May Month in Review: The Great Pacific Connection: Business Collaboration between Canada and China

ASCG Month in Review: May

In Case You Missed It

Shopify Inc. shares drop 6% as Adobe buys biggest rival, Magento

Canadian e-commerce powerhouse Shopify Inc. suffered a small setback this month as Adobe bought its biggest rival, Magento. Despite this move, Shopify does not seem to be slowing down, with plans to hire hundreds of new employees in offices across Canada.

ATB Financial name Curtis Stange as new Chief Executive Officer

After 11 years of serving the financial institution, Dave Mowat of ATB Financial has officially retired. His role as CEO is being replaced by Curtis Stange, who formerly served as ATB’s Chief Customer Officer. Curtis brings 30 years of experience in the banking industry to the job, and is well touted across the company.

Canadian government buys rights to Kinder Morgan pipeline for $4.5 billion CAD

The federal government announced a deal to buy both the existing pipeline as well as the expansion project to twin the pipeline for a total of $4.5 billion CAD.  Finance Minister Bill Morneau commented on the deal, calling the pipeline “an investment in Canada’s future." The government does not have long term ownership plans, and is looking for a private company to purchase the pipeline in the near future.

Richard Branson encourages resilience to Alberta’s energy industry

Richard Branson was a special guest at this year’s Energy Disruptors Unite conference in Calgary. At the conference, Branson preached resilience, saying that in business, “you either curl up and give up or you fight to survive."  Branson also empathized with Alberta’s journey to balance action on climate change with economic survival, stating “I’ve got airlines, I’m facing exactly the same problem that they’re facing."  

Tariff war heats up: Trudeau calls newest US tariffs an“affront to Canadian soldiers”

Prime Minister Justin Trudeau lambasted the Trump administration for imposing tariffs under the guise of securing national security. The Prime Minister stated that the tariffs were “completely unacceptable”, and went on to call the tariffs an “affront to Canadian soldiers who fought and died alongside American comrades-in-arms."

Feature Story- The Great Pacific Connection: Business Collaboration between Canada and China

"I think Canadian businesses have been very lucky for a long time to have a really big market directly to our south, in the United States… we needed that market access, but we take it for granted.There is a market in China that is excited about what Canada’s doing, and we just have to realize that even though its further physically, what the internet means is that it’s really not that far when it comes to finding your customer.”

That’s Canadian Prime Minister Justin Trudeau, speaking at Gateway ‘17 alongside Alibaba Group Chairman and Founder, Jack Ma. Jack strongly supported the sentiments put forward by PM Trudeau, saying when it comes to China, “nobody can afford to lose that big opportunity." The stats back up Jack’s claim: by 2020 there will be over 500 million of China’s citizens in the middle class. This growing middle class has powered China’s shift from an export driven economy to an import driven one, as over the next five years, China is projected to import $8 trillion USD.

Along with a shift towards an import based economy, Chinese consumer tastes are changing as well. According to survey data from global management consulting firm McKinsey & Company, several sectors across China have seen a shift occur from mass and value purchases towards premium products. In addition, Chinese consumers remain fairly confident about increases in their projected earnings, with 55% stating that their income will significantly increase in the next five years.

It’s clear that China’s growing middle class and it’s premium tastes present an enticing opportunity, one that Canadians are becoming increasingly excited about. According to a survey taken in late March 2017, 62% of Canadians believe trade with China is important, and 55% support a Canada-China free trade agreement. This 55% figure is up a whopping 19 percentage points from 2014, where only 36% of Canadians supported such an agreement. Canadian businesses are also increasingly finding success in the Chinese market. Canadian brands, such as SunRype, Summerhill Pyramid Winery, Citadelle and Viva Naturals are already selling in China through a partnership with Alibaba subsidiary, Tmall.com. Bigger brands like Canada Goose are also supplementing a Chinese e-commerce presence with brick and mortar locations, opening stores in Beijing and Hong Kong.

Despite these successes, many companies are wary of entering into China without solidifying a strategy. After all, as many large companies such as Uber, Starbucks, and Marks & Spencer have learned, success in China is a whole new ball game. Whether it’s the intense competition, language barriers, or differences in culture, foreign businesses often see the Chinese market as a daunting prospect, one not worth their time or investment. For this Month in Review, we’re aiming to make this market seem less daunting, highlighting both tips and resources Canadian businesses can utilize to succeed in the Chinese market.

Tip #1: Greater China is not one homogenous entity; localized branding and business strategy is key to success. This is something one of our managing partners, Ankur Pandit, noticed during his travels in Hong Kong and Shenzhen, China. Despite technically being apart of China, Hong Kong is its own separate administrative region, with a distinct culture from the mainland. Aside from obvious differences like language (Cantonese in Hong Kong vs. Mandarin in most of the mainland), there are many smaller distinctions a company must take into account, with one example being social media usage. In Hong Kong, the dominant social platforms are Facebook, YouTube, and Instagram, whereas in the mainland, most western platforms are banned, and platforms like Wechat, Weibo, and Youku are more popular. To succeed in the mainland,  foreign businesses will have to invest in crafting marketing messages specifically built for Chinese social media platforms. Durex is an example of a brand who’s done this well, as they’ve created a dedicated marketing team that collaborates with Chinese agency partners to produce social media content on Weibo.

From a brick and mortar perspective, Starbucks serves as a great example of localized business strategy. In China, coffee is not consumed as often as it is in North America, with the average Chinese consumer drinking only two cups of coffee a year. Starbucks instead focuses on making Starbucks stores the premier place to be for “casual gatherings”. The increased emphasis on space has made Starbucks’ China locations 40% bigger on average than their North American counterparts, with plush couches replacing the standard wooden stools. Starbucks introduced the “third place” to China, the default place to conduct business and socialize outside of one’s home or the office. And while people meet, Starbucks makes sure they are well fed, filling their menu with tea based drinks and sandwiches to satisfy Chinese consumer tastes at large.

Now when adopting a more granular perspective, there are also differences between first tier cities like Shanghai, Beijing, and Shenzhen, as well as cities projected to boom in the near future, such as Zhuhai and Shaoxing.  Doing research on regional differences in culture, infrastructure, spending power, and costs of doing business will help Canadian business owners choose which regions of China make the most sense for their business to be involved in.

Tip #2: Understand who the biggest players in e-commerce are and how they work.

In China, there are two main players in the e-commerce sphere: The Alibaba Group, and JD.com. The Alibaba Group consists of three major e-commerce websites: Alibaba.com, Taobao, and Tmall.com, with each site fulfilling a specific purpose. Alibaba.com is more of a B2B platform, connecting manufacturers to wholesalers and retailers. Taobao is the platform of choice for smaller merchants and individuals, acting as a C2C platform in a manner similar to eBay. Finally, Tmall.com is a B2C platform, used by SME's and larger companies including Nike, Apple, and Canada Goose.

The Alibaba Group is actively looking to get more Canadian retailers using their platforms to sell to Chinese consumers. In September of 2017, they partnered with SnapPay Inc. to allow Canadian retailers to accept payment in Chinese currency through AliPay, Alibaba’s digital payment platform. They’ve also announced plans to open a Vancouver office within the next three years, citing a desire to hire around 30 employees to help Canadian entrepreneurs better utilize Alibaba platforms.  

After the Alibaba Group, the 2nd biggest e-commerce player in China is JD.com. JD.com acts similarly to Amazon and, like its American counterpart, has invested heavily in large infrastructure warehouses and drone delivery to remote locations. JD.com also boasts strong strategic partnerships with Western companies like Walmart and Google, as well as Chinese tech giant Tencent, the company behind WeChat. JD.com recently announced direct integration into WeChat, allowing the app’s billion monthly active users easy access to JD.com. Between the two of these e-commerce companies, Canadian business owners have viable platforms to begin selling their goods to Chinese consumers.

Tip #3: Utilize domestic resources to help guide your expansion strategy.

Despite the opportunities available in China, many Canadians who are currently in this market preach a level of caution before entrance. Jack Liu, the President of Canadian seafood company ZF Max International Inc. echoes this sentiment, stating if you've never done business with China, and you have no offices or partners there, Alibaba alone is not enough.”

Luckily for Canadian business owners, we have access to several organizations with years of experience working in the Chinese market. Organizations such as the Canada China Business Council, the Trade Commissioner Service, the Business Development Bank of Canada, Canadian Commercial Corporation, and Export Development Canada are all great resources to help Canadian businesses navigate the Chinese market. These organizations can help business owners get answers to questions like:

  • How do I get my goods to China?

  • Which cities do I target?

  • How do I market to Chinese consumers?

  • How do I finance this?

  • Should I create a wholly owned foreign enterprise for expansion?

Conclusion

China can be intimidating. With its size, competitive fervor, and distinct culture and language, many Canadian business owners don’t think about China as a potential area of expansion. This is an unfortunate reality, especially given China’s massive potential for growth, thriving e-commerce market, and demonstrated attraction towards premium, foreign goods.

Through this Month in Review, we’ve attempted to make China seem less daunting by providing examples of companies who’ve created successful local strategies, outlining e-commerce platforms Canadian business owners can use. Finally, we pointed to several domestic resources Canadian business owners can access to help guide their approach.

So whether you’re a business owner off the coast of Vancouver, or one here at home in Edmonton, take a moment to ask yourself: “What about China?”. That simple question could be the beginning of a game changing expansion for your company.