For the past few days I've been in Shanghai, China, attending the AIMIA/Austrade China Digital Content, Applications & Services Mission. It's been a great chance to catch up what's happening in the Chinese digital media industry as well as meeting or getting reaquainted with 11 interesting Australian digital media companies who are attending the mission.
The event kicked off on Monday night with a visit to Mobile Monday Shanghai, where each of the 11 participating companies gave a brief presentation, followed by me talking about the future of mobile applications as a preview to the forthcoming book I'm co-authoring; A Faster Future.
Tuesday’s opening address at the Australian Consulate was given by Bing Liu, Trade Commissioner, Austrade Guangzhou. She started by talking about the massive growth that the Chinese economy has sustained even despite factors such as the Asian economic crisis and the global financial crisis. Shanghai’s own GDP of US$197 billion is about equivalent to Romania's, and the current estimate is that the GDP of China overall will overtake the US by 2025, many years ahead of what was predicted a decade ago.
Bing also talked about the Chinese digital media industry, which was estimated to be worth AUD$3.84 million in 2008, up by 26.5 percent on the previous year. She said the big opportunities in the Chinese digital media industry are in digital marketing tools and platforms, cross-platform publishing and social networking tools, mobile applications, digital content creation and distribution technologies, and talent education.
The second presentation was from Crystal CG, one of the largest digital media companies in China. Crystal CG that was the design partner for the 2008 Beijing Olympics and is now the digital multimedia design exhibition services partner at the Shanghai World Expo 2010 and creator of its virtual tour. The company has more than 2200 employees in 10 branches throughout Asia as well as London.
Crystal CG marketing manager John Zhou talked about the company’s extensive work with property developers as well as its product showcase work and multimedia training courses for clients. The company developed the multimedia content for a 250 metre by 30 metre screen in the centre of Beijing. Its Shanghai Magic Trip is a 360 degree virtual tour through Shanghai, while its presentation at the Expo of ‘Along the river during the Qingming festival’ is an animated digital media presentation that is 120 metres long and 6 metres high, runs for four minutes, and took seven months and 200 technicians to create. The company will also be providing a full range of digital imaging services for the London Olympics in 2012, including 3D visualisations of all 36 venues.
The next presentation was from Amanda Duggan, the group manager for strategy and business development at Telstra Sensis in China. Her role sees her in charge of growth and acquisitions, and as such is constantly meeting with new companies. She described the key trends as the increasing affluence, urbanisation and digitalisation of Chinese society.
Amanda reported that mobile devices are far more prevalent than fixed connections. Around 93 percent of the device-carying population use instant messaging – there are 568 million users of Tencent QQ instant messaging – as opposed to the 50 percent who use email. China’s internet population is expected to 385 million in 2009 to 566 million in 2013, and 73 percent of users share content online, with most time online spent on news, music and gaming as well as instant messaging. Uptake of 3G has been slow – there were only 25.2 million at the midpoint of 2010, which is forecast to hit 10 percent of the population by 2012. The restricting factor has been a comparatively high price, followed by coverage issues, and a lack of attractive 3G applications.
Duggan said that many of the companies that dominate the internet in the West continue to struggle in China. Yahoo stared in 1999 but now has just 0.5 percent of the market and is invisible compared to the most popular portal of Sina. MSN barely rates as a distant number 2 in instant messaging behind Tencent QQ. Amazon started in 2005 and acquired the number 2 player, but has failed to make money and is losing share to Taobao. Google continues to battle on – it started in 2005 and got to 30 percent market share behind Baidu, but continues to struggle.
The ability of Chinese companies to clone and beat foreign companies is amazing. In March of this year China got its first Groupon clone Meituan, and has become one of the most popular clones. Since then more than 400 competitors have sprung up in China.
Telstra’s strategy has been to buy into Chinese businesses, such as the number one real estate site SouFun and the leading automotive and IT sites, and a clutch of mobile value-added services companies. The future means looking to developing markets such as insurances, fitness, preventative healthcare and beauty, education and employment, brand consumption and travel, eating out, hobbies and gaming.
The first session after lunch was delivered by Michael Wadley, international partner with law firm Blake Dawson, who spoke about doing business in China. He talked about how many Australian businesses in China are now profitable, with businesses starting to cut out their agents and working directly within the market. At the same time, business changes quickly and stakeholders can go out of business or be acquired quickly. That means you need to keep in constant contact, preferably by having a direct presence. He also talked through a number of changes that have occurred in the market since entry to the World Trade Organisation in 2001, such as the relaxation of rules for wholly-owned foreign entities.
He said the problems of doing business in China have not entirely gone away, and the numbers and opportunities can be dazzling. Partners might understand one market but not the rest of China, and common sense and acumen can be limited.
There are also numerous small quirks that catch out foreign companies, such as the importance of the 'chop' (company stamp) above and beyond a signature. One of the first things a disgruntled employee might do is steal the chop, which makes it practically impossible to do business, and replacing a chop is very difficult.
There are of course also the cultural differences. Whereas in western society the expression ’The early bird gets the worm’, in China that can translate to ‘The first bird in the flock gets shot’.
The next presentation was from Shi Da, general manager of Multimedia Science Park in Shanghai. Shi talked about the growth of digital media in China and the fact that it has become an identified industry by the Chinese government as a strategic growth sector. Gaming along was worth about Y10 billion in Shanghai in 2009, up 23 percent on the previous year. There are 302 companies in Shanghai working in digital publication in the city, with assets of Y6.4 billion. His Park houses 350 companies, half of them working in digital media.
The final speaker for the day was Frank Ye, chief executive of Apex Capital Global, who spoke about raising capital in the venture capital and private equity in China. He talked about the stages of Chinese venture capital, starting with foreign VCs testing the waters in the 1990s through investing in ‘me too’ companies copying US models and listing on foreign exchanges. The next stage until 2007 was for foreign investors to invest in Chinese domestic businesses in more sectors than just technology. The third stage he described as the period from 2007 until now where Chinese domestic funds are now investing in local companies to remain in the local market.
The Chinese investment industry was not immune to the global financial crisis. Chinese VCs invested US$3.767 billion in 2009 in 428 deals, down on the previous year, with the top sectors being IT, manufacturing, internet and healthcare. However, the appetite for investing in start-ups remains, with US$2.43 billion worth of deals for development stage start-ups, eclipsing investments in other stages by dollar value and volume, according to ChinaVenture.
Frank also talked about ChiNext, China’s answer to Nasdaq, which expects to have 100 companies listed by July 26 this year. The current multiple for IPOs on Chinex is 56.6 times earnings, well up on both China’s A-share market and higher than the 40 times multiple on the Shenzhen SME board.
Wow. All these missions and fast reviews.
Enlightening as always, but something bothers me; (no matter what country you reside or practice in): The Transmedia Model has been around for a long, long time and has been covered by both you and others like Mike Walsh; succinctly a few months back, I think. I practiced TM widely in Europe, US, Asia and Australia. But, far more critically, my concern is that an Ad Mag in a certain country and a certain guy who has two initials that stand for 'a horse' or 'donkey' have just said it's The Next Big Thing. How ill informed, rather than being brave or bold (and even thin enough on news) to not just admit to rehash. My in depth comments on this so called "Next Big Thing" were covered on Mike Walsh linked to Lagrange. So I will not repeat.
But, to quote or even rehash some of what is said in this Lagrange piece; I hope for a "Faster Future" like millions of others. Incidentally, that same ggeedonkey said the next big thing was a National Broadband Network and guess when he said that?
Ten years ago ^_^ So we should listen to this guy. Because he got that prediction exactly right in just one market..Just one! ^_^ ;) :)
Signed very positively, (and I mean that, because global TM is cool); Best Wishes and Thanks for brilliant blogging, as usual; Chris Simon.
Posted by: Chris Simon | August 01, 2010 at 08:55 AM