Beyond the great fire wall

How China came to lead in digital innovation – and what it means for the communications industry

China boasts the world’s largest population, its strongest economy and its most mobile market. Not incidentally, it leads the world in disruptive communications technology.

Chinese internet giants such as Tencent, Alibaba and Baidu are creating online ecosystems so sophisticated that they are not just changing how people in China communicate, but how they live their lives. To understand these companies and the scale of their domestic impact is to understand the future of the communications industry – not only in China but further afield as well.

China’s technology titans owe their success, in part, to the country’s population. At the recent Cannes Festival of Creativity, SY Lau, the chairman of group marketing and global branding for Tencent, described how its database numbers more than 900 million users. Many of these are people who use the company’s WeChat platform for everything from buying a Pepsi to making a doctor’s appointment.

The massive quantities of data available to Tencent and other companies in China give that market a significant strategic advantage. The space race that fuelled national ambitions during the Cold War has been replaced by a similar, less public, race for global supremacy. This time it’s being driven by the opportunities provided by artificial intelligence, big data and cloud computing. The U.S. is currently winning, but China, by sheer dint of its data volumes, potentially has the upper hand over the longer term. Star ‘wars’ is now data ‘wars’. 

"The U.S. is currently winning, but China, by sheer dint of its data volumes, potentially has the upper hand over the longer term. Star ‘wars’ is now data ‘wars’."

Big data will also enable brands to pivot from precision marketing to predictive market, helping them combine context with consumer insight to identify the right touchpoints to connect, at the right time and with the right message. SY Lau posited that Big Data would replace the Big Idea as the marketer’s main currency of value. Whether correct or not, it was a provocative concept at a festival that celebrates and rewards the best of the best Big Ideas.

While we now take China’s innovations for granted, its digital dominance is a relatively new phenomenon. For 30 years, its economy was fuelled by low-cost labour and investment in fixed assets: infrastructure like roads, bridges and hospitals. Now that China is reaching the limits of catch-up growth, those two inputs are nearing the point of diminishing returns.

To find alternative sources of growth, the country’s leaders and innovators turned their attention to science and technology. The share of China’s economy dedicated to R&D has tripled since 1998 and now accounts for more than two per cent of China’s annual gross domestic product – a higher percentage than the 28 member states of the European Union.

In addition to this favourable funding environment, China’s digital entrepreneurs have unexpectedly flourished under the Great Firewall, which blocks access to foreign platforms like Twitter and Facebook. Quick to learn, they are creating indigenous digital ecosystems that enable people to chat, shop, game and bank online—you name it. Beyond providing platforms for e-commerce, the likes of Tencent and Alibaba are also investing in content such as music and movies, recognising the opportunities presented by China’s new and growing leisure class.

"China’s digital entrepreneurs have unexpectedly flourished under the Great Firewall."

As digital platforms have developed so quickly in China, the communications industry has struggled to keep pace. Strategies which succeed in London and New York are outdated in Guangzhou. Everything in China is now digitally led with e-commerce at the centre. While on the surface, many campaigns seem highly tactical, designed to drive sales rather than build brand equity, they deserve more analysis. Here are eight trends from China today that every communications professional should expect to encounter soon in their home market.

  1. Customisation is king
    Chinese consumers like customisation and their expectations rise with every successful campaign. Take Coca Cola’s global campaign “Share a Coke” which was based on customised coke bottles. In France, it was sufficient for Coca Cola to release bottles with 250 names. For China, that was only the beginning. In its first year, Coca Cola used nicknames like Superstar or Dreamer, tapping into the social media culture of the time. In the third iteration the company customised bottles with famous movie quotes. Adopting a more nuanced and targeted approach to messaging in China paid off for Coca Cola. After the campaign, Chinese sales were up 4% by volume in 2014.
  2. Online to offline to profit
    In China there is more blurring of the online and physical worlds. The online-to-offline (O20) sector, where start-ups use QR codes, apps, mobile payments and other digital tools to tempt shoppers to buy from physical stores or to purchase real-world services, is predicted to grow from US$335 million in 2015 to US$626 million in 2018 according to iResearch. A consumer’s relationship with a brand is more entwined in China than in the West: Consumers engage with brands online during the day at work, then they may use the store for a physical shopping experience and if they have a great experience they will follow the brand on WeChat. Retailers offering smart creative 020 initiatives to complement sales marketing are the ones to watch. Burberry, for example, which is at the vanguard of the ‘see now buy now’ world, introduced selling direct from the runway in September 2016 with the fashion-conscious Chinese consumer in mind.
  3. Experiencing is believing
    Chinese consumers want unique experiences and to try things for themselves. Augmented reality and virtual reality are two innovative ways they can do this and these new technologies are becoming increasingly commonplace in campaigns, with the aim of getting people to “try” before they buy. For example, e-commerce giant Alibaba’s Single’s Day is the world’s biggest e-commerce shopping bonanza: last year in just 24 hours, the company ran up $17.8 billion in sales, roughly the same as the entire country of Spain's e-commerce sales in 2016, according to eMarketer's research. The event also made headlines because it gave its millions of customers the first complete virtual reality shopping experience. They broke records yet again and many brands were privately saying behind the scenes that it was one of their most successful promotions of 2016 in terms of driving sales.
  4. Video killed the radio star (again)
    While micro videos are gaining popularity in other parts of the world, in China long-form video streaming has really gained traction. And people can’t seem to get enough of it, no matter how mundane the content.
    Makeup brand Maybelline has seen great results using the Meipai live streaming platform. Its Chinese brand ambassador Angelababy recently hosted a two-hour live broadcast promoting lipsticks, which resulted in around 10,000 lipsticks sold for about US$220,000.
  5. Be on, all the time
    Successful brands are recognising the power of China's "BAT" internet triumvirate-Baidu, Alibaba and Tencent – to engage with consumers in new ways. These internet companies work with the brands to create new campaigns that combine traditional approaches such as celebrity endorsement with new technologies such as augmented reality and virtual reality on e-commerce platforms such as Tmall and
    Corporates are also seeing the potential for WeChat as an internal communications tool. The regional chief executive officer of a large hospitality company uses it to directly communicate to associates through WeChat forums – it serves as an opportunity for him to engage with them directly and get their feedback.
  6. Conversion is what matters
    Chinese brands are obsessed with conversion. It’s one of the key KPIs, particularly for social and digital projects. It’s easy to manipulate social media figures, and the number of likes, comments, retweets are often taken with a generous pinch of salt - but sales volume is not something that can be faked. Even key opinion leaders – usually celebrities in China, are developing new ways of selling to build engagement and impressive metrics.
  7. Human connections still count
    But in the race to achieve higher and higher ecommerce conversion rates, brands – both domestic and multi-national - should not forget the importance of building loyalty, of creating a deep human connection that transcends the transaction. While it is true consumers are always searching for the new and this gives the impression they are not loyal, they are more constant to those who meaningful engage with them. This was reinforced by an Accenture study which showed that 77 per cent of Chinese consumers are spending more with the brands they love. They like brands who show they understand them by providing personalised products and services. Successful brands recognize the importance of alignment between brand and reputation – between what you say, what you do and how you are experienced.
  8. Keeping it real
    Chinese consumers are also rewarding brands who are supporting their favourite charities or causes. An example is Unilever’s award-winning dual-purpose campaign which encouraged consumers in rural China to wash their hands through anti-bacterial red packets. The campaign not only encouraged healthy habits, it increased sales for Lifebuoy by 39 per cent. They are also quick to vote with their feet if they think a brand is not giving them the real deal or is giving them a lesser standard than consumers in other parts of the world. This is something that United Airlines found to their cost back in April this year. When the video emerged of a man being dragged off a plane, there was speculation that he was Chinese; the airline’s stock dropped four per cent. On WeChat, searches and key word mentions for 'United Airlines' grew from 14,920 on April 10 to a staggering 35,631,015 on April 11, a 238,713 percent increase. It’s a telling example of how important middle class China is to the growth strategy of American companies but also reflects the huge power of social media to drive opinion.

It truly is an exciting time to work in communications in China. The country has created the world’s most sophisticated digital platforms—and a new generation of discerning consumers. Communications professionals who seek to understand the future of the industry need only look to China today.

Rachel Catanach

Rachel Catanach is FleishmanHillard’s senior partner and president, Greater China and a member of the firm’s Cabinet leadership team. In addition to her senior management responsibilities, her market role includes people development, cultivating existing client relationships and securing new business through cross-market collaboration. Rachel has advised senior clients across the government, financial, technology, luxury and manufacturing sectors. She has particular expertise in global brand building, and corporate and financial communications, and has consulted on high-profile merger and acquisition activities, private equity deals, sensitive issues management, initial public offerings and strategic events. Before joining the agency, Rachel served as general manager of Waggener Edstrom Worldwide’s Hong Kong office.