INSIGHT DEMYSTIFYING POLICY - AMCHAM SHANGHAI
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INSIGHT
The Journal of the American Chamber of Commerce in Shanghai - Insight November/December 2020
D E M YS T I F Y I N G
www.amcham-shanghai.org
POLICY
Our expert contributors help
to shed light on some of
the policies and legal issues
affecting US businesses in
China:
• Export controls
• Dawn Raids
• Exiting from China
• Dual Circulation Strategy
FEATURE P.05 INTERVIEW P.14
Join our WeChat:
Understanding China’s
FEATURE P.07 How naked Group
Making use of Xiaohongshu
Gen Z consumers managed through COVID
FEATURES
INSIGHT
The Journal of the American Chamber of Commerce in Shanghai - November/December 2020
AMCHAM SHANGHAI
President FEATURES
KER GIBBS
VP of Administration & Finance
HELEN REN 05 Understanding China’s Gen Z Consumers
Norman Gu, GM of Hormel Foods Greater China explores marketing strategies
that target China’s young consumers
Directors
Committees 07 Xiaohongshu - A Social Commerce Platform You Cannot Miss
JESSICA WU How companies can grow successfully on the app otherwise known as “Little Red Book”
Communications & Publications 11 Making Data Work
IAN DRISCOLL Q&A with Shiseido’s SVP Carol Zhou on leveraging big data in e-commerce
Corporate and Commercial
KAREN YUEN
14 COVID and Beyond
Q&A with naked Group CEO Manoj Mehta on how the lifestyle brand
Government Relations & CSR
has managed through COVID
VEOMAYOURY "TITI" BACCAM
Trade & Investment Center
LEON TUNG
POLICY PERSPECTIVES
INSIGHT
18 How to Properly Respond to Dawn Raids in China
Editor in Chief What steps companies should take in response to onsite investigations
RUOPING CHEN 22 China’s Export Control Regulations
Editor
Insight into the entities list, jurisdiction, procedures and violations
KATE MAGILL
Content Manager 26 Disposing of a Business in China
IRIS FU Advice on how to exit your company from China
Design
30 China’s Dual Circulation Strategy
GABRIELE CORDIOLI
What it is and why foreign investors should take note
Printing
SNAP PRINTING, INC.
FOR EDITORIAL MEMBER NEWS
OR ADVERTISING
ENQUIRIES 32 Month in Pictures
(86-21) 6169-3000 Selected photos from the past two months’ AmCham Shanghai events
Story ideas, questions or
comments on Insight: Please contact 34 Event Report
Ruoping Chen
ruoping.chen@amcham-shanghai.org Highlights from events of the past two months
Insight is the bi-monthly publication of 37 Meet the Winner: AmCham’s Future Leader Award
The American Chamber of Commerce
in Shanghai. Editorial content does Q&A with Li Zhang, president of RADII China
not necessarily reflect the views of the
governors, officers, m embers or staff of the 38 Meet the Winner: AmCham’s Entrepreneurship Award
Chamber. No part of this publication may be
reproduced without written consent of the Q&A with Weiqi Zhang, founder and CEO of Blue Oak Education Group
copyright holder.
November / December 2020
Special thanks to the 2020 AmCham Shanghai President’s Circle Sponsors
27F Infinitus Tower
168 Hubin Road
Shanghai, 200021 China
tel: (86-21) 6169-3000
www.amcham-shanghai.org
3
PRESIDENT’S As Insight went to press, Americans went
to the polls. With the outcome of the election
affected by the phase one trade deal. Still,
the structural changes around intellectual
LETTER still unknown as this letter is written, now is a
good time to look back at the last four years of
property and currency reform are welcome
moves. Discussion around the Made in China
US-China relations and assess the effective- 2025 plan has faded, but state subsidies are
ness of the administration’s approach. still very much in place. Genuine reform of
Here at AmCham Shanghai we operate state-owned enterprises is not happening.
under the principle of the “three nons.” We The targets set by the phase one trade deal
are non-profit, non-government and most will not be achieved, although corn and pork
importantly, non-partisan. We work coop- purchases are up from previous years. Energy
eratively with whatever administration oc- purchases will fall far short, but that can be
cupies the White House. The Trump White explained by the collapse of global demand
House has taken a certain approach to China, and drop in the price of oil.
putting our members in an almost constant America’s trade deficit, a major issue ac-
state of uncertainty. What has been the over- cording to this administration, actually in-
all net effect? creased from $735 billion in 2016 to $854 bil-
Business performance has been good. Ac- lion at the end of 2019. The trade deficit with
cording to AmCham Shanghai’s annual survey, China has remained about the same, $347
members still see good growth and profitabil- billion in 2016 versus $345 billion in 2019.
ity, so that hasn’t changed. According to the Manufacturing jobs, another goal for the ad-
Chamber’s 2020 China Business Report, 78% ministration’s China policy, have not returned to
reported profits in 2019. Despite a decline in the US. According to the Chamber’s last two
five-year optimism, the vast majority of com- surveys, fewer than 5% of respondents report-
panies continue to invest in the China market. In ed reshoring production to the US.
fact, 92% report no intention to leave. Overall, it would be fair to say progress has
Market access, a main pillar of the Cham- been made in certain areas, but the admin-
ber’s advocacy with the Chinese government, istration’s ambitious goals to correct imbal-
has improved somewhat. China lifted equity ances in the US-China relationship have not
caps, creating more opportunities for Amer- been achieved. The metric that is most clearly
KER GIBBS
ican companies in banking and insurance. worse is the tension and mistrust between the
President of The American Chamber of
American Express has finally been granted two countries. AmCham Shanghai members
Commerce in Shanghai
a domestic transaction license this year (al- are deeply concerned, with 71% saying that
beit to the joint venture), but Mastercard and US-China tension is their top challenge in 2020,
Visa are still waiting. Cloud computing, data an 18 percentage point spike from last year.
centers and many other business segments In this environment, America has voted on
remain restricted in China. Overall, little has a president.
changed in terms of market access for firms With this as the current state of US-Chi-
that are not already here. na relations, AmCham kicks off the annual
Reciprocity and a level playing field for Washington DC Doorknock. A delegation of
American businesses have been important members is being formed for a series of (vir-
goals for this administration. The executive or- tual) meetings with the administration and
ders against WeChat and TikTok’s operations members of Congress. With tension and po-
in the US cited national security rather than a tential for misunderstanding higher than it has
lack of reciprocity, but the imbalance is pain- been in decades, this work has never been
fully obvious. Dozens of American internet more important.
businesses continue to be blocked in China, The delegation will meet, and together
even as TikTok accumulated over 100 million with input from our Board of Governors we
users in the United States. The WeChat and will develop a set of recommendations for
TikTok bans are still being challenged in the policymakers. AmCham Shanghai has al-
courts, while China shows no willingness to ways pushed for fairness and reciprocity in
www.amcham-shanghai.org
allow Twitter or Facebook to operate in China. the US-China relationship. A rebalancing is
Reciprocity remains an elusive goal. underway. We hope changes can be made
The phase one trade deal was signed in without harming our interests, and that the
January, although some pundits described US and China can forge new patterns of
it as no more than a ceasefire in the trade trade and investment that continue to ben-
war, with the significant issues pushed into a efit both countries. There are challenges
non-existent phase two. A third of AmCham ahead. AmCham will engage with the White
Shanghai members report they were un- House, no matter if it’s blue or red. I
4
FEATURES
UNDERSTANDING
CHINA’S GEN Z
CONSUMERS
By Norman Gu, GM of Hormel Foods Greater China
T
he unexpected COVID-19 pan- tried working with other KOLs and ce- standing of these new tools.
demic has had a far-reaching lebrities on livestream videos, basing Based on recent research from
impact on society and brought our decisions on who to work with on Nielson, during the pandemic, about
changes to the values and consump- their selling potential and exposure on 86% of Mainland Chinese consum-
tion habits of Chinese consumers. For Tmall and Douyin. During this time, we ers became more willing to eat at
Hormel, a US food company and op- were building our own knowledge and home. This “stay-at-home economy”
erator in China for 26 years, it’s a criti- understanding of livestreaming. is a great opportunity for packaged
Norman Gu is
General Manager cal time for us to drive organizational When selecting KOLs or celebrities food companies, but how to catch
of Hormel changes and better embrace these to work with on this new platform, we this trend and adapt to the new nor-
Foods Greater new opportunities. learned that you need to know who mal has become a challenge for
China, where During quarantine, people spent their fans and fol- multinationals in
he oversees
more time behind their screens, and lowers are and China. Amid the
Hormel’s strategy,
M&A, business we saw livestream and short video that they need pandemic, con-
development and platforms like Douyin become very to match our sumers’ tastes
operations. He popular. More companies began target consum- are changing
also serves on the leveraging this new trend to pro- ers. We also faster than ever;
board of directors
mote their brands and drive sales. found it critical they are not
of Beijing Hormel
Foods Co., Ltd Hormel first tried livestreaming in to consider the simply seeking
(JV). Gu started China in March, working with top key best time of physical health,
his career with opinion leader (KOL) Li Jiaqi to pro- day to release but instead are
Hormel in 2003 mote Hormel Beef Jerky. During just content to pro- seeking a high-
as a regional
a four-minute livestream on Tmall, mote products er level of value
sales manager in
Shanghai. He was we sold 2 million RMB (gross mer- and achieve the and total physi-
named the VP of chandise value) of our jerky prod- best results. Each livestream needs a cal and mental well-being.
sales & marketing uct through Hormel’s Tmall flagship clear objective, either to drive sales or Our understanding of “well-be-
in 2014 and store, which users could be redirect- increase audience brand awareness. ing” tends to include health, wealth
was promoted
ed to from the video. The livestream Strategies behind videos can and safety. As a food company, how
to his current
role in 2016. He was also viewed by more than four vary greatly. For example, some can we help consumers pursue
received an MBA million people. KOLs can very effectively drive these goals? We know health was a
November / December 2020
degree from We quickly realized that lives- sales, but are not able to signifi- major trend before the outbreak, but
Remin University treaming is a much more efficient way cantly increase the number of brand it’s even more important today. Key
of China. He
to increase brand awareness com- followers. Celebrities may not be phrases like ‘sugar free,’ ‘low calorie’
serves as co-chair
of AmCham pared to traditional media channels. able to drive sales like KOLs, but do and ‘low sodium’ became very pop-
Shanghai’s Food, Over the next four months, our team help increase the number of fans for ular. We’ve seen a lot of companies
Agriculture tried several live steams with Li Jiaqi, the brand and its private traffic. As a launch health-related products this
and Beverage who promoted different products, in- company, it’s important to try both year across many different catego-
committee.
cluding SPAM and Skippy. We also these avenues and build an under- ries, including beverages, condi-
5
Several local snack brands have
had huge success in utilizing e-com-
merce platforms in China to sell direct-
ly to consumers, including Three Squir-
rels and Be & Cheery. These examples
have inspired us to think outside of the
box when we design route to market
strategies. When we launched Hormel
Beef Jerky, we started from multiple
e-commerce platforms as a first wave
of sales, including Tmall and JD.com,
as well as channels like Xiaohongshu
and Yi Tiao, which were good places
to engage in “seeding” to build brand
ments and snacks. Shui (二厂汽水).” These brands have
awareness and drive sales.
To launch such products success- effectively used product positioning,
The second wave of sales focused
fully in China, companies must build package design and pricing strategy
on new retailers such as Hema (O2O
strong “consumer centricity thinking” to target and engage with Gen Z con-
channels) and membership supermar-
when they develop a strategy around sumers in innovative ways with their
ket chains like Sam’s Club. Based on
new products. Of course, local R&D latest products.
positive feedback from customers, we
capability is another important el- When Hormel was preparing to
are currently distributing products into
ement. Having “in China, for China” enter the meat snack product market
a CVS channel. This multi-wave distri-
R&D allows companies to quickly this year in China, our key finding from
bution strategy allows us to continue
transfer concepts into commercial consumer research was that customers
listening to consumers’ feedback after
products. Hormel has full capabil- increasingly want “healthy” products,
products are in the marketplace, giving
ities in China, from R&D through to without sacrificing taste. Balancing both
us the opportunity to change promo-
production. Based on our consumer these elements became critical for our
tion or distribution strategies as needed.
insights and R&D work, we launched local R&D team. We selected imported,
As a foreign-funded company in
“clean label SPAM” in April and will grass-fed beef to ensure the quality of
China, we have strong brands, global
Generation Z launch a new, no-sugar, no-salt Skip- the raw material, and clearly labeled
resources and local talent. To better
consumers are py peanut butter later this year to our packaging with information about
serve this market and drive growth,
becoming the meet new consumer demand. protein, calories, fat content, etc., to
we need to respect the market and
greatest holders of Besides health, our job is to help continue reinforcing the idea of trans-
truly understand this new generation
spending power in consumers explore the concept of parent health and nutrition. Since its
of consumers. The China market is ex-
the market and are wealth. We need to revisit the idea launch in November 2019, Hormel Beef
tremely dynamic, making innovation
very demanding of of offering strong value for money, Jerky has become the most successful
their brands. and strong speed to market critical to
something that doesn’t always mean new offering in the China market. This
success. At Hormel, we believe food
cheaper — a simple price discount is case demonstrated the importance of
is love, and we want our consumers
a shallow way of understanding this listening to consumer voices and inno-
to feel and taste that. Amid this year’s
idea, as a lower price will not automat- vating products accordingly.
unprecedented changes, we remain
ically trigger a purchase. We believe We know innovation is a key to suc-
optimistic about this enormous market
wealth is a way of living as a consumer, cess, but how to quickly scale up distri-
and we will continue to embrace this
and ensuring products align with con- bution is another critical factor. Hormel’s
time of transformation. I
sumers’ core beliefs and ensuring that primary distribution strategy is to “fol-
they are getting strong value in return low the consumer” through the many
for their money. dynamic channels they use to shop. As
Generation Z consumers are be- consumers have constantly growing
coming the greatest holders of spend- options for how to purchase products,
ing power in the market and are very companies need to adjust their distri-
demanding of their brands. They are bution strategies accordingly, partic-
willing to pay a premium price if prod- ularly based on who their target cus-
www.amcham-shanghai.org
ucts meet their value expectations. We tomers are. For example, online sales
saw many local Chinese brands do represent 15% of total groceries sales
an effective job at helping consumers (including food) in China, a number that
reach their wealth goals, such as in- continues to grow due to the pandem-
stant coffee manufacturer Saturnbird ic. Food retailers need to find the most
Coffee and beverage brands Yuanqi effective distribution strategies for sup-
Senlin (元气森林) and Er Chang Qi plying these online consumers.
KOC (key opinion cow)
6
FEATURES
XIAOHONGSHU
XIAOHONGSHU
A SOCIAL COMMERCE
A SOCIAL COMMERCE
PLATFORM YOU
PLATFORM YOU
CANNOT MISS
CANNOT MISS
By Miro Li
X
iaohongshu (小红书), also or WeChat in terms of its user base or traditional e-commerce platforms
known as “Little Red Book,” transaction amount, it has unique fea- such as Taobao or JD, and other social
is one of the largest and fast- tures that render it a must-have for media platforms such as Weibo.
est-growing social commerce plat- both local and international brands. If we must compare Xiaohong-
forms in China. Users can discover shu with Western apps, think of it as
products, share recommendations Why is Xiaohongshu a combination of Instagram and Pin-
Miro Li is founder
and tips, and place purchases on the unique? terest. Just like both these platforms,
of Double V app. It is often used to investigate Start from its highly content-driv- you can save posts you like, engage
Consulting new purchases or to search reviews en social sharing community: over with content and other users, create
& CHINAble from other customers. Xiaohongshu 70% of all content on Xiaohongshu is your own content and connect with
Academy. After
describes itself as “a sharing platform user-generated. Authenticity is at the brand pages. But Xiaohongshu also
graduating from
the Chinese
for young people’s lifestyles through core of Xiaohongshu’s content, which provides in-app purchasing, a stron-
University of a deep-rooted UGC (user-generated users have come to trust. The later ger community of actively engaged
Hong Kong, she content) shopping sharing community.” inclusion of e-commerce onto the users and longer, more detailed blog
joined a Chinese Founded in 2013, Xiaohongshu hit app, including third-party operators in post-style content.
e-commerce
100 million monthly active users this 2016, completes the social commerce
startup and
was head of
year. It gained significantly more at- cycle: When customers discover an How can brands use
overseas business tention after raising over $300 million interesting product from user posts, Xiaohongshu?
development. in its Series D fundraising, led by Alib- they can click through to the product Step 1: Set up an official account
In 2017, Li aba, and as of June 2018, its valuation page to make their purchases and Most people will already be fa-
founded Double
is over $3 billion. Though Xiaohongshu post reviews after using the product. miliar with WeChat official accounts,
V., a consulting
company that
may not be as big as unicorns like Tmall This differentiates Xiaohongshu from where a brand can gather followers,
helps overseas send them notifications and redirect
brands to enter them to their website or WeChat store.
the China However, this can be costly and it is
market through
increasingly difficult to grow a follow-
e-commerce,
branding and
ing. An alternative option is to open an
marketing. official brand account on Xiaohong-
She founded shu, which has relatively lower costs
November / December 2020
CHINAble and offers the ability to connect with
Academy in
a more targeted customer base. The
2019, a learning
platform that
monthly fee for managing a WeChat
provides account is around RMB 10-20k, while
online courses for Xiaohongshu, it usually costs less
about China than RMB 10k.
e-commerce and
Official accounts benefit both
marketing.
brands who sell products on Xiao-
7
write dedicated and lengthy responses, this
indicates an active and dedicated fan base.
Users who are actively engaging with your
KOL are the ones who are going to purchase
your products.
Content is king on
Xiaohongshu
Xiaohongshu is a highly content-driven
platform. They want to be seen as a trust-
worthy source of product information. While
the platform does offer display ads and spon-
sored posts, the core value of Xiaohongshu is
still content, and this is what brands should
focus on. Even ads need to provide valuable
hongshu as well as those who simply want to diences discover your brand. If a consum- content. Unlike Weibo, Douyin and other so-
use the platform to build awareness and inter- er goes on Xiaohongshu to research your cial media platforms, Xiaohongshu limits the
act with their customers. If users are already product and sees little to no user-generated amount of commercial posts a KOL can do.
talking about your products on Xiaohongshu, content, they will start to worry that it is not a Content that reads like an advertisement is
a brand account allows you to respond to good product. almost guaranteed to do poorly. You must
comments and turn inquiries into purchases, Selecting and working with a KOL/KOC provide value to the reader and teach them
as well as maintain relationships with follow- is both crucial and challenging for brands. something new. Shift your mindset from sell-
ers to gain a larger pool of customers. A good First, you need to understand the different ing to sharing.
practice is to publish two to three posts per levels of KOLs/KOCs and their key charac- Change your tone of voice to the Xiao-
week while constantly monitoring and engag- teristics. According to our experience, a pyr- hongshu style to develop a sense of trust
ing with followers on a daily basis. amid-shape KOL/KOC strategy (as shown) with your audiences. Write something inter-
Companies should note that any brand is the most effective way to launch a cam- esting or informative in a sincere and casu-
that wants to launch marketing campaigns paign and reach your target audience. This al way, instead of the standard content that
on Xiaohongshu must get their official ac- includes one or two celebrities or top KOLs, brands often post on official WeChat chan-
counts verified first. Without proper verifica- a few mid-tier KOLs and a large number of nels. The best way to get noticed on Xiao-
tion, commercial posts (including KOL posts small and micro KOLs and KOCs. hongshu is to get other people talking about
or regular user posts) may be considered in Xiaohongshu is now giving more atten- your brand, not you. When people see their
violation of the platform’s policies and can tion and resources to promote micro KOLs peers talking about a product, that’s when it
easily get blocked. and KOCs (those with less than a 10K follow- will really catch on.
er base). On the app’s landing page, a con- Having the right keywords is essen-
Step 2: Open a shop on Xiaohongshu siderable ratio of micro KOLs and KOCs are tial for optimizing SEO and increasing your
Launching an online shop on Xiaohong- pushed to you, rather than the most popular brand visibility. Xiaohongshu is often used
shu may be a good option for brands that are ones. as a product recommendation search en-
new to China who are looking to test the mar- However, follower numbers can be faked. gine. People won’t just wander and stumble
ket. Setting up a shop on other larger e-com- How can you avoid
merce marketplaces can be more compli- fake KOLs? There
cated and requires more costly investment. is much more cri-
Xiaohongshu has minimal barriers to entry teria you need to
compared to other popular platforms. It of- evaluate besides
fers cross border payment and logistics sup- the follower num-
port. For overseas brands, you do not need ber. One is con-
a Chinese entity or bank account. However, tent quality— try
Xiaohongshu is not nearly as big as Tmall or to pick KOLs that
JD in terms of the market share and brands, can produce high
therefore, should not expect their sales vol- quality content in
www.amcham-shanghai.org
umes to be as large. a genuine voice
that their followers
Step 3: Work with a KOL and KOC will love. Check
Working with KOLs/KOCs to create word- the comments and
of-mouth traffic is one of the most common find out how audi-
marketing methods on Xiaohongshu. KOLs/ ences react to the
KOCs know how to create the right type of posts. When audi-
content for the platform and help new au- ences take time to
8
FEATURES
upon your brand or products. The initial way lowers on a daily basis. The communication Final tips
people may find your brand or products on between Perfect Diary and customers is re- Xiaohongshu is a fast-changing and
Xiaohongshu is simply by searching for key laxed and colloquial, just like chatting with evolving platform. It’s important to keep a
product information (functions, ingredients, friends. In addition, Perfect Diary also actively close eye on new functions and rules in order
etc.) in the search bar. If you don’t have the conducts lucky draw games or free trial ac- to study and understand them, and to have a
correct keywords, users won’t find you. tivities to engage with followers, especially flexible long-term strategy. Instead of trying
Xiaohongshu has a filter system that will after launching new products or during big to create and stick to the perfect plan, exper-
automatically scan the text, images and vid- promotion dates. The relationship between iment with the platform and play around with
eos to filter posts, such as those containing Perfect Diary and customers is closer than different styles of content. And most impor-
illegal keywords or requests to lead users to many other brands. tantly, give it time to grow. I
other platforms. Strictly follow the platform
rules to avoid being blocked.
Case Study – Perfect Diary
Established in 2017, Perfect Diary has
grown to be the most successful domestic
cosmetics brand in China. We found that the
company put a lot of resources into Xiao-
hongshu. Apart from its young, stylish brand
image and reasonable prices, the way it mar-
kets and engages with customers is some-
thing that other brands should learn from.
Approximately 50% of the content on the
Perfect Diary brand account is reposted user
generated content. This is an excellent way
to engage with consumers, encourage the
creation of even more UGC and saves the
brand from having to create its own content.
The brand also actively interacts with fol-
Wishing you and your family
KELLER AND HECKMAN LLP
Washington, DC • Brussels • San Francisco • Shanghai • Paris
health and strength during
these challenging times.
November / December 2020
美国凯赫律师事务所 www.khlaw.com
9
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lesroches.eduFEATURES
MAKING
DATA WORK
Q&A with Shiseido’s SVP Carol Zhou
By Kate Magill
As SVP of the China Business Innovation & Investment office for Shiseido, Carol Zhou is helping to shape the next phase of
transformation for the company. Previously, she held a number of management positions at multinational firms such as Unilever,
Burberry, L’Oréal and Marriott where she has led global strategy & innovation functions across regions and categories.
Can you give an overview of how Shi- to consumers. Offline it’s much harder, How have you met these new needs
seido is using data to target and con- and the data is very fragmented. Maybe in terms of tech infrastructure and
nect with customers? you have a person’s [telephone] num- staffing?
ber, transactional data and their age, if
As a company that has been around you’re lucky. The data points from of- We just hired a chief information
for almost 150 years, Shiseido strives fline don’t match exactly to the online technology officer who will lead some
to create beauty innovations that help data. There is also a legacy issue, where of the digital transformation initiatives
people live better lives. The philoso- some systems need to be updated so including data management, infra-
phy of Japanese craftsmanship – al- that we can better collect the data. structure build-up and strategic plan-
ways striving to improve and to perfect Today’s consumers shop omnichan- ning. We’re also expanding our team
something with the utmost pride and nel. I don’t think she cares if it’s online or of data scientists, as well as in digital
precision– is ingrained in its culture. in-store, as long as she gets what she experience. Every large MNC is going
As a result, it may not catch on to the wants, when she wants it. She expects through a digital transformation, so
fast moving, always changing con- a consistent experience. Thus, you need competition for talent is very high, es-
sumer needs in the Chinese market. to create a holistic profile of this person pecially in China.
Here, where everything’s driven by the that clearly connects every data point. If
consumer, we realized that we need- a consumer has sensitive skin and she What are some of the challenges
ed to get closer to who this person is purchased our products in the store, you’ve faced in making these chang-
and how she/he is interacting with but when she goes online [there is no es?
our brands. With such vast differenc- accompanying personal data], and she
es in regional preferences, what works could be matched to a different profile During the COVID shutdown, all of
November / December 2020
in Beijing is different in Guangzhou or that gives her different suggestions, our offline shops were closed. Because
Chengdu. which can lead to a bad experience. Our we didn’t have the [digital] foundation
It’s easier to collect data from online team is working on how to build the in- set up, we couldn’t shift everything
platforms since everything is tagged. frastructure to connect the data points online fast enough. Whereas some
For example with Taobao and Alipay, so everyone can better understand other local companies were extremely
they know who is shopping, who is the customer and create this holistic, adaptable. They had some infrastruc-
browsing and any content that appeals three-dimensional person. ture already set up where they were
11able to shift much of the to that brand? Will that
business online via lives- brand teach me some-
treaming. Currently we thing about myself? Will
are working on building this brand allow me to
the right foundation, but express myself?” That
it’s a massive undertak- gives the local players a
ing. lot more chances to suc-
ceed, as these younger
What are some of the consumers can view
strengths of the local local brands just as de-
brands that impress sirably as foreign brands.
you? With time, I am confident
that we will have premi-
I’ve been super im- um or luxury brands cre-
pressed by their under- ated from China.
standing of consumers
and responding in light- numbers. However, it is not yet a vehi- How is Shiseido trying
ning speed. They know exactly where cle for brand building. It is very trans- to match those trends?
the trend is shifting, they know how to actional currently. It’s all about the sale
speak to the consumer and create con- – “it’s a good deal, buy it now.” It’s instant We established my team (China
Consumers are tent that captures their attention. Their gratification. But I feel that livestream- Business Innovation & Investment) es-
placing a greater knowledge of all the platforms [is also ing is only in its infancy. There’s much pecially for this purpose. We want to
emphasis on impressive]. For example, HomeFacial- more that we can do with it in terms of get close to consumers and better un-
sustainability Pro has built a $2 billion business within integrating brand content, brand sto- derstand them. We will work with local
as well, paying five years, leveraging the rise of WeChat ries, etc. start-ups, as well as interesting brands
close attention official accounts. Perfect Diary rose with and companies to collaborate and cre-
to what we use Xiaohongshu and operationalized the ate new value for the consumers here.
What are some of the trends that
and consume,
private traffic trend. These brands were you’re seeing drive the Chinese con-
how things
able to effectively work with the digital sumer market? When collecting data in-person, how
are packaged,
ecosystem in China. That’s why you see do you train Beauty Advisors to make
and products’
environmental such high growth with startups that are Even before COVID the whole trend sure they’re asking consumers the
impact. barely three years old. But the down- was towards health and wellness. right data questions?
side is that at a fundamental level you When I came to China ten years ago,
still need the brand. The brand is why nobody was working out. Five, six years In the past, the process was very
the consumer will buy you and return ago all these little yoga and fitness manual. In the future, we hope to au-
time and time again. There are some studios started popping up, but it was tomate it. The more you can automate
brands that are growing from the cap- still about “I want to look good, I want the data collection process, the more
ital market, from investments and non- to go take pictures and share with my you can focus on the human-to-hu-
stop promotions and traffic, but they friends.” It wasn’t intrinsically, “I want to man experience. It’s about leveraging
may not have the brand DNA or its core be healthy.” But since last year and es- technology such as AI to enhance the
foundations intact. Consumers may not pecially after COVID, people genuinely consumer experience with a curated,
return after the initial purchase, and the want to be healthy and put more value personal approach.
brand dies after the money runs out. on wellness. The concept of health and
Building a brand takes time and consis- wellness – both physically and mental- Any advice for companies who are
tency. But I do think we can learn from ly – is driving growth in categories like looking to make this digital transition?
the local brands on speed and being sugar-free beverages, low-fat snacks,
closer to our consumers. etc. Consumers are placing a greater It is a holistic omnichannel. Don’t
emphasis on sustainability as well, pay- think so much about online vs offline;
What do you think of livestreaming? ing close attention to what we use and think from the beginning [of the transi-
Have you found that it’s been very consume, how things are packaged tion] that this consumer will shop any-
www.amcham-shanghai.org
successful? and products’ environmental impact. where at any time. Think about what
Chinese Gen Zs are really fascinat- you need to build this holistic view from
It’s definitely successful in creating ing to me. They grew up during a time the very beginning. Of course, it’s going
awareness. If you’re using the top two when China is more economically and to morph and change, but that founda-
influencers, Li Jiaqi and Viya, they can politically powerful. There’s this strong tion is very important. I
get the brand mass awareness and sense of nationalism and patriotism.
often times generate great sales trans- They are much more democratic in the
actions or gross merchandise volume way that they select brands. “Do I relate
12FEATURES
Dear Members:
With the year rapidly drawing to a close, it is the season to mark a set of transitions in committee leadership at Am-
Cham Shanghai.
This month, five members who have led their committees with distinction for several years are passing the torch to a
new generation (in fact, some have already done so), and one new committee is taking flight:
Ethics & Compliance Committee: Tim Klatte is the first Chair
Financial Services Committee: Todd Wilcox is being succeeded by Steven Nelson
Manufacturers’ Business Council: T.T. Chen is being succeeded by Ted Hornbein
Marketing & Media Committee: Paul Lin is being succeeded by Oliver Pearce and Jun Peng
Real Estate & Construction Committee: Stephen White is being succeeded by James Macdonald
Women’s Executive Network: Sarah Kochling is being succeeded by Allison Cui
Please join us in thanking Todd, T.T., Paul, Stephen and Sarah for their extraordinary contributions as committee chairs,
and in welcoming Steven, Ted, Oliver, Jun, James and Allison to their new responsibilities.
Jeff Lehman and Ker Gibbs
Follow Us on
WeChat now
November / December 2020
Committed to Global Education
13COVID
AND
BEYOND
Q&A WITH NAKED GROUP CEO MANOJ MEHTA
By Ian Driscoll
Manoj Mehta has served as CEO of naked Group since 2012.The company’s lifestyle brand covers travel – naked Retreats, work – naked
Hub, now under the WeWork brand, and wellness. Prior to naked Group, Manoj worked for the Goodyear Tire & Rubber Co., Ltd and
Ford Motor Co., Ltd in the US & China. Manoj earned a Ph.D. in Chemical Engineering from The State University of New York, and an
MBA in Strategy & Finance from the Chicago Booth Business School.
Few companies have ever envis- a daily basis: we didn’t know if there ed, that we should send home any-
aged a COVID-like shock. What was would be a second wave, more quar- one who could go home, and that our
the operating environment like once antines, or if we would be closed for Shanghai headquarters, which works
COVID struck? What decisions did three or six months. It was like driv- as a support system to our resorts,
you get right or wrong? ing in the pitch dark, in a storm. So, didn’t need to be kept open. [Head-
the decisions we made were some- quarters remained closed until May
Even if companies have a proper times lucky and sometimes not. This 18]. If we had not made those deci-
crisis management SOP, you can’t was all taking place when a lot of our sions quickly, it would have drained
have an SOP in place for something management was overseas due to more cash. We were also inspired
like COVID. When COVID by other, significant-
started, we were in a bit ly larger, companies
of denial. We saw book- in a similar situation:
ings getting cancelled in we saw that Cathay
the third week of January, Pacific had sent a
and as things acceler- letter asking staff to
ated, we began seeing take one month off
mass cancellations. Even [unpaid], voluntarily.
then, we were not think- We were unsure how
ing about closing down our employees would
the resorts, but it quickly react, but over 90%
www.amcham-shanghai.org
came to that. understood that this
There was never an of- was for the long-term
ficial requirement to shut survival of the com-
down the resorts, but all the access planned CNY holidays. pany and their jobs. We got that part
routes were shut. Anyone without a What was clear was that we had right. We were also lucky to be able
local license plate could not enter to preserve cash. We realized that to draw down on some pre-approved
the area. Events were changing on the resorts’ assets had to be protect- financing and fortunately the govern-
14FEATURES
ment had ruled that this could not COVID-19. We had to ensure a safe, Have you seen changes in consum-
be withdrawn. It gave us a little more healthy, hygienic experience. We de- er behavior as a result of COVID-19?
comfort. cided to dip our toe in the pool met- If so, what are those changes, and
Looking back and reflecting on aphorically speaking and only open have you altered your marketing and
the experience, our communica- one resort at the end of March and sales tactics and/or product mix in
tion should have been better. Even do it with “contactless service”. That response?
though emails [to employees] were meant self-check-in and self-check-
re-drafted hundreds of times by outs were enabled with technology. We started seeing changes
management teams sprinkled in
different time zones, they came out
a bi t cold. Obviously, we couldn’t
do town halls, but there could have
been more one-on-ones or meet-
ings with people in small online
groups. From a leadership per-
spective, there should have been
more empathy and compassion. We
should have explained that we didn’t
have all the answers.
Did you continue to market your
properties during the shutdown
period? Once you had reopening
dates for your properties, did you
do anything special to lure custom- When you arrived, you saw no one right away. Even when we opened
ers back? at reception – instead, a welcome restaurants on a limited basis, a lot
package with your name, room keys, more people were ordering food for
There was a lot of communi- maps, etc., awaited you at the front in-room dining versus eating in the
cation, but I would not call it mar- desk and you walked to your villa, restaurants. People would rather be
keting. We had to keep our social where your luggage was delivered in their own private spaces. The de-
media followers informed of what separately and left at your door. Food sire to leave cities was driving the
was happening. Some of our mes- was delivered to your villa and all early demand. That theme is not so
sages got the highest readership activities were essentially self-man- strong now, but people in cities like
of the year, maybe because people aged. The key emphasis was to pro- Shanghai are still on high alert.
were at home with nothing else to vide not only a safe and secure envi- Before COVID, we never had to
do! People were also curious about ronment but most importantly peace emphasize safety and security; it was
what was happening in our resorts. of mind. sort of a given that you are in a place
As bookings get made months in We promoted week-long stays with fresh air, blue skies and green
advance, we also had to keep peo- to offer our guests an option to be mountains. Now we emphasize that
ple who had made bookings in- with their families in their “mountain point more explicitly, as well as the
formed. home” away from their “city home.” wearing of masks, use of hand sani-
The question of whether to open Since at that point most kids were tizers, frequent cleaning of villas with
was a debate for us. One thing was in online classes, our villas with high disinfectants, etc. Even the cookies
crystal clear: whatever we did, it speed Wi-Fi were a perfect getaway we make for guests and leave in the
could not be the same as pre- for families suffering from cabin fever. rooms are decorated with little white
We thought occupancy would chocolate masks. We are still being
be quite light, but being in the playful, but behind that is a serious
mountains and close to nature gave message that we will keep you safe.
people confidence. At naked Sta-
bles occupancy was almost 60% How’s the market now for retail and
November / December 2020
for the month of April, despite hav- corporate business?
ing only opened at the very end of
March. Offering a complimentary In the summer with school holi-
night when people booked a room days we had a tailwind as everyone
helped, the contactless service was looking to do something and no
helped and the improving COVID one could travel overseas, but the
situation gave people more and headwinds arrived again in mid-Au-
more confidence. gust as people could not be out-
15periences that they enjoy at naked.
So, these lifestyle experiences are
core to our business model.
Your model is to build resorts that
are a close drive from cities and ca-
ter not only to weekenders, but also
corporate groups. What kinds of
corporates are coming to naked and
what are they looking for?
The obvious ones are the luxury
brands. The likes of Ferrari, Lambo-
rghini, Tesla or Nio that do test driv-
ing weekends, or cosmetic brands.
We also see retail stores and phar-
maceutical companies. Most of the
time it is management teams for
offsites or product launches etc.,
side Shanghai 14 days before school so high as they have been to mul-
but sometimes it is incentive trips
started. To counter that we have add- tiple resorts in many countries. We
for dealers or team building events.
ed more marketing effort to Zhejiang are trying to guide these middle
Oftentimes senior corporate visitors
– to Ningbo, Hangzhou, Wenzhou, and upper-middle income Chinese
have first visited a naked proper-
etc., because they are not subject to into lifestyle choices that are new to
ty with friends or family, and they
the same travel restrictions as fami- them. For example, our packages in
want to bring their employees back
lies in Shanghai. naked Castle include a whisky tast-
for a fun experience. Similarly, em-
A lot of corporations that were ing. At naked Water we are planning
ployees who first come to naked for
hit hard on the topline due to to introduce sailing. These lifestyle
a company outing may later bring
COVID-19 are now trying to man- choices are seeping into China, and
their families to naked. Corporates
age their bottom lines, and one of we are almost creating a taste for
are about 30% of our business.
the ways to do that is to cut down these guests.
expenses. A lot of travel also got We recently signed a contract
With naked Water you have moved
replaced by Zoom calls. The third with an SOE in Hebei, which will be
Skiing is starting to an asset-light model, where na-
to become issue is that certain companies still a resort that serves skiers. Skiing is
ked manages the resort but the in-
popular in China, have restrictions on the size of the starting to become popular in China,
frastructure is owned by another
but there are events that they can hold. So cor- but there are probably only 10 mean-
company. What prompted this?
probably only porate travel is still weak. ingful ski resorts. And yet a country of
10 meaningful China’s size could support hundreds
ski resorts. And When you are a nobody in the
You primarily cater to high-income of ski resorts.
yet a country of market, you have no reputation, so
Chinese customers. Over the next 5 Sixty to 70% of our bookings come
China’s size could no one will give you their assets
to 10 years, how do you anticipate from word of mouth, and that can
support hundreds worth millions of RMB to manage
those customers’ tastes evolving? only happen if people talk about ex-
of ski resorts.
And where does naked see future
opportunities to meet those tastes?
We would like a mix of Chinese
and foreigners. Why foreigners? Be-
cause it gives legitimacy that naked
is not a foreign place, not a local
place, but a global place. The num-
bers end up being 8% foreign, 92%
www.amcham-shanghai.org
Chinese. Within the Chinese com-
munity, the social-economic sector
we would like to go after is middle
and upper-middle class. That is the
aspiring class. The superrich do
come to naked Stables and Castle,
but the desire factor for them is not
16FEATURES
for them. The first two resorts - na- in Henan, the majority of which is al-
ked Stables and naked Castle - we ready built. Going to Zhengzhou will
had to do on our own, to prove that allow us to test our limits, to manage
we could create a profitable busi- something where the feeder markets
ness model. naked is still private- are in the north with significantly lon-
ly owned and it’s not a company ger and colder winters – e.g. Zheng-
with deep funding or MNC backing. zhou, Tianjin, Beijing, etc.
Access to capital is obviously lim-
ited. So after having proven a suc- Looking back over the past several
cessful business model, naked’s years, are there any mistakes that
growth strategy is to leverage the naked made that have proven par-
asset-light model. ticularly instructive?
Also, there are a lot more compa- erties around the world, including
nies or individuals who have lots of Even though it worked out well places like Australia and Vietnam.
money but not necessarily the skills in the end, our decision to go into The amount of energy and
to design, build, market and suc- co-working [naked Hub] created a stress it created was great for na-
cessfully operate a resort. Opening lot of internal stress. We did not ful- ked Hub, but the resort business
Suzhou was a big step in that journey ly comprehend how much effort was got ignored. Only one thing was
and the success of Suzhou will de- required from the management team driving attention, but we didn’t real-
fine how successful we can be in the to drive the growth it demanded to ize it. Even though we had created
future – to prove to the market that remain relevant in a fast-growing a different team for naked Hub, the
not only can we manage resorts we industry. The only way it succeed- naked Group management team
own but also manage resorts owned ed was by us going full tilt – our first had to spend a lot of time on fund-
by our partners. Next year we will property opened in November 2015 raising, but other than the money
open at least two managed resorts – and the WeWork deal was done in that we raised, the resort business
Nanjing in the late first quarter or ear- March of 2018. In that period, we [na- was funding naked Hub. The ‘older
ly second quarter, and Zhengzhou, ked Hub] went from zero to 50 prop- child’ was getting ignored. I
November / December 2020
17HOW TO
PROPERLY
RESPOND TO
DAWN RAIDS
IN CHINA
By David Pan
David Pan is a Partner of Llinks Law Offices. Pan obtained his LL.M from Harvard Law School, and his Doctor of Jurisprudence
from Shanghai Jiao Tong University. He was admitted to practice law in China and New York State in the US. Among other areas,
he specializes in providing practical solution-oriented services in regulatory compliance areas (anti-corruption, data and antitrust,
ADA). Pan has been recommended by Chambers, Legal500 and LEGALBAND as one of China’s leading lawyers in the fields of
corporate and compliance, competition and antitrust, cybersecurity and data protection.
W
ith tensions increasing liabilities (other than the cause for the registered a case within that agen-
between the world’s dawn raid) for the “raided” company. cy with some preliminary evidence.
two largest economies, This article will detail guidelines on In rare circumstances, the agency
concern has been rising among Chi- how to properly respond to dawn can conduct a “random” investiga-
nese companies about their busi- raids in China. tion following the principle of “dual
ness operations in the US, and vice randomness and public disclosure,”
versa. Some US-based multination- Who can conduct which means that the agency must
al corporations are wondering if the dawn raids randomly select the target entity and
Chinese government may launch Not all government agencies the officer to conduct the inspection,
dawn raids against their affiliated have legitimate power to make as well as disclose the investigation
companies in China, in retaliation dawn raids. Generally, government process and results publicly.
against the US government’s sanc- agencies that are empowered to The scope of such government
tions on Chinese companies like conduct dawn raids include the fol- agencies’ authority and powers, in
Huawei and TikTok. The term “dawn lowing central government agen- general and in dawn raids, are pre-
raid” is not defined in Chinese law, cies and their local branches: State scribed in applicable laws and appli-
but the most similarly defined con- Administration for Market Regu- cations, and are usually published on
cepts are “administrative/criminal lation, Tax Bureau, Public Securi- the agencies’ official websites. Make
investigation” or “administrative/ ty Bureau, Human Resources and sure you understand each govern-
criminal inspection,” which allow Social Security Bureau, Customs, ment agency’s authority and power
law enforcement to conduct onsite Ecology and Environment Bureau, so that (i) you have a rough idea of
www.amcham-shanghai.org
inspections and search corporate Cyberspace Affairs Commission what the dawn raid is about when
records and files to gather informa- and State Security Bureau. the officials from a given govern-
tion and evidence on suspected vio- Normally, the empowered gov- ment agency show up; (ii) whether
lations of law. ernment agency cannot suddenly the scope of the dawn raid falls with-
Responses to dawn raids in China walk up to your reception desk and in their powers; and (iii) whether the
should not be done recklessly, as an ask to search your corporate prem- records and files they request and
improper response may lead to addi- ises. Instead, the agency can only questions they ask fall within their
tional administrative or even criminal initiate an investigation after having powers.
18FEATURES
Preparation for dawn Response during a pany officials and take note of their
raids dawn raid actions, such as questions asked
One ounce of prevention is worth When a dawn raid does occur, a and answers given, all rooms visited,
a pound of cure. Proper and sufficient proper response should be done in a cabinets, desks, files, computers and
preparation and training can keep a role-based approach. Each designat- electronic devices requested, exam-
company’s staff from getting caught ed role has its unique purpose and ined, copied and seized. Response
off guard in a dawn raid. functionality in a dawn raid: team members engaging the officials
1) Assemble a response team: Ide- 1) Receptionists/security staff: shall (i) convey to the officials that
ally the team should consist of man- Receptionists/security staff are nor- the company will fully cooperate;
agement-level staff who are based mally at the front lines of a dawn raid, (ii) identify whether there are other
in China and can speak Chinese. The and their response can make a dif- inspection sites; (iii) seek immediate
team should include one legal coun- ference. Generally speaking, the re- advice from legal counsel (in-house
sel, one senior management member, ceptionist’s responsibilities include: or external).
one senior member of the IT staff, a (i) verifying the officials’ work ID and 3) IT staff member: As more and
government relations officer, and staff official documents and recording more dawn raids involve the inspec-
members who can assist with notetak- their names, titles, work ID No. and tion of electronic files and devices,
ing and respond to media inquiries. the government entity to which they the company’s IT staff members are
2) Data/file storage and backup: belong; (ii) asking the officials about commonly required to comply with
All data and documents need to be the purpose and scope of their visit, the officials’ instructions, which may
managed in an orderly manner. In and the person(s) they want to see; include: (i) explaining the IT environ-
the event of a dawn raid, the officials (iii) leading the officials to a quiet and ment; (ii) blocking access to email;
normally will not (iii) disconnecting
allow any time computers from
for data/file du- the network;
plication and/or (iv) removing
backup, and will and re-install-
demand seizure ing hard drives
of documents from computers;
and devices at and (v) provid-
their discretion. ing administra-
A well-managed tor access. The
document/data IT staff member
management should take note
mechanism will of all the data ac-
enable you to cessed or copied
keep track of the by the officials, as
documents and/ well as the tech-
or data that has nical measures
When a dawn
been inspected or restrictions es-
raid does occur, a
or seized by the authorities. isolated space or room; (iv) notifying tablished by the officials. Moreover,
proper response
should be done 3) Train employees: Employees the response team and politely ask- the IT staff member shall not in any
in a role-based should understand the importance ing the officials to wait for the arrival way interfere with the measures es-
approach. Each of dealing with dawn raids in an ap- of team members; and (v) refraining tablished by the officials, and all em-
designated propriate manner, to avoid at the very from obstructing the officials from ployees affected should be promptly
role has its least reacting in panic or antagonis- commencing the inspection by any notified.
unique purpose tically. General trainings shall be de- means. 4) Employees being questioned:
and functionality livered to all employees and special 2) Response team members: Af- The officials have the power to ask
in a dawn raid. questions within the scope of the
trainings should be given to recep- ter being notified, a team member
tionists and security staff, response should arrive at the scene as soon as investigation. If possible, you should
team members, IT staff and senior possible, and his priority is to figure have a designated member of the
November / December 2020
management. out the exact purpose and scope of response team available to answer
4) Prepare and distribute guide- the inspection (e.g. the entities being all questions, as opposed to letting
lines: Each employee should be inspected; whether the inspection them randomly select employees
given a copy of the guidelines for involves any employees; whether for questioning. If employees are
dealing with dawn raids. They should the inspection targets specific prod- being questioned, the company
carefully review the guidelines and ucts; and the alleged violations). Re- should instruct employees that: (i)
be tested on their familiarity with the sponse team members shall at all at the beginning of the question-
guidelines in performance reviews. times during the dawn raid accom- ing, voluntarily state to the officials
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