Over the past 40 years of reform and opening-up, China has continuously promoted its opening-up policy while practicing innovation, which has created opportunities for outbound investment. After joining the World Trade Organization (WTO), China has accelerated its opening-up process and realized the historical turn from "introducing" to "going out" and from following to leading.
As China's economy enters a new phase of steady growth, overseas markets become more attractive than in the past amid intensifying domestic volatility. In addition, the national government and relevant departments have been issuing a series of favorable policies in the field of international expansion. Besides, the increase in the level of openness towards the outside world has further motivated domestic brands to enter overseas markets. Lastly, the increasing improvement of the digital economy infrastructure including supply chain, mobile social commerce, the Internet and the rise of logistics, payment, SaaS/ERP and other tools have directly reduced the cost and significantly increased the convenience of going abroad.
As we enter 2023, EqualOcean is excited to present the "Global 100: Go Global and Co-creating the Future" series, in which our analysts will sit down with frontline industry practitioners and enterprise leaders to gather insight on globalization of Chinese brands. We hope to help brands be seen, recognized and valued through our professionalism and credibility.
The following is the seventh piece in this series, conducted by our analyst Yiru Qian after her talk with Feilong Huang, Founder and Chief Executive Officer of hibobi (Chinese: 嗨宝贝).
Founded in 2019, hibobi Group, specializing in the mother-infant-child industry, focuses on retail by providing customers with high-quality and fashionable products at the best price. hibobi designs, sources, and supplies products across childrenswear, footwear, baby supplies, child care, hygiene products, and other categories for parents and children.
Since its establishment, hibobi has focused its operations in the Middle East market. In 2022, the company completed its Series C round of funding and received investments from many well-known funds, building a deeper supply chain system to improve responsiveness and efficiency.
EqualOcean: As a Chinese brand that started in the Middle East market, what prompted hibobi to start its base of operations in the Middle East from the very beginning?
hibobi: In our experience, we have found that it’s more effective to begin by initially selecting a familiar industry rather than targeting a specific market right away. Our logic is that by focusing on an industry first, we are better equipped to navigate its unique challenges and opportunities, thus allowing us to explore a wider range of potential opportunities in a more nuanced and targeted manner. While looking into different markets, we had the idea of globalization and began to search for markets that aligned with our goals with globalization.
Most of our team are experienced in cross-border business in both EU and North America. We came to a collective agreement to avoid those two areas when starting hibobi for the following reasons: First, the well-known international brands are powerful and have effectively grown deep roots in these markets. Next, with the countless years of their existence, those brands possess superior efficiency, and scalability, as well as a strong local business culture and brand identity. As a result, Chinese entrepreneurs such as us will face significant challenges when competing against the established players.
The we laid our eyes on the emerging market because of several dimensions. The first is branding. We decided when building hibobi, we were going to build our brand from a “top-down approach”, in order to find a market that has the possibility to build a brand out of. The second is retailing, which takes considerable time to establish in a new market
EqualOcean: Can you give us a brief introduction to the Middle East market? What are the differences between the Middle East and Chinese markets for your industry?
hibobi: The Middle East market is extremely favorable to us. Throughout the past thousands of years China and the Middle East have historically benefited from one another in trade, specifically from the Silk Road. With the past engagements, familiarity and alliance that is still held over thousands of years, we found the Middle East to be the most stable market for us to start.
In terms of the mother-infant-child industry for the Middle East, there are three characteristics of their market that greatly differs from the Chinese market.. First, due to religious and other reasons, Middle Eastern countries have a higher birth rate than China, where the desire to have children is decreasing. So in the Middle East, the market has a long reproductive cycle and more opportunities. The fact that a user can be served for a long time means that the value of this market user will be high. Next, the Middle Eastern market has a strong consumption ability which is critical for sustaining the growth of new brands, as it provides a reliabel customer base for brands to build upon. Lastly, our analysis shows that the Middle Eastern market itself is still in a stage of basic trade, and it is difficult to fulfill the supply needs completely. Hence, new brands are always available to enter the market.
Moreover, we have witnessed a change in religious elements in the past few years. People's perceptions and consumption habits are changing, and the market is opening up. We cooperated with young entrepreneurs in the Middle East, from whom we saw a more active and mobile market. And we grasped more opportunities and customized the strategy to meet the localization needs.
Therefore, with these reasons, we ultimately decided to start in the Middle East. I personally also went to the Middle East in 2019 to do more in-depth investigations and analyze how the market reacted. Taking everything into consideration, the Middle East market is our best option at that point.
EqualOcean: What are the specific consumer profiles of hibobi in the Middle East and their consuming behavior?
hibobi: Our focus is on the mid-end consumer as this sector caters towards mass consumption, who are the majority of people in this region. We target the new generation of mothers growing with the Internet and preparing for their first child. Our core products have also started to develop into maternity products, such as nursing bras and a series of products. We recognize the power of mothers in building our brand, as they can communicate with other expecting mothers and spread the word about our products. By targeting this demographic and building a community around our brand, we can establish a strong presence in the market and create lasting loyalty among our consumers.
In addition, we made the decision to avoid competing with low-end brands very early on, instead choosing to focus on a mass-consumption market with a relatively high unit price and gross profit. We believe that today's brand model is not logistics plus merchandise and advertising costs; instead, we need to set aside part of our profits and invest it in long-term brand-building.
We have put forth a concept called Vision 2030. Because in the Middle East market, the government is encouraging individual entrepreneurship and is putting more money into the market to make it more flexible and open. Then the tourism, energy, trade, and technology sectors were all growing rapidly, and at the same time, as they grew, the culture was further unbundled.
We position ourselves globally to do branding and the first step is localization. We need to know what the real needs of the market are and develop products around the needs. Successful companies share one commonality: they all have teams in the market that are constantly researching the needs locally, constantly looking at the changes in the market. At the same time, they take full advantage of domestic cooperation with continuous product development and marketing upgrades, which is a systemic process.
EqualOcean: What obstacles or risks have been encountered in the early stages since the company's establishment?
hibobi: Every market is different. Apart from the Middle East, we're also involved in the Latin American market. What we are exploring is a model that can be standardized. Many companies are entering the Middle East market, but few are staying. And we experienced all the struggles they've been through. The main reason is that the Middle East market is a COD (Cash-On-Delivery) market, and the price per customer is extremely high.
We need to define whether a market is a strategic or tactical market. We must value the company's investment for each stage if it is a strategic market. For instance, we plan to develop from e-commerce to offline channels and brand building and then to the local input supply chain production. The truth is we have a timetable for each stage. To enter a new market, we will inevitably come across obstacles. We learn from our predecessors, but it is always different when we are in the game ourselves.
EqualOcean: Real globalization is the ultimate localization. We understand that hibobi has expanded its business to 30 overseas markets, including MENA, South America, Asia, etc. Do you have any localization strategies in different markets to share with us regarding products, marketing, channels, etc.?
hibobi: For us, the Internet is a very useful tool, and we continue to explore market opportunities and possibilities. However, it doesn't mean we will operate deeply in all these markets. The primary market we operate in is the Middle East; the second will be Latin America.
We need to collect many data to start with; if we find that the whole data increment is very promising, from the market, industry, and category to its entire country's GDP growth. We will start the next step of our layout. We will send people to the local area and have a local team to help us. If everything goes well, we will start to implement it.
There will be in-depth discussions within the company about whether the current opportunity is the best, whether we're doing the right thing, what adjustments we need to make, and what we should do next to invest in this market. Throughout this process, we would have domestic teams working with us together.
We are a Chinese brand new to any country and market we have never been to, so we cannot ignore many cognitive gaps. To close the gaps, we have made many efforts. For example, probably 70 to 80 percent of our employees in the Middle East are now local, which is essential. Besides, what we value highly is that our deployment is for a longer cycle of profits in the next three to five years.
As I mentioned earlier, the Middle East market is a strategic market. And we focused on the whole MENA (Middle East and North Africa) area. We have two strategic types of markets in this area; the first is Saudi Arabia. It is a market with the strongest consumption power in the Middle East and excellent population and technology growth. We will invest heavily in the market as a strategic focus because we can have a promising scale effect. The second is the UAE. The UAE is an extremely important market for branding in the MENA region. So we hope that through a market like Dubai, we will improve our brand influence and even radiate the entire MENA region. We will have different definitions for different countries within the market.
EqualOcean: We understand that hibobi has given much attention to offline channels and its online e-commerce. What is the ratio of your marketing investment in these two channels?
hibobi: We have been controlling our investment in online e-commerce platforms because we are not getting very good results. And in the Middle East, the offline business is better, and there is more space for profits, which is the opposite of China.
hibobi is now past the stage of investing heavily online to acquire customers; instead, we are working harder in the offline stores to adapt to the market. But that doesn't mean we've given up on the online channel. We have gone from ROI (Return on Investment) to long-term revenue through online display advertising. We harvest customers through the Internet and continue to expand the brand's reach with our offline stores, which is very different from the traditional strategy.
So, at this stage, we are reducing the investment in e-commerce platforms. But in the next stage, there may be another story. We regard the Internet as an amplifier. We will adjust and optimize investment as the business model shifts from quantitative to qualitative changes.
EqualOcean:What are the key factors for Chinese brands to go global? As a pioneer in the Middle East market, do you have any suggestions or advice for entrepreneurs interested in the Middle East market?
hibobi: I think this move of going global is very similar to playing chess. The first move of a chess player is the most critical. If you do not initially have a clear positioning and cognition of the market, you cannot grasp and predict all your business moves and outcomes. We must stretch the line to look at both ends to find opportunities.
One end is branding. You need a great brand influence to support you, with continuous investment in the market so that users can recognize you and have faith in your brand. The supply chain is on the other end. The supply problem is always there, and so are the opportunities. In the long run, we must focus on the two ends of the brand and supply chain, which take time. Otherwise, our business is easily subverted.
Starting with branding, how to use and leverage the advantages that Chinese manufacturing has created over the years is another issue, in addition to localization and peripheral supply chain layout.
About EqualOcean
EqualOcean focuses on serving Chinese companies in their road to globalization and helping overseas companies and organizations to grasp China's development opportunities. It believes in the value of globalization, with the mission of connecting China and the world.
For Chinese clients with globalization needs, EqualOcean provides overseas market and industry research, international branding, data products, and overseas resource-building services. For overseas clients who want to grasp China's development opportunities, EqualOcean provides Chinese market and industry research, investment target due diligence, data products and resource-building services.
EqualOcean continues to focus on globalization and invites professionals from various industries to provide valuable information and opinions by contacting yiru@equalocean.com. We also welcome companies that need to expand internationally or want to exchange overseas-related topics to contact us directly.
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