is the key to driving eCommerce results on Alibaba’s platforms. Western brands tend to have difficulties entering the Chinese market due to their preference for a lot of flexibility when the government imposes many restrictions on foreign companies. Sally observes that these companies usually refuse to change their ways until they “hit a rock”.It helps tremendously to take advantage of Alibaba’s big data resources in order to create appropriate market strategies. Lecturers such as Sally advise on these very topics, for example by drawing parallels between the foreign company and their vertical competitors on the platform they are using.If a foreign brand is looking to enter the Chinese market, Sally suggests finding a local partner to help with growing the business. This local partner knows the data, the customers, and industry trends.

Today on The Negotiation we speak with Jordan Rosenberg to discuss the world of bitcoin and cryptocurrency with regards to China.Cryptocurrencies were created around 2007 in the aftermath of the Global Financial Crisis. They were noticed very early on in China, a country that had, in fact, been at the forefront of digital currency. China had already been specializing in server farms and hardware production, both of which are required to produce proof of work for Bitcoin.Bitcoin mining is a very simple business. You have, essentially, four costs: 1) the gear; 2) the place to put the gear; 3) the people to run the gear; 4) electricity. Of these, the most important variable is the cost of electricity.Speaking on the current state of Bitcoin mining in China, Jordan says that the country’s development plans always call for building in anticipation of demand. To that end, they “overbuilt their electrical capacity”. Those in charge of running these resources are tasked to distribute this electrical capacity. Much of it was plugged into Bitcoin mining, which happens to be extremely energy-intensive. Thus, whoever can provide the lowest electrical cost will dominate the industry. Additionally, all of the leading designers and foundries that actually create the mining hardware are Chinese as well.According to Peter Thiel, “China loves Blockchain; but it hates Crypto.” Breaking this down, Jordan notes that Blockchain is basically just a distributed database that anybody can look at, and trust that the data they’re looking at is correct. Having technology that permanently stores data chronologically makes for a useful tool. However, China frowns upon the fact that Crypto operates separately from the banking system. In other words, they not only see the potential of the technology but its disruptive potential as well. Crypto, therefore, is heavily regulated and not treated particularly kindly. Blockchain, on the other hand, is openly supported by the government. It is currently used in China mainly for research purposes.Technically, the Chinese do not need Blockchain as they already have end-to-end digital payments covering every aspect of their life. “Digital payments in China are the only payments in China,” states Jordan. Every single person in China has a smartphone. However, a national Cryptocurrency is currently in development, spurred on due to “the fractured nature of global banking”.Jordan ends by saying that “Blockchain, much like the internet, can either be a force for great good or a force for great evil. It can greatly empower the vast majority of the people in the world who don’t have a bank account.”

We kicked off talking about what the opportunities for global brands in China at a high level. Joseph talks about the rise of the Internet citizen rate that has skyrocketed over the last dozen years, making it the largest commerce market in the world, as well as the amount of data that can be collected, yet still facing the struggles that the firewall presents. Hao complimented this point by saying that we haven’t even realized half of the potential that the China internet market presents. Hao then encouraged brands to have a China strategy independent of their global strategy as part of a successful entry process.Joseph then spoke about the necessity of having a local ICP and a .cn web domain, saying “Once you have those, then now you’re in the game.” China internet monitors traffic and throttles foreign traffic at peak times prioritizing local traffic which can greatly impact your ability as a brand to be truly alive in the market at the times you really want to be. This last mile of existence in the China market can drastically impact performance. Hao spoke to this explaining that not only must you register your domain in China, you must do it through a Chinese registrar. Hao then spoke to the different techs involved in China and the tremendous value of having all these ecosystem products all interacting with one user on their mobile phone. In China the government and companies know exactly who is behind all those actions because every mobile number must be registered to a real person (no “burner phones” like in the west for instance), so getting a 360 degree view of your customer is far more real and present in China. Joseph then speaks to the speed of tech in China and if you’re not measuring accurately what’s going on every day you’ll quickly be left behind, and this is especially hard if you’re not, as Joseph said earlier, “in the game” locally.The last third of the podcast covers some of the early data that was coming out of the Singles Day shopping extravaganza. Joseph points out the lull tin the market the month ahead of Singles Day that usually happens wasn’t present this year and the trajectory was positive all the way through. Hao then spoke to some of the winning tactics vendors were using this year, using not just gamification but actual game-show-style interactions with their customers, something that has proven highly effective to capture and maintain the attention of buyers. Joseph then talks about the most purchased item categories and how basket and transaction sizes were all up across the board that wasn’t driven by deep discounts like in the past which is a very encouraging sign, and how there is now a major decentralization in web behaviour where customers are going further and wider than ever seeking intel and content and date from a multitude of sources to validate and verify before they make a purchase. Awareness and conviction is being triggered at different stages in the funnel.

Today on The Negotiation, we talk with Mathias Chaillou, Global Head of Strategic Operations at Zenith. He relates his decade-long traditional marketing and, eventually, eCommerce career in China. In the days when TV was the medium of choice in the advertising industry, everything was about the cost-per-rating point around roughly a thousand TV channels, along with continuous negotiations with around 26 provinces.Some provinces were more traditionally-minded than others when it comes to marketing communications. Because of varying points-of-view within different regions, Mathias likes to think of the whole of China as a “continent”, and each province as a “country”.Two factors accelerated China’s move to digital marketing. The first, according to Mathias, is Weibo, which is regarded as China’s Twitter. The second is Youku, which functions similarly to YouTube. A lot of money began to flow through social media and online TV at a much faster rate than in the West. In fact, alongside Youku, Baidu and Tencent (and their subsidiaries) together are much bigger than YouTube.There is a lot of pitching involved, particularly with agencies, to obtain contracts. However, agency-client relationships tend to be much shorter than they are in the West (usually under two years). Turnaround times are also relatively quick (around three weeks in China as compared to three months in the West for the same project). The reason for this urgency is the fact that China had to catch up to the West in many ways when digital marketing rose to prominence. This level of speed is part of what defines the business culture in China today. In short, “Don’t look back; just move fast and move quickly,” says Mathias.To succeed as a foreign company in China, you need to be ready to bring something to the market that sets you apart from the big local players. This could be a unique strategy or new technology. Without this “Unique Selling Proposition”, local brands will beat the average multinational on cost and cultural understanding. Aside from that—and just as importantly—you must build a very tight relationship with your local partners, which starts even before the first formal meeting begins. The company that understands and appreciates nuance will thrive.Above all, adaptation is key.

In this episode I, Todd Embley the regular host, was put on the hot seat and interviewed by Joseph Cooke, CoFounder and President of WPIC Marketing + Technologies. We started the show discussing how I became involved with SOSV The Accelerator VC, Sean O’Sullivan, and my good buddy Cyril Ebersweiler, and how Chinaccelerator was born in a small North Eastern  city named Dalian, and how we made the tough decision to choose Shanghai over Beijing for it’s new home in order to grow and take it to the level it is at today.Joseph then asked me to talk about our formula for sifting through thousands of applications to our accelerator program each year and what we were looking for, and then move to a more broad look at the ecosystem as a whole and how Chinese startups and founders differed from their counterparts in the West. We also touched on how amazing it was to work in digital in China between 2009 and 2016, and how WeChat was responsible for WhatsApp getting a $19 billion dollar acquisition price from Facebook which dovetailed nicely into a discussion about startup valuations in China.We then talked about the talent pool in China and how much it grew over the years as parent’s started to feel more comfortable understanding that there was indeed a path to success for their children striking out on their own and that they wouldn’t turn into “starving artists”. We also discussed how startups in China were prone to manipulating the amounts that they raised in the media but were using it to remain not only competitive for talent but to also stay relevant in the most competitive market in the world for customer and media attention.We ended the podcast talking about one of our best investments ever through Chinaccelerator, BitMEX, the factors that helped them become the massive success they are today, and why China was the right place at the right time for them to be so. 

David and Leif discuss the business they have built helping sports brands enter China and Chinese corporate brands enter the US, the latter of which we dive into a bit more to learn more about how purely China-centric brands look at market entry into North America. We also discuss the different aspects of relationship building with their North American clients vs. their Chinese clients.After asking Dave and Leif to talk about the secret sauce that makes Red Phoenix so successful, it segue’s perfectly into the next topic of why it’s so important to leverage the help of agencies or experts who know how to do business in China at a granular level who’ve experienced not just the geography but also the culture.We then move onto the topic of sports in China and the opportunities that lie in that industry, beyond sports, in general, to include health and fitness in general. We discuss their 5 tiers to success in brand building for sports brands, which includes boots-on-the-ground initiatives like camps and grassroots development as well as government relations. We also discuss where the money is flowing in sports in China, where David cites a very deliberate effort from the top down in China’s culture that clearly understands how important sports can be to a country’s economy.Near the end, we do bring up the now-famous tweet from a prominent NBA executive that got the NBA in hot water in China in order to discuss the importance of understanding cultural sensitivities when entering a new market especially when you don’t have a good grasp of its native language nor its history. Now more than ever it is important to understand what topics one should avoid and issues to let lie.