03 | 2016 | THE SHIFT TO CONSUMPTION

This edition sheds light on the government’s initiatives outlined in the 13th five-year plan which aim at strengthening consumer spending and stipulating an innovative offline and online retail environment. We also highlight China’s rising middle class as the driving force of China’s shift to consumption. Furthermore, this issue illustrates differences between Chinese and Western consumers, thereby providing guidance for localizing offerings and consumer experiences when entering and expanding in the Chinese market.


As always, we wish you an interesting read with the present edition of the German Chamber Ticker.

Yours sincerely, Jens Hildebrandt 

 

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Cover Story 1 - Localization Requires More Than Just a Chinese Label

5 Key Differences between Chinese and Western Consumers 

by MARK TANNER

China’s market is littered with the carcasses of foreign businesses that have entered China with little awareness or respect for just how different China operates at both a macro and micro level. Although businesses are increasingly aware of the need to localize for China, many still have deep-rooted misconceptions about the market. Here are five of the most common misunderstandings found while working with foreign businesses in China: 

 

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Cover Story 2 - Will China’s Shift Towards More Domestic Consumption be Successful?

 

The 13 th Five-Year Plan and its Inflence on Chinese Consumption

by TIM WENNIGES and PATRIZIA ROECKERT

 

The 13 th Five-Year Plan, as one of the holdovers of the Chinese centrally planned economy, is meant to set key dimensions for China’s development and covers a wide range of political, economic, social and ecological aspects. The plan can be seen as a framework or blueprint for China’s development within the coming five year period (2016 – 2020). The new plan will be the first under the leadership of President Xi Jinping and set ambitious goals for improving the living conditions of the Chinese society. 

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Cover Story 3 - A Middle-Class Force Awakens

 

China’s Move to a Normal Luxury Market; the Biggest in the World

by FRANK YAO

Five years ago we would hear stories about the young, entry-level office receptionist working at a multinational in Shanghai who would save up three months of her salary in order to purchase a Louis Vuitton bag. Those days are long gone, and we now have to understand a new normal for the marketplace for luxury goods in China. Two things have happened: Chinese consumer spending is no longer driven by the elite or top 1%; and the upper middleclass consumer is not spending irrationally like before. Nowadays, there is no longer the desire to invest in that LV bag because it means having to forgo watching IMAX movies, eating at Ippudo Ramen, participating in an exercise class, flying to Hokkaido for cherry blossom season, or owning an iPhone 6S instead of a Xiaomi. Actually given Apple’s recent earning report, we can even argue that physical luxury is now no longer as important as it once was. In other words, the new middle-class has a broader set of spending choices today that need to be satisfied before moving into spending on true luxury products.

However this consumer may soon be ready to spend on luxury again. If you want proof of the desire to upgrade in China just look at the continual expansion of Starbucks versus the decline of KFC. In fact, China has the second most millionaires in the world with figures in a 2014 Boston Consulting Group Global Wealth Report listing 2.4mn, trailing the US number of 7.1mn. Another report by AliResearch and BCG pegs the number of upper middle class and affluent households (annual disposable income over USD24,000) to double to a whopping 100mn between 2015 and 2020. So we can see that the consumer market for luxury products exists and is going to increase. 


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Cover Story 4 - Retailtainment

 

The Modernization of the Chinese Consumer

by DR. DANIEL ZIPSER

Cooling economic growth, a depreciating currency, and a gyrating stock market are making political and business leaders concerned that China’s economic dream may be ending. Yet Chinese consumers remain upbeat. In fact, consumer confidence has been surprisingly resilient over the past few years as salaries have continued to rise and unemployment has remained low. 


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Cover Story 5 - Everything Flows

 

Profiing the Mysterious, Unfathomable and Elusive Chinese Consumer

by PHILIPP FRIES

Living in a Chinese metropolis like Shanghai for a few years feels like watching socio-economic change happen in a time-lapse animation (a technology that enables the viewer to experience movements that in reality are too slow to be visible to the naked eye, like the growth of a plant or the movement of stars).

In several design research projects we had the opportunity to gain first-hand experience of these changes through interviews and observations of Chinese consumers or end users. These findings were not in any way quantitative but rather qualitative: a probing that helped us to better understand what specific users groups were looking for. 


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Cover Story 6 - The Money is Moving Inland, and Brands are Already Beginning to Chase it

Interview with Fenghua Mo on the Role of Social Media in Commerce in China

by ELLEN TATHAM

The size and force of the Chinese ecommerce market is astounding: A flash sale on WeChat sold 388 smart cars in 3 minutes.

A conservative estimate puts China a decade ahead of the West in terms of Social Commerce – ecommerce that involves social and online media, supporting social interactions during the purchase. Fenghua Mo (also known as Sammi) specializes in online marketing in China. She is trained in Baidu PPC, and Baidu SEO. As director of Market Me China Ltd she helps Western companies establish a good online presence in China. German Chamber Ticker Team had the opportunity to speak with Ms. Mo about social commerce and marketing western brands to the Chinese market. 


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In the Spotlight - We Should Not Talk About China as an Emerging Market Any Longer

 

Interview with the Chairman of Borgward Group, Mr. Ulrich Walker

by SEBASTIAN SUCIU and JANA KUMPF

Borgward was one of the top German automotive brands until the company that was headquartered in Bremen, went bankrupt in1961. Even though the car production stopped, models such as the Isabella or the P100 remained in people’s memories. Almost fifty years later, Christian Bogward, the grandson of founder Carl Friedrich Wilhelm Borgward, took on the challenge of rebuilding the family business. A Chinese investor was found and Borgward Group, now headquartered in Stuttgart, presented its first new SUV model at the Frankfurt International Motor Show in 2015.

Mr. Ulrich Walker is the Chairman of Borgward Group and has extensive experience of both the automotive industry and the Chinese market. As former Executive Vice President of Daimler AG and CEO of Daimler Northeast Asia, Mr. Walker lived in China from 2007 to 2013. During this time he also served as Board member and from 2010 as Chairman of the German Chamber of Commerce | North China.

Alongside the Beijing Motor Show 2016, German Chamber Ticker had the opportunity to speak with Mr. Walker about Borgward’s prospects, automotive trends and the outlook of German business in China. 

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Feature 1 - New Legal Developments in PRC Law

by Dr. ULRIKE GLUECK, JEANETTE YU and APRIL CHU

In the past months, the PRC authorities have issued several regulations concerning different legal areas. We summarize below the key contents of these new regulations. 


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Feature 2 - Without Loyalty You're Fighting Windmills and this is a Battle You Cannot Win

 

A Leadership Guide to Compliance, Loyalty and Trust

by DR. LAURENZ AWATER

Compliance, Loyalty and Trust

If trust is the lubrication, which makes an organization run efficiently, then loyalty is its foundation. Without mutual trust you cannot build high-performance teams, which form the core of a high performing organization. If there is little loyalty however, the basis for mutual trust is missing. The Chinese business environment is an ethically very challenging one and you find a myriad of examples of people who have enriched themselves using illegal practices - and got away with it very easily and with little risk of legal persecution. Thus: ensuring compliance with corporate governance rules and ethical codes is the starting point for building a workplace of trust – not just in China, but here more than everywhere else (not mentioning Russia). 


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Feature 3 - Are You Threatening Your Team?

 

The Role of Neuroscience in Leadership

by AARON WALLACE

Take a look at the following two scenarios, and ask yourself, “Which is worse for a new employee?”

A recent graduate and new hire, Matthieu, comes into the office after doing some field research off-site. At 15:00, just minutes after he walks in, his four team members stand up and walk off to the conference room to meet you. He might not have been aware, but the meeting had nothing to do with his assignment, and being a great manager, you didn’t want to waste his time. Having worked double time since entering the firm, Matthieu thought he had finally entered your good graces, and would later describe this particular event as, “a punch in the gut.”

Compare that experience, with calling Matthieu into your office and literally punching him in the gut. Which is more painful? The absurdity of the illustration has probably alerted you to the fact that this must be a trick question, and it is. Social neuroscientist Naomi I. Eisenberger’s studies have shown that although the circuits in the brain processing rejection and physical pain are not wholly identical, the neurochemical reaction to the stimulus is the same. So if those two events actually had occurred, in a very real sense, this poor fellow is likely not to be able to judge much difference between the two. 


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Feature 4 - A Success for Everyone?

 

A Look at Working as an Expat with a Partner

by DOROTHEA LEONHARDi and CHRISTIAN MAERTLBAUER

Global assignments are a great opportunity for specialists and executives from a company. For many it means a career step: they work in a dynamic work environment with exciting tasks and responsibilities, they play an important role as an intermediary between the main house and the foreign company. It could become a classic win-win constellation.

However, the decision of the employee for this career step is sometimes not easy. Among others a study by the "permits Foundation" found that 22% of expatriates abroad do not accept the assignment because they are afraid their partners could lose their career development; 7% prematurely cancel their assignment abroad because their partners cannot gain access to the employment market. Other surveys estimate these figures are even higher.

The integration of the entire family is therefore a critical factor for success of each assignment and is increasingly becoming the focus of the assigning companies. Will the partner and children settle well in the host country? How will they handle daily life there? How can they deal with such a foreign culture, with the foreign language and the huge city sizes? Will the accompanying partner find a profession that corresponds to her or his qualifications? 


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More than Business - A Conflct of Desire?

Why Enterprises Sometimes Face Diffiulties with CSR

by OLIVIA HELVADJIAN

Corporate Social Responsibility (CSR) is relevant for most, if not all enterprises, but there are also sensitive areas. To behave and act as a responsible corporate citizen you must watch out for several different aspects.

Axel Kuhlmann is a Business consultant, Systemic Management Coach and Systems Thinking Trainer. He is founding Director of akcc Ltd. in Hong Kong. Axel works and lives in Asia, Africa and Germany. He works with peoples and organizations who want to be better prepared for the future in a VUCA World. Prior to this Axel worked for the leading German Weekly Newspaper DIE ZEIT as Director Sales, Marketing and Communication. In this function he established communication platforms about Sustainability and CSR for clients. Amongst others he and his team acted as a co-creator of the ZEIT WISSEN Sustainability-Award. The German Chamber Ticker Team had the opportunity to talk with Mr. Kuhlmann about companies’ communications strategies and CSR. 

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