China’s economic growth continued at a robust rate through the 1990s and the 2010s, with a growth of around 10 percent a year, twice the rate of Japan in the 1970s and 1980s. Replacing Japan, which overtook Germany to become the world’s second largest economy in the 1970s, China became the newly emerged “Economic Miracle” in the 21st century.
One might be in for a surprise to find that the economic development of these two neighboring countries is almost identical in many aspects. To start the economy, Japan gained its competitive edge by copying western products, improving upon them and selling them back to the west for cheaper prices. China followed the same pattern in developing its industries in computer hardware, e-commerce and telecommunication to create its own economic miracle.
Japan’s exports to the increasingly-affluent United States was significantly aided through supply purchases by the U.S. after World War Two. By the same token, China’s economy was largely stimulated by entering into the WTO and through exports to the U.S., which now regrets about how the licensing and offshoring model backfired on its companies.
In terms of domestic economic establishment, Keiretsu conglomerates (a family-controlled industrial and financial business and the dominating force of Japanese industry back in the 1950s) received a very high-level of support from the Japanese government-a system of crony capitalism that became known as “Japan, Inc.” The daunting rise of “China, Inc.” today is also the result of government strategic support.
Similarities in the macroeconomic or strategic sense arouse our interest in zooming in the lens to look at the development pattern of China’s domestic consumer and retail industry. If an economy undergoes great change, a restyling of daily life is the inevitable result. As a matter of fact, how the macroeconomic landscape has altered the microeconomic consumer behavior or demand in Japan is almost exactly what have happened in China. And the same footprints in Japan’s economic growth can be viewed as guiding principles for investors interested in Chinese market, especially in the consumer and retail sector.
Before World War Two, most Japanese lived very humble lives (the same way as Chinese did prior to 1990), and there was a widely held belief that European products and brands were of higher quality and were more durable than local ones even after the war. However, the accelerated economic growth came with a burst of domestic brands and products in the 1970s and the 1980s.
In 1972, the Japanese ten yuan chain store brand Da Chuang Life was founded. That same year, Tokyo opened its first FamilyMart. Two years later, The first 7-Eleven opened in Tokyo. Muji and Uniqlo, the world-famous brands were born in 1980 and 1984 respectively. Some of the super brands established during this period not only enjoyed successful relationships with their domestic audience, but also broke out onto the international stage. The Honda Civic, for example, was launched in 1973 in response to the oil embargo. Sukiya, the largest chain of restaurants, was founded in 1982 and has established locations in all 47 prefectures of Japan as of 2017. Throughout the booming period, the rising of consumer brands in Japan went through four major trends: Localization, Personalization, Practicality and Spiritual Satisfaction.
China’s economy took off in the early 1990s, but the emergence of local consumer and retail brands actually happened during the most dynamic and productive period from the 2000s to the 2010s. Many of these brands got further established and became even more popular through technological innovations in e-commerce, artificial intelligence and telecommunication. Most of the brands that survived until today have already been through localization, personalization and practicality in various degree, depending on the nature of the service or product. Even though in the age of technology innovation, it is not easy to predict changes and the reaction of consumers to these changes in the years to come, the fourth trend, spiritual satisfaction, is already becoming a new reality in China.
Prior to that, the community had limited access to a diversity of commodities and did not have much awareness of branding, resulting in little confidence in local products. Most of the “luxury” items, such as cars, cosmetics, furniture, clothing or even foods and drinks in the supermarket, were imported. It cost a lot for Chinese to enjoy the very common things in life in the Western countries, even though certain brand products already came out from state-operated or state-supported enterprises in the industries of food & beverage (Wa Ha Ha Co.) and electric appliances (Haier Co., Suning Electronics).
Accompanied by the increasingly vital computers, e-commerce and telecommunication, China’s economy shifted its emphasis away from primary and secondary activities (agriculture, manufacturing, and mining) to processing, capital raising and education in the 2000s. Following closely was a boom of brands in e-commerce (Taobao, JD), food & beverage (Luckin Coffee, HeyTea, Haidilao Hot Pot), transportation (Didi Taxi, ofo Bike), High Fashion (BOSIDENG Eiderdown Outerwear, ERDOS Cashmere), and education (New Oriental, Webi English). This shift indicates an overall improvement in the living standard, for it responded to almost every aspect of service in daily life.
Even if the trajectory of societal growth or the mentality of consumers in both countries is alike, the operations of business models or strategies in profit making is very different on account of two dissimilar economic landscapes and times. In the historical development of marketing philosophy, there have been, as Philip Kotler has put forward, five concepts of marketing: production concept, product concept, promotion concept, marketing concept and social marketing concept. However, in the digital era, these concepts can be broadly summarized into two categories: Products Centered, and Distribution and Logistic Centered. Under China’s business environment in the 2000s, the success in creating a brand or a model lies in effectively integrating and utilizing resources, which is certainly very different from the marketing philosophy Philip Kotler suggests or from the development he has observed in the history of marketing. Today’s market bears a uniqueness in its distribution of information and channels of obtaining the right information.
Case in point for a Product Centered brand is Taobao.com, the biggest e-commerce website in the world. The marketplace of Taobao facilitates consumer-to-consumer (C2C) retail by providing a platform for small businesses and individual entrepreneurs to open online stores that mainly cater to consumers in Chinese-speaking regions.
MeiTuan Delivery is a Distribution and Logistic Centered case. Possessing over 250 million takeaway users, servicing more than 2 million cooperative merchants as well as more than 500,000 active delivery riders and covering more than 1,300 cities with 21 million orders a day, it is a Chinese O2O (online-to-offline) local delivery service platform under MeiTuan.com, which was founded in 2010. It operates mainly on a cellphone application with several services: Delicacy, Desserts and Drinks, Fresh Foods, Supermarket and Medical Supplies.
If Taobao, MeiTuan and similar brands emerged as a result of life shaped by technology or strategic planning that derived from macroeconomic policies, HeyTea is a way of living shaped by culture. This culture was given birth by popular new media and has been formed by their opinion shaping power. However, the rising of this brand still falls in the range of the first three of the four trends mentioned earlier, but it found its fortune in the new digital era. Founded in 2012, it has become one of the most popular brands in drinks with an estimated market value of 16B RMB and over 451 stores nation wide. Despite the controversial evaluation of its market value, investors can not help wondering why it is favored this much by young people and has been enthusiastically pursued by the investment companies that have just made the rankings to the top.
In addition to incorporating into its business the two business models above, HeyTea has successfully created a new one, Social Media Celebrity, making it a keen topic in the Chinese community. It has been making full use of both online websites and cellphone social Apps: WeChat official account, Weibo, TikTok, Kuaishou, Little Red Book, Zhihu, etc. According to its Marketing Department, the fastest record of article forwarding is 100,000 in 7 minutes on its WebChat service account.
The charm of HeyTea for investors all over the Chinese community is that unlike brands emerged from strategic planning, it is not subject to macroeconomic policies and requires no high threshold in terms of skills or financial or political favors to start. It is more of a brand created in a free market with competition requirements that are very possible for every common people to meet.
This type of consumer and retail brand is going to continue gaining the favor of the public as well as investors, and will be one of the dominant types of economic development in China in the years to come. It is almost safe to say that most of the new brands that will emerge in the consumer and retail sector in the following decade will experience the same four trends with different level of emphasis as the brands experienced in Japan’s domestic growth in the same sector. Yet, the fourth trend, spiritual satisfaction will play an increasing importance in the success of a business brand as the Chinese society moves along with its development.
Apart from understanding the pattern of growth, a factor that determines the success of a brand in this sector is culture manipulation or media shaping power. The digital era accelerated the speed and the change of format of economic development, forming a lifestyle as well as mentality of today’s Chinese community, focusing on convenience, diversity, satisfaction and quality. The driving force of making a profit really has something to do with culture manipulation or story telling. Successful use of a business model formulated by certain culture traits to serve a specific demography can bring billions.
To participate in today’s market in China, companies will be required first to understand a specific demographic and then to create a culture that fits and leads this particular demographic to live or spend in a certain way, since people depend very much on the overarching information channels to guide their consumption. Young people (age 15-35) usually need guidance in their choices and are willing to take in new things and ideas. Middle age citizens tend to spend on education for their kids and will be glad to explore spending opportunities. Old fellows pay attention to their health and are always ready to be guided in their purchases in order to feel healthy. All three groups can be directed and educated by culture elements or opinions from various sources, so long as they are easy to understand and pleasant to the feelings or dreams.