5 Questions, It's News To Me
Digital and UX News: What a Rising China Means for Product Design
October 30, 2014
Episode Summary
China is on the rise, not just in the manufacturing and production of physical goods, but also in the digital realm. If Facebook founder Mark Zuckerberg’s Q&A session with students at Tsinghua University in Beijing in Mandarin wasn’t a sign of the times, then certainly the largest tech IPO in history, with Chinese tech giant Alibaba raking in billions of dollars to further fuel the growth of the company, is indicative of the fact that that the digital is China’s fastest developing frontier. In this episode of The Digital Life, we discuss the rise of China, and the unexpected opportunities it may represent for product designers in the West.
I wanted to get started with what I think is a significant event which is last week, Mark Zuckerberg spoke at a university in Beijing and he spent at least 30 minutes or so practicing his Mandarin in front of a fairly large audience and taking questions and answers. While I’ve seen the mixed reviews come in as to the quality of his speaking in Chinese, I think just the fact that billionaire CEO from one of the most important digital company is currently running, the fact that he was in China speaking the language and attempting to take question and answer, I think that’s a significant event.
What were your thoughts on that, Dirk?
Here, Zuckerberg clearly, I don’t know what sort of a time investment but I’m going to guess months, if not years ago, said, “Hey, I’m going to learn Mandarin pretty well.” That’s the sign of someone who really has isolated the importance of the Chinese market, of China in the international world of business and is committed in a very deeply authentic way to wholly move toward that. For a CEO like Zuckerberg of a tech company like Facebook, like rock on. I just can’t … and, again, I don’t like the guy. There’s a lot that I disagree with that he’s been a part of, but in this front, good for him. Good for him. What a smart way to spend time, what an intelligent way to be the vanguard of your company’s future business dealings.
Translation services, some of which we’ve actually done some work for, I’m fully aware of those. What I mean is in a product strategy sense, you can see that for Facebook, having entry into the Chinese market is going to be critical for their growth over the long-term. They absolutely need that. I think from the digital product side, we can expect as China has more and more resources that they are going to be an important player in the digital products marketplace internationally. What I mean by that there is going to be products that are developed for a Chinese audience that are going to start coming to the U.S.
There’s no longer necessarily going to be American exports like, say, Facebook. You can see this in the largest tech IPO which was Alibaba at the end of September. Billions of dollars raised and you’re not even really buying a piece of that company. You’re buying a contract with, I think a Bermuda-based corporation that shares in the profits of Alibaba. There is still massive interest in this stock. I think as, at least, from my vantage point which has been largely English speaking up until now, these types of events really remind me that as much as we say the world is getting smaller, that that’s going to have some real world consequences for digital product design coming fairly soon.
Now, on the surface you might say, “Well, so what? China has a billion plus people. Of course, they’re the largest.” As recently as 2009, China was only the fourth largest and China was less than 20% the total of the United States. The U.S. was more than 5x, almost 6x, larger as a consumer market than China. In the course of just 6, 7 years, China went from being fourth in the world, a fraction of the United States to soon to be the largest consumer market in the world. The scale and speed of growth is massive and it really speaks to long-term strategy which we talked a little bit about earlier in this recording. I mean China in 2009 when they were still under 20% the size of the U.S. as a consumer market, as a percentage of their GDP, China was only spending 37%.
Now, why that’s important is because the United States as a percentage of GDP was spending 71%, almost double. If you look at the other Top 25 nations, there’s only two others that were less than 50% as a percent of their GDP. Those were the Netherlands at 46%, and they were the 17th largest consumer market, and Norway at 49% which is the 25th largest consumer market, and itself, a full order of magnitude smaller than China. China has this really smart long-term strategy that started, I’ll say started in the 90s. I mean conceptually, started earlier than that certainly, but of using manufacturing, a strategy of urbanization, manufacturing, to grow into this immensely powerful nation that has just modernized in, relative to the scale, a remarkably short period of time.
That strategy from an infrastructure perspective was well cemented in the mid-aughts, yet they were still low on that consumer market size. I mean fourth in the world isn’t low, but compared to the United States, compared to the European Union, as a whole, even compared to Japan, much smaller. Getting all the pieces in place, modernizing, urbanizing, and now, that market is developing. The stats that I haven’t seen but the question on my mind is if from 2009 to 2016, they’ve gone more than 5x to surpass the United States, how long will it be until they’re double or triple or five times the United States? What is the outer limit of the possible growth of China as a market? It’s certainly double the United States, but how much higher could it be?
Once you start looking at these numbers, once we really start talking about it from a quantified perspective, it puts into focus just how immense the opportunities there are, but also the potential threats to people in the United States and other places just from the standpoint of the overall society and knowledge workforce and where the workers of the future and the tasks of the future are going to be done.
Dirk, I know that you have some business relationships with Chinese suppliers as we put together various products at Involution Studios and I know you have great interest in building those relationships over time. Could you give us a little insight into how those began and maybe some of your thoughts on having these Chinese-American cross-cultural business relationships?
I quoted all of these five companies and what I discovered was that Panda was both the least expensive which was fully expected but they also were the highest quality which was not at all expected. I felt like I had my hands tied at that point. They were probably 10% cheaper, 20% cheaper than the U.S. providers but the quality was probably double as good as the U.S. providers. The German company, the quality was actually very similar to Panda. I preferred Panda, but the German company was competitive at least, but they were much more expensive.
That’s how the relationship began was just through a normal quoting process. Yeah, I mean that’s the relationship now that I’ve had for 3 plus years and with Invo, we’ve had for a couple years now. They’ve been an absolutely great partner but one of the things just in my interest in the Chinese market and also because for a variety of reasons, our relationship with Panda is getting ever more strategic, I’m planning on going on a trade mission basically in Q1 of 2015 to get a tour of the different works of Panda and talk to some of their different people from ownership to the floor manager and some of the workers, and also just have a little walk about in China and really get a sense because it’s one thing sitting in my comfortable home reading stories, talking to people, getting a lot of secondhand information.
Intellectually, I think I get the situation pretty well, but there’s nothing like full immersion. I’m going to break out of the bonds of being the analyst, intellectualizing it on the side and go out there and immerse myself in the culture and in our business relationships a little more deeply and see how that impacts my perspective.
If you want to follow us outside of the show, you can follow me on Twitter, @jonfollett. That’s J-O-N-F-O-L-L-E-T-T. Of course, the whole show is brought to you by Involution Studios, which you can check out at goinvo.com. That’s G-O-I-N-V-O.com. Dirk?