China 2015: MARKET DYNAMICS | Digitization
Chinese brands are digitizing rapidly, sometimes leapfrogging brands in developed markets, as digitization rapidly transforms businesses across categories in all regions of the world.
Three billion people, around 40 percent of the earth’s population, are expected to be Internet connected by the end of 2014, according to the International Telecommunications Union (ITU), a UN agency. Internet use is highest in Europe, at 75 percent of the population.
Internet use in China more than doubled in five years, reaching 46.9 percent of the population, 632 million people, in 2014, according to the China Internet Network Information Center (CNNIC). The number of mobile Internet users reached 527 million and, for the first time, mobile surpassed PC as the access point to the Internet.
Digitization enables companies to gather and analyzed more data, distill insights, and
share information rapidly, coordinating all functions from production, through supply chain, ecommerce, payment and customer communication. With digitization brands from any developed or fast growing country market can become more nimble and responsive.
A CHINESE ADVANTAGE
Because China’s economy expanded rapidly in just the past 35 years, many companies can adopt digitization rather than adapt earlier analog technology. Adaptation is a slower process.
It involves both renouncing the past and embracing the new, shifting inventory processing from paper pads to digital tablets, for example. Adoption
is essentially one step, and it’s a step at which Chinese companies excel for several reasons:
- Because Chinese consumers have embraced digital and mobile, Chinese brands have a lot to lose if they don’t fulfill consumer desire.
- Because of the rapid pace of change in China, the Chinese leadership mindset has a bias to act quickly out of a fear of being left behind.
- Because Chinese companies are disposed to work collaboratively, they’re able
to recruit and coordinate diverse talent and technology expertise.
How Chinese brands are digitizing varies by category and brand, but digitization is present throughout companies, from production to distribution to communication.
PRODUCTS AND SERVICES
Digitization of products and services divides into at least two groups: the smart products, mostly from the home appliances and technology categories;
and the Internet finance products and services, which are found primarily in the banks, technology and the telecom provider categories.
Each of China’s major home appliance brands is creating some variation of smart appliances that consumers can regulate using the Cloud or Wi Fi. TCL, for example, cooperated with Baidu, Intel and Microsoft on connecting appliances using the Cloud. Midea launched its M-Smart program for creating digitally integrated appliances.
Mobile payment expanded rapidly, with around 205 million people paying with mobile apps by the end of June 2014, according to CNNIC. Among the many banks offering Internet financial products, Industrial Bank offered online and mobile banking options, including the mobile app WeChat bank, and a site called e-family Wealth for managing household finances.
Telecoms, such as China Unicom and China Telecom, introduced mobile payment systems. Alibaba has over 300 million users of Alipay, its online finance platform. Tencent added an app to WeChat that enables users to find and pay for a taxi.
Examples of business-to- business digitization include a Cloud storage service called Wo-Cloud introduced by China Unicom. And digitization is at the core of technology brands. Several developed wearable technology, including 360 and Baidu, which both introduced wristbands for sports and health monitoring.
DISTRIBUTION AND COMMUNICATION
Examples of using digital in distribution can be found across many categories. Yonghui Superstore introduced an app that enables customers to “click and collect,” to shop and pay online with their mobile devices, and pick up purchases at a physical location.
New Oriental established an online education joint venture with Internet giant Tencent. The venture helps New Oriental integrate its physical presence with an online offering to reach more people with interactive curricula. Apparel brand Metersbonwe opened a store that integrates the consumer online and offline experience with several services, including the ability to reserve a fitting room time online.
Collaboration between Alibaba and Sina enables consumers to move seamlessly between ecommerce and social networking. In the first half of 2014, 80 percent of all transactions for travel agency Ctrip were completed online or with mobile devices.
Brands in most categories are engaged in digital communication. Several, like food and dairy brand Yili, sponsor online video content. The toothpaste brand Zhong Hua collaborated with the Tencent, the Internet portal, encouraging people to photograph themselves smiling and then share their photo online.
Digitization and reinvention comes at an inflection point for China and for Chinese brands, as the country transitions from a market-driven to a consumer- driven economy and brands evolve from being the world’s OEMs (Original Equipment Manufacturers) to becoming brand marketers of value-added products and services.
Digitization doesn’t guarantee business success. Establishing leadership in a world of new possibilities, such as 3-D printing, the Internet of Things and Artificial Intelligence, requires
at least the combination of digitization, innovation and a strong consumer proposition .
But the rise of two technology leaders, Tencent and Alibaba, the top two ranked brands in the BrandZTM Most Valuable Chinese Brands 2015, suggests the influence that digitization can have on the growth of brand contribution and brand value.