I wanted to write a follow up of my previous article about the difficulties that the Beijing Design Week is facing, cause I felt that some infos that I shared in there needed a more extended explanation. But since some of the points mentioned in that article, like “Social media left out of the games” and “As long as guanxi are the key, promotion won’t be necessary”, are closely linked to the mutations the service system is going through, I ended up writing about how information technology is radically reshaping services of any kind in China, and how creativity is going to take the lead in the next few years.
The underlying issue behind many of the 7 points mentioned in that article is that you basically cannot build a replica of the Milan Design Week in a totally different context like Beijing or China. When China started its economic reform in 1978, the country was lacking most of the basic goods and services the Western world had developed during the previous 30+ years. For almost three decades both local and foreign businessmen built small to sometimes huge fortunes by simply importing these goods or services into China. Easy money. That fostered the idea that China was/is somehow similar to how Western countries looked like 30+ years ago. Many thought that you could simply take a successful business models from abroad, import it in China and win. In many cases this method actually worked out well, but as Chinese system evolves, customers become more picky and aware, thus every business needs to ‘localize’ their offer according to Chinese characteristics and tastes. And this is where creativity starts to take a leading role.
What density used to mean in China: the one night stand business model
Earlier this year I was approached by an Italian businessman who asked me why his company was receiving so many invitations to take part in fairs around China to promote their services and “open-up” their Chinese market. My answer confirmed his suspicions: as Dan Harris pointed out last year in his China Law Blog post, Europe has been in a recession for a long time. Companies at the beginning of a recession tend to retrench and buckle down. But later on, they get sick of stagnating and they have employee time on their hands. This combination causes them/almost forces them to look out. And that’s where doing business in China comes in. Now, China has sharks, and they know how much these companies [Harris’ article talks of Spanish and Italian companies in the food, software/gaming business, or manufacturers] are desperately struggling to get into China. Some of these sharks had the idea of setting up promotional fairs in order to attract these foreign companies by promising them to “open-up” their Chinese market. It will never happen. The organizers of these fairs grab the money and move on trying to attract some other naive foreign business. This is what I call the one night stand business model. The result of a whole bunch of factors: decades of socialism, urban density and floating population [流动人口].
When I first got to Beijing in 2007 everyone was complaining about how bad services in China were. Any kind of service, from banks to restaurants etc. Apart from the old [and quite clique] story of the 铁饭碗 iron rice bowl, I figured out the main reason behind the lack of service culture was that due to the high density and mobility of the population no one needed repeat customers in order to succeed. Customer satisfaction was the last priority in almost every business. This is similar to what happens in the restaurants at the most touristy spots in Europe, but here on a national level and on a wide range of different sectors. However, with information technology taking the leap, things are rapidly evolving.
What density means now: crowdsourcing won’t take any prisoner
China is famous for its crowds [众]. The same crowds that were once forming never-ending lines outside of train stations or even restaurants, suddenly evolved into a tech-savvy urban mass. Websites or apps that work as review aggregators [回顾], group-buying [团购], crowd-sourcing [Witkey 威客] or crowd-funding platforms [众投], with in many cases the combination of these, have been booming in the past two years. Websites like 美团 Meituan, 糯米Nuomi, 拉手 Lashou, 点评 Dianping, 巨划算 Juhuasuan, 55团 55tuan and 穷游 Qiongyou are all benefiting from the density and numbers of China population. Numbers that combined with Chinese Internet penetration [46% in 2014] put China on the top list of Internet users: 640 millions. Instead of targeting big clients or bringing well established corporations to the Internet, what Jack Ma did with Alibaba was aggregating the incredible number of small to micro businesses around China into a single platform. They made it, setting up a new standard for most of the industries facing the Chinese Internet. More and more enterprises in China started to adopt the same formula of aggregating buyers in order to cut the costs and aggregating reviews by customers in order to create fidelity.
In the information technology era companies that get their customers satisfied and manage to direct their satisfaction towards social media or aggregator platforms can obtain viral promotion and skyrocketing revenues. The success of aggregator websites ultimately rests on a combination of savvy consumers, who are willing to shop around to get the best deal, and a highly competitive market, in which players are prepared to undercut their rivals in order to grow market share. Both of these factors are largely present in China.