Generation 40s – 四十世代

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How China is leading the ‘new retail’ revolution

CommentInsight & Opinion

Edward Tse and Jackie Wang say market moves by Chinese firms like Alibaba, Tencent and show how key players are experimenting with various forms of tech-driven ‘new retail’ in the O2O world, making the industry more dynamic than ever

While the past two years may have been brutal for brick-and-mortar stores worldwide, China’s online and offline retailers have witnessed a “new retail” revolution, driving an increasingly stronger national consumption.

Since China launched economic reforms in 1978, the country’s retail industry has undergone multiple stages of development.

With foreign retailers flooding in after China joined the World Trade Organisation in 2001, the scene was diversified. Offline retail started to be challenged by Taobao, Alibaba’s online shopping platform, which was founded in 2003 and grew ­exponentially in the following decade. The transaction amount for Alibaba’s “Singles’ Day” 24-hour online sales each November 11 has grown from 50 million yuan (HK$59 million) in 2009 to 168 billion yuan this year.

With e-commerce booming, businesses have been adopting an “online to offline” (O2O) model, using online channels to attract offline traffic. In the past few years, this phenomenon has evolved into the notion of “new retail”.

New retail represents a trend of online merging seamlessly with offline, resulting from the prevalence of digital technology, like mobile payment, wireless internet, sensors and artificial intelligence (AI).

In this model, online is no longer just a sales channel, but provides ubiquitous touchpoints to interact with consumers and their social groups. By contrast, offline retailers are trying hard to keep consumers in their brick-and-mortar stores for longer, offering better customer experiences by leveraging digital technologies.

From sales and marketing to ­logistics and inventory management, the new retail revolution is transforming the industry. For example, Amazon Go, the pioneer in new retail in the US, tracks purchasing behaviour with sensors placed on supermarket shelves. After consumers choose their products, they can just walk out of the store, with the amount payable automatically deducted from their mobile payment account.

Some aspects of the retail operation are also becoming less human-led. In China, logistics firm Cainiao is incorporating hi-tech-enabled hardware and software to improve efficiency. In its logistics park, ­Cainiao deploys drones to monitor the security of the venue. Within the warehouse, several robots called “Geek+” work with staff to sort packages. It also uses computer vision to identify, monitor and ­arrange different orders.

Improved logistics efficiency is contributing to the consumer experience as well. Consumers will not only receive their packages faster, but also with fewer errors and get fresher goods.

Whereas in America, Amazon is at the forefront of the new retail revolution, China’s speed and intensity have gone into orbit. Players big and small are experimenting with various forms of new retail, making the industry more dynamic than ever.

Driven by the huge market ­opportunities and abundant venture capital, start-ups in China are actively participating in this revolution. For example, Xingbianli, a convenience store and vending machine start-up, offers many popular Korean and Japanese products that could mostly only be bought via daigou (individuals who shop overseas and resell to Chinese consumers). More importantly, it is testing the area of unmanned retail.

Products have their own bar code, which can be scanned by consumers when they choose their shopping and then check out on the Xingbianli app. There is also a mini-library and a ­café within the convenience store, aimed at making consumers linger.

Traditional local retailers are also incubating their own new retail formats, such as Super Species, a subsidiary of China’s largest supermarket chain, Yonghui Superstores.

Super Species specialises in selling fresh produce, such as vegetables and seafood, and combines the traditional market with restaurants, ­cafés, florists, and so on. It has also introduced a Yonghui Partnership Plan, allowing staff to present more innovative retail ideas and pilot them within the stores. Super Species itself is becoming an incubator for those innovative ideas, and new retail here is no longer just about changing the store format, but also the mindsets of all staff.

Tech giants like Alibaba, Tencent and are heavily investing and competing head to head in the offline battleground. Alibaba ­invested US$2.9 billion in one of China’s largest supermarket chains, Sun Art Retail Group, in November. It aims to transform Sun Art’s offline business of over 400 ­Auchan and RT-Mart branded ­hypermarkets and provides technology to enhance customer data and inventory management.

In 2015, invested US$700 million in Yonghui Superstores. This month, Tencent, a close ally of, acquired a 5 per cent share in Super Species, and made capital injection for a 15 per cent stake in Yonghui Yunchuang Technology, Yonghui’s supply chain and logistics subsidiary.

To further compete with Alibaba online and enrich their own ecosystems, Tencent and are ­investing in, a Chinese e-commerce platform specialising in discounted products for women.

They will together own 12.5 per cent of and, as they further monetise their traffic, the new retail battle with Alibaba will ­get fiercer.

Foreign companies are also ­actively piloting their new retail strategy in China. Earlier this month, the world’s largest Starbucks ­Reserve Roastery opened in Shanghai, leveraging Alibaba’s technology to give consumers a more immersed Starbucks journey.

This is also the first mass offline application of augmented reality (AR) technology. Consumers can use the Taobao app to unlock the AR features in the store, such as learning about the details of the Starbucks coffee brewing process.

Technologies are enabling these companies to create new business approaches, while intense competition is driving all players to ­become better. They can’t afford to slow down. China’s scale also allows companies to use the market as a business laboratory and to experiment with business models.

Through fast launch and adaptation, players can fine-tune their business model at a rapid pace.

Beyond retail, the future consumption landscape will be much more complicated and sophisticated. Digital technologies, especially AI, 5G network and the internet of things, are already blurring the boundaries of industries.

Eventually, retail will be merely one layer of the consumer lifestyle, albeit a high-frequency one. The internet of things will create a new ecosystem that is ubiquitous and interconnected. Also, 5G network development will facilitate this process in the near future and bring about disruption in the retail world.

Assisted by machine learning and big data, consumers will ­increasingly be viewed as a “segment of one” and receive more personalised solutions, not just in ­retail, but in every facet of their life.

To that end, China will be at the global forefront of innovation and experimentation.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Jackie Wang is a senior consultant of the firm

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Education innovation gets a Nobel of its own in the Yidan Prize

South China Morning Post
CommentInsight & Opinion

Bernard Chan says the winners of the Yidan Prize – one of many generous initiatives by mainland business leaders – have ideas that can change education for the better in the world, including Hong Kong. These ideas deserve a bigger platform

If you have never heard of the Yidan Prize, you probably will in the years to come. It was founded in 2016 by Charles Chen Yidan, co-founder of Tencent, to honour individuals worldwide for forward-looking innovations in education.

I attended the inaugural awards ceremony here in Hong Kong earlier this month. Among the speakers were Cherie Blair, founder of the Cherie Blair Foundation for Women, who made some powerful points about the importance of educating girls.

The prize is a big step towards giving education innovators the type of status they deserve. Not only that, the event also opened my eyes to the growing role that mainland Chinese business figures now play in philanthropy and global social development.

In the mainland, business leaders are involved in the central government’s renewed campaigns on rural poverty alleviation. Big tech companies like Tencent, Alibaba and are entering agreements with local officials to support development in specific rural areas in China.

Mainland tycoons are also becoming increasingly involved in charitable activities overseas. These tycoons for the most part have humble origins, and some went through real hardship early in life. They have seen their businesses expand at home and, increasingly, overseas. Successful entrepreneurs with a global outlook, they seem to genuinely want engagement with and to contribute to the wider world.

Jack Ma, the founder of the Alibaba Group (which owns the South China Morning Post), started the Jack Ma Foundation in 2014 to promote educational, environmental and other causes as far away as Africa. He is also behind the Alibaba Entrepreneurs Fund (I sit on its Hong Kong governing board), which invests in and mentors start-ups here and in Taiwan.

As for Chen, he has endowed his Yidan Prize with HK$2.5 billion. International judges and advisers will select two laureates (individuals or small teams) per year. These winners will share HK$60 million a year in prizes, half in cash and half for research funds.

We all follow the Nobel Prize and other international awards that bring fame to the people responsible for breakthroughs in medicine or physics. But surely education is at least as important as, for example, genetics or astronomy, and individuals doing pioneering work in education deserve a high profile.

The first two laureates were psychologist Carol Dweck of the US, for work on students’ motivational mindsets, and Vicky Colbert of Colombia, founder of the Escuela Nueva (“New School”) movement of innovative primary schools in Latin America. By highlighting achievements by relatively unknown figures, the awards remind us how we usually overlook education as a key to the well-being of humanity.

Dweck’s work has been crucial to furthering understanding of how kids rise to challenges and enjoy learning. Her ideas could be stimulating in Hong Kong, with its rigid attitudes about what makes a child “intelligent” or “hard-working”.

Colbert’s achievement was creating a model of school management, teaching and community involvement that has spread through poor areas in Latin America, India and the Philippines. Designed for less developed countries, her methods are an impressive reminder that money is just one part of what makes a school successful.

The Yidan Prize Foundation has commissioned a study on the effectiveness of education systems around the world. Rather than focus on test scores, it looks at the inputs. The resulting Worldwide Educating for the Future Index is a reminder that Hong Kong’s own record is mixed. Despite what some think, we do very well in terms of teacher quality – ranking with Finland and South Korea.

However, Hong Kong lags in curriculum and assessment methods. This will not surprise anyone who has followed the ups and downs of education reform over the years.

The Yidan Prize is a major addition to initiatives like the WISE Prize for Education launched in 2011, and the Global Teacher Prize launched in 2014. Hopefully, it will build on their work in giving advances in education worldwide recognition and a “Nobel” status.

Bernard Chan is convenor of Hong Kong’s Executive Council

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China is beating America on foreign policy: just compare Rex Tillerson and Wang Yi

CommentInsight & Opinion

Tom Plate says while China’s Wang Yi is confident and optimistic, Rex Tillerson appears to be on shaky ground, especially amid mixed messages from the White House. If America wants to keep its lead in global affairs, a clear statement of purpose is the first priority

If you’d like a snapshot of the current state of US diplomacy versus the state of Chinese diplomacy, simply compare how the two top diplomats of each country are doing.

Whereas the foreign minister of China looks well-suited, secure and competent, the American one looks shaky, even over his head.

Let’s start with the American secretary of state, Mr Rex Wayne Tillerson. Unaccustomed as I am to defending former US oil executives, still, in all decency, somebody might tender a nice word for the once CEO and chair of ExxonMobil. Though Secretary Tillerson is on the outs with his boss and may soon be flat out of office, he is not remotely the weakest appointment in the Donald Trump administration.

Tillerson had been well-touted by widely respected former defence secretary Robert Gates, as well as by former secretary of state Condoleezza Rice. The appointment took place in February. It has been a bumpy ride ever since.

Striking gold is never easy, whether in vital appointments or in the big-time oil business; but, in the field of international diplomacy, itself a slippery, oily place, Tillerson found himself on extremely unfamiliar turf. Not to be crude about it, but reports out of Washington say his days are numbered.

In all fairness, world politics is more complicated and inclusive than ever, so perhaps the job of chief US diplomat is not suited for mere mortals any more, no matter how germane the resume. The energy-industry careerist’s cosmopolitanism came from extensive foreign business travel, but international diplomacy is a more complex drill.

At the same time, his podium persona lacks that off-putting slickness that makes one question the trustworthiness: Tillerson speaks without giving you the feeling that maybe you are being lied to. He also comes across as an actual adult – a stand-out trait in the Trump administration.

Tillerson, even if he had the academic credentials and background of a Henry Kissinger, labours for a testy boss whose own weak grasp of international issues seems not to deter him from putting his hex on Rex. These mixed-message wobbles, especially on an issue as volatile as North Korea, are unnerving and can nudge the conduct of American foreign policy off-track.

On the Chinese side, career diplomats in China’s Ministry of Foreign Affairs, that gigantic headquarters building in Beijing’s Chaoyang district, must be on a high. By contrast with their global competitor, Chinese foreign policy, as currently enunciated, seems relatively forward-looking and coherent; and when they compare Tillerson to their boss, Wang Yi, the Chinese foreign minister, their morale must soar higher still.

Mr Wang is a career Chinese diplomat who is trilingual, in English and Japanese, and impresses his interlocutors for “always thinking strategically, never losing focus” (as one prominent former Asian prime minister tells us) and, as another source put it, gives off a confident air that his China “is on a par with, if not exceeding the US, in many ways”.

Foreign Minister Wang’s confidence was evident in a speech earlier this month in Beijing: “China has no intention to change or displace the United States [but] … ever more extensive cooperation and close exchanges at different levels have tied the two countries’ interests closely together. There is far more that they share than they disagree upon. Cooperation leads to win-win outcomes while confrontation can only result in a lose-lose situation. This is a plain truth that anyone with a strategic vision and sober mind will recognise. It is a trend that will not bend to the will of any individuals. Recognising this, China and the US need to find ways to better get along with each other.”

The well-crafted speech went on to declare: “Trying to reverse the trend of globalisation will be futile … Those who pursue protectionism will lock themselves in a dark room deprived of light and air … We will see light at the end of the tunnel as long as we keep moving forward.”

Wang was diplomatically indirect about some hot issues, but his meaning was unmistakable. “Some countries outside this region seem to feel uncomfortable with the calm waters in the South China Sea and are still looking for opportunities to stir up trouble. However, just as the high mountains cannot stop the river from flowing to the ocean, the positive trend in the South China Sea cannot be reversed.”

Not that further punctuation about China’s intent was necessary, but Wang chose to conclude this way: “Let me end by quoting from a poem, ‘With the rising tide and ­favourable wind, it is time to sail the ship and ride the waves’.”

The message to Washington, and the world, could not be plainer.

Whether the US response comes from Tillerson or from a new secretary of state, a thoughtful and well-articulated locution of vision is needed before the world starts to wonder if we still have it in us to match up against the talent in the Chinese Ministry of Foreign Affairs.

The Trump administration will certainly not achieve this by cutting the budget of the State Department, demeaning the great US foreign service, and trivialising its secretary of state. Whatever its faults and mistakes, China doesn’t do that.

The US appears to be in the midst of an immense self-demotion in foreign-policy intensity and vision. Contrast this with Wang’s optimism.

Professor Tom Plate, author of the recent Yo-Yo Diplomacy and the four-book Giants of Asia series, is Loyola Marymount University’s Distinguished Scholar of Asian and Pacific Affairs and vice-president of the Pacific Century Institute