Thinking of entering China’s e-commerce market? Your biggest challenge might not be what you think it is.
Last year, an Australian start-up that had just secured a multi-million-dollar angel investment fund got in touch, asking for help to break into the Chinese market. One of his critical KPIs for the first 90 days: open up a flagship store on one of China’s e-commerce platforms. Like many Australian companies, he was partially lured by the promise of a massive market, partially incited by the newly appointed over-zealous board that drooled at the thought of a double-digit growth in the first year.
We got to work by first connecting him with Alibaba’s local office with our office acting as the go-between. The process was confusing and frustrating, even for industry insiders and our staff, who are fully bilingual and had no trouble interpreting cultural cues. Self-contradictory changes took place so often that we felt it would be more productive to wait until the rules and regulations reverted to their original positions. The TP (Third Party suppliers, more on this in later posts) we engaged with gave vague instructions- but I couldn’t quite figure out if it was due to a desire to keep information opaque to retain control, or only out of confusion.
This process reminded me of another project that I led the year before with Alibaba as my client. My team and I had won a pitch to plan and execute an activation project for the e-commerce giant across three cities in two countries. Yet, our biggest stumbling block came down to a single A5 poster when our counterpart team at Alibaba couldn’t agree if it should be white or blue. It turned out that instead of following a simple decision-making process, Alibaba has its unique system: an intern went around to check for each stakeholder’s preference one-by-one and informed us every time a different opinion was given. No wonder the instruction returned to us changed so often that it nearly caused us to miss our printing deadline.
Considering some of these inefficiencies can be easily corrected by putting in place a few systems or guidelines, why don’t they?
People always attribute language and culture as the most significant challenges when doing business with China. Not so. Especially in today’s business world where almost every single Chinese professional you cross path with is well versed in the English language and Western culture. Yet chaos seems to be a common and reoccurring theme.
The crux of your problem may not lie in communication, but a fundamentally different approach to one issue: planning.
If you are anyone like a typical business owner or a trained management professional working in the Western business context, you wouldn’t be a stranger to ‘planning.’ Set your target, have a strategy, assemble a team, and charge ahead once you are sure-footed. Tweaks and adjustments might be necessary on the way. Still, generally, people believe that the marathon is won by the slow and steady- those with a grand vision and are equally good at bringing it to fruition through relentless executions.
Enter the Chinese e-commerce operators, who have tried to emulate the Western managerial styles, but realized that they didn’t have the luxury of time, or indeed the need for perfect planning. First off, China’s media and e-commerce systems are much more vertically integrated, meaning each company (e.g., Alibaba) controls more big data with more consumer touchpoint information at any given time. Armed with a vast amount of insight that they can generate from these real-time data, they feel less need for a watertight long-term plan.
But big data is not unique to China’s e-commerce companies, so what gives? I believe the other contributing factor in this equation is the potentially huge first-mover advantage. Given that most businesses on e-commerce platforms are not disruptive innovators, their most valuable asset comes down to market accessibility. Over the past decades, one of China’s key growth engines is in building channels- be it physical infrastructure or digital commerce- that connect the sellers to buyers. Since the surplus profit in such a system diminishes quickly with the oncoming of a close competitor, it propels businesses to move as fast as humanly possible. Whoever can reach the consumers quicker wins the day, so the priority of this gigantic machine is mobilized, first and foremost, to secure a win in the speed race. Harvesting any first-mover advantage before it completely vanishes requires more quick reaction, less meticulous planning.
But before I conclude my hypothesis, I need to mention a third- and maybe the most important- factor that’s causing so much seeming ‘chaos’ in the system. When people talk about China, the vast consumer market, and spending potential typically come to mind. What they often forget is the other side of the same coin: China’s huge workforce. Whereas human resources are usually expensive to Western businesses, it is something that a typical Chinese operator has in abundance- and only at a portion of the cost. Furthermore, China’s e-commerce giants have little or no issue in attracting the country’s graduates and top talents. In such an environment, the cost of squandering someone’s time and repeating an inefficient process until a solution is found is still lower than devising a carefully-planned structure that may or may not work in a market characterized by constant, speedy changes. Moreover, even if decisions are made at the 11th hour, you can rest assured that someone is always on stand-by to action the newly updated plan.
Big-data visibility, fast eroding first-mover advantage and the availability of inexpensive human capital that can be mobilized quickly- all of these combine to become the perfect building block of a system that strongly favors speed over planning. Meanwhile, Western companies that tend to emphasize planning is either always running behind their Chinese counterparts, or frustrated by their chaotic approach to business.
This different attitude towards planning will inevitably drive an edge between you and your Chinese partners without you ever realizing the root of the issue. While this might be hard to fix quickly, being aware of it will save you valuable time, many frustrations, and may even be instrumental for your long- term success in this new market.
When I was a child, I was endlessly fascinated by a National Geographic documentary on chaos theory. The narrator demonstrated the famous ‘double pendulum’ experiment and said something I remember to this day: even in seemingly endless chaotic systems, a clear pattern emerges eventually.
What you see as ‘chaos’ might be the imperfect but flexible and inexpensive solution that China’s e-commerce industry has collectively found to cope with the market’s insatiable need for speed. While this might not be the system that you are used to, going into the market with an awareness and some level of preparedness will put you one step closer to a more successful partnership than most businesses can expect.
