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August 19, 2016

How to Demystify China's Market for Technology

Posted by Rangarajan V. R. (View Profile | View All Posts) at 7:39 AM

How to Demystify China's Market for Technology?

One of the first investors to take a stake in Facebook, Jim Breyer, is teaming up with the Chinese investment firm IDG Capital to pump $1 billion into a variety of ventures both based in China and those looking to enter that large market. Their jointly held fund will invest in promising firms in the technology, media, healthcare, and energy industries.

Breyer's credentials as a technology investor are unparalleled. And his decision to team up with a local firm says a lot about his strategy for finding the most promising start-ups in China. If one thing is certain, the emerging markets present an entirely different set of challenges to investors and companies from the West. That's where the burgeoning field of consumer psychology comes in.

Just ask General Motors. Its Buick line of cars is considered the top of the line by Chinese consumers. Decades ago, GM planned an aggressive expansion and decided that Cadillac and Chevrolet would be its "world cars;" that is, the two lines that it would promote to markets overseas. (GM has owned Opel in Europe for decades; Cadillac and Chevrolet were intended for emerging markets like China.) But for reasons that nobody understood at the time, the Chinese consumer demanded Buicks - and GM happily met their desire. Nobody in Detroit back in the mid-1990s would have predicted that Buick would become GM's world car. In the United States, Buick is perceived as attractive to an elderly demographic.

I am also reminded of the time Altoids - the 'curiously strong' candy mint - conducted a study that aimed to compare differences in national markets. In the United States, for example, consumers are known for being receptive to advertisements that tout the consumer being in control. So the makers of Altoids presented two ads to their test subjects. The first ad read: "Take control of your breath." The second ad read: "Let Altoids take control of your breath." Test subjects in Americans preferred the first ad that put them in control. Among Chinese test subjects, however, there was no measured difference between the two ads. The concept of "taking control" simply didn't matter to the typical Chinese consumer.

The lesson here is that it pays to know your consumer. For those from the West, that means throwing away preconceived notions. In China, Buicks are hip and cool! From a technological point of view, knowing your consumer becomes exponentially more challenging. That's because the West perceives certain types of social media as performing certain functions. Facebook is where you post photos and comment on a friend's birthday party whereas Slack is used to schedule meetings and communicate with business colleagues. A Chinese consumer might use WeChat to schedule meetings and, after work, split a bill among friends who meet up for dinner. Think of it as FinTech combining with social media to morph into something completely new.

Add to this scenario that the government in China isn't as lenient and comfortable about allowing social media to run unfettered, and you have some hardcore research to do before you invest in tech start-ups there.

Partnering with a local firm is, I think, a must, but companies must also be willing to move away from known methods of how consumers have progressively adopted technology in the West. For instance, the notion that to be successful, consumers must first log into a Web site will get you nowhere in China -and throughout most of Africa, for that matter. Mobile apps rule the roost. In some ways, because the emerging world didn't have the luxury of going through the entire transition from desktop to laptop to tablet to smart phone, these consumers have an advantage over those from the West. They skipped a lot of the platforms I've listed and went straight to mobile devices. That's why messaging apps might be called messaging apps, but they do a lot more than message.

Once investors and companies from the West grasp how China has turned social media and other digital technologies on their head will they be able to create products that appeal to a different kind of consumer. The upside? These enterprises from the West might come away with products that transform their home markets as well.

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