Clayton Jacobs, Author at ReadWrite

[VIDEO] A Look into DJI, the World’s Largest Drone Manufacturer

Clayton Jacobs — Wed, 09 May 2018 18:00:56 +0000

A introduction China’s famed DJI (Da Jiang Innovations), the world’s largest producer of drones world wide. This video features the history of the company, its founder, their financial statistics, and much more.

Below you will find the outline for the power point featured in the video:

An Intro to China’s 100 Most Influential Tech Companies

DJI
大疆创新科技有限公司

1, Company History

Founded in 2006
Began sales in local market in 2008, expanding internationally a year later
In 2012, it developed stabilization tech to allow for high quality drone footage
In 2015, The Economist named DJI as being at the forefront of the civilian-drone industry

2, Meet the Founder

Frank Wang (汪滔 / Wāng Tāo) born in 1980 in Hangzhou
Received a grant of just over $2000 USD from his university, Hong Kong University of Science & Technology, as a grant to develop drone technology
DJI was founded out of his dorm at HKUST in 2006
Became the youngest tech billionaire in Asia

3, Financials

Private Post-Series B Company
$30 million Series A from Sequoia Capital
$75 million Series B from Accel Partners
Currently raising $500 million-$1 billion in Pre-IPO funding @ $15 billion valuation
Revenue of $2.7 billion in 2017
Growth of 65% year on year

4. Drone Line-up

From The Verge

5, Maintaining Monopoly Status

70% global market share for consumer drones
70% market share for agricultural drones
China exports 70% of the world’s supply of drones

6, Wrap-up

Preparing for an IPO
Expanding drone market, Chinese Ministry of Industry and Information technology:
40% growth for next two years
25% years after

ReadWrite, Spoke Intelligence, and LeaguerX entrepreneurial investment all made this video possible. To see more content like this, have a look at the previous video from the “100 Most Influential Chinese Companies” series on Tencent.

If you are an entrepreneur outside of China looking to explore the Chinese market and see the potential for your business to expand please reach out to us at LeaguerX. We specialize in bringing cross border technology companies to China and are now accepting applications for our acceleration program to help companies expand to the Chinese market.

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[INFOGRAPHIC] The history of Ethereum

Clayton Jacobs — Wed, 18 Oct 2017 12:30:53 +0000

Ethereum (ETH) creates much debate in the crpytocurrency world about whether or not the overtaking of Bitcoin is possible. Since its inception in 2014, ETH radiates an aurora of trust and hope about being the golden standard for cryptocurrency. This reputation results from not only as a result of the technology that supports it, but also from its fearless leader Vitalik Buterin. Looking at its short history, it is no secret that the pace of growth and adoption has been rapid. The question now is whether ETH can maintain this growth while still pushing the frontier for security. The answer remains unknowable for now, but what many agree on as being true is that Buterin and ETH have the best chance of leading the cryptocurrency revolution.

The Infographic

The info graphic below recounts the journey ETH has had in recent years. When ETH’s achievements are put side by side with each other, there is no doubt about its already existing impact.

“The history of Ethereum” graphic was given to ReadWrite for publication by the team at www.ethereum-kaufen.de.

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Take me out to the (augmented) ball game

Clayton Jacobs — Tue, 17 Oct 2017 14:01:52 +0000

Disclaimer: Parle Innovation and the eyeQ were part of ReadWrite Labs, ReadWrite’s IoT accelerator. I also act as an informal adviser for the company.

Since the first sporting events were broadcast on radio in 1921, technology has continually changed the way fans experience games. Now, a personal smartphone accessory may significantly enhance the viewing of live events in stadiums, athletic fields and even at the local park.

Augmented reality becomes reality

Most sports fans have no idea what augmented reality (AR) is – but they have been experiencing AR as they watch football and other live sports on TV for over a decade. Similar to the “green screen” used on the weather channel, PVI’s (Princeton Video Image) introduced L-VIS (Live Video Insertion System) to display advertising on “virtual signage” during live sports broadcasts in 1995.

Then, in 1998 both PVI and SportVision introduced virtual first down lines to pro football, with PVI’s “Yellow Down Line” and SportVision’s “1st and Ten” line. Since then AR has come to baseball and hockey with SportVision’s “Virtual Strike Zone” and their “FoxTrax” puck tracker. Obviously, AR has now become a standard feature in TV broadcasting of pro sports, including football, baseball, basketball, hockey, soccer and motorsports.

Now imagine that baseball and other sports fans can see the game at the stadium with the same types of AR viewing. Some of the features of live broadcast data have already been demonstrated to fans in the stands. In September, Apple’s ARKit was promoted at a San Francisco Giants baseball game with the introduction of MLB’s At Bat App, allowing fans to gain up to the minute stats on players taking the field.

The biggest problem with the MLB app technology was the device itself. Fans had to point their iPads or iPhones at the field or at players. The fans were basically watching a live baseball game through an Apple device they would hold inches from their faces. In the bright outdoor lighting conditions of a live event, the viewing is terrible.

Tech company Parle Innovation’s eyeQ, immersive smart binoculars can take AR to a new level with sports fans. The company wants to eliminate the separation created by a digital device when watching a sporting event through an iPad or smartphone. No more fiddling with the phone to look up stats on MLB.com or Wikipedia. Fans can get stats, overlay graphics and more with this new smartphone enabled device that gets them into the game like never before.

What is eyeQ?

The eyeQ device takes the idea of fans gaining up to the minute information by offering an immersive augmented reality binocular, eyeQ provides sports fans with the chance to see baseball and other events thru HD lenses that enhance the display on the smartphone’s screen. One day, eyeQ immersive binoculars could be seen in sports stadiums around the globe as this cutting-edge technology creates a unique viewing experience.

eyeQ isn’t just for live professional sports, however. What makes the new tech device great, is anyone can use it for any sports activity or live event. Whether a proud dad wants to use eyeQ to stream his child’s soccer match to grandparents on the other side of the globe or a mom wants to record special moments of her family vacation, eyeQ offers a number of amazing features and possibilities for AR never experienced before on smartphone apps.

How does it work?

eyeQ is designed to be simple and users of the immersive smart binoculars can be using them in no time. Users simply download an app, sync with the eyeQ and place their smartphone into the universal mount and hold the binoculars up to the eyes for viewing.

Once the user is looking thru the eyeQ device, they can capture videos, images and stream live video to devices elsewhere with a tap of a fingertip. The idea of streaming video will completely change the way people view live sporting events. Whether professional baseball games or amateur soccer, eyeQ users can stream what they are viewing in real time to other individuals. In the future, sports teams of all levels could use the eyeQ to further engage fans. Go into the huddle or step into the box against a big league pitcher. The future of immersive augmented reality is limitless.

Using the eyeQ

Using the eyeQ is easy and far less complicated than one might expect. The binocular’s integrated touchpad enables users to control their smartphone’s camera functions and more. There is no need to constantly remove the phone to change settings or toggle through apps. Once in the smartphone mount holder, the eyeQ instantly connects to the smartphone, wirelessly via Bluetooth. Fans and spectators can video record, snap photos and share while live streaming and seeing everything in stunning HD. The device’s eyeQ Live app for iPhones enables up to16x digital zoom capabilities and eyeQ can be used around water, since it is made to be water resistant.

AR binoculars for sports

Major League Baseball and other sports leagues around the globe are embracing augmented reality technology. “Smart” fans are all about knowing more about players and their favorite teams. Baseball is one sport that prides itself on stats, and with the time it takes to play a full nine inning game, fans can fill dead space with AR apps.

However, eyeQ enhances AR apps. It gives fans the immersive experience they want, but delivers more than what a simple downloadable AR app can, by enabling the zoom capabilities, enhancing the viewing, video and photo capturing and live sharing of exciting moments in the game.

eyeQ is coming

On October 17, 2017, the eyeQ will be available for preorder on Kickstarter. Sports fans and others can preorder their own eyeQ device and see the world through immersive AR, rather than an iPad or device being held six inches or more from their face. eyeQlive.com/earlybacker Mary Shulenberger mary@parleinnovation.com 415 518-1231 @eyeQlive

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The future of tokenization and blockchain is not just ICOs

Clayton Jacobs — Tue, 10 Oct 2017 17:17:29 +0000

Blockchain business case variety seems secondary in the conversation around blockchain hype. Tokenization on a blockchain system has received attention around the world with the increasing prevalence of ICOs (Initial Coin Offerings).

For those who continue to see “ICO”, but have no firm understanding of the definition, here’s an over simplified version. An ICO is a way a company can raise funding through using cryptocurrencies such as Bitcoin. This works by the company creating its own coin, perhaps the ClaytonCoin, and those interested in purchasing shares in the company can trade their Bitcoins for ClaytonCoins. A ClaytonCoin then supposedly represents a share in the company, but, to quote Smith + Crown:

“Most ICOs today are marketed as ‘software presale tokens’ akin to giving early access to an online game to early supporters. In order to try to avoid legal requirements that come with any form of a security sale, many ICOs today use language such as ‘crowdsale’ or ‘donation’ instead of ICOs.”

The unregulated nature of ICOs caused China and South Korea to ban them. On the other hand, ICOs in the US have found much success such as in the case of Tezos raising $230 million.

Beyond ICOs

Even with successful ICOs happening in the US, tokenization built on blockchain is under utilized in terms of its potential. I ran into a start-up called, FundersToken, at an after party for RISE 2017 that is trying to fix this. FundersToken is a CRM software-based company, with the backbone of tokenization. Their software with blockchain technology offers business augmentation and digitalization. Their goal is to allow business with no blockchain experts to use tokenization for various business functions. These include exchange of goods/services, voting, equity transfer (ICOs), and dividends.

Voting and governance through tokenization has been done through Distributed Autonomous Organizations (DAOs). While in an ideal world the voting rights would work very similar to standard governance in companies, but there are again no regulations. This may prove to be an issue in specific scenarios. Yet, many VCs point to tokenization as the future of governance in addition to funding. Another article from Smith + Crown contains great comparisons of the Pros v. Cons.

For this technology to be industry changing, more companies like FundersToken must come forward and include the nontechnical. As a technology evangelist, there is a duty to be patient with the ignorant and help encourage productive uses of new technology. The worst thing that could happen for the future of blockchain is association with only ICOs. That is not to say ICOs don’t promote blockchain properly, in fact, it’s the exact opposite. But, imagine if when the Internet was gaining popularity, the only thing the Internet was known for was digital media. Sure, people would be thrilled to hang on my every word, but it would miss the greater potential.

Live AMA

The founding team of FundersToken will be joining myself and the rest of the ReadWrite team on WeChat to do a live AMA about both their product and tokenization within a week. If you would like to participate, feel free to connect with me on WeChat:

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Check out these 3 AR/VR companies getting investors’ attention

Clayton Jacobs — Wed, 30 Aug 2017 19:00:14 +0000

With the AR/VR sector attracting a significant amount of capital recently, the space has only begun to grow. Here’s a look at the 3 American AR/VR companies that received investment in August:

Immersv

Venturebeat reported that Immersv raised $10.5m USD in a Series A for mobile advertising utilizing virtual reality as well as 360-degree mobile video. Immersv describes itself on its website as “…a virtual reality discovery and advertising platform, founded by the team that created the largest app distribution platform on Facebook and then again on iOS and Android.” This is the first public round of funding for the Los Angeles based company which a roster that isn’t kidding about its team’s experience.

Many of the team members at Immersv, including its co-founder and CEO Mihir Shah, are ex-employees of Tapjoy. Tapjoy is another U.S.-based company that provides monetization services for the largest advertisers and mobile app developers. Its services currently reach over 500 million users, so this team knows how to create something viral. The advertising space needs to constantly be changing their business models as the way people consume content is never stale. For the next way of VR content, look to Immersv for monetization.

Sliver.tv

Techcrunch reported that Sliver.tv raised $9.8m USD in Series A led by Danhua Capital to continue developing virtual reality viewing experiences for e-sports fans. According to Sliver.tv’s own website its primary product “is a platform to record, view, and stream top eSports games in fully immersive, 360° cinematic VR video”. Coincidentally, the Head of Product for Sliver.tv, Ryan Nichols, is actually the co-founder of Tapjoy, so he must be quite familiar with the folks over at Immersv.

The platform allows viewers to be placed in the center of the action side-by-side with their favorite e-sports athletes, an experience that can’t be replicated nearly as simply with standard offline sports. Sliver.tv has been having a very successful year starting off with signing deals with ESL & Dreamhack, large organizers of e-sports tournaments in America and Europe, to be partnered for 14 full-scale events. Given that the two co-founders are Chinese along with Danhua Capital being a Chinese/American VC fund, it is possible that this newly raised money could be invested into a Chinese market expansion given it’s the largest one in the world for e-sports.

Matterport

PR Newswire reported that Matterport raised $5m USD in a strategic investment from Ericsson Ventures. This was by no means a growth round for Matterport as it has already raised over $60m USD in last four years after going through Y Combinator in Fall 2012. Matterport has created a platform that is designed to quickly understand 3D spaces and render a digital model that is viewable in 2D, 3D, mobile and VR.

According to the PR Newswire report, over 550,000 spaces have been made into digital models accumulating a total of more than 220 million views from all around the world. Ericsson Ventures made the investment to work with Matterport in developing its next generation of products. These products would use its existing library of data and machine learning to create artificial intelligence that could potentially automatically design, correct, or create 3D models on its own according to Matterport CEO, Bill Brown. Unfortunately it is unknown whether any ex-Tapjoy employees work at Matterport or not.

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WeChat’s director of user growth talks up new features for overseas clients

Clayton Jacobs — Fri, 21 Jul 2017 07:06:47 +0000

I got a chance to sit down at RISE 2017 in Hong Kong with WeChat’s Director of User Growth Stephen Wang.

For those unfamiliar, WeChat began as a messaging app back in 2010 created by China’s Tencent, but over the years, it has quickly become a tool of everyday life in mainland China. WeChat has 889 million monthly active users; 83 percent of people surveyed use WeChat for work, and 93 percent of respondents from Tier 1 and Tier 2 cities use WeChat’s internal payment system for offline purchases.

Having such a deep hold on the Chinese consumer base both in terms of engagement and pure numbers, WeChat has naturally become of interest to both domestic and foreign enterprises. As a result, WeChat has begun releasing more and more features over the years to assist with business operations and communications in China, and recently, foreign brands have begun launching WeChat official accounts to promote brand awareness and sales.

Now, WeChat is rolling out two brand-new features, social ads and cross-border pay, to further cater to non-Chinese companies.

ReadWrite: How will social ads better aid foreign companies looking to promote themselves in China via WeChat?

Stephen Wang: Socials ads [are] a product that we only introduced only a little less than two years ago, and it has been growing very rapidly. [It functions] basically [by] narrowing targeted ads that businesses can [use to] target consumers in China, in [both] their moments feed and official accounts articles.

Social ads … raise awareness and acquisition for international businesses and particularly for international businesses. We have been beta testing on a whitelist limited basis different brands who have been leveraging Social Ads. [The brands that have tested this new feature] are international businesses [that use social ads to narrowly target] users on WeChat from China who are traveling or are about to travel — Duty Free Shops and Cartier. We have [found] that these customers have been really satisfied with the product and as a consequence, next month, we plan to open up [social ads], which was previously invitation-only, to all international businesses to help them with their awareness and acquisition campaigns.

RW: What is cross-border pay and how does it make foreign merchants’ business transactions in China easier and more efficient?

SW: Cross-border pay is WeChat pay enabled for foreign merchants overseas, so Chinese [WeChat pay] consumers, of which there are over 600 million every month, [can] experience [the] same convenient, elegant payment mechanism whether they are inside China or … abroad. Right now we support 10 different currencies, and we have been rapidly developing this program all through East and Southeast Asia, particularly in Japan. We’ve seen four times growth within the last six months of total spend … in Japan.

As a consequence, in addition to the expansion we just announced last week in Tokyo at our first partner’s conference for WeChat-pay cross-border, we [also] just launched what we call the “open platform” for cross-border pay. What the “open platform” allows you to do is similar to [what] social ads [allow you to do]: it allows businesses in different countries — we have a qualified list of countries right now because [of our] list of supported currencies — to go online and instantly enroll in cross-border pay. Merchants and financial institutions … can [now] begin offering WeChat pay themselves in their stores overseas.

Our second announcement is our participation with Stripe, one of the leading software payment providers, to offer WeChat pay as a turnkey solution for mobile and web e-commerce [so that] merchants can, by checkbox approach, fulfill the requirements [they need to] begin accepting payments from Chinese consumers through mobile apps or their [own] websites. We are actually already seeing, via a prior partnership [with] Adyen, another leading software payments provider … that we launched with, … multiple merchants [finding] success leveraging WeChat pay on their mobile apps and websites. [A lot of start-ups] are already Stripe or Adyen customers, and they can instantly find a whole new source of consumers and revenue by just checking a box.

RW: Why should foreign companies use WeChat, or do business in China?

SW: There [were] 135 million outbound travelers from China last year. More than that, … 261 billion USD [was] spent by those outbound travelers. That actually [is] more than double the amount of [money spent by the world’s] second largest spenders, U.S. [travelers]. And it’s growing actually very, very quickly. We feel that [WeChat and its new features] present a really unique and unprecedented opportunity for international businesses to find success.

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Chinese auto group invests millions in next-gen cars

Clayton Jacobs — Tue, 06 Jun 2017 05:24:27 +0000

China’s Guangzhou Automobile Group Co. Ltd, known as GAC Group, announced at their recent board of directors meeting that they plan to spend $88 million on a new subsidiary focused on electric vehicles.

The new subsidiary will be known as Guangzhou Automobile New Energy Automobile Co., Ltd. The first registered capital will be half of the total investment amount with the remaining $44.1m being available based on project requirements.

GAC Group — founded in 1997 and was acquired by Guangzhou Automobile Industry Group in 2005 — said they plan on achieving a new energy vehicle production capacity of 200,000 before the end of 2020. It is clear that this goal is already being taken seriously by the company as one-third of all new models already or planning to be launched in 2017 will utilize new energy.

China is making large strides both from a consumer opinion and a technology stance not only for new energy vehicles but for connected cars as well. According to a survey conducted by PwC in October of last year, 40% of surveyed Chinese consumers stated they were willing to change automobile brands for better connectivity. But, the most astounding statistic from the PwC survey was 85% of respondents stated not only are they interested, but “eager” to own an autonomous car.

In March of this year, Toyota, one of GAC Group’s most important partners, announced they would be partnering with NTT, one of the largest carriers in Japan, for research and development on connected car technology. GAC also partners with other European and Asian automakers, including Fiat, Mitsubishi, Honda, and Isuzu.

Western automakers should pay heed

In a recent TechCrunch article, it was stated that part of the technology being collaborated on would include 5G networks. This is significant as China’s Huawei is leading the way for 5G standards. As a result of Huawei being located and starting their 5G network in China, it is likely that Toyota will utilize GAC Group to test whatever R&D technologies utilize the 5G network.

Then with the creation of this new subsidiary with such significant initial funding, it is possible that we will see GAC Group create the first highly connected and fully electric car in the Chinese market.

American auto manufacturers should be paying close attention to new strides made in China with connected car technology as well because it is possible that if the two were to be elegantly connected, it is possible the United States would witness the first Chinese-branded automobiles that have a massive advantage against the current American technology.

With a potential like this available, it is likely that GAC Group, Toyota, and NTT will be pushing hard to make it a reality.

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Why many major American companies have struggled in China: A final word

Clayton Jacobs — Tue, 14 Mar 2017 06:45:15 +0000

This is the final installment of an eight-part series about the importance of cross-cultural design which examined several attempts by large, well-known American companies to expand their reach by marketing in China. As this series exposed, the bulk of those attempts have failed to achieve much success, even though China is the second largest economy in the world, and it described some primary reasons why they failed. Set forth below is a summary of the primary lessons which can be drawn by other American companies to help them successfully sell there.

China holds promise for most American businesses. It is a large market that inherently desires high tech and luxury goods. Globalization is not only a trend, but a reality of how future business will be done. In response to some protectionist governments, Xi Jinping, the President of China, has come out urging all nations to actively welcome globalization. Fear of doing business in China is natural, but this should never stop an American business from trying to expand there. While there are many examples of businesses that have lost money (several of which are discussed in prior installments in this series), the ones that do make it in China reap great rewards. IKEA has dominated the home improvement market and Fitbit has inspirationally been able to learn from its past mistakes and even overtake its primary, initially more China-savvy, competitor.

The examples discussed earlier (in prior installments in this series) demonstrate a few key things that all American businesses should be mindful of in attempting to put their best foot forward in China.

Avoid having a lack of understanding about Chinese society and its realities.
Never have assumptions about how Chinese consumers will act based on experiences in other markets.
Find homegrown Chinese partners with which mutually beneficial guanxi is possible.
Never give the Chinese government a reason to root against your company.

Although this series has focused on attempts to enter China by large American companies, the lessons drawn are applicable to any attempt by an American company to do business in China, even those who have plenty of cash to invest in the attempt. And for those which must be more careful about or limited in their use of funds, the stakes of ignoring these lessons are even higher. More limited funding will no doubt mean a shorter runway for the attempt, and therefore less time to learn, and the consequences will likely be greater to the overall company. Companies that intend on banking on only the luxury aspect and brand name recognition of its product must be the most careful, as short term success could cause complacency and failure to follow the lessons described above. Given the size of the Chinese market though, a smart attempt to sell there is likely to pass the risk-reward threshold for many companies.

祝你好运！(Good luck!)

The author is Clayton “CJ” Jacobs, who is currently an Entrepreneur-in-Residence with, and the Head of Cross-Cultural Design at, ReadWrite. An area of focus for him is helping American companies understand and enter the Chinese market through taking a modern user-centric product design approach. You can contact him directly at clayton.michael.jacobs(at)gmail.com or find him on Twitter & LinkedIn.

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Why many major American companies have struggled in China: Fitbit

Clayton Jacobs — Sat, 11 Mar 2017 23:00:43 +0000

This article is part of a series about the importance of cross-cultural design, other installments of which have been published over the last month.

Fitbit is a story of hope. After its entry into China in 2014, it had a lackluster two years. But then it completely changed its strategy to be more China-specific and has been rewarded for doing so.

In the beginning, Fitbit really did nothing special to sell its products there and was instead riding the hype and “cool factor” that was associated with its product being a new concept in America. While this is not an awful strategy to sell gadgets, it can very easily turn a company into a “one hit wonder” with little prospect of long-term sustainability.

Beyond the standard struggles Fitbit was having, wearable exercise technology was an over- saturated market in China with the heavy majority of the options being significantly less expensive than a Fitbit of any model. One advantage which allowed Fitbit to survive long enough to change its strategy and eventually thrive was that the Chinese market has a huge bias towards recognizable brands for reasons of quality and status. With the continuing middle-class growth in China, more consumers are able to purchase brand name items as a status symbol. And many Chinese consumers feel pressure to do so.

While Fitbit never came out and acknowledged that its Chinese market share was falling near the end of 2015, its primary competitor, Misfit, a company heavily invested in by Xiaomi (owner of JD.com), made sure to let the world know how rapidly its products were gaining market share against Fitbit. Misfit was playing China the right way with its Xiaomi partnership since Xiaomi was using JD.com to spoon feed Misfit to Chinese consumers. As discussed earlier in connection with WalMart (see the fourth installment), JD.com is China’s largest e-commerce site. Even though Misfit is a company based in San Francisco with only a few dozen employees, it conducted a $40 million USD Series C funding round in which Xiaomi was a large investor. After this funding, Misfit began to quickly gain traction in China with the help of its new partner, Xiaomi.

Learn from Fitbit’s pivots

Every American company thinking about going to China should take notes from Fitbit’s ability to learn and pivot. Seeing Misfit’s success, Fitbit worked hard to find the right partnership and develop guanxi with another major player in China. It did this by partnering with a subsidiary of Alibaba, Tmall (discussed in the sixth installment of this series). The reason this move was so incredibly clever is that Alibaba is a natural competitor of Misfit’s investor, Xiaomi. And the purpose of Tmall is to provide a channel for luxury brand items that are verified to be legitimate and sold directly to the Chinese consumer. This, of course, is very helpful to Fitbit.

In addition to its efforts to develop corporate guanxi, Fitbit has developed a good relationship with the Chinese government. It joined in an effort important to the Chinese government by being one of the partners for Alibaba’s government-sponsored initiative “China is Getting Fit.”

There is an enormous difference between the companies described earlier (in the second through the sixth installments of this series) who failed in China and Fitbit, who developed strategic partnerships with Chinese companies and befriended the Chinese government through helping to represent its health initiative. It cannot be stressed enough that while Fitbit is incredibly innovative and smart for its approach, any company could follow a similar path.

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Why many major American companies have struggled in China: Amazon

Clayton Jacobs — Sat, 11 Mar 2017 04:30:28 +0000

This article is part of a series about the importance of cross-cultural design, other installments of which have been published over the last month.

Before mentioning anything about Amazon, the scale of its problem must be described. In 2014, after disappointing results for their business in China, Wolfe Research Analyst Aram Rubinson estimated that Amazon was operating at a $600 million USD a year loss in China. Wow.

Like Walmart (which is discussed in the fourth installment of this series), Amazon has a long history in China, beginning with its $75 million acquisition of the Chinese online book retailer Joyo.com in 2004. Yet even with the purchase of a profitable company, the firm couldn’t seem to grow its site to the scale and profitability experienced in the West. It has only an estimated 1-3% market share in China. This small percentage of the market indicates a problem as its sites receive lots of visitors who must be simply browsing without making a purchase. The American, British, and Japanese versions of Amazon’s websites are all in the top 50 most-visited websites in China according to Alexa (most often times the versions from other countries will reroute the user to amazon.cn, the Amazon website specifically for China).

A possible reason users are simply browsing instead of purchasing could be that there are two markets in China for people purchasing goods, and Amazon doesn’t really target either of these. The two markets are white label items which are extremely inexpensive and verified branded items sold at a higher cost directly from the brand. Alibaba has directly attacked both of these market segments. As discussed earlier in connection with eBay (see the third installment of this series), Taobao allows the sale of extremely cheap items from consumer to consumer. Alibaba’s more recent Tmall allows, for a fee, brands to verify their products as legitimate while selling directly to consumers.

Amazon needs to speak more clearly to Chinese consumers

While it is somewhat understandable that Amazon has tried to simply repeat a model that has had great success in a number of international markets, if the company wants its brand and businesses to have more than low-level success in China, it must do a better job of speaking to Chinese consumers. It could develop a strategy that creates companies or divisions which compete with Taobao and Tmall directly in the two market segments. However, since it is late in doing so and has allowed them to dominate those markets, the firm is in a tricky spot. Perhaps it could figure out and uniquely solve some problem for the Chinese consumer.

Here is an example of another Amazon misstep: Amazon Prime is a service widely loved in America. It provides free two-day shipping, as well as access to streamable audio and video, among other things. In October 2016, it was announced that Amazon Prime would be rolled out to China for a lower cost and with fewer features. The focus of China’s Amazon Prime is free shipping on items costing more than $29 regardless of their nation of origin. While this may be a desired feature, Amazon Prime in China could have been used to provide services specifically desired by the Chinese. For example, there is a very large market for pay-to-win games in China and Amazon has a digital currency for in-game purchases. It could have given a yearly allowance of digital currency with Amazon Prime to drive interest. Instead, they simply copied and pasted its American approach.

It seems Amazon never truly tried to problem solve by tweaking its products or services to relate to China-specific issues. As CEO Jeff Bezos said himself in regard to their China strategy, “We mostly tried to roll out what worked well for us in Japan, Germany, the U.K., Spain, France, Italy, the U.S., etc., and it needed more local market customization. If you want me to give one meta-lesson, it’s that one.”

Amazon is a prime example of a company which thought it could succeed in an entirely different market just by continuing to do business as usual without good market and customer analysis. This method of going about globalizing a product will almost never result in good success and analysts are actually calling for Amazon to pull out of China. It seems that Amazon’s executives are not willing to do the type of market research that will allow it to better speak to the Chinese consumer.

One would hope that a company as large and advanced as Amazon would learn its lesson from massive financial losses in China, but it seems unfortunately that it is prone to making the same mistake again. Bezos has announced that Amazon plans to invest around $5 billion USD in the next three years in India to try to establish itself there. India is another complicated market which, like China, greatly differs from the West, but Amazon has implied it will again copy and paste its business model there without changes.

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Why major American corporations have struggled in China: Home Depot

Clayton Jacobs — Fri, 10 Mar 2017 02:00:08 +0000

This article is part of a series about the importance of cross-cultural design, other installments of which have been published over the last month.

Home Depot is another retailer that has struggled in China. However, unlike Walmart, it did not figure things out. Home Depot’s story in China began in December 2006 with its purchase of a Home Depot imitator which already had twelve locations throughout China. The deal was rumored to have cost Home Depot around $100 million USD.

The story of Home Depot contains perhaps some of the most important lessons for any foreign business entering China as, no matter what it did within its business model, it had little potential for success because the model itself was doomed to cause failure. This assertion might be hard to make sense of since, according to a Gallup poll from March 2005 taken in China, 93% of those who responded said that they owned their place of residence. Homeowners are the bulk of Home Depot customers of course. With a market that massive, it was no wonder Home Depot thought it would hit a homerun by expanding into China.

Similar to Walmart’s mistake discussed in the fourth installment of this series, Home Depot’s mistake was to have a fundamental misunderstanding of the Chinese consumer and his/her desires. Very few Chinese homeowners want to do their own repairs, upgrades, and renovations. This overlooked fact blew a massive hole in the Home Depot business model, since its model is based on selling to people who want to do their own home improvement projects to save money.

However, even with such a flaw within Home Depot’s business model, its true mistake was not altering its strategy to provide the types of products and services Chinese customers do value. If Home Depot had done decent market research, it would have realized that the Chinese consumer generally does not like do-it-yourself (DIY) projects. If it had still wanted to take a shot in China, it could have changed its model to offer the service of carrying out home improvement projects with its own products. As a result of not adequately understanding Chinese consumers, Home Depot closed its final seven stores in China in September 2012.

To see the success Home Depot could have had, one needs to look no further than IKEA. IKEA is absolutely making a killing in China, which might seem strange given what I previously said about the Chinese not wanting to build their own things and that this concept is synonymous with the IKEA brand in the West.

But in China, IKEA learned about Chinese market differences and developed a two-pronged strategy in order not to repeat the fate of Home Depot. First, it was able to keep and leverage its classic showrooms within its retail stores. The showrooms alleviate one of the largest reasons many Chinese don’t want to do their own home upgrades: they lack confidence in what they are doing. Many Chinese who are ready to purchase their first home have not ever lived in a modern style home. This causes uncertainty about what is typical or stylish and, therefore, frustration about making design choices. The Chinese typically would much rather see how something works or looks, then purchase it exactly how it is, rather than come up with their own design.

In addition, the typical Chinese life experience means that most of them do not have the skill or know-how for DIY projects. So, unlike its marketing approach in the West, and in other international markets, in China IKEA offers and promotes a service of designing and building home improvement items.

This solves the related problems of the Chinese people not knowing how and not wanting to do DIY projects. Home Depot may well have been able to win over China by employing a similar approach from the outset. And even after its initial lack of success, instead of re-strategizing to figure out and solve its customer’s needs/desires in China, Home Depot kept a fixed frame of reference, which ultimately led to its inability to gain market share there.

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Why major American corporations have struggled in China: Walmart

Clayton Jacobs — Sat, 25 Feb 2017 21:30:21 +0000

This article is part of a series about the importance of cross-cultural design, the first three installments of which have been published earlier this month. Keep an eye out for the rest of the series during February 2017.

Walmart in America could be viewed as a company trying to monopolize a large part of American life and many joked as it moved to China that it was trying to take over the world. Regardless of whether its plans were world domination or simply the more likely attempt at higher profits for shareholders, it was at first unsuccessful in its attempt to capture a native Chinese audience. This continued for many years until it started to figure things out.

According to Walmart’s corporate website for China, it first launched into China by opening one of its superstores in Shenzhen in 1996. Walmart China continued to struggle for many years after this opening and made some of the same critical mistakes that have been witnessed too many times from American companies trying to expand.

First, Walmart disturbed the political atmosphere. Many horror stories are told in the United States about the restrictive government of China. These stories have varying levels of truth to them. Yet many American companies could do themselves a favor by following the guideline that “When in China, do as the Chinese politicians want you to.” In one instance, Walmart China’s sale of a certain prohibited product in China had local and federal governments actually shut down its citywide operations in Chongqing for a period of time.

Beyond directly disturbing the political atmosphere, Walmart has been putting the government in an awkward position starting in 2013 when labor activists began to speak out against Walmart China. It is not uncommon for the central Chinese government to arrest labor activists, but the Communist party has been staying far away from Walmart’s issues as they do not want to side with Walmart China. Doing so may cause local labor to rise up in protest against the government, since the government would be supporting foreign business over its citizens. On the other hand, the government does not want to support the labor protesters either, as this might encourage more labor protests and scare away foreign companies. The government resents Walmart China for putting them into such a position.

The approach is hard to understand

Walmart China actions are a little difficult to understand. It pays its workers an average of $300 USD per month and refused workers’ demands for higher wages, even though the workers were asking for modest wage improvements. Walmart China probably could afford to as much as double every single worker’s salary. Roughly speaking, even if it had as many as 100,000 employees in China, it would cost $30 million USD per month to double every worker’s salary, which is a fairly modest percentage of Walmart’s over $1 billion USD per month in global profits. It seems this would be a worthwhile investment for Walmart China in order to improve its relations with both the people and the government of China.

In addition to the political feathers Walmart China has ruffled, it also clearly has failed to understand the Chinese consumer. Along with the logistics of stocking issues comes what stock to carry. Walmart China used Walmart’s American algorithm to determine how it stocks stores. It did not prove to be nearly as accurate in China due to drastically different consumer shopping habits. Walmart has since had to make adjustments.

Further, especially in the early days of Walmart China’s arrival to China, WalMart failed to understand that Chinese infrastructure, such as the road system outside of cities, was simply not as advanced as in America. This fact would cause both delays in shipping and higher expenses. At times, stores would be out of a product it was purportedly selling. Due to its lack of understanding of both the needs/desires of the average Chinese consumer and the status of Chinese infrastructure as it sells more in China, one can only imagine how much money Walmart left on the table in the last two decades. However, recently Walmart has made good strides to recognize these differences in the Chinese market, but it may not prove to be enough as Walmart China closed 29 stores in 2013 and announced its plan to slow down in China in 2015.

And Walmart is finally beginning to appreciate the power of guanxi. In June of 2016, Walmart China announced a partnership with JD.com. JD.com has the largest revenue of any Chinese e-commerce site. The synergy – and guanxi — that will come from this partnership may well prove to be the best thing Walmart could have done for itself.

With the infrastructure and product stocking difficulties early on in Walmart’s attempt at doing business in China, it learned there is more to operating in China than simply opening up shop there. Then Walmart China exacerbated these problems by causing unnecessary difficulty with the government. And probably most importantly, it didn’t understand the power of guanxi. Hopefully, it has greatly increased success as result of its JD.com partnership.

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Why major American corporations have struggled in China: eBay

Clayton Jacobs — Tue, 21 Feb 2017 03:28:00 +0000

This article is part of a series about the importance of cross-cultural design, the first two installments of which were published on February 16-17, 2017.

eBay has been involved with China for a while, starting in 2004, so one can see an example of what the longer-term timeline looks like for a very successful American company trying to gain a foothold into China without guanxi. eBay absolutely lost its battle against the most similar Chinese company, Alibaba. In an immediate response to eBay entering China, Alibaba created Taobao to be a direct competitor. As of January 5th 2017, Alibaba (NYSE: BABA) had a market cap of $235.93 billion US dollars whereas eBay (NASDAQ: EBAY) had a market cap of $33.55 billion US dollars.

There has been a consensus that lack of guanxi was eBay’s fundamental problem in China. In this kind of direct consumer-to-consumer business, guanxi refers to the relationship which forms between a buyer and a seller that goes beyond a mere transactional relationship. Guanxi then translates into a trust which facilitates the transaction and is considered necessary by the average Chinese consumer. But eBay’s site did not allow for direct communication between buyer and seller, meaning that Chinese consumers often do not feel good about using eBay to engage in transactions.

Another issue for eBay was that the primary form of payment was the online use of credit cards. Compared with Americans, the Chinese are much more averse to using their credit card online due to security concerns. So, Chinese consumers are more comfortable having online wallets. In addition, there is a much larger percentage of the Chinese population that simply does not have a credit card.

A mistake that is often overlooked in other analyses of eBay’s entry into China is its marketing strategy. In an aggressive attempt to gain public exposure, eBay purchased exclusive marketing rights from Sina, Soho, and Netease, all of which are major advertising portals in China. To an objective outsider, this may seem like an expensive yet effective marketing strategy, but Alibaba CEO Jack Ma knew better. Ma spent millions on television ads as he knew that his and eBay’s target audience was much more likely to be watching TV than browsing the Internet. As said by Forbes contributor Helen H. Wang, “I heard the ads for Taobao popping up on TV almost every half hour.” Now taobao.com is the 3rd most visited website in all of China while eBay is 36th according to Alexa website popularity rankings.

The obvious mistake made by eBay here was a critical lack of understanding of the habits of its target audience in addition to ignoring the importance of guanxi. This lesson is not necessarily unique to attempts by American companies to market in China, but it seems to occur frequently there as American businesses see China more than most other nations as a “black box” in regard to the population’s habits and everyday life.

In terms of what could have been done, obviously eBay could have better understood its target customers’ habits, created more effective advertising, and accommodated their preferred means of payment. However, doing all of these things likely would not have been enough. It could and should have allowed for person-to-person guanxi by adding direct communication between purchaser and seller. Finally, eBay should have tried to develop corporate guanxi and strike deals with well-known retailers in China to allow eBay to have free postings and sales on its site as a means to naturally increase viewership, usefulness, and brand recognition in China.

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Why major American corporations have struggled in China: Uber

Clayton Jacobs — Sat, 18 Feb 2017 04:00:11 +0000

This article is the second part of our eight-part series about the importance of cross-cultural design, the first installment of which was published on February 16, 2017.

Uber’s failure in China, which ultimately led to its sale to its competitor, Didi Chuxing, was one of the most covered American business venture failures in China. Uber has had a large impact in America to the point that it continues to grab an increasing share of the ride sharing/taxicab market and has even influenced the overall culture. In contrast, while Uber’s share of the Chinese market peaked near the end of 2015 at a claimed 30-35%, it thereafter shrank to a reported 8% when it sold to Didi Chuxing in August of 2016.

Even with 8% market share, Uber could have created a very profitable and sustainable business. Its decision to sell was likely the result of its feeling that its market share would continue to decline. To illustrate the market opportunity that Uber will be missing out on in China, one must look to recent statistics. America has the 3rd most cars per 1000 people in the world at 797 cars per 1000 people in 2014. China is starkly different at 128 cars per 1000 people, which is 99th in the world. With so many fewer people in China than America having personal vehicles, there would seem to be a large market for both taxi and ridesharing companies.

Many news outlets analyzed Uber’s failure and “merger” with Didi Chuxing, but none of these analyses has gotten to the heart of the matter. For example, when an American company loses out to a Chinese company on Chinese turf, the first reaction always seems to be that the Chinese government put its thumb on the scale resulting in the certain victory of the homegrown company. However, this may be at best a partial answer. While it is true that the (often invisible) hand of the Chinese government plays a role in helping homegrown businesses, a powerful force at play is very likely private sector challenges such as a failure to develop guanxi.

The term guanxi (关系) represents the essential theme when looking into any matters of Chinese business. It is defined by the Oxford Dictionary as “the system of social networks and influential relationships which facilitate business and other dealings.” This is a critical concept in Chinese business. Didi Chuxing had innate guanxi with the incredibly popular social media/life app known as WeChat. The parent company of WeChat, Tencent, has a significant investment in Didi Chuxing. As a result of this guanxi, Didi Chuxing became very easily integrated into the life of the average Chinese person through promotion of its services within WeChat. Uber had no such relationship.

Another thing that Didi Chuxing did to naturally become a partner in the average Chinese person’s life was not to force the adoption of a new habit, but instead to become the technological extension of an already existing one. Within Didi Chuxing’s mobile integration into WeChat, one could give a gift card to a user which would result in that user receiving a digital Hong Bao. A Hong Bao is a red envelope filled with cash that is traditionally given to all sorts of important people in a Chinese person’s life during Chinese New Year. While being slightly corny, something as simple as this makes the product seem more like an actual part of the culture as opposed to an invasion into the culture.

Another example of Didi Chuxing’s understanding of Chinese culture is that a user was able to purchase a specific ride for another user. No major technological feat. No flashy design to exploit a person’s subconscious. Simply the ability to pay for another person’s ride. It is much more common in China for someone other than the rider to pay for a ride, so of course an application must be accommodating of this fact. This is what is meant by having a feature be the technological extension of an already existing habit instead of trying to impose a new one. Uber never developed this functionality for China. Its closest attempt to this date is the very American (and, without a Hong Bao, culturally tone deaf) Uber gift card.

For Uber to take a real shot at the Chinese market, it needed a relationship similar to that of Didi Chuxing and WeChat in order to promote itself. Since WeChat, as a result of its relationship with Didi Chuxing, was effectively competitive with Uber, it probably would not have accepted Uber onto its platform. However, Uber could have partnered with a WeChat competitor such as WhatsApp instead of trying to handle promotion all on its own. As a result of its failure to do this or something similar, Uber did not develop guanxi which, combined with its failure to understand certain aspects of Chinese culture, led to its departure from China.

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Why do major American corporations struggle in China?

Clayton Jacobs — Fri, 17 Feb 2017 06:59:46 +0000

This introduction is our first installment of an eight-part series about the importance of cross-cultural design which will examine several attempts by large, well-known American corporations to expand their reach by marketing in mainland China. As this series will show, many of these attempts have failed to achieve success even though China is the second largest economy in the world. The key question we hope to answer is why they failed, and to attempt to draw lessons to help future American companies to successfully sell there.

Many American companies are increasingly interested in capturing the absurdly large and ever more technologically advanced market of China. But with the potential of the great financial rewards associated with successfully operating in China comes a large risk of failure. To quote GE’s CEO Jeff Immelt, “China is big, but it is hard.”

This series of articles examines some attempts by major American companies to enter the Chinese market. Major companies provide the most telling examples because they have the most written about them. Further, they are instructive because, generally speaking, an inability or failure to commit sufficient funding to the attempt is not part of the analysis. Therefore, one can more easily see that disappointment or outright failure in the Chinese market by American companies is the result of one or more factors from four general categories:

A lack of understanding about Chinese society and its realities;
Misunderstanding the needs/desires of the consumer, especially how the population typically uses technology;
Creation of political turmoil – this is mostly applicable to large corporations, especially those with a social media aspect; and
A lack of key partnerships (guanxi) with homegrown Chinese businesses.

In this series, I will explore several large American companies that have experienced a range of outcomes in China, from failure to lackluster success, even though these same companies were and are thriving in America, and sometimes in other large international markets as well. In addition to discussing what each company did wrong, I will suggest what each one could have done or should do in the future to better capitalize on their respective market opportunities. I will also discuss a couple of companies which have learned enough to do things the right way and have enjoyed success as a result.

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