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Welcome to Alicast, I’m Alizila’s Jing Wang. Here at Alicast, we highlight resources for international businesses to develop their China strategy, whether they are on day one of thinking of a new international market or getting ready for 11.11, the world’s largest shopping festival.
Today’s guest, Frank Lavin, has 30 years of experience helping companies succeed in China through top roles in both the public and private sectors.
Before becoming an entrepreneur, Frank had a stellar career in Washington as the top trade negotiator for China and India in the Commerce Department and later served as US Ambassador to Singapore. As CEO and Founder of ExportNow, a China e-commerce solution firm, Frank has facilitated hundreds of market entries for international brands from Fender to the NFL.
Frank recently authored a book “The Smart Business Guide to China’s E-commerce”. This comprehensive guide offers advice for companies at every stage of their China strategy. Ahead of this year’s 11.11, he is here with us today to share some key takeaways.
Below is a transcript of this Alicast, edited for clarity and brevity
Jing Wang:
You’ve had such an amazing global career. What inspired you to devote your professional life to understanding China?
Frank Lavin:
I’ve spent about half my career in government, about half my career in business. Almost all of it is China-focused or Asia-focused. China represents the only major country in the world that is still defining itself. You could say India is somewhat in that category. But the Chinese economy is three to five times larger and a much more open economy.
All of the other major economies, Europe, Japan, Australia, Korea and so forth are mature and developed. China is the only one that is still defining itself, still working through how it’s going to connect with the world. So my advice to businesses from any place in the world is you’re not going to have a global strategy unless you have a China strategy. Unless you come to terms with the China market and its size, you might be just limited to your home market and you’ll never be truly a global brand.
Jing Wang:
If you’ve ever been to China, you know that the dynamics there. The country is changing by the day. So exciting. Before we dive into the new book, what are some key takeaways for those who haven’t read it?
Frank Lavin:
Well, the first point is the size of the China market. It is the largest consumer market in the world. It is a larger consumer market, larger retail market than the United States. And it is the largest digital market in the world. Meaning in China, over 50% of retail spending is online. In the U.S. it’s only about 20%. Any brand that can go to China with a digital strategy will have a really good market penetration. So we say in the U.S. online e-commerce is icing on the cake, but in China, it’s the cake. You can, you can really have a great market profile on a pure-play e-commerce strategy.
Jing Wang:
The opportunity is immense. As a policy expert, I also want to ask a question that’s perhaps on everybody’s mind when entering China these days. Should they be intimidated by the geopolitical tensions and the negative headlines?
Frank Lavin:
Well, there is certainly more friction in the U S China relationship now than I would say at any point in recent memory. I think that’s unfortunate. It’s more stable now than it was a few years ago. So I would tell anybody, you need to find a way to move ahead, even if it’s bad weather, right? But you probably want to calibrate accordingly.
I would tell anybody in a market where there can be tension, to be careful about deep investments and be careful about deep debt. That backs you into e-commerce strategy because e-commerce is almost a textbook example of a variable cost model. If you sell $1 million on goods on Tmall next year, you can make a profit. If you sell 10 million you make more of a profit, but if something happens and that collapses, you still make a profit.
Jing Wang:
I think it’s fair to say that there’s a difference between the government tensions and the sentiment in the business community. The consumer sector has always been a bright spot compared to the industrial or military sectors.
Frank Lavin:
Absolutely. I’d say in addition to the retail goods if you just look at McDonald’s and Starbucks in China. Look at America and try to look at Pizza Hut in China. The whole F&B segment of the market is incredibly internationalized. The Chinese consumer likes these outlets for the same reason Americans like these outlets. That holds true across that whole retail space.
Jing Wang:
The China opportunity is very bright for larger brands like Nike and Starbucks. What about smaller brands? Is it a daunting market for them?
Frank Lavin:
The global majors have a strategy department and international department of China team, but you’re right. What about a mid-tier brand? I’d say that, here’s the question for the smaller brands: how digital are you? Some very small brands are very strong in the digital space. You’re going to do well in China. You get it because everything you’re doing is digital and your consumer only perceives you through digital.
You have to know how to court the consumer. You’re a new brand to the market. You have to be able to explain yourself and allow the consumer to fall in love with you. Which is another way of saying, showing up is not a strategy. Simply opening up your store on Tmall is not a strategy. That’s a building block of a strategy. You have to have an active social media campaign where you’re having a conversation. I think China’s very similar to America’s behavior.
Jing Wang:
And in some ways, these smaller brands have almost an innate advantage because they were born digital. They know how to navigate social media digital campaigns.
Frank Lavin:
Absolutely. The digital natives will do very well in China. These other brands are just weighted more toward digital. And you do tend to see that in the junior brands because getting physical bricks and mortar distribution is a bit of a journey.
Jing Wang:
For smaller businesses, you can really be digital and global from day one. And I’m sure you’ve met hundreds of founders. The founders I’ve met, some of them are very global-minded.
Frank Lavin:
Absolutely. The world is getting smaller every day. You’ll see people who have some kind of international background or they have some online presence in the US. And they say, ‘but you know what? 15% of my sales come from outside the U.S. and I don’t really do anything. I don’t make any special efforts to cultivate those people.’ The consumers are global and they’re sophisticated and they’ll sniff around a bit. If you’re in that space, there’s something really cool about your brand, your message, your product. There’s something that really works there. If you’re getting that kind of international traction without really much of an international effort. We say at ExportNow, if there’s magic in your brand, we can make that magic work in China? There has to be something in your brand that gets people excited that people talk about. If that’s where you are, the Chinese consumer will respond to that.
Jing Wang:
In your book, you quoted an executive saying, ‘call me when China stops being weird.’ I thought it was so funny. China never stops being weird. And consumers there are driven by a very different set of rules and social-cultural norms and even languages. How should brands navigate those?
Frank Lavin:
It’s funny, you were talking a minute ago about a lot of even junior brands in the U.S. having an international outlook because somebody in that company has some kind of international pedigree. That is definitely true. You just gave an example of the other end of the spectrum, where this person only has lived and worked in the home market.
They might be a very successful brand of 10 to 20 years old, but all they’ve done is expand nationally in the U.S. They have trouble with Canada. The brand message and the brand value proposition are the same in every market, but how consumers perceive it and what they want, what they do with it can differ. The holidays will be different. And as you suggest, some of the rules and regulations might be different. There has to be some ability to adapt. If you’re a hundred percent rigid if you’re saying I can only go to a market that is like my home market. Well, good luck. You really won’t be able to go outside your home market.
Jing Wang:
China will become the first country where over 50% of total retail sales will be regenerated from e-commerce channels. And a lot of businesses are going to choose e-commerce to first enter that market. And how should they navigate that?
Frank Lavin:
That’s a great question. And by way of explaining these differences. The Chinese consumer is encountering your brand and your product for the very first time. In your home market, the person grew up with the product. So the need for more communication and more discussion, more answers in China is paramount. For example, a web page, an e-commerce store in China will tend to have much more information about the product, more photos, different angles of photos, more history of the company, more FAQ’s than equivalent webpage in the US. It’s not because consumers in the US are less intelligent, but they’ve been using that product for 20 years. So just remember, you’re talking to people for the very first time who don’t have a family history with this product. So you have to be able to explain yourself.
People say, ‘well, I could go to China, but I could go to Europe. What’s the difference?’ Europe has a population of incumbent brands. They’ve had prosperity for multiple generations. China is really in the first generation of prosperity. So you have consumers for the very first time thinking about how to have a better life. If you go to China, you’re talking to someone who never in their life has bought a bottle of wine, but it’s their girlfriend’s birthday next week. You have to explain to them why your bottle of California wine is a great bottle of wine for your girlfriend’s birthday.
Jing Wang:
You have sold guitars to American football gear to Chinese consumers. The key really is brand building. How should brands do that? Any tools such as livestreaming useful?
Frank Lavin:
You need to stay in the digital space. And you need to be multi-channel. Sometimes it is purely social media, where you are having that conversation. When people are asking you questions, you’re explaining yourself. Sometimes it’s video assets where you’re showing how it’s made. We work with Abbott Similac baby formula. We went into the baby formula factory. We talked to the technicians, the scientists, the quality control people, and walked people through in a livestream to show people how it’s produced, what the quality checks are. Authentication is a statement from the brand. Sometimes it’s a pure advertisement because people are trying to find you. but I would look at multi-channel where you’re active, full spectrum digitally. I’ll say this, China has a stronger video element of its communication than the United States does. So the consumer in China will expect more livestreaming and more video presentations.
Jing Wang:
The consumers there don’t just shop online. They browse online. They discover online. They spend a lot of time just entertaining online to pass time.
Frank Lavin:
I think it’s a way of life. Again, more so than the equivalent population in the United States, meaning your online world is where you connect with your friends in your social life. There’s one question we always ask if you purchased this product, or if you received this as a gift: would you tell your friends about it? Meaning is there a social dimension to this product? If there is that, you know this can go viral in China
Jing Wang:
And you’re right. They’re very enthusiastic about what they buy. And they are very eager to share their experiences online? That’s why you see these extensive reviews on the website for some Tmall stores. I want to also move to the other end of the spectrum for doing business, which is the supply chain. You hear a lot of headlines these days about the global retail industry is facing supply chain challenges. For this 11.11, how should brands think about cross-border supply chain logistics?
Frank Lavin:
Well, every brand is going to have its own particular situation. I would say, the smart brands adjust quickly and take the bad news up front. Meaning if the product is out of stock, I would take that off the website. I wouldn’t be misleading consumers. I wouldn’t be marketing something we know that. In the next three, six, nine months, the market will correct and it will be much closer to normal. So if you’re in the middle of severe disruption, you’ve got to adjust accordingly. But stay in the game, keep the market it, keep selling, keep that conversation going. But, recognize if you’ve got some limitations and adjust accordingly.
Jing Wang:
How can global companies take their operations and learnings from China to other markets?
Frank Lavin:
Here’s what’s interesting. Companies that can master a foreign market might not even realize but they’re bidding to develop internal expertise that can then be applied to other markets. They understand international logistics better. They understand foreign currency better. They understand cross-border management better. So the company that does well in China, everyone will say, ‘look, what’s next? Do we want to go to Italy or Mexico or UK?’ At least you’re absorbing that international orientation. So there are longer-term and broader benefits to the company in China.
Jing Wang:
When people say you make it in New York, you make it anywhere. I think if you make it in China, you make it anywhere.
Frank Lavin:
Absolutely correct. Why don’t I go to Italy? Well, you could probably do something very similar and you could set up an e-commerce store in Italy. China is the largest e-commerce market in the world. So if you’re going to make an investment in social media, advertising, you’re better off doing the Chinese language rather than the Italian language, at least initially. If you can do it there and then you can go to other markets. And that could be the next five or 10 years of growth. We’ve got companies that say every year, I’m going to go to one new market and have one more distribution point.
Jing Wang:
We first met back in 2016, at this crazy double 11 gala in Shenzhen. Fast forward five years, is 11.11 still relevant? It’s around the corner.
Frank Lavin:
I think double 11 is huge. Every brand ought to have an 11.11 strategy. For the listeners who haven’t figured this out, (It is) the number one shopping day in the world. So China has sent a huge signal to the market and really Alibaba’s Tmall fostered this success to say, this is the day when you will find the best products in the world. So not surprisingly people adjust their spending around 11, but that then puts pressure on the brand. What are you going to say? That’s new or special, original, or unique to play in this space. It’s a very competitive space. So what we see are a lot of brands come up with special Singles Day products or promotions, gift boxes, or other kinds of limited edition runs just to say, look, we’ve got a very special product purely for this holiday. So those smarter brands are those who adjust their entire marketing strategy around this holiday.
Jing Wang:
You’ve mentioned China has a very unique set of shopping holiday calendars. 11.11 is the single most important shopping festival of all.
Frank Lavin:
The other holidays are more or less traditional Chinese holidays that can have a commercial dimension to them. But Singles’ Day is a hundred percent conjured up for the purpose of shopping.
Jing Wang:
It’s the Olympics for brands.
Frank Lavin:
That’s a good way of putting it. That’s great.
Jing Wang:
Last question. You’ve moved back to the United States after living decades in Asia. What do you miss the most there?
Frank Lavin:
Well, I’ll tell you, you made a point a few minutes ago, which I think is a hundred percent accurate that there is a vitality to Shanghai. It is a busy, busy city. Initially. It can almost be a shock. It might even be to some people off-putting because it is crowded, maybe it’s bustling, but you get into the rhythm of it and it’s a city on the move and people do want that better life. So you leave with a very positive, very optimistic feeling about consumer behavior in China.
Jing Wang:
You speak Chinese. And I think my favorite Chinese word is “Re Nao”, which literally means hot and noisy, but it’s often used to describe festivity and an ambiance. I think I really also do miss that energy in China. Thank you. Frank Levin CEO and founder of export. Now, thank you for joining us today,
Frank Lavin:
Jing, thank you for having me on. It’s a lot of fun and I love to talk about China e-commerce. If people are interested please, check out the Smart Business Guide to China E-commerce.
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“Alicast” is a production of Alizila, the corporate newsroom of Alibaba. It’s produced by Monica Suk and edited by Alison Tudor-Ackroyd. If you’re in a podcast app already, please follow “Alicast”. If you’re listening on Alizila’s website and want each new episode of “Alicast” delivered to you as they’re published, download any podcast app, then search for “Alicast” to follow the show. Thank you for listening.
