Your FACE is very important in China

Investments in the stock market can be a very complicated affair. Depending upon the level of rigor that is taken in looking at the business performance, understanding the management team, competitive understanding and customer value…it could be a long time to come to any conclusion to invest in any given company. Or maybe it is as simple as figuring out what your neighbor, colleague or friend is doing and just copy them.

Sitting down with an Ad Tech company based in Shanghai it was interesting to find out the profile of the Chinese investors that decided to invest in their company. It turns out most of the motivation for their Chinese investors was a reflection of their friends desire to invest. But not because of the rigorous analysis of the market opportunity that these friends had done or that they were good past investors, it was simply a reaction to the fact that these friends were of the same or lessor economic status as them. The attitude was “if that guy is investing, then we can definitely invest”.  Now this could be simplifying things but there is a very real historical and cultural importance of “face” or reputation in China.

Maintaining face and reputation is important in China and is an implicit tool that could be used to market and sell to the Chinese consumer. Here are a couple of clever examples of this:

  1. A microfinance company based in China that provides student loans and requires a family member to be a co-signer on the loan. The co-signer in this case does not necessarily have to own collateral but is mainly used as a form of social pressure to ensure payback of the loan. If the student does not payback the loan, the co-signer loses face or their own reputation.
  2. One of the more popular Restaurant Review Apps in China (similar to Yelp) is called DianPing. The people that reviews these restaurants number in the 10’s of millions. Unlike Yelp though, the reviewers are also rated by the App which motivates them to do even more reviews. An example of their rating system goes from 1 to 5. The more reviews you do the more your level goes up. A system of reputation and face for reviewers.
  3. Taobao.com which operates under the Alibaba brand has an even more complicated level system for reviewers of products that are sold on their site.  Taobao.com is the equivalent of Amazon.com in China. Their system has over 5 levels in each of the major categories going from heart, white diamond, gold diamond, white crown and then golden crown. That’s over 25 levels which are used as a sign of reputation and status for these reviewers!

Using these subtle “face” techniques can be an important part of any marketing and sales tool targeting China consumers and businesses.

If you like this post, then please check out our other thoughts at www.impact10x.com/blog or email us at info@impact10x.com.

China Innovations (and other hacks!)#1 : Finance Tech in China

10 years ago I got my first bank account in China. No problems. Fill out a couple of forms, sign a few papers and deposit a few RMB and away we go. As we were nearing the final stages of the process at the bank branch, I was expecting to see some details on my login and website details where I could do my online banking. After asking the question and a bit of scurry, the bank manager handed me a USB dongle. Hmmm I wondered what is this for?  Many many many minutes later I realized that online banking was pretty much nonexistent in China. This dongle was to be used as an encryption key when accessing my account online but only to view account details, no transactions were possible.  I also realized that banking in China was the equivalent of taking a couple of hours out your day to stand in line and push lots of paper, signatures, approvals and stamps around.  Doing anything in the archaic Chinese banking system was the equivalent of walking in molasses or really thick Canadian Maple Syrup.

Fast forward to today and China boasts over 2500 internet and App companies exploring crowdfunding. Compare that to the 150 that are based in the USA.  Finance Technology (fintech) in China is leapfrogging the western world’s traditional online banking infrastructure and coming up a whole new paradigm in mobile banking that can be arguably be the most innovative on the planet. Like African countries that never had traditional phone infrastructure and are adopting mobile phones first, starting from a clean slate without the burden of existing online banking infrastructure has many advantages in experimenting with innovations faster on the mobile platform.  Here is a sampling of some of these small innovations in the China fintech industry:

  1. A typical keyboard on a smart phone has the QWERTY format. To combat some of the issues around login security, China Construction Bank’s app has a randomized configuration of the keyboard characters. Why? So the swipe pattern of the password is never replicated the same way. If anybody is looking at your typing they wont be able to figure out your password which could be important if you are a “one password” type of gal.
  2. Wechat Pay and Alipay are the two leading mobile app platforms in China now competing for the mobile banking mindshare of the Chinese consumer. Wechat Pay has a fascinating way to interweave the very specific Chinese culture with features that resonate with the China consumer. The “Red Packet” feature is a great way to feel good about yourself by distributing small amounts money to people in your chat circle. Talk about response rate when one of these packets get sent out!
  3. M09 is a China internet company solving the credit card issuing process which has typically existed in the USA. People in China that don’t have credit cards don’t want to provide the normal credit card information to the bank. MO9 just asks for their mobile phone number and instantly approves microcredit.

Now I wouldn’t do justice to the China banking system if I didn’t comment on the clever ways that the traditional banks (like China Construction Bank) are fighting back.  Now, I could still put out my dongle and do a lot more than I did 10 years ago online with my Bank Account but there are fees associated with it.  But do this on my China Construction Bank app and there are ZERO fees and NO dongle. A good way to incentivize everybody to start adopting the App.  Kudos to that!

If you like this post, then please check out our other thoughts at www.impact10x.com/blog or email us at info@impact10x.com.

Taking a Closer Look at Shanghai’s Unique Tech Approach

Shenzhen was the Chinese epicenter of a massive economic shift to manufacturing in the early 1980s and the attraction to most foreign manufacturing companies setting up there was the promise of inexpensive labor.  On a visit to Shenzhen City (near Hong Kong) a couple of years ago I was surprised to learn how much that is changed when a large US optical manufacturing customer was in the process of moving its operations to Vietnam due to the rising cost of labor in China. The shift of manufacturing from China to other countries has also signaled a shift of Chinese companies focusing more on technology and business innovation. Nowhere is that  more obvious than in Shanghai where smaller districts are all setting up innovation hubs and incubators to build the foundation for this innovation economy.

Impact10x had a recent opportunity to speak at one technology park called Keiji50 in the Jiading area of Shanghai. The main focus of this park was  IOT/wearable devices and housed probably 10-20 companies on its campus.  Companies building versions of Google glass, Smart Mirrors and even Smart Coffee machines adorned its demonstration room. Especially interesting was the fact that the center also did China based VC investments through a quasi-government funded organization. We had an opportunity to talk to their Partners to find out a little more about how their VC investments worked in China. It seems most investments were made after a working prototype had been demonstrated and with maximum investments of 3M RMB (approximately $500K USD).  Seed capital financing did not seem to be something that they were particularly comfortable with as some of the frameworks/tools they used to evaluate innovations were based on mass appeal to a broad consumer audience. Most true breakthroughs start with a small core of leading edge customers which then lead to growth.

Another piece of their investment approach was the emphasis on patents or other more basic scientific intellectual property which could be a competitive barrier to entry.  Although this has traditionally made sense 5-10 years ago, with the massive shift to more open source platforms, crowd sourcing and any new innovation being circulated around the planet at light-speed…basing your competitive advantage solely on protection of information is quickly being eroded. As Bill Gates recently said “intellectual property has the shelf life of a banana”.

Stay tuned for the next couple of blog posts as we will be posting some more of our discoveries on China and Shanghai based incubators and technology parks.

 

China Invents the “Lean Startup” for Countries 40 years Ago

The enormous transformation of China from the starving Chinese farmers of the 1960’s to having skylines full of gleaming skyscrapers in 2016 is a testamount to the incredible power of perseverance and experimentation. Deng Xiaoping who rose to lead in China in 1978 is generally accepted as a key figure who lead and drove this transformation. His philosophy was a simple one “to experiment, to take risks, and to not be afraid of making mistakes; when you make them, just correct them”. In Ezra Vogel’s biography of the leader “Deng Xiaoping and the Transformation of China”, the word “experiment” happens no less than 78 times throughout the book.  This book was recently promoted by Bill Gates as one of the best books to read on China.

The Impact10x team had an opportunity to share our views on innovation to China tech entrepreneurs and engineers on invitation from IC CAFE, a technology incubator and china venture capital fund located in the east part of Shanghai.  The best known innovators of our time like Steve Jobs and Elon Musk were the standard part of our discussion but Deng Xiaoping took a special place as an example of a leader who emphasized execution over guessing.  It maybe the hottest thing now in Silicon Valley to be a “lean startup” but lets not forget that this idea of experimentation and fail fast was what started the incredible transformation of China over 30 years ago.

Thanks to Xiaoming, Sean and Yixin from the Impact10x team in joining and supporting the seminar!

If you like this post, please check out some others at Venture Capital in China or contact us at info@impact10x.com. 

Impact10x Talks at Massive Tech Incubator in Alibaba.com Hometown

Shanghai literally means “On the sea” (shang: on, hai:sea) which shows up in its very distinctive flat coastal landscape. In fact, the highest hills you will see are the roads that lead up to massive bridges in the city. But go about 2 hours driving west to a city called “Hangzhou” and you get to see some of the greener more mountainous areas of China.  Known for its tourism and lake district this city is now getting known for its new innovative technology companies including the global giant Alibaba which has its headquarters there.

The Chines government recently built a massive technology incubator there under the “High Tech Zone Plan-5050” initiative which is to create even more tech companies.   The incubator finances IOT, Internet and software tech companies through competitions and local china based venture capital. The young companies that we met were impressive doing innovative App services to companies serving the up-and-coming DIY generation of Makers.

What was clear on our visit is the government still seems be the main actor in most financing and promotion activities but that there is definitely a generational reversal going on between older workers concerned about money, health, emotion and entertainment (in that order) and the younger generation being more concerned about entertainment, emotion, health and money (in that order). Those innovative tech companies that can satisfy these emerging Chinese needs have the potential to be the next big winners.