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10/30/2014

Book Review: The End of Copycat China


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CopyCat-ChinaIn 2005, Shaun Rein founded China Market Research Group, a strategic market intelligence firm based in Shanghai. Their clients included private equity firms, hedge funds, as well as Chinese businesses and multinationals. In the course of his market research, he comments, "As I traveled, I realized the changes and reforms were happening so fast that they were hard for people outside the country to follow." In his previous book, The End of Cheap China, and now, with The End of Copycat China: The Rise of Creativity, Innovation, and Individualism in Asia Shaun Rein shares with the readers his knowledge of the rapidly changing Chinese economy, and how businesses and investors are adapting, and must adapt.

The theme of his The End of Copycat China is that China is moving away from duplicating successful business models from America to product and service innovation. Previously, "little reason existed to be innovative or even to build brands. Growth relied on heavy investment and low- hanging fruit dangled enticingly incentivizing companies to copycat other successful forms in the short term and make a quick buck," Rein noted. This business pattern lasted a long time, making big fortunes for many. However, the Chinese economic structure has changed as competition and costs have risen. The government is trying to move away from cheap credit as the economic driver. The Chinese consumer is changing to more sophisticated buying tastes.

In response to more competition, higher costs, and changing consumers, Chinese companies are being forced to move up the value chain and become innovative. "There is so much competition in China that you can't just copy a concept. You have to differentiate yourself in order to win. So you are forced to innovate," Rein wrote. This has occurred despite a government bureaucracy that had no incentive to promote innovation. "Officials simply do not want to take risks that could endanger their chances of being promoted." In the past, they were evaluated on GNP growth.

In a chapter called "End of Bling," the book describes how the Chinese consumer is moving away from simply chasing fashionable Western brands. They are going from "displaying status to quality of life," from "aspirational plays" as "they climbed up the social ladder." A big factor was the huge residential real estate boom from 2003 - 2008, "which could be the greatest wealth creator in the history of the world," which in turn (amongst other things) was spent on travel. In 2013, 113 million Chinese traveled abroad. This generation of Chinese travelers is "looking for local culture in more intimate settings," "places where other Chinese have not been." Currently "the new status symbol is sharing experiences on WeChat." The End of Copycat China is written in a fast moving, engaging style. This and the author's descriptions of today's China keep the reader's interest. The book is an extraordinary educational resource for financial professionals who want to be up-to-date on potentially profitable trends in China.

–Bill Hayes

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