The Chinese Market – Too Big to Ignore?
September 30, 2015
By Geoff Parsons, Director, Research & Consulting
China made news recently by summoning American tech giants (including Apple, Facebook, IBM, Google, and Uber) to the U.S.-China Internet Industry Forum, a tech conference in Seattle featuring China’s Internet czar, Lu Wei and co-hosted by Microsoft. China aims to dangle access to its giant consumer market as a way to obtain pledges of commitment to controversial policies. Included among them are requirements to transfer intellectual property to China, relinquish user data on Chinese citizens, and potentially provide system source code and back doors for use by the Chinese government.
China President Xi Jinping poses with 29 technology executives at Microsoft on Wednesday at the eighth annual U.S.-China Internet Industry Forum.Source: Geek Wire
For the executives representing their firms at this conference, there could hardly be a request more discomfiting. In the U.S. and Western Europe, where rule of law, rights of individuals, and ownership of intellectual property are concepts so basic as to be considered given, China is pushing some outsized buttons.
But for these same companies, it’s hard to ignore the lure of the Chinese economy. I recently attended the 2015 China Conference in Hong Kong 
to hear business leaders in Asia discuss the Chinese market. Billionaire Victor Fung, Chairman of the Fung Group and Director of nearly a half dozen other significant ventures in Hong Kong and China, laid bare some compelling statistics. Consider that in 1978, (the year China reopened and 1.5 billion new workers were instantaneously provided to the global market) OECD consumption represented 83% of the global economy. Today, OECD consumption represents only 65% of that economy. According to Fung, looking forward 20 years, OECD will represent the minority of global consumption.
"The world is moving from globalization of production to globalization of consumption. We are looking at the addition of 3.5 billion middle-class consumers in China and India in the next 20 years,” said Fung, a figure more than ten times the entire population of the United States. Understandably, statistics like these than put giant dollar signs in the eyes of American tech firms.
Some Western companies are already committed. “We went from showing up to sell, to showing up to make and sell, to showing up to partner,” said John Rice, Vice Chairman of GE, speaking at the same event. GE has had to adapt to the evolving demands of the Chinese government. “We can’t come and go because China will represent the number 1 or number 2 market in all sectors we operate in.” For GE and many other companies, ignoring China is tantamount to a strategy of self-determined obsolescence.
2015 China Conference in Hong Kong, left Dr. Victor Fung, left middle John Rice, right middle Honson To, right Tara JosephThat’s not to say that China is an easy market to play in. “The Chinese consumer is maybe more difficult to figure out than Chinese bureaucracy,” joked Fung. The sweet spot for consumer spending is younger, ages 25-35, with those consumers being far more sophisticated than their counterparts in the West.
And marketing to the Chinese user requires a more refined approach, as generational segmentation is occurring at a much more rapid pace than in the West. Researchers in China are finding generational differences every five years, compared to lengthier bands like Baby Boomers and Millennials (about 20 years each) used in the U.S.
Boston Consulting Group Chinese User SegmentsBut despite the challenges, the opportunities here are great, particularly around improving the consumer experience, something the West does increasingly well. Honson To, Chairman of KPMG China highlights banking as a particularly frustrating (and often paper-based) experience in China, and traditionally, state-owned enterprises, the giants of industry in China, have had notoriously bad track records connecting with consumers effectively.
So when China organizes a conference of tech titans on U.S. soil, leveraging the vast potential of their evolving market to request pledges that would directly undermine the basic principles of Western business, not to mention fly in the face of President Obama’s foreign policy agenda it will be interesting to see who will show up.
Given the seismic opportunity that China represents, it’s not surprising that America’s tech giants felt so compelled to be there.
What’s your take on how Silicon Valley will respond? What strategies is your company planning to enter the China market?
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