Special 2021 China Tech Trends (with Tech Buzz China)

Summary Notes


In this crossover episode of Acquired with Techbuzz China's Ray Ma and Ying Liu, hosts Ben Gilbert and David Rosenthal explore the dynamic landscape of China tech. They delve into the unique production model of Techbuzz China, contrasting it with Acquired's approach, and discuss the evolution of China's tech ecosystem, highlighting key trends like the rise of consumer brands run like internet companies, community group buying, and the burgeoning electric vehicle market. They also touch on the implications of China's antitrust push on startups and big tech, underscoring the agility of Chinese entrepreneurs who are diversifying their businesses across sectors. The conversation also covers the internationalization of Chinese companies and the significant investments flowing into rural China, signaling the country's commitment to digital penetration and micro-entrepreneurship.

Summary Notes

Techbuzz China Podcast Format

  • Techbuzz China has a unique format where episodes are scripted beforehand.
  • Hosts Ray Ma and Ying Liu record their parts separately, creating an audiobook-like feel.
  • This method allows for meticulous research and preparation for each episode.

"Yeah, we actually do. We don't even record synchronously at this point."

This quote explains that the hosts record their parts of the podcast at different times, not simultaneously, which is different from many other podcast recordings.

Acquired Podcast Introduction

  • Ben Gilbert and David Rosenthal introduce themselves and their professional backgrounds.
  • They host the Acquired podcast, which discusses technology companies and their stories.
  • The episode features a crossover with Ray Ma and Ying Liu from Techbuzz China.

"Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures."

Ben Gilbert introduces the Acquired podcast and his professional role, setting the stage for the crossover episode.

Ray Ma's Background and China Tech Insights

  • Ray Ma shares her journey from China to the U.S., her education, and her career in finance and startup investing.
  • She lived in China during a significant growth period in China's tech industry.
  • Ray Ma's experience includes working at 500 Startups and observing the rapid evolution of China tech.
  • She now focuses on Techbuzz China and consulting for funds interested in China tech.

"I was like, hey, podcasts are all the rage. This is in 2017, should do a podcast on China tech. Seems like it could be fun."

Ray Ma discusses her motivation to start the Techbuzz China podcast, highlighting her interest in the burgeoning China tech scene.

Ying Liu's Background and China Tech Observations

  • Ying Liu discusses her move to China and her involvement in various tech sectors.
  • She has worked with Chinese teams and co-founded a startup in China.
  • Ying has observed the rise of tech in China and the U.S., and she emphasizes the need for ongoing research to stay informed.

"Most of my deep rooted opinions and cultural schemas of China have been shaped by a combination of family background and early personal and professional experiences."

Ying Liu explains how her personal and professional experiences have informed her understanding of China and its tech landscape.

  • The hosts discuss trends in China tech, including consumer brands, community group buying, and electric vehicles/autonomous driving.
  • They highlight the rapid development of new business models and technologies in China.
  • The discussion covers how Chinese companies are increasingly being run like tech companies, with a focus on ROI and quick iterations.

"One is consumer brands, and that's specifically on consumer brands being run like Internet companies, which we can talk about."

Ray Ma identifies consumer brands run like internet companies as a key trend in China tech for 2021.

Direct-to-Consumer Brands in China

  • Ray Ma and Ying Liu discuss the rise of direct-to-consumer (DTC) brands in China.
  • These brands are leveraging improvements in manufacturing, design, and marketing.
  • The discussion includes how these brands are capturing market share and building brand IP.

"So I think there's a huge market opportunity for domestic Chinese brands to gain market share in China."

Ray Ma highlights the potential for domestic Chinese brands to capture a significant market share within China.

Genki Forest and Brand Innovation

  • Genki Forest is discussed as an example of a Chinese brand aiming to become the Coca-Cola of China.
  • The brand is notable for its marketing strategies and rapid product testing.
  • The conversation touches on the shift from OEM to ODM to OBM in China's manufacturing landscape.

"So they do small batch testing and then they will do it on both the marketing front as well as sort of the physical products, of course."

Ray Ma describes Genki Forest's approach to product development and marketing, emphasizing their innovative and iterative strategies.

Seasonal Product Releases and Supply Chain Flexibility

  • Chinese companies are releasing products on a seasonal basis, with a new product launched every week on average.
  • Successful products get additional resources and are distributed more widely.
  • This approach is compared to iterating on an internet software product.
  • The flexibility of China's advanced supply chain enables this rapid product development and testing.
  • Automation and software management are prevalent in Chinese factories, challenging the stereotype of manual labor.
  • Manufacturing advancements in China have focused on speed, reducing barriers like minimum order quantities, especially in the clothing industry.
  • Influencers in China, like the "Kylie Jenner of China," are creating their own clothing and branded products.
  • Companies like Shein can design, produce, and ship products in as little as five days.
  • Shein produces around 1,000 new SKUs every day and has reached $10 billion in revenue.

"And it's the same thing for Genki Forest." "So there's a lot of automation. Like I said, they're all running software to manage themselves and they have a lot of design in house talent." "It's about seven, right. From a design to being made and then shipped out the door. Right, seven days, that's actually really fast."

The quotes discuss the rapid production cycles of companies like Genki Forest, the automation and software management in factories, and the quick turnaround from design to shipping, highlighting the efficiency of Chinese manufacturing.

Online Marketing and Social Media Influence

  • Chinese brands focus heavily on online marketing, a highly valued skill similar to the U.S.
  • Shein's rapid design-to-ship process and extensive new design production demonstrate the power of online marketing.
  • Shein has a substantial social media presence with 19 million Instagram followers, despite being a Chinese company.
  • Social media is crucial for Chinese DTC (direct-to-consumer) brands looking to expand overseas.
  • DTC fashion brands in China are benchmarking against Shein's supply chain and marketing strategies.

"So she in takes five days of designing to ship. This is on average they're producing 1000 new designs a day." "And we'll get a little bit into that, too, with some of the cross border DTC happenings."

These quotes emphasize Shein's efficient design-to-ship timeline and the importance of social media for Chinese DTC brands expanding internationally.

Environmental Impact and Inventory Management

  • There is concern about the environmental impact of fast fashion.
  • Ultra-fast fashion companies like Shein may not fully account for environmental costs.
  • The goal is to create a flexible supply chain that allows for just-in-time manufacturing, reducing inventory risk and costs.
  • Just-in-time creation and design minimize product risk and align with consumer demand.

"I don't think the environmental impact is probably fully baked into it." "So that it is completely just in time. And then you have zero inventory risk or zero inventory. You basically lower your cost so much."

The quotes address the environmental concerns associated with fast fashion and the industry's move towards just-in-time manufacturing to minimize costs and inventory risks.

Competitive Market Dynamics and Overseas Expansion

  • China's saturated market forces companies to innovate and expand overseas.
  • DTC brands in China aim for a 30-40% gross profit margin to remain competitive.
  • Companies like Xiaomi can disrupt markets by significantly lowering prices, driving out competitors.
  • The competition is fierce, and brands must quickly establish themselves or risk losing to those who can operate on thinner margins.

"So there's a growing proportion of chinese companies that want to sell into overseas markets, including the US, that are DTC fashion brands." "But depending on the industry, brands can charge, like, a roughly 10% margin on their costs."

These quotes discuss the aggressive competition in China's markets and the strategies of DTC brands, which include overseas expansion to escape the intense domestic competition.

Integration of Online and Offline Retail

  • In China, the distinction between online and offline shopping is blurring.
  • Stores are designed for online order pickups, with layouts and warehouses optimized for e-commerce.
  • Apps are integrated with physical stores, providing a seamless shopping experience.
  • Personalization is a significant aspect of the Chinese retail experience, with recommendations and promotions tailored to individual consumers.

"But in China, actually, that's something that's been happening for the last ten years where shops are designed that way from the get go because ecommerce has such a high penetration." "Because again, personalization is very important to the average chinese consumer."

The quotes highlight the integration of online and offline experiences in Chinese retail and the importance of personalization in the shopping experience.

Gaming Industry and Live Operations

  • Live operations teams in gaming companies manage in-game stores and promotions, a practice common in China.
  • Chinese e-commerce companies use operations teams to ensure that consumers see new content and offers regularly.
  • The gaming industry in China has influenced other sectors in terms of operations and content delivery.

"Oh, my gosh, she's a gamer. I didn't realize that, but that makes a lot of sense now that I think about it." "But to this day, operations remain really important and everything is quote unquote, operated on."

These quotes draw parallels between the gaming industry's live operations and the operational strategies of Chinese e-commerce companies.

Advertising in China's Growth Economy

  • Friends in the advertising industry in China found it difficult to sell advertising effectively.
  • The focus was on investing profits into growing distribution rather than advertising.
  • In a rapidly growing economy like China, distribution growth provided more returns than advertising.
  • Advertising is more suited for saturated markets where distribution channels are established and competition is high.
  • The presence of products in front of customers was more important than competitive advertising.

"Because at the time, you should just invest your profits into growing distribution, that you got way more bang for your buck out of just organically growing distribution points than trying to advertise."

The quote explains that in the context of China's growth economy, expanding distribution networks was a more effective use of profits than investing in advertising.

Community Group Buying

  • Community group buying focuses on distribution, particularly in rural areas of China.
  • It began with fresh groceries but has expanded to other goods.
  • The model involves aggregating demand and then distributing products for customer pickup, saving on last-mile logistics.
  • Initially unbranded products from rural farmers, but now includes branded and non-perishable items.
  • Some platforms have expanded to selling high-value items like iPhones.
  • Community group buying is evolving into hyper-local rural e-commerce.
  • Logistics and supply chain management are critical, especially for perishable goods.
  • The last mile is often managed by local community leaders or franchisees.

"Community group buying is very simple. People are applying a group buying mechanism to buying fresh groceries to start with, but now also moving into other goods to parts of rural China where there isn't a lot of choice and isn't great logistics for such products."

This quote summarizes the concept of community group buying, highlighting its origins in fresh grocery buying and expansion into other goods due to limited choices and logistics in rural China.

Role of Major Platforms in Community Group Buying

  • Large tech companies like Alibaba and PDD are heavily involved in community group buying platforms.
  • These platforms require significant investment in cold chain logistics and supply chain management.
  • The platforms outsource the last mile but manage the rest of the supply chain.
  • The CEO of Pinduoduo stated that the first mile is more expensive than the last mile in agricultural e-commerce.
  • Community group buying is not just about selling products but capturing user behavior and increasing platform engagement.

"So we did an episode on e grocery in China, and I don't remember the exact stat, but you can compare, know, per capita, I guess, cold storage sort of capacity, and China's like a fraction of what's here in the."

The quote highlights the challenges and opportunities in e-grocery in China, particularly in cold storage capacity, which is essential for the supply chain in community group buying.

Economic Growth and Investment in Rural China

  • Rural China, which includes third-tier cities and below, is experiencing significant economic growth.
  • Billions of dollars are being invested in digital penetration and micro-entrepreneurship in these areas.
  • Rural China is not necessarily agricultural but includes densely populated cities with growing consumer markets.
  • Investment in rural China is driven by the need for growth as the economy in first and second-tier cities slows down.
  • Rural residents may have more disposable income due to lower living costs despite lower salaries.

"Yeah, huge. Because if you look at China, the growth has slowed down for all of China. But if you look at rural China, it's actually still something like 10% GDP growth per capita year on year."

The quote emphasizes the significant economic growth still occurring in rural China, making it an attractive market for investment.

Electric Vehicles (EV) in China

  • Electric vehicles (EVs) have become a priority in China due to environmental and national security concerns.
  • Major Chinese tech companies are entering the EV space with significant investments.
  • Baidu has shifted focus to autonomous driving, with investors valuing its search business as a bonus.
  • Alibaba, Tencent, and Meituan have made investments in various EV companies.
  • The EV sector is a part of China's broader commitment to climate change leadership.

"So, first of all, it's just, like, a big priority right now. I think if you look back ten years ago, China probably didn't care that much about environmental damage or climate change, at least not at the expense of economic development. But in recent years, you've really seen China take a lead on climate change."

This quote discusses the shift in China's priorities toward addressing climate change and the resulting focus on the development of the electric vehicle industry as a strategic area.

Chinese Electric Vehicle (EV) Market and Company Growth

  • The Chinese EV market has seen significant stock price increases in recent years.
  • Companies like Neo were uncertain of survival a year and a half ago but now have a substantial market cap.
  • The growth is fueled by the large size of the Chinese car market, government push towards EVs, and investor exuberance.
  • China is the largest car market globally, with a population indicating a market four to five times larger than the US.

"So their stock price was, like, hovering around." "In fact, I think Neo now is a... $59 billion company."

These quotes highlight the remarkable turnaround in the valuation of Chinese EV companies, such as Neo, from uncertainty to a multi-billion dollar market capitalization.

The Role of Government Incentives and Infrastructure in EV Adoption

  • The Chinese government provides incentives for EVs, although they are reducing some.
  • There is excitement around the EV market due to these incentives and the competition among internet companies entering the EV space.
  • China's approach to autonomous driving includes government collaboration and infrastructure changes.
  • The potential for China to reach level five autonomy first could lead to significant efficiencies.

"Definitely government incentives." "The government is tamping down incentives, but I think the overall demand is still going to be there."

These quotes emphasize the government's role in promoting EVs through incentives, despite a scale-back, and the continued demand for EVs in China.

Autonomous Driving and Infrastructure Advantages in China

  • Autonomous driving is an area of interest, with private companies and investors involved.
  • China's approach to autonomous driving includes government partnerships and infrastructure improvements.
  • The United States faces challenges with infrastructure and federal systems, making it less likely to quickly adapt to AVs compared to China.

"So Baidu, for example, is working with the government on autonomous driving solutions that aren't just the software, but also include remaking the infrastructure on the road."

This quote highlights China's integrated approach to autonomous driving, involving both technology and infrastructure development in collaboration with the government.

Crusoe and Clean Compute for AI Workloads

  • Crusoe is a clean compute cloud provider that specializes in AI workloads.
  • They partner with Nvidia and use stranded or clean energy for their data centers.
  • Crusoe's approach to data center location and energy use provides performance and cost benefits.
  • Their environmental angle is significant, utilizing energy that would otherwise be wasted.

"Crusoe's data centers are nothing but racks and racks of a."

This quote explains Crusoe's focus on AI workloads and their unique positioning in the market, utilizing racks of Nvidia hardware powered by alternative energy sources.

Antitrust Movements in China

  • Antitrust laws in China are affecting tech companies and their practices.
  • The first antitrust law in China was passed in 2008, with a recent focus on tech companies.
  • Recent antitrust actions are aimed at protecting consumers and vendors from unfair practices by large tech companies.
  • The antitrust movement is seen as positive by investors and entrepreneurs as it levels the playing field.

"So I think the antitrust caught some people off guard. But actually, if you look at the history, this was pretty much inevitable."

This quote reflects on the surprise of some regarding China's antitrust actions, but it also acknowledges that such moves were predictable given the historical context and the need for regulation.

Future of China Tech

  • There is a trend of increasing internationalization among Chinese tech companies.
  • Chinese companies are expected to continue expanding into new markets and sectors without self-imposed boundaries.
  • The rapid economic growth in China has resulted in adaptive customers and entrepreneurs.
  • The antitrust measures are encouraging fair play and creating opportunities for startups and investors.

"No China. No country were the main think the."

This quote, though incomplete, suggests the importance and influence of China on the global stage, particularly in the tech industry.

Adaptability and Expansion of Chinese Companies

  • Chinese companies are not limited to their initial business models; they adapt and expand into various sectors.
  • The entrepreneurial mindset in China is driven by the country's rapid changes and growth.
  • There is a culture of continuous innovation and seeking new opportunities among Chinese companies.

"We'll do whatever makes money. Our core competency is making money."

This quote encapsulates the business philosophy of Chinese companies, which is to pursue profitability and adaptability, often leading to diversification into multiple sectors.

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