Solutions to tutorial questions - Tutorial 12/topic 9 PDF

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Tutorial 12 Problem set Questions & SolutionsTopic 9: Doing Business in China Short-answer Question 1 (SAQ1) Short-answer Question 2 (SAQ2) Short-answer Question 3 (SAQ3) Long-answer Question 1 (LAQ1) SAQWhile many factors have contributed to the growth of eCommerce in the Asia Pacific Region (A...

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Tutorial 12 Problem set Questions & Solutions Topic 9: Doing Business in China -

Short-answer Question 1 (SAQ1) Short-answer Question 2 (SAQ2) Short-answer Question 3 (SAQ3) Long-answer Question 1 (LAQ1)

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SAQ1 While many factors have contributed to the growth of eCommerce in the Asia Pacific Region (APR), discuss four key drivers that have expedited the region’s eCommerce boom: a) Rise of the middle class. Emerging middle class markets: China, India, Indonesia, Malaysia, Thailand and Vietnam. o Asia will make up 64% of global middle class, contributing to 40% of its consumption by 2030 o Together, China and India make up 37% of global population and 10% of global GDP o Urbanisation patterns will strongly influence local consumer preferences. b) Mobile and internet penetration. o The APR is adopting mobile commerce faster than any other region o Singapore has highest smartphone ownership in APR o China has highest mobile shopping penetration rate: more than 50% of online population have tried M-commerce o Key upcoming M-commerce markets: India, Indonesia, Japan, Malaysia, South Korea, Thailand and Vietnam. c) Increasing logistic options for eCommerce players. o A strong and reliable logistics infrastructure will be critical for APR’s rapid eCommerce growth o Investments in logistics will increase as eCommerce players expand their geographic reach o Logistics companies must stay agile yet reliable to deal with ever-increasing order volumes. d) Growth in supply of eCommerce players o Blogshops, monobrand sites and marketplaces will propel growth by offering customers more options o Omigo: Singapore Post -owned retail site carries over 10,000 products o Rakuten: Launched in early 2014 in Singapore, aiming to become No. 1 eCommerce site within five years o Taobao: Almost 300,000 users in Singapore and more than 200,000 in Malaysia within first year of launch.

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SAQ2 Discuss all four evolving consumption patterns in China. a) Evolving geographic differences

Rural/Urban, Coastal/In-Land, Advanced/Developing: o Despite the location (class of cities), the proportion of mainstream and affluent categories have increased substantially from 2000 to 2020. o Despite the survey year, the proportion of mainstream and affluent categories living in advanced cities is much larger than those from less developed cities. o In 2020, the majority of residents living in advanced and developing cities belong to mainstream/affluent categories. b) Growing discretionary spending.

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Going beyond necessities/semi-necessities: o In 2000, Chinese consumers spend most of their income on necessities (e.g., food). o Over the last two decades, their consumption moves towards semi-necessities (e.g., health care, housing and utilities, etc) and discretionary (e.g. entertainment). o This shift corresponds to Engel’s law, which states that higher disposable/discretionary income leads to a decrease in spending on food and other necessities. o Also, this new pattern shows a higher living standard of Chinese people. c) Aspirational trading up.

Better quality, well-known brands o Despite age, respondents overall became more indulgent, more brand-oriented, more likely to trade up and more surprisingly modern in 2015. o Despite the aspect of consumption attitude, senior respondents (55-65) had higher purchasing power and became more opened-up in 2015. o Compared to other aspects, there seems a clear age gradient on the responses to ‘surprisingly modern’.

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d) Emerging senior market.

Senior consumers are more indulgent, more brand-oriented, more likely to trade up and more surprisingly modern: o Despite the type of commercial goods, more respondents became more brand loyal in 2015. o Despite the type of commercial goods, less respondents bought the best deal in 2015. o For electronic products, more respondents only consider a few brands and choose one to buy in 2015.

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SAQ3 List and briefly explain Top 10 Issues for doing business in China. 1. Competition with Chinese companies in China. o e.g. EBAY vs. Alibaba 2. Intellectual Property Rights (IPR) enforcement. o China does a poor job on IPR, which was also a major cause of US-China trade war 3. Foreign investment restrictions o FDI is not allowed in many sectors, e.g. media 4. Human Resources: Talent recruitment and retention o China is less westernized/internationalized than HK/Singapore for foreign talented workers 5. Cost increases o Chinese wages increase and RMB appreciate 6. Uneven enforcement/implementation of Chinese laws. o e.g. Mengniu Diary 7. Licensing o Google.cn vs. Baidu 8. Transparency. o Businesses ‘under the table’ 9. Non-discrimination/national treatment. o Same treatment as government-led enterprises. 10. Over-capacity in the China market. o Domestic demand can’t satisfy aggregate supply in China

LAQ1 In 2019, Chinese online retail sales were $1.5 trillion, representing a quarter of China’s total retail sales volume, and more than the retail sales of the ten next largest markets in the world combined. Explain why online retail shopping thrived in China over the last two decades. There are two major factors on the DEMAND SIDE as to why e-shopping has thrived on China over the last two decades. 1. Changing demographic patterns in China: o Rapid industrialization: rising incomes, urban living, better education, postponed life stages, and greater mobility. o Unique factors in China: government’s one-child policy and the marked economic imbalances among regions – such as urban-rural and coastal/ln-land income disparities. 2. Evolving consumption patterns in China: o Evolving geographic differences Page 6 of 7

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Rural/Urban, Coastal/In-Land, Advanced/Developing • Despite the location (class of cities), the proportion of mainstream and affluent categories have increased substantially from 2000 to 2020. • Despite the survey year, the proportion of mainstream and affluent categories living in advanced cities is much larger than those from less developed cities. • In 2020, the majority of residents living in advanced and developing cities belong to mainstream/affluent categories.

o Growing discretionary spending - Go beyond necessities/semi-necessities • In 2000, Chinese consumers spend most of their income on necessities (e.g., food). Over the last two decades, their consumption moves towards semi-necessities (e.g., health care, housing and utilities, etc) and discretionary (e.g. entertainment). This shift corresponds to Engel’s law, which states that higher disposable/discretionary income leads to a decrease in spending on food and other necessities. Also, this new pattern shows a higher living standard of Chinese people. o Aspirational trading up - Better quality, well-known brands • Despite age, respondents overall became more indulgent, more brandoriented, more likely to trade up and more surprisingly modern in 2015. • Despite the aspect of consumption attitude, senior respondents (55-65) had higher purchasing power and became more opened-up in 2015. • Compared to other aspects, there seems a clear age gradient on the responses to ‘surprisingly modern’. o Emerging senior market - Senior consumers are more indulgent, more brand-oriented, more likely to trade up and more surprisingly modern. • Despite the type of commercial goods, more respondents became more brand loyal in 2015. • Despite the type of commercial goods, less respondents bought the best deal in 2015. • For electronic products, more respondents only consider a few brands and choose one to buy in 2015. There are also some notable factors on the SUPPLY SIDE as to why e-shopping has thrived on China over the last two decades: • Low cost of delivery (cheap labour cost and high population density) • Economies of scale (enormous market size in China) • Super competitive industry (Alibaba, JD.com, Pinduoduo, etc), and a very typical oligopolistic industry. Top leading firms compete with each other on price, quality and marking.

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