The traditional Western view of China as the ‘workshop of the world’ is rapidly melting into the mist. The consumer classes are buying more and – supported by their government – making less. Labour costs are rising at 20% a year:
“In this decade, China will be driven by consumers, not manufacturers”
– Anna Stupnytska, executive director of Goldman Sachs’ Investment Management division.
But this is not a one-way street, and China is not a blank cheque – we should see this more as the start of new ways of innovating, bringing products to market and the creation of new business relationships. At the recent ‘Retail Futures 2012’ event at the Future Laboratory, the developing economic, consumption and production picture was painted as much more nuanced, complex and multi-tonal than a set of crass ‘x’ and ‘y’ axes.
The buzzwords INDOVATION (pertaining to India) and SYNDOVATION (pertaining to China) refer to innovation and productsthat are now being exported to Europe directly from both economies. These products and ideas are borne out of necessity – by and for people who fall outside the traditional Western-defined boilerplate of what a ‘consumer’ looks like.
By their nature – because of lack of infrastructure, remote location of population or the micro-level of service that delivering a single egg requires – these Indo/Syndovations are very simple, eminently functional, quickly usable, low cost and low-tech. Their beauty is that they perform one task really well. So, against everything that we in the Western world have been sold with our multi-tasking complex sophisticated products that have a mandatory requirement for constant upgrades.
The rising consumption – which as yet shows little sign of altitude sickness – in BRICS and other emerging markets, has not just triggered investment in the countries that supply these economies. It has also raised, phoenix-like from the ashes, some of the traditional skills associated with crafting luxury goods, such as coopering (the art of barrel-making) and coppersmithing. Diageo has just poured $1bn into the Scottish economy to meet thirsty global demand for Scotch whisky distilleries. This massive long-term investment is bringing not just jobs but livelihoods and communities back to parts of Scotland where the outlook was dreich, as the locals would say.
So, as tastes in waning Western economies are turning towards more austere, simpler fare, the opportunity to collaborate with Chinese companies in product and retail development has presented itself like a glistening red cherry on this multi-layered cake. Macys has acquired a $15m stake in the Chinese retailer VIPStore, and in March, Neiman Marcus invested $28m in the Chinese flash sales site Glamour Sales.
And let’s not just sell things together and to each other – let’s make things together and mix things up a bit more.
IKEA has joined forces with China-based manufacturer TCL Multimedia consumer electronics to develop a range of consumer electronics for the home, including sofas with embedded TVs – no need to look for the remote as the TV is already in your cushion.
So, what’s the moral of this story? Well, here’s some neatly-wrapped nuggets:
- The Chinese dragon is quite tired at home – domestic Chinese growth is slowing. But he gets a fresh burst of energy when he goes on holiday – the impact of Chinese ‘luxury tourism’ on economies such as that of Southern Australia, Hawaii and London is huge. That fancy new Louis Vuitton flagship store in London? It wasn’t built for UK customers, or even European customers. BRICS is where the money is.
- Expect service design to be much more BRICS-led in terms of cultural awareness. If these are the people who have the money to spend with you, your customer experience and service had better be relevant, appropriate and slick.
- If you’re a manufacturer or retailer and you’re struggling with Big Data now, just in your ‘regular’ markets – how are you going to capitalise on what’s coming your way from the economies and markets emerging from China’s move into the no. 1 spot?
- Look at who is riding along with the Chinese dragon – Africa, Brazil, Australia. What do their consumers, manufacturers and suppliers look for? Are you equipped to not just deal with these expectations, but innovate in harmony with them?
- Can we expect to see, for instance, companies and banks from emerging countries on UK high streets any time soon? With news that UK banks are underperforming, M&S launching 50 in-store own-label bank branches, and banks from up-and-coming countries are dramatically ahead of ours in terms of revenues, service and market valuation, this might not be far away.
But the real insight here is that, in the middle of a maelstrom, it’s safest to be in the middle and harness the energy – who knows where it will take you?