By Dr. Sacha Cody

Marc, an experienced executive in his 40s, was excited to join a Chinese multinational corporation (MNC) in Western Europe. He sensed the company was going places and getting on board now would be exciting and good for his already impressive career.

Three years later, he was compelled to leave. He first sensed problems when he was not able to respond to questions raised about his department’s performance at regularly scheduled weekend meetings that were arranged—initially without his knowledge—by Chinese expatriates in the leadership team. While it is illegal to ask employees to work on weekends in several European nations, Marc did not believe he had any reason to be suspicious at first. One day, however, the Managing Director—a Chinese expatriate and veteran of the firm—wanted to introduce Marc to a new Department Head who, surprisingly, has the same title as Marc. Ever the pragmatist, Marc knew his time was up and he negotiated a leaving package before officially resigning.

“You must have been very upset?” I asked during our long interview. “Not really” he responded. “On day one here, I introduced myself to someone I thought was a colleague but it turned out I was taking her job and this was the first she heard about it.”

The cat and mouse game between management and Marc—where both sides tried to get what they want—is, on the one hand, a kiss-and-punch story seen and heard inside MNCs the world over. But it is also troubling. It reveals this particular Chinese MNC’s disregard for local labour laws as well as its leaders’ inability to nurture a collaborative environment with local leaders like Marc who, as one look at his CV will demonstrate, is one of the most experienced executives available.

What do we know about international Chinese firms?

What do we really know about what goes on inside international Chinese enterprises? How familiar are we with their corporate cultures, decision making processes, hierarchies and power structures, and equality and diversity frameworks? And what do we know about the experiences of employees—both Chinese and non-Chinese—inside these firms?

On the one hand, we know a great deal about Chinese firms in China. Insider accounts as well as numerous independent researchers and scholars have painted a picture of Chinese domestic corporate culture as an assemblage of Chinese tradition (such as Confucian hierarchy and loyalty, and “traditional Chinese” cultural activities), imported western management practices (such as productivity responsibilities falling on the individual), and Chinese Communist Party (CCP) authority and Party cells (where a political and ideological agenda merges with the commercial).

But when it comes to international Chinese firms, we do not really know how similar or different they are compared to domestic Chinese firms. For the past year, I have been researching international Chinese enterprises and their organisational dynamics, trying to understand questions like those posed above. This is an important topic. While many Chinese say there are only three international Chinese enterprises—Haier, Huawei, and Lenovo—reality indicates otherwise. In fact, there are approximately 8,000 Chinese enterprises operating internationally in 164 countries. About 43 percent of employees are non-Chinese. It is not an exaggeration to say that in the future, working in a Chinese-owned or Chinese-invested firm could be a reality for a large proportion of the global white-collar population.

Indeed, better insights into the dynamics of international Chinese enterprises will help us understand and respond to incidents such as ZTE’s ongoing fiasco in the US and their violation of export sanctions, which they lied about; automaker Geely’s acquisition of close to 10 percent of Daimler Corporation’s stock through derivatives and options—thereby circumventing disclosure laws—which led to significant German suspicion and distrust; as well as the debate underway in Australia concerning its largest dairy farm—now owned by Chinese investors—and the recent mass board resignation concerning disagreements over management structures, investment decisions, and environmental management.

As international Chinese enterprises compete higher up the value chain in ‘sophisticated’ markets across Australasia, North America and Western Europe, political realities are compelling them to undertake significant reputation and brand building exercises as they try very hard to be ‘liked.’ This is especially the case for firms who are taking their domestic company global rather than pursue acquisition-led growth. The introduction of sleek mission statements and corporate public relations programs should make us more determined to understand what makes international Chinese firms tick rather than take them at face value.

Stepping Inside a Chinese MNC

The first thing we need to understand is who actually works inside these firms. From one perspective, international Chinese firms are not totally ‘Chinese’ in the sense that they comprise—and partner with—an incredibly diverse range of people and stakeholders from all over the world. From this perspective, they are quite embedded in global capitalism and global business norms. To take one example, many international Chinese firms work with a predominantly Western group of consultants and spokespersons to craft corporate missions, visions, marketing materials, and design media placements around the world. Marc’s enthusiasm for joining his past employer is a common sentiment among white-collar workers in the West and many are flocking to work at or with Chinese firms. In some respects, a unique form of Chinese soft power surrounds its MNCs, especially tech firms.

Within this diversity, however, my research found powerful divisions that form around traits including nationality, ethnicity and demographic characteristics like age.

Let me briefly introduce several groups illuminated by these divisions. The first is mature Chinese professionals, who were trained in Western MNCs in China. They believe Chinese MNCs have not yet learnt the ‘rules of the game’—referring to what they take to be global business norms—but need to if they are to be considered truly global and taken seriously. Originally defined by their desire to seek employment in non-Chinese workspaces, glass ceilings at their previous (non-Chinese) employers compelled many mature professionals to seek opportunities inside international Chinese firms, something unimaginable to them only five years ago.

Senior non-Chinese executives, another group I observed inside Chinese MNCs, hold similar views regarding Chinese MNCs’ corporate culture. Consider the following comment by a senior Australian who worked at Huawei:

[quote]As Huawei evolves I am more and more adding my perspective gained as an Australian who has spent 23 years living in Greater China. That experience is what Chinese companies need to be truly global.[/quote]

Many of the other groups I observed—especially senior Chinese nationals—do not take well to these paternalistic viewpoints. Let me discuss young professionals, however, who are Chinese nationals born in the 1980s and 1990s. They reject the view that their employer needs to adjust to global business ‘norms.’ They see China as a global power already and Chinese MNCs as sites of meritocracy and opportunities for social advancement. Found all over the organisation, many young professionals obtain overseas postings early in their career, a move called ‘going to the frontlines.’

As we can see, there are incompatible views held by different groups of people working in and with international Chinese firms.

But let us return to Marc. Why did he get treated the way he did? From one point of view, Marc failed to acknowledge and adjust to the very different corporate culture he found himself in. But I would argue something else is going on. Specifically, Marc’s employer had ambitious commercial targets that would make, as it was put to me, “any European company extremely uncomfortable.” These targets, which are actually set by headquarters, amplify corporate behaviors found in China—e.g. secretive decision-making by management and a disregard for employees outside the inner circle of power—rather than encourage Chinese expatriates to take locals like Marc seriously.

While there are numerous nuances my research is uncovering, Marc’s story reveals that the starting point for understanding international Chinese enterprises’ corporate culture is that they share striking similarities with their domestic counterparts.

Dr. Sacha Cody is an Anthropologist and China Studies scholar. He is currently teaching at the Australian National University and researching international Chinese firms’ corporate cultures in Australia. Follow him on Twitter @sachacody77

This article was kindly contributed by Technode. For the original, click here.

China’s massive O2O platform Meituan Dianping is a company that defies categorization. As the company’s founder and CEO Wang Xing once said, it’s hard for them to compare to any other company. Once known as the Chinese equivalents of Groupon and Yelp, Meituan and Dianping merged in 2015 to become a company that sells movie tickets, delivers food, provides hotel and hospitality services and much more. Its latest frontiers are mobility and thebig data-powered “new retail.”

The company has just filed for an IPO in Hong Kong seeking to raise more than $4 billion at a valuation of $60 billion. But the IPO is just the beginning, Market watchers are already speculating if the company will join China’s tech trinity BAT (Baidu-Alibaba-Tencent). The company has been backed by both Tencent and Alibaba with Alibaba selling its share in 2016. Similar to these giants, Meituan Dianping has developed into something of a super-platform.

The rise of China’s super-platforms is driven by both consumers and companies, according to Peking University professor Jeffrey Towson. For consumers, it’s easier to have a single app that offers several services: for example, a mobility app could combine hailing taxis, ride-sharing, and bike rental. On the other hand, companies in a large market like China have to provide a huge number of physical assets, be it bikes or supermarkets. This makes it harder for smaller companies to compete which drives the sector towards one large player, he explains.

Super-platforms in China also combine related activities or services for consumers. For example, in e-commerce, previously separate areas such as entertainment, food and general merchandise, are combining into larger B2C marketplaces. The result is an ecosystem with both physical and online assets that provide one seamless, data-driven consumer experience, says Towson.

“You could argue that Meituan is doing something similar in services—you can get dinner, book hotels, get movie tickets, bicycles,” Towson told TechNode. Much like Alibaba which gives SMEs digital tools to sell products and compete with larger merchants and brands, Meituan is doing the same for service SMEs: “People call them the Alibaba for services.”

Statistics provided by Meituan Dianping for its Hong Kong IPO filing (Image source: Meituan Dianping)

A similar view of China’s digital landscape was presented in last year’s McKinsey analysis titled “Competing in a World of Sectors Without Borders” explaining why companies like BAT but also Meituan are now entering so many different areas. Chinese companies are turning into business ecosystems in which sectors that once seemed disconnected fit together seamlessly and where users, their data, and businesses are part of a large interdependent machine.

“Ecosystem orchestrators use data to connect the dots—by, for example, linking all possible producers with all possible customers, and, increasingly, by predicting the needs of customers before they are articulated,” the report states. “The more a company knows about its customers, the better able it is to offer a truly integrated, end-to-end digital experience.”

What is the endgame for super-platforms or ecosystems such as these? Meituan’s Wang Xing has an interesting view on competition in the Chinese market. In an interview with Caijing Magazine published June last year, Xing explained the battle in China’s heated food delivery business where it is facing Alibaba-backed Ele.me and Koubei with his “4321” theory:

“When a new opportunity appears, a pile of people rushes in. There may be four preliminary winners after a period of battle. It’s usually the BAT plus the winner among the startups—for instance, this is the situation that [Chinese news aggregator] Jinri Toutiao is facing today. But this is not a stable structure so four will turn into three, and three into two, just like it happened when Baidu Takeaway exited [the food delivery competition].”

Wang Xing (Image credit: Meituan-Dianping)

According to Xing, however, Meituan does not strive to be No. 1 nor does he believe that there should be a single dominant company in one area. Enterprises are reluctant to have only one supplier and there are always consumers that prefer different brands: Coca-Cola or Pepsi, Nike or Adidas. China’s omnipresent (and increasingly omnipotent) social platform WeChat might be the exception here. What Meituan wants to do is expand horizontally and it is not afraid to step into other areas.

“Where is the real endgame?” said Wang during the interview. “The word ‘endgame’ (终局 in Chinese) originally comes from chess, but now the reality is that the chessboard is still expanding.”

Meituan’s latest push into mobility which has pitted it against notable adversaries has garnered plenty of attention. In March the company went head-to-head with ride-hailing heavyweight Didi by launching a ride-hailing service and in April it bought bike rental company Mobike whose main rival is the Alibaba-backed ofo. It seems that Xing’s 4321 theory is reversing: market ruler Didi is facing not only competition from Meituan. Hotel and flight booking platform Ctrip and Alibaba’s mapping service AutoNavi have recently also launched new mobility services: a ride-hailing and a car-pooling service respectively.

Thinking as a proper super-platform, Meituan sees its expansion into mobility as just another way to serve its users. Meituan is a very location-oriented business and ride-hailing is a location-based service, according to Xing. But the company has also experienced great losses on account of its expansion. Its IPO filing revealed a net loss of RMB 19 billion yuan ($2.9 billion) last year on revenue of RMB 33.9 billion. After adjusting for share-based compensation and other items, the loss for the year was RMB 2.9 billion.

“O2O, food delivery, and bike sharing have been a pretty brutal business when it comes to cash in a way that e-commerce is not,” said Towson.

Wang Xing believes that Meituan has the potential to become the next Alibaba or Tencent but he also knows that this will take time. For Meituan, the battles continue.

By Colin Peebles Christensen

It took a mermaid and large amounts of caramel to convince the Chinese to embrace coffee. When Starbucks opened its first shop in Beijing in 1999, the company’s mission to convert a nation of tea drinkers seemed far-fetched. But sweetened Frappuccinos, the chain’s signature drink, have proved to be the perfect gateway to coffee for China’s young, urban consumers.

Now, China’s specialist coffee shop sector is valued at $4.72 billion, and Starbucks dominates with a 58.6% market share, according to figures by Euromonitor. The American company operates 3,300 outlets in 141 mainland cities, and this number is growing at a rate of one new shop every 15 hours. By 2021, Starbucks expects to have 5,000 outlets nationwide, and aims to reach 230 cities the following year. Revenues, according to company projections, are expected to triple over the next five years.

Those numbers have attracted competition. Luckin Coffee, a homegrown coffee unicorn based in Beijing, is aggressively challenging Starbucks at its own game. Within months of a soft launch at the start of the year—and reportedly boosted by a RMB 1 billion ($150 million) investment—the startup has already hit 525 physical shops in 13 cities. That comes in addition to a purely “online” trade channel consisting of app purchases and delivery.

Luckin is pouring money into the breathless expansion as well as into juicy promotions and discounts in a bid to outmaneuver its US rival. The Chinese firm is undercutting Starbucks by around 20% on a large latte, according to the South China Morning Post. At the same time, it is offering Starbucks staff triple their current salaries to tempt them away, according to Technode. The battle further intensified in May, when Luckin sent a letter to Starbucks threatening a lawsuit over alleged monopolistic interference with industry suppliers and rental contracts.

There are also a slew of smaller chains and independent coffee shops emerging in the big Chinese cities looking to take market share from the multinationals that once dominated in China, such as Costa Coffee, KFC and McCafe.

For now, there appears to be plenty of room for all these players. Figures by the International Coffee Organisation show a 16% annual increase in Chinese coffee consumption between 2004 and 2013. That growth will continue at around 15-20% over the next few years, reckons Thibaud Andre, a senior consultant at Daxue Consulting.

But the engines of this growth appear to be changing as consumers become more willing to trade the sugary blends of the early days for higher-quality roasts. Consumption of fresh coffee rose faster than any other product last year in both value and volume terms due to rising demand for better-tasting brewed coffee, according to Euromonitor.

Andre expects that the coffee war will also spread across the country as consumers in smaller cities increasingly catch the coffee bug. “The market will switch to more premiumization or will switch to targeting a wider pool of consumers,” he said. “The market seems actually to be kind of saturated in the main cities. I think we are above 100,000 coffee shops now in China, mostly gathered in the top cities. So, the driver for growth will not be from this segment.”

Starbucks’s move into an additional 100 cities by 2022 is a sign of this down-tier expansion, as purchasing power rises throughout the country. Costa Coffee is even more ambitious, eyeing 1,200 stores by 2022, up from 459 at present. Meanwhile, Starbucks just launched a 30,000 square foot state-of-the-art mega roastery in Shanghai last December—its biggest store anywhere—in order to hold on to ever-more sophisticated coffee drinkers.

While this may drive growth, the shift towards more home and office consumption is likely to prove more important, with the restaurant segment being another potentially lucrative yet so far unexplored arena, according to Andre. “I expect [home consumption market share] to get over 50% pretty soon, which would kind of stabilize the market, by not relying on the big chains for development,” he said.

The most potent symbol of China’s accelerating transition from tea to coffee is perhaps found in southwestern Yunnan Province. Amid declining tea prices, farmers in Pu’er, an area renowned for its fermented black tea, are switching crops. Coffee can offer double the income. Production of coffee in Yunnan has grown at 21% per year between 2004 and 2013, doubling over the last seven years, according to the International Coffee Organization.

The largest out of China’s three coffee growing regions, with 95% of the national total, Yunnan is the only one exclusively specializing in the higher quality arabica beans. Hainan and Fujian provinces remain bastions of the lower-grade and more bitter robusta, commonly reserved for instant and industrial coffee products.

It is easy to see why farmers are choosing to make the change to coffee. Per capita coffee consumption is still very low in China by global standards, at around five cups per year nationally, barely climbing to 20 cups in the largest cities. By comparison, the average US consumer drinks 400 cups per year. In other words, there is room for enormous growth in this market.

The Starbucks mermaid, which once presided alone over China’s coffee landscape, is about to get company. That could be Luckin Coffee, if it manages to avoid a cash crunch. Or perhaps another Chinese challenger will come along and start an entirely new fight.

Timothy Ang

Any foreigner trying to navigate Taobao for the first time will agree that online retail in China is a world of its own.

Where technologies such as mobile payments and live-streaming shopping are still finding their feet in Western markets, they have become integral to the Chinese shopping experience. Social media platforms are tightly interwoven with money transfers, advertising, coupon providers, and delivery services, creating a network of services that the customer can access with a few taps of their thumb.

What’s more exciting is that China’s retail industry is on the verge of its most ambitious transformation yet. CEO of Alibaba and international poster boy for Chinese e-commerce Jack Ma has encapsulated his vision for the future of the market in the term ‘new retail’, marked by highly-personalised customer servicing and the use of ultramodern technologies such as AI and facial recognition. The goal: leverage China’s tech-savvy consumer base to revolutionise how we shop.

Ashley Dudarenok is helping companies tap into the quirks of China’s retail. Through ventures such as her digital marketing agency Alarice International, strategy and training agency ChoZan and her AshleyTalks podcast, Dudarenok teaches bosses and entrepreneurs that deftness with WeChat and Alipay are not just important, but essential for success in the world’s largest consumer market. With China rewriting the rulebook, now more than ever companies must get online to stay in the game.

In a conversation with China Economic Review, we asked Ashley about what she thinks companies need to consider in China’s dynamic retail environment.

———————-

CER: How large is China’s e-commerce market at this point compared to the more traditional distribution channels?

A: Traditional retail is still the biggest retail channel in China, but this is changing rapidly. When we talk about e-commerce and offline retail, what is happening is that people don’t want to migrate either to one or the other, but instead radiate into the middle ground – the ‘new retail’ experience. That shift happens one the one hand because of the tastes of the consumer, but also the competitive drive from Alibaba and Tencent.

How big is e-commerce itself? It’s big, but I’d say more important is mobile commerce. Last year, mobile commerce overtook e-commerce in terms of number of purchases made in China, but both are still smaller than offline channels. The key is that new retail is going to merge the online and offline into one ecosystem. We will not see offline stores disappear, certainly not. Instead we are about to see the evolution of these brick-and-mortar stores into the ‘new retail’ experience. I don’t believe employees are going to disappear from grocery stores or coffee shops, for instance, as people all seem to imagine when they picture the future of Chinese retail, they’re just going to be doing different jobs. They won’t be changing the price tags but entertaining us in the store in some way.

Lots of people still misunderstand e-commerce and think it is omnichannel, with a company present across the spectrum, from mobiles to websites to stores. In reality, new retail is all about putting the consumers at the top and creating a huge data pool around their shopping trends – where, how, and what do they buy. From this, retailers both online and offline, distributors, suppliers etc. plug in and communicate with each other to optimally serve that individual. That’s the uniqueness of this experience.

So we shouldn’t ask how big is e-commerce now, but how big will it be in three years.

CER: You make the distinction between e-commerce and mobile commerce. Are they not just variations of the same thing?

A: In China there is a huge difference. E-commerce is the traditional desktop ordering platforms such as Taobao. Mobile commerce is accessible by apps that often do not have a popular desktop version, like WeChat or some live-streaming platforms. This ability to use a phone to quickly complete the entire transaction is the main idea, and it is a huge business in China.

CER: Why do you think online retail and mobile payments are so much more popular in China than in other parts of the world?

A: There are many factors, the first probably being privacy. Westerners are very paranoid about privacy, but the Chinese just have a completely different approach to personal information. Just having a WeChat account, for example, basically requires uploading a passport – imagine how many users would flee Facebook if they started asking for such details. I think Western consumers tend to think beyond just convenience and are sceptical of how retailers might abuse any information provided. In China, there is less fear of being harassed or spammed, but instead giving out more info may just lead to better service. Take WeChat again: they do not allow many types of advertising or spamming etc., and really do focus on quality of service for the user over quantity of payments generated. Its users are at the centre of things, and users themselves know that if they give WeChat their bank info and other data, when they step out of their house later they will get a notification about a discount on their favourite coffee at a Starbucks they are about to walk past.

A second is the integration of technology and society. The technology in the West just isn’t there. But in China the speed at which people adopt new ideas is rapid. Grandmas and grandpas are using mobile payment and shopping apps to guide their daily lives, but in Europe and the US people of that generation would most likely need their sons and daughters’ help. This extends to companies too, which expand and develop so fast here. There is that saying: ‘perfect is not fast enough.’ Trial and error will push forward progress much faster than a perhaps more mature approach of Western companies to achieve perfection before moving on to the next stage. This cautiousness and adherence to procedure is exactly why many foreign retail brands are suffering in China – they just can’t keep up with the locals.

CER: Let’s focus on the companies themselves then. How are foreign retail brands competing with the homegrown players?

A: It depends on the market segment. International B2B (business-to-business) firms just don’t have a clue what to do in China. FMCG brands are also losing market share year on year.

Luxury brands, on the other hand, have retained their prestige for historical reasons, it has nothing to do with their adoption of technology. They are certainly going through a digital transformation right now, but they can afford to go a bit slower for this reason. They don’t have to worry about local firms beating them in terms of quality or image. Furthermore, luxury brands’ core Chinese consumer base is around the 35+ age group, which still has an affinity for traditional retail practices.

But make no mistake, they want in on China and know a special approach is needed. A common strategy for a luxury group is to pick a single brand and digitalise it for the Chinese market, and if it works apply it to the other brands.

CER: Lastly, what effects do you think there will be on businesses from Beijing’s increasing oversight of industries like mobile payments and peer-to-peer lending?

A: Beijing is getting concerned with the amount of money flowing around in blockchain, cryptocurrencies and individual lending, but let’s remember China’s general policy: if it’s not forbidden, it’s allowed. So in the short term, until there are acute changes in policy, companies will keep doing what they’re doing.

There will be more regulation in the long term, however, and an adjustment period will be necessary for retail companies. But I think once this is over it will be good for the industry. Are some brands going to be hit? Yes. But once the playbook is laid out, once firms know what they can and can’t do, companies can start setting up a solid, long-term infrastructure.

Ashley Galina Dudarenok is an entrepreneur, professional speaker, and vlogger. She runs the world’s largest vlog about China market, consumers and social media on YouTube @AshleyTalksChina. Her latest bestseller “Unlocking the World’s Largest E-Market: A Guide to Selling on Chinese Social Media” is available on Amazon. AshleyTalks Podcast is now on iTunes.

This article was kindly contributed by Technode.com. For the original article, click here.

Despite another record-breaking sale day for China’s top retailer yesterday, JD.com is interested in selling more than just consumer goods. From taking on the China distribution functions for foreign brands to selling the drones it is developing, JD.com is making much of its retail and logistics infrastructure available to buy.

“Everything we have in our food chain, once it is mature we will open it up,” Zhang Chen, JD’s CTO told a small group of journalists as part of a tour of the firm’s facilities ahead of its 6.18 sales event. The scale of JD’s operation–and the data that operation generates–help it to develop technologies to keep ahead of the crowd. It is also choosing to make these new services available to others. But could its scale and ability to advance its offering lead to rapidly increasing customer expectations which only it can meet, in turn leading to a dependency on its infrastructure by other retailers in China and the markets it is entering?

Retail as a Service

Retail as a service (RaaS) is a growing business area for the likes of pure technology companies–both hardware and software–as well as retailers such as Amazon and marketplace platforms such as eBay and Alibaba.

The likes of Intel, Microsoft, and Fujitsu offer RaaS in the form of data collection and analysis for retailers, in some cases providing devices and utilizing IoT to help automate the physical handling of goods. Amazon offers a full service for other retailers and can keep the merchant’s stock in its warehouse and despatch on behalf of the merchant.

The recent craze in some countries for subscription services for daily snacks or monthly cosmetics is another way in which retail is becoming a service. It can be argued that the sharing economy, in general, is a form of RaaS. Didi drivers making the cars they have bought available to others means that end users enjoy the vehicle purchase as a service.

Buses for staff outside the HQ in the outskirts of Beijing. More bus services are provided during 6.18 to take staff working overtime to nearby hotels. (Image credit: TechNode/Frank Hersey)

At the outset, JD making its own technologies and services available to other retailers might seem counterproductive, but the moves allow the company, which has yet to turn a profit, to explore more sources of revenue. And unlike Amazon which offers various RaaS, JD also owns and operates its entire logistics network all the way to the customer and is also making logistics as a service (LaaS) available to others.

Everything must go–everywhere

JD is certainly casting its net wide. Its retail core is already a more complex offering than marketplaces such as TMall. Primarily a direct retailer, JD buys stock from suppliers and sells it through its site. But it also offers the marketplace format and is also, like Amazon, developing some of its own product lines. Individual divisions, such as TopLife for luxury lifestyle, also offer a mix of retail and marketplace.

But that’s just for starters. JD is also developing its own AI with the company’s vast data resources, developing drones that can carry over a ton, driverless delivery vehicles, as well as fully automated warehouses and robotics. It has 12,000 engineers in China and Silicon Valley working on its technologies, all of which will be up for sale.

“We don’t want to be a retailer, not even the smartest retailer on the planet,” said Zhang, “We want to be able to do the retailing and in the meantime really help the merchants be able to run their retailing even better.”

The company is using this year’s 6.18 sales extravaganza—June 18, the date the company was founded in 1998—to highlight how it’s not just a retailer. “Before it’s been about what we’re going to sell, this year it’s about what technology we’re building to realize our mission as a retail and service company,” said CTO Zhang Chen

“Retail as a service starts with the user experience–from a PC, from an app or a device–any touchpoint where we engage with the user, to how we manage the supply chain, to how we finance the user to buy things, to smart logistics, the warehouses, the drones, the driverless delivery vehicles. We come back to three key things: user experience, cost, and efficiency.”

Brick and mortar stores are an important growth area for the company too and have played a key role in this year’s 6.18 sales.

“Users already don’t care about online and offline,” said Zhang of customers, who ask only who can serve me better, “We really believe in win-win, how best can we serve the customers. Today even if they’re not our customer, tomorrow they could be our customer. If we can help the merchants, manufacturers and offline retailers to be more efficient, we can serve their customers better and eventually it will be a win again for JD. Offline is not going away–it’s their efficiency that needs to improve. We want to be their partners and improve their customers’ experience by working together. It’s all about scale.”

Drones

“Customer expectations are increasing for delivery,” said Cui Zheng, director of the JD Drone R&D Center in Xi’an. JD’s drone service–the first commercial service in the world–is being opened up to third-party clients. But Cui also told journalists that his division received an order for 1,000 of its final mile drones in early 2018, to be delivered to the unnamed client over a three-year period. JD assembles the craft itself from all-Chinese components.

All drones developed in-house for now, said Cui, and as logistics drones face much higher safety requirements than those for personal use. JD has received some financial help from the government in Shaanxi for projects involving the use of drones in rescues.

JD is currently testing its in Indonesia, Thailand, and Tanzania. Cui expects them to be commercially deployed this year.

Cheng Hui, Head of JD-X Research and Development Center in Silicon Valley told journalists that the company’s warehouse automation is also being offered to others. JD already provides distribution services for brands such as Oldenburger, fulfilling not just JD-based sales but replenishing brick and mortar retailers.

Individual warehousing technologies will also be sold as well as offering the total solution. Teams are developing robotics and automation that it will soon be selling. “We’re already seeing with the grasping that [the robots] are twice as efficient as human employees–and they don’t get tired,” said Cheng.

The company is applying blockchain to help with tracking and traceability of produce. Over 400 brands, 11,000 SKUs, and over a billion items on the blockchain, Pei Jian, Head of Blockchain and Smart Supply Chain, told reporters.

CTO Zhang Chen explained that tools such as blockchain will only be used in certain scenarios where customer require greater reassurance that the products are traceable. For items such as water or even iPhones, there is already enough trust in JD.com, a boon for the platform to sell RaaS.

Know your enemies, know their customers

‘It’s a business about scale. It’s OK if you’re not making money at the beginning. It’s all about scale. When you’re accumulating the data of millions and billions of users, the business model will come through,” said CTO Zhang Chen.

JD generates huge quantities of data on its own customers, but also the customers of the other retailers it provides services for as it has stored, picked, packed and delivered the goods to them.

“The data we do have we use to decide where to keep inventory,” explained Yan Bao, Director of JD Logistics. This allows 57% of JD.com orders to be delivered in 12 hours and 90% in 24 hours.

JD started providing logistics services to third-party companies in 2013 and has gone on to provide them with brand insights via its big data and algorithms to help them with forecasting and help JD know where to store the inventory to be near the likely customers.

“We’re expecting 100% growth on third-party logistics in 2018,” said Yan.

OBOR+RaaS

JD’s most capital-intensive overseas investment to date has been with in its joint venture in Indonesia. JD has provided all the tech and equipment and arranged last mile delivery. “Before we did them, most orders were delivered in 5-7 days, but right now around 85% of orders are delivered within one day,” said Yan.

Thailand will be next, in the coming months. JD’s overseas priority is in Southeast Asia. Then next are other countries along the One Belt One Road routes, China’s overseas investment plan. “We’re also considering other mature markets. In those markets we may just provide the logistics knowhow and technology and partner with local partners to build the network,” said Yan.

On the company’s 6.18 anniversary sale day this year, JD and Google announced that Google was investing $550 million in the company to forge a strategic partnership for JD’s overseas ventures.

First come, first served

Efficiency, customer experience and cost play a part in every aspect of JD’s work. “You have to control end-to-end for efficiency. This game is all about efficiency,” said CTO Zhang Chen talking about the importance of data to help secure end-to-end service.

“Everything we have in our food chain, once it is mature we will open it up. Because, in the end, who can define the standards? The more people we serve, the more we’ll become the standard,” said Zhang, placing particular emphasis on the company’s abilities in product tracing and collaboration with government agencies. Standards, perhaps, of customer expectations as well as industry and regulatory requirements.

A ‘white glove’ delivery man in action in Shanghai. The service is included for certain brands, and customers can opt to pay RMB49 for the service for certain other brands. (Image credit: TechNode/Frank Hersey)

JD is already working on 30-minute delivery slots according to Yan Bao. The company’s TopLife luxury division has found trends that have already moved beyond same day delivery: only 60% of orders are wanted the same day. Others want to pick the exact time, often at the weekend, for their “white glove” butler-like delivery so they can really enjoy the moment. TopLife is selling 30 international designer brands, though only 10% are direct sales, the rest are marketplaces. 90% also use JD’s warehousing. As Ding Xia, President of JD International Fashion, told journalists, the main problem facing brands wanting to do their own direct retailing in China: “brand.com in China has zero traffic”.

As Zhang Chen pointed out, he has found that retailers across the world don’t have money or time to research improvements to logistics and infrastructure. Adding the fact that JD’s suppliers make more money by selling through the company as its efficiency means it takes less of a cut of total sale cost, according to Zhang, and JD is in a very strong position. More companies are already transferring their warehousing to the retailer for cost saving.

Whether or not JD is creating dependencies at home and abroad on its exceptional customer service that smaller players cannot match–a service that it is constantly improving with its scale and technology and soon becomes the expected norm for customers–remains to be seen. But the company seems bullish.

“No matter where you go, retail is probably one of the largest sectors of GDP, and if we do retail ourselves and are also a retail service provider, that’s huge,” said CTO Zhang Chen.