Rules of the Road: Learning from China’s trade structure
Jack Ma, the founder of Alibaba once said, “You should learn from your competitor, but never copy. Copy and you die.” As the Chinese consumer healthcare market continues to rocket forward, what can we learn from them? For my dollar — or yuan — quite a bit.
In some ways, China is moving toward a U.S. trade structure although the emergence of traditional retail has been in the large shadow of e-commerce. Global powerhouses like Watson’s or Walmart have had different levels of success. Don’t underestimate some of the homegrown chains (Nepstar comes to mind) nor the uniqueness of the Chinese consumer. I am always amazed by the space allotted to traditional Chinese medicine vs. western brands. Chinese retail is deftly combining both. Their ability to readjust store space and globally source products is admirable. And who knew that Wisconsin produces some of the most prized ginseng? Ginseng-heads at a Green Bay Packers game doesn’t fit.
China also has forged a new world. Ma’s Alibaba is exhibit A with its two e-commerce divisions, TMall and Taobao, which we would recognize as Amazon and E-bay respectively. It’s a game-changer having these two under one roof. Having negotiated in setting up e-commerce consumer healthcare brand flagship stores (and not just TMall), I am struck by the interplay of pricing information between the two platforms. Taobao can and does feature branded product, bought on deal in the United States by aggressive small operators. The structured TMall trade promotion “requirements” coupled with the holiday price discounts is complicated. November 11, known as Double 11, is huge. The United States has nothing that matches the discounting depth. We could learn from this.
China’s Google is Baidu. (Or is it the United States’ Baidu is Google?) Given restrictions placed on the Internet, Chinese consumer healthcare e-commerce content is critical as a trusted source of product information. TMall, JD, Koala and many other e-commerce platforms have developed excellent product content out of necessity; we can learn from that.
The frantic pace of parallel growth of traditional and e-commerce consumer health care has also spawned some fascinating hybrids and governmental creativity. Known by several names, cross-border trade has fostered industry/tax authority cooperation. Think of it as a special tax zone; instead of smuggling to avoid a standard 17% import duty a compromise of an 11.9% tax rate has aligned all parties. The government heavily punishes any smugglers attempting complete tax avoidance and the companies have a more even playing field while paying a lower tax rate. It also ensures that knockoffs don’t make it as all companies value consumer trust.
Perhaps more unique are the so-called Demonstration Stores found in the Cross-Border areas. Consumers can sample products and then immediately go to a computer and order online for home delivery. Traditional Retail meets E-commerce and both win. How would a market research firm classify that revenue?
What can US companies learn from China’s consumer healthcare trade structure? Here’s a partial list:
- Content delivery. China’s e-commerce platforms are quite good given their realities.
- Logistics of HUGE temporary price discounts. Understand Double 11.
- Hybrid structures where e-commerce and traditional blur.
Long before Jack Ma, the famous Chinese military philosopher Sun Tzu wrote, “Know the enemy and know yourself; in a hundred battles you will never be in peril.” The Chinese Trade isn’t an enemy, but we can learn from them.
Ed Rowland is a Drug Store News contributing editor covering global issues. As the principal of Rowland Global, he believes in the promise of global business and supports companies in their strategy, tactics and execution of international growth initiatives.
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Dressed for the future
This week I was reminded by my two great nieces that we need to be setting goals and looking into the future. Living in the present or only perpetuating the status quo will not fuel growth and reinvention.
When you look in the near and not-so-near future, do you think your company will be in the same industry? In this rapidly shifting business environment, that’s a question that must be asked. Companies and industries are in constant change. To remain competitive and relevant you must imagine a new future.
It is important to recognize that transformation is occurring across the retail supply chain and literally modifying its historic footprint. As I look at other industries that have experienced tumultuous change, three examples rise to the top: taxi (Uber), hotel (Airbnb), and telecommunications (Apple), to name a few.
Other catalysts for change involve technology and access. These factors are altering traditional industry boundaries. The lines between suppliers, producers, and consumers are shifting. In our industry, we need to look no further for examples than the current reported negotiations between CVS Health and Aetna, Walgreens Boots Alliance’s agreement for the manufacture and supply of own beauty brands and private label products, or the potential aspirations of Amazon as it contemplates pharmaceutical distribution.
Another huge shift — especially within the healthcare ecosystem — is a result of increased consumerism. Access to information, personal empowerment, and a desire to be an active participant in health choices and outcomes have dramatically changed the once linear path to treatment. Traditional players can no longer abide by outmoded expectations and processes.
Curious what my grade school-aged nieces did that made me think about what our company’s future may look like? For a school project the girls dressed up to represent their future career choices. My youngest niece has her heart set on becoming a school teacher and she worked with her mom to create the ideal persona. Dressed as the picture-perfect dentist, my older niece was completely in character from the moment she put on her pristine white robe and placed toothbrushes inside the pockets. Although my nieces’ representations reflected their view of themselves in those professions as they exist today, I started wondering what those careers will actually evolve into by the time they enter the workforce — the seed that sprouted into this blog post.
Although predicting the future is an uncertain bet, I would encourage organizations across the retail supply chain to imagine what they may become. If you were asked what your future is going to look like, are you and your team ready to embrace it – dress the part — and begin to believe it feasible?
Dave Wendland is vice president strategic relations and co-owner of Hamacher Resource Group, a company focused on improving results across the retail supply chain located near Milwaukee, Wis. He directs business development, product innovation and marketing communications activities for the company and has been instrumental in positioning HRG among the industry’s foremost thought leaders. You may contact him at (414) 431-5301 or learn more at Hamacher.com.
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