COVID-19 Outbreak makes way to new Business Opportunities in China
The ongoing COVID-19 outbreak is forcing people in China and around
the world to change certain habits and behaviors, thus creating new
business opportunities in many different industries. Thanks to human
ingenuity and utter necessity, many businesses are reimagining new
and creative ways to meet the needs of a large population locked
indoors to avoid coming in contact with the virus.
The coronavirus crisis is having a devastating impact on people’s lives and the economy in China, but a few players are discovering new opportunities and are adjusting their business models to be able to benefit from current circumstances. Once the outbreak is under control, these companies would likely gain a larger market share and establish a stronger presence.
Industries such as technology, entertainment, education, health care and tele-commuting are already experiencing a substantial increase of users, who are forced to work from home, can’t go to school, have limited access to services or have limited or no transportation available.
Though some regions in China have gradually resumed work, most businesses in Hubei province, the epicenter of the COVID-19 outbreak, remain closed. Since offices and factories are public spaces, any infection will have serious consequences, economically or legally, and to prevent this, most owners have chosen to have their employees work from home.
Managing your staff remotely can be a challenge, particularly when faced with the necessity to recoup the losses of a long shutdown. On the other hand, companies still must pay employee salaries and rents during the suspension of work.
In 2003, the SARS (severe acute respiratory syndrome) virus infected thousands and killed hundreds in China, but this outbreak was widely seen as a catalyst for the country’s e-commerce industry. People staying indoors to avoid contracting the deadly virus rushed to shop online. Alibaba’s Taobao, an eBay-like digital marketplace, launched at the height of the SARS outbreak.
Seventeen years later, as the COVID-19 forces millions of people to stay inside their homes, tech giants are once again looking to meet consumers’ needs. Others are providing digital tools to help citizens and the government fight the disease.
According to data from analytics company QuestMobile, Chinese people’s average time spent on the mobile internet climbed from 6.1 hours a day in January, to 6.8 hours a day during Chinese New Year, to an astounding daily usage of 7.3 hours post-holiday as businesses delay returning to the office or resuming on-premises operation.
Consumers used to online shopping are becoming more comfortable ordering daily necessities and fresh food online instead of going to a supermarket. Fresh food e-commerce is seeing an explosive growth, as are cleaning and disinfecting products.
Online games and live webcast have also experienced a surge of interest. This can be seen from the comparison of the turnover of Tencent’s hit game ‘Honor of King’ – in 2020, the turnover of ‘Honor of King’ on the Chinese New Year Eve was around RMB 2 billion (US$286 million), while in 2019, the number was RMB 1.3 billion (US$186 million).
The online entertainment industry has benefited greatly from the nation’s lockdown. The short video sector recorded 569 million daily active users in the post-holiday period, far exceeding 492 million on a regular daily basis, according to QuestMobile. Video streaming sites are gathering musicians to virtually perform, and movies are premiering online as the virus forces live venues and cinemas to remain closed.
The restaurant industry is hurting deeply, since many cities in China have gone as far as to ban eating in public places. This has put a significant pressure on food and grocery delivery services. To ensure safety, delivery companies have created ways to limit human interaction, such as Meituan Dianping’s “contactless” solution, which is in effect a self-served cabinet to temporarily store food orders awaiting customer pickup.
The education field has also encountered severe obstacles, with many school and university shutdowns. To avoid further delays in the academic schedule, many institutions have introduced online teaching and clock-in programs for students.
DingTalk, an office software developed by Alibaba group, is widely used by schools and students and has been installed 1.1 billion times in the last few weeks. The technical team of Tencent took Tencent Live Broadcast as the access entry and developed an online education live port – Tencent Classroom, which supports the online demand of schools in Wuhan province. Data from February 10 shows that Tencent’s live streaming port carries about 81 percent of the platform’s users. In other words, 730,000 of the 900,000 primary and middle school students in Wuhan chose to learn online through Tencent’s live streaming port.
As more and more businesses were forced to empty their offices and manage their work remotely, a few tech giants jumped at the opportunity to meet the high demand for software that would enable employees to work from home. The main players trying to tap the nationwide work-from-home practice are Alibaba’s DingTalk, Tencent’s WeChat Work, and ByteDance’s Lark.
DingTalk, launched in 2014 by an Alibaba team after its failed attempt to take on WeChat, shot up to the most-downloaded free iOS app in China in early February. The app claimed in August that more than 10 million enterprises and over 200 million individual users had registered on its platform.
In second place, close behind DingTalk, is WeChat Work, created in 2016. Last December, WeChat Work announced it had logged more than 2.5 million enterprises and some 60 million active users.
Lark, launched only in 2019, pales compared to its two other competitors, hovering around the 300th mark in early February. Nonetheless, Lark appears to be making a big user acquisition push recently by placing ads on its sibling Douyin, TikTok’s China version. Douyin has emerged as a marketing darling as advertisers rush to embrace vertical, short videos.
It is not clear yet if the sudden success of these apps will become a sustainable growth trend. On one hand the high volume of traffic has caused system crashes on DingTalk and WeChat; on the other most businesses are expected to resume in-person communication when safety conditions are ensured.
The outbreak has also provided interesting opportunities in the online medical care, medical supplies, pharmaceuticals, insurance, and health-related industries. Online medical platforms, like AliHealth and Tencent HealthCare, have provided free online diagnostic services for citizens. This helps to screen out suspected COVID-19 patients from common cold patients, alleviate the shortage of offline medical resources, reduce the cross-infection risks caused by human contact, and enable more citizens to experience online medical treatment.
In the next two to three years, telemedicine is expected to become more widespread as hospitals embrace the new technology and feel more comfortable with its benefits. At the same time, people are more aware and better informed about life and health issues. This will promote the development of medical equipment, medical supplies, and pharmaceutical industries and stimulate domestic demand for health care products and life and medical insurances.
Foreign-invested enterprises (FIEs) have also suffered directly and indirectly from the health crisis in China. Companies such as Tesla, Apple and Starbucks are some of the few who decided to shut down their operations in China until the situation normalizes.
On a positive note, some experts anticipate a rebound in consumption in some hard-hit sectors, such as tourism, film and television, entertainment, catering, and retail industries, once the outbreak is over.
It is expected that the central and local governments in China continue to roll-out policies to boost the country’s overall GDP performance in 2020, which could be a good opportunity for new companies, including FIEs, to enter the Chinese market by mid-2020. At that time, incentives like favorable lease terms are to be expected, and the second half of the year is normally a good time for companies to recruit talent in China at a relatively low cost.
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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.