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TDG Insights

Build Trust Through Sustainability

By | TDG Insights

People, planet, and profit.

Every brand should have a thorough understanding of how their business activities, culture, and products affect people’s lives, the environment, and the organization itself. Chinese companies planning to go public on international stock exchanges require environment, social, and governance (ESG) compliance in addition to a healthy profit-and-loss (P&L) sheet. Brands should conduct a materiality analysis to identify aspects that are most critical to the business.

Be transparent

Consumers generally trust people they know more than strangers, so Chinese brands can’t afford to be a stranger to their consumers. When you are new to a market, your target customers naturally would like to know you better. Firms need to make it easy for them to find out information about the company, the management team, available products, and the company’s mission. Transparency assures consumers that a brand acts as a good citizen and will be held accountable for any unethical practices.

Engage your stakeholders

Suppliers, employees, local communities, and NGOs are also important stakeholders that brands should engage in the sustainability management discussion. Chinese firms should work with their suppliers to improve supply chain robustness and address potential labor issues. Companies can also involve employees in the process of creating a better corporate culture, and encourage their participation in local community development projects.

Our 2016 annual consumer survey indicates that overall American consumers gave Chinese brands a passing score on quality of product. Some also noticed Chinese brands’ effort to become more innovative and creative.

At the same time, however, the results of the survey reveal that there are a series of urgent issues that need to be addressed. More than half (57%) of American consumers in our survey did not think Chinese brands are doing enough to ensure transparency. Their comments highlight issues related to information disclosure, intellectual property rights, and general honesty. More than half of American consumers in our survey were concerned about sustainability issues such as pollution, labor, and safety. Also, more than half of the American consumers surveyed believe that Chinese brands lack genuine customer engagement and have done a “poor” or “very poor” job building an emotional connection.

While being emotionally reserved and humble is a prominent characteristic in Chinese culture, it may become a hurdle for Chinese brands to express their enthusiasm and personalities.

It is therefore essential for Chinese firms to create content that helps tell their own stories, and get their voices heard through both earned and paid media. While the effects may not be immediate, effective content strategy and brand media will help Chinese brands establish credibility and authenticity, shift the tone of mainstream media, and influence public opinion over time.

Innovation Redefined

By | TDG Insights

Innovation takes place in many different forms across functional units, value chain stages, and no longer holds sway as the sole driver of innovation. More tools and approaches such as open innovation, crowdsourcing, and cross-sector partnerships are become available to fuel innovation, accelerating companies’ return on investment. Companies can benefit from adapting these new mechanisms to streamline the sources, strategies, and process of igniting innovation.

The limits of R&D spend

In this research, we investigated companies’ innovation performance based on various parameters. Our findings suggest that innovation is not linearly depended on the amount of R&D spending. Although investment in R&D can allow a company to maintain innovations progress, simply increasing spend is not sufficient to fully capture and capitalize on all innovations opportunities.

Forbes ranks large global companies’ innovation capability based on the ratio of investors’ projection of their future growth over their current valuation, a metric termed an “Innovation Premium”. Among the 10 U.S. firms exhibiting the highest Innovation Premium, companies viewed as more promising by investors do not always spend more on R&D than their peers, even after taking industry differences into account.

Similar trend was also found when it comes to brand perception based on past performance. Among the top 10 companies that are ranked highest for their innovation reputation by Strategy&, for instance, Apple Inc. is the best recognized innovative brand but spent much less percentage of their net sales on R&D than Microsoft in 2014, who only hits the 8th place.

Consolidate your innovation strategy

If tossing more money onto R&D is not the only viable innovation strategy, what are other options on the table? In the Innovator mapping tool, we outlined four different types of innovation strategies based on the level of integration as well as the focus of a strategy. A company’s innovation activities could be driven by largely traditional internal R&D taskforce, or by incorporating collaboration across the board including open innovation, crowdsourcing, consumer insights, and cross sector partnerships. At the same time, a company’s innovation strategy could focus on aggressively seeking new business models, or on the other hand the continuous optimization and improvement of current operations.

Disruptive

By engaging talents across functional teams and stakeholders, channeling underutilized resources, and discovering new opportunities, disruptive innovators oftentimes define new market trends with groundbreaking products and services. For instance, Apple’s iPhone was a result of innovation not just from its stellar product design team (both hardware & software), but also new strategies in marketing, supply chain, and many other functional units. Disruptive innovators, however, could lose their competitive advantage when the innovative business model is replicated and improved by competitors. Apple once redefined the concept of cell phone, but now faces fierce competition with a number of Android phone manufacturers. Disruptive innovators who are much ahead of their time are likely to face regulatory risks and resistance from traditional players. A case in point is the struggle of the new sharing economy platforms such as Uber and Airbnb have with regulation restrictions in many regions and protests from businesses whose market shares are affected. It is critical for these first movers to be able to both sustain its core competency and mitigate social and governance risks.

Agile

Being an agile innovator means continuously optimizing products, services, and processes based on existing business models, which requires critical thinking and goes beyond the old-fashioned “continuous improvement”. A company might not produce disruptive innovation every day. But it can certainly be an all-time agile innovator. This strategy sets more tangible and achievable goals, maximizes the value of existing assets, and makes timely adjustment to external environment possible. Agile innovators face less risk of failure, but they also put ceilings on the potential of business transformation. After the introduction of the first generation of iPhone and iPad, Apple has been continuously rolling out newer versions of these products every year.

Discrete

Due to industry specifics and longer development cycle for particular types of products, many innovators, pharmaceutical companies and hardware manufacturers for instance, are still largely relying on R&D. Discrete innovation strategy allows companies to dedicate themselves to developing new products with its own proprietary knowledge and technology. However, this strategy may not be suitable in many business situations. It is less flexible in terms of decision making and the inward focus may slow down the response and adjustment to external changes. Therefore, a successful discrete innovator requires that the business leaders are fully aware of the mega trends and making the right the business decisions. Until 2013, Nokia spent more money on R&D than Apple every year. However its poor decisions on both high-end and low-end market segments could not turn the investment into profitable business.

Incremental

Incremental innovators, on the opposite direction to disruptive innovators, have minimal integration of innovation effort and short-term objectives. This is the least-desired innovation situation yet common situation to many companies that are struggling with innovation. Incremental innovation does not have a systemized approach for collaboration. The R&D effort is mainly focused is on existing business models which makes it difficult to make adjustment to disruptive changes in the market competition. Incremental innovation might be sustaining for a while, but not sufficient when there is a shift in competitive landscape. Strangled by the focus on its long successful and profitable film business, Kodak did not react timely to the new market trend with new products or services and lost its competitive advantage in the era of digital technology.

 

Solution to China’s brand problem lies in the details

By | TDG Insights

On Aug 1, 2014, the Chinese embassy in Washington D.C. held its annual reception commemorating the 87th anniversary of the founding of the People’s Liberation Army. As always, the event was meticulously managed. But what struck me the most was an assortment of flyers on display at the registration desk. The flyers, produced by the Bureau of International Publicity of the Chinese Department of Defense, looked like something one may find on the bulletin board in a Chinese government building, rather than professional public relations kits carrying Beijing’s message to the world.

This is a branding problem

PR or marketing professionals familiar with global and cross-cultural communications would easily point out a list of things on the flyers that may be improved in order to communicate the message – and by extension, the “China brand” – with more effectiveness and grace.

Chinese leaders and academics have feverishly advocated the idea of public diplomacy, but on many occasions, the enthusiasm fails to translate into effective implementation, which would greatly benefit from design elements more empathetic to the recipient culture and less stiff in lexicon.

The China brand has also performed poorly in the private sector.

In fact, Chinese brands are perceived less favorably in the US market than those of many competitors. This is paradoxical and ironic given China’s perceived status as a global power. But with China’s outbound investment exceeding foreign direct investment for the first time in 2015, American consumers can count on seeing more Chinese brands online and in their local supermarkets. For instance, during the 2015 Consumer Electronics Show in Las Vegas, hundreds of Chinese brands signed up. How these brands try to communicate with consumers will have significant impact on the overall perception of the China brand.

Indeed, the world’s second-largest economy faces a serious branding problem, in both policy communications and business marketing – which are becoming increasingly intertwined in our time. Strategists may rightfully argue that the less than favorable perception of China in the US is a result of the shifting balance of power in world politics; but the devil is in the details. At a time when social media and fragmented information affect even the most focused policy analysts, one flyer or one video clip may be all it takes to shape perceptions of China.

How Does A Sport Brand Save Billions for American Taxpayers?

By | TDG Insights

If you pay any attention to the Summer Olympic games at all, like the one is happening now in Rio, it is probably an accustomed pattern to see Team USA on top of the medal rankings. This summer, Team USA athletes are on their way to clinch the 2500th medal for the U.S., including the 1000th gold medal in the country’s Olympic participation history.

Here comes the fun fact:

The United States Olympic Committee, responsible for supporting, entering and overseeing the largest and probably the most successful Olympic teams in the world, does NOT receive federal financial supports.

So how was the Team USA organized and supported?

This is how it works:

First, you need a vital, market-based sports ecosystem with abundant commercial resources.

The bottom-line is the sheer size and velocity of the sport market. Despite the rapid growth of the Chinese sports market, which is predicted by Caixin to reach $242 U.S. billion by 2025, the U.S. remains the most robust sports market in the world, valued 60.5 billion in 2014 and predicted to reach 73.5 billion by 2019. With capitalism at its heart, league executives, capital carriers, corporate sponsors, broadcasting networks, and national leagues are constantly flowing. 42 of the 50 most valuable sport teams locate in the U.S. Hence, so are the most industrialized broadcasting networks and corporate sponsors.

 

 

Second, you also need a designed model turning the sports assets into lasting values and cash flows for the short term, and a sustainable cultivation of fan (consumer) base in the long term. This part is a bit tricky as typically in a market, with multiple competing networks and sports brands vying on a different type of sports leagues, the price-setting power of the content will naturally be divided and thus lower.

Therefore, with the Ted Stevens Olympic and Amateur Sports Act enacted in 1978, Congress gave birth to a federal chartered non-profit organization in Spring, Colorado known as the United States Olympic Committee(USOC) and authorized it as the sole marketer of Team USA-related marks, images and terminology, and broadcasting rights in the United States. Further, it effectively made the monopolistic manager body with the power to assign and ratify managers of market segmentation through the recognition National Government Bodies—the subunits in charge of managing sports training, competition and talent development for their sports. Thus far, two things giving the USOC a gold-raining brand monopoly status are settled: absolute internal control and handy tools of brand asset liquidation.

Source: United States Olympic Committee, 2014 Annual Report

(Source: United States Olympic Committee, 2014 Annual Report)

 

Source: United States Olympic Committee

(Source: United States Olympic Committee)

 

Lessons for Chinese Sport Investors: Value-Chain Integration

China has more than 600 million soccer fans. Nonetheless, buying Europe football leagues alone will neither complete the sports ecosystem in China, nor improve the competitiveness of China’s men national soccer team.


“Ecosystem” and “Sports Economy” are among the trendiest words appears increasingly associated with the recent sport-buying spree of Chinese investors, from the buy-up of Inter Milan and the recent takeover of AC Milan, to the minority stake investment in the Minnesota Timberwolves and USC. The opportune parts are, Chinese buyers spreading their oversea sport investment across the broad to hit different spots of the spectrum as recent deals did connect dots and promised a greater sports ecosystem. For instance, besides sports team investments, Chinese media giants like Tencent and Baofeng are also piling up online broadcasting rights contracts to leverage assets. The vitality of Chinese sports market, 4

making up to only 0.6 percent of the country’s GDP, comparing to over 2.4 percent in the U.S., along with the growing maturity of handling outbound asset acquisition, is shadowing a growing prominence of the market. In fact, a little known Chinese brand outside the country, 361 Degree, is now an official sponsor of the Rio Olympic Games.

Will China, at the least at the national level, create a batch of volcanic brands anytime soon to sustain the entire development of its sports talents? Probably not in the immediate future. But the good signs are there, the market element is about right, and it seems like Chinese investors are starting to make strategic decisions based on long term interest during their European shopping trip.