Digital Technology & Digital Transformation in China: The Bottom Line.
Ashley Galina Dudarenok is one of the key experts and opinion leaders on digital marketing strategy and social media in China. In this Asia-Pacific Insight, she explores the question of digital transformation in China, from technology developments to marketing strategy, she explains how she sees change happening. Ashley is very optimistic about digital developments and has lots to say about digital marketing developments, but her key take is very simple: “China is the future of digital technology”. Read the interview for more.
Interview of Ashley Galina Dudarenok: “China is the future of digital technology”.
Let us get straight into the topic, what trends do you see these days in relation to digital technology in China? Any surprises?
Ashley Galina Dudarenok: There is no dragon in the room, really. Not in the digital world anyway. The blockchain is the big topic everybody talks about but I’m afraid I don’t have any hidden treasure to offer here. What I see, however, is that China is the future of new technologies even if most people focus on ignoring it.
From a regional business perspective, I see a large development potential for the next ten years in relation to Third and Fourth tier cities in China. These cities are often left aside, but digital technology is extremely developed out there and the digital transformation is very fast. Chinese consumers like new technologies in their daily lives and they ask for more and more.
Can you give us an example?
AGD: Imagine that you are in a shop, looking at two different pens. Or two coffee machines. Then, out of nowhere, a tiny virtual guy pops out. He walks on the counter, turns around the coffee machines and tells you the difference between machine one and machine two. This kind of digital technology is the future, and the demand in China will be enormous.
As a digital expert, what do you see on the apps and social networks side of things?
AGD: Obviously, WeChat is clearly enjoying a dominant position in the Chinese digital market. But other apps and networks such as Weibo (a content network) and Douyin (a music and video network also known as Tick Tock elsewhere in the world) also have a huge development potential.
Digital technology is a big thing these days, especially from a U.S. – China perspective. Any thought?
AGD: It is impossible to say how things are going to turn out, but if I had to guess I would say that the digital technology competition between the United States and China is going to be a long-term thing. Right now the US has an advantage because they design and implement technology whereas China rather manufactures it and consumes it. But I think that this pattern is not going to last because China is progressing rapidly enough to operate a very significant digital transformation very few people will see coming. In the West, anyway.
China produces more and more software and apps with a very large reach. Take Musical.ly for instance. People use it all over the world, but who knows that the service was acquired by a Chinese company (ByteDance) for nearly a billion dollars in late 2017? Now, these guys look at India and Brazil. Chinese investors have a strong appetite for foreign opportunities and that will have an impact towards making the country’s digital industry more and more relevant.
How would you describe the Chinese approach to digital technology and digital business in general?
AGD: China is the future of digital technology. It really is as simple as that! So, at the end of the day the best way to describe the dynamism of the Chinese digital industry is probably to say that either you go to China or China will come to you.
That’s quite a way of putting things…
Ashley Galina Dudarenok: Yes. You know, when I was a little girl I went to visit Japan. That trip was fantastic, because coming from Russia, Japan was the future of technology. Nowadays, though, if you want to see the future then China is the place.
Back to the Chinese approach to digital technology and digital business, my opinion is that the ByteDance and Musical.ly example is only one amongst others. The Chinese are investing huge amounts in this industry and these investments will pay off sooner or later.
WeChat is obviously a giant in China and it is present in Hong Kong because connectivity is increasing. But it also has a strong presence in South-East Asia, in Russia and in South Africa against all expectations. Believe it or not, but apart from WhatsApp, WeChat does not have any significant competitors out there. So the possibilities are massive.
Does the Tencent – Alibaba competition help with digital innovation?
AGD: The competition between Alibaba and Tencent is huge. Tencent is the company behind WeChat and their market shares are enormous because WeChat is replacing credit cards in Mainland China. On the other side, Alibaba is the biggest digital marketplace and their financial arm (Ant Financial) also owns a lot of licenses to act as a financial intermediary. So both of them are giants, and the competition for innovation is fierce. That’s why things move so fast out there.
What makes the Chinese market so specific?
AGD: The Chinese market has a couple of perfectly unmatched particularities, really. First, the scale and size of the market is immense and that makes it difficult to access. Especially when you don’t know where to start. Second, the Chinese market has a very developed ability to test. Products get on the market, they get tested and then things move on, one way or another. But nothing stagnates.
What is your advice to newcomers seeking to access the Chinese digital technology market?
AGD: Again, in very simple terms. You need to know where you are going, you need to observe, and you need to be prepared. It goes without saying, but you also need to be prepared financially, with significant funds available. Local firms have better deals and access to money that foreigners don’t have, so they can resist much longer.
Do you think Westerners have a chance to catch up with the Chinese digital technology at some point?
Ashley Galina Dudarenok: No, I don’t think they can do much as far as the Chinese digital transformation is concerned. First, Tencent and Alibaba have monopolies that no western company will ever reach in China, so the fight is impossible. Second, even if a western investor managed to create a monopoly social network in China, I don’t see how they would manage to obtain significant data and banking information from Chinese consumers. Again, Tencent and Alibaba own tens of companies and financial licenses, so their consumers have tons of reasons to give them such information without thinking too much about it.
Is there another digital area from which the world can learn from China?
AGD: ‘New Retail’ is the thing, undeniably.
Could you elaborate on what ‘New Retail’ is?
AGD: Do you remember the tiny virtual guy I mentioned before? The one who would help you pick a coffee machine? That’s ‘new retail’. Imagine a person, and around that person a cloud of data. The person is you, and the data regroup your tastes, your wish lists, your past purchases, and it tells who are your friends too. That rings a bell, right?
Now, imagine what happens when retailers gain access to this data. By plugging in, they can make you personalized offers, depending on what you like and need. This is ‘new retail’. It gives brands a direct access to you and that is a huge digital technology potential, a huge step in the digital transformation process.
And how real is this ‘new retail’ trend?
AGD: The implementation of new retail systems is already happening in China. Last year there were about 300 shops involved, now it is closer to 2000. Add the possibility of an immediate 30-minute delivery, there is just no reason why the Chinese consumers would not give it a try.
Why do the Chinese have such an ‘early adopter’ mindset?
AGD: The Chinese consumers there don’t buy things because they need them, but because they are efficient and fun. Technology is gamified and that is the reason why there is such a strong demand for it.
You told us about the competition between Alibaba and WeChat in relation to payments, can you elaborate on the relationship between banking and digital technology in China?
AGD: The interesting thing is that Tencent is a gaming company, originally. Their business model is built around gaming and all their products and services are accordingly didactic and very easy to use – in line with the gamification trend I just mentioned.
That makes a difference and in the long term. Chances are that they will revolutionize the way consumers feel about their banks.
At the same time, the Tencent official approach to banking is that they partner with banks so there is no competition. But in my opinion, their core motivation which is to create more functional, faster and more ‘real’ systems will take over sooner or later.
So we don’t know when, but digital technology in China will affect the consumer’s approach to payments.
AGD: Yes. gamification is going to be the key. You will buy something because it is fun, not because you need it. The acquisition process will be compulsive and payment will be one part of the system needed to access the next step.
For instance, if a payment system gave you a discount in exchange for a smile or if you answered a poll, would you do it? I think for most people this would simply make things fun. No need to think about it, you will just use the smile as a way to obtain what you want. Compared to the way we see payments – pretty much as a finality in the process, I mean – the room for evolution is huge.
What about the blockchain?
Ashley Galina Dudarenok: The Blockchain is the elephant in the room, everybody talks about this technology and it is the real star these days. In my opinion anyway, the future is not about mobile payment, it is about blockchain development changing the way we pay. Take the ‘smile for a discount’ example. What matters is the ability to develop artificial intelligence here, and the blockchain is probably the most adequate technology for that.
At the same time, the topic is delicate because the Chinese government is so determined to take the lead on new technologies that they are building their own blockchain technology. So, for now, you can try and make an educated guess but it is difficult to say what will happen.
Do you see this digital transformation trend impacting other industries outside of retail?
AGD: Of course. Why not? The gamification trend is about focusing our consumption habits on fun processes. So, similar methods could be applied to real estate for instance. You would buy a place because it is fun and because the design has been adapted for you. The sales process could be virtual and adapted to show you the good that matches your needs. And then the transactional process would be automated so the actual payment would not be a burden anymore.
And what makes all this possible in China rather than anywhere else?
AGD: As I mentioned before, the Chinese market has very specific particularities that other markets simply cannot compete with. The scale of the markets makes it a great playing ground and the technology can be tested rapidly, so going from concept to market in no time is possible. The cash impact is also very significant, as with the capital made available out there the limit is probably the sky. But I only see things like this happening in China.
Any thoughts on China, digital technology developments, and Europe?
Ashley Galina Dudarenok: As far as digital transformation is concerned, I see Europe as the old world that is becoming older, and older, and older. From a digital and technology point of view, I would say that Europe is lagging somehow in the past when China is the future. And the US is somewhere in between, for some time.
The Chinese will keep selling its products and technology to Europe but Europe will become irrelevant from the innovation side of things. They will have to change or die, and they will enjoy Chinese discoveries with a lag. Besides, with the number of Chinese tourists traveling around the world, my guess is that sooner or later European shops and businesses will also need to adapt to systems such as WeChat even if they don’t use them so far. Demand rules. Again, if you don’t come to China, China will come to you.
Talking about digital transformation, do you have views on the social ranking system that is expected to be put into place in China by 2020?
AGD: The view of the social ranking system seen from the outside is very negative, but when you look at it from a digital perspective things change a little bit. In a society where gamification becomes the rule, then social ranking can become a way of simplifying people’s life. Enormous quantities of data will be obtained and could be turned in more gamification outputs. We will see how the initiative is implemented.
We talk about Fintechs regularly in the Circle’s Asia-Pacific insights and we also noted the efforts made by Israel in relation to Fintechs. Any thought?
AGD: Israel is trying to connect and bring technological developments to the markets, but as for the United States and Europe, I think that they move into an underdeveloped reality. I said previously that Europe and the US are lagging behind China, and in my opinion, Israel’s technology efforts mainly aim at serving the European and U.S. markets.
To wrap up, what is the biggest mistakes and the best moves someone could go when entering China’s digital technology market?
AGD: The biggest mistake would be to come unprepared and to pick the wrong partners, because understanding the Chinese market is time-consuming and very expensive. Remember that in the meantime Chinese businesses will have the resource to wait and survive patiently.
Success would rather depend on your learning agility. Don’t be rigid in your approach – your open mind, your partners, and the available cash you have…
>> Related reading: Blockchain and Quantum Computing Transformation: New Paths for China?
>> Related reading: Fintech Talks, our Asia-Pacific Fintech Insights.
Ashley Galina Dudarenok | China Marketing Expert Contributor
Ashley Galina Dudarenok is a China marketing expert, entrepreneur, professional speaker, and vlogger. She is the founder of several China-focused businesses, including social media agency, alarice.com.hk, and resources platform, ChoZan.co. She runs the world’s largest vlog about China market, consumers and social media on YouTube, @AshleyTalksChina. Her latest bestseller “Unlocking the World’s Largest E-Market: A Guide to Selling on Chinese Social Media” is available on Amazon.
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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