Archives 2014

Road less traveled leads to success for UCWeb chief

A UCWeb stand promotes its mobile game distribution platform 9game at an exhibition in Guangzhou.

Yu Yongfu has his eyes on a billion users, and overseas ventures are vital to realize that goal

Starting as an entrepreneur, then becoming a successful business owner before becoming an angel investor is a well-trodden career path in the corporate world.

But investor-turned-entrepreneur Yu Yongfu is an exception.

Yu, who quit as vice-president of China’s leading venture capital investment firm Legend Capital Management LLC and joined startup mobile browser company UCWeb Inc in 2006, said that being an investor is like sitting in the passenger seat of a car, while being a chief executive officer means you are in the driver’s seat.

“Being a passenger is comfy, but without having the fun of a driver who controls the wheel of the car,” said the 38-year-old.

Yu, who agreed to sell UCWeb to Alibaba Group Holding Ltd in June in China’s largest Internet takeover, is determined to steer his Guangzhou-based company through a global expansion plan, especially after teaming up with the deep-pocketed e-commerce giant.

“Our goal is to rapidly double the number of people using the UC browser to 1 billion. If you look at Internet companies around the world, only Google Inc and Facebook Inc have established user groups that are as large as 1 billion.

“I think UCWeb and Tencent Holdings Ltd’s WeChat are the two companies in China that have the potential to grow their user bases to that size,” he told China Daily.

The goal cannot be reached without expanding to overseas markets, said Yu, who admitted that one of the main reasons he agreed to sell UCWeb to Alibaba is that the extremely profitable e-commerce giant can give his company’s globalization plan a strong push.

UCWeb, the second-largest mobile browser in China after Tencent’s QQ browser, is known for reducing data usage for those who surf the Internet through mobile devices.

The company saw its market share by active users in China drop 3.2 percentage points quarter-on-quarter to 31.6 percent in the first quarter of 2014, according to Analysys International. But its globalization strategy, launched in 2010, seems to be going well.

The company claims that its mobile browser has a market share of more than 10 percent in 10 countries. The UC Mobile browser even became the leading mobile browser in India earlier this year, accounting for 35 percent of the market.

But Yu wants UCWeb to have 1 billion users in three to five years and 50 percent from countries outside China.

“Being part of the Alibaba Group means that UCWeb is able to invest more in its overseas expansion. Alibaba is a very profitable company, which allows us to focus on long-term development rather than make short-term money,” he said, adding that Alibaba’s rich experience in tapping into e-commerce markets in other countries can also be valuable to UCWeb.

Yu said that 2014 is the year for UCWeb to gear up its globalization plan with a strong focus on developing countries.

When testing the waters in a new market, UCWeb tends to fly its engineers there and introduce its product to local tech fans. It will set up offices only when the number of users in a particular country reaches 20 million.

It has local offices in India, Indonesia and the United States, and it is expected to set up offices in Russia and Vietnam later this year.

“The Internet is the industry that is most suitable for global expansion. Users usually don’t care which country the service provider comes from as long as the product is good,” he said.

Unlike the personal computer-based Internet sector, which was pioneered by Western companies (US companies in particular), Yu said that Chinese firms can be leaders instead of followers in the mobile Internet industry.

“The mobile Internet has a lot to do with lifestyle. For example, people in the US and Europe spend a lot of time driving to work, while the majority of Asian people use public transportation to commute. That means that Asian smartphone users on average spend more than two hours every day on the mobile Internet.”

The strong reliance on the mobile Internet leads to innovation. What’s more, the PC-based Internet is an industry with a unified world standard, while the mobile Internet industry varies among regions, he said.

Wang Jian, an analyst with the Beijing-based Internet consultancy Analysys International, said that as one of the earliest mobile browser companies in China, UCWeb has strong advantages in going abroad as China has the most complex market in the world.

“Chinese users are very demanding and they are not used to paying, even if your product is good. So for those companies that have already established themselves in China, it is safe to say that they are ready to conquer other markets,” said Wang.

Yu agreed, saying that entering a new market is like doing subtraction. “Sometimes we simply remove some features from the Chinese version of our product and it can become a hit in other countries,” he said, adding that the most important thing to do when going abroad is choosing the right market.

He has divided the global market into four areas: China, developing countries, Japan and South Korea, and Europe and the US.

The top priority for global expansion is developing countries, because Chinese mobile Internet technologies are usually two years ahead of what is available in those countries. He said UCWeb has no plans to move into Japan or South Korea at this stage because it is very difficult to break into their industrial chains.

“The US and Europe are not easy markets, either. But we will keep looking for opportunities in those markets,” he said.

Neil Flynn, head equity analyst at Shanghai-based website Chineseinvestors, which provides financial analysis of US-listed Chinese companies, said the most important aspect of Chinese companies’ development strategies should be to expand into emerging economies.

“Consumer trends are similar to those in China, and these firms will have the experience and knowledge to profit,” said Flynn, who has followed Chinese Internet companies for years.

“In the Western developed economies, we see the likes of Google and Amazon being dominant players for the same reason. These countries have similar consumer trends, so it’s relatively easy for them to adapt their business models.”

It might seem that UCWeb has chosen the right path, but Jane Zhang, principal research analyst at technology research Gartner Inc, begged to differ, saying that a mobile browser cannot serve as a powerhouse that will ensure sustainable growth for Yu’s company.

She argued UCWeb’s core selling point in China is saving money through reduced data usage. That alone, she said, is not enough to attract users in other countries.

“Most importantly, a browser itself is not badly needed by users in the mobile Internet era. If they want search facilities, or social media or shopping, they can directly go to apps with the necessary functions without going through browsers like they used to do in the PC Internet era,” Zhang said.

It seems that UCWeb is aware of the challenges. But Yu said that the odds of success are usually higher when most people don’t recognize an opportunity.

UCWeb has already launched a mobile game distribution platform called 9game and a mobile search engine known as Shenma, aiming to use a multiproduct strategy to hook more users on its way to becoming an information service gateway.

Wanda invests in premier LA site

China’s leading commercial property developer, Wanda Group, said over the weekend that it plans to invest $1.2 billion to build a mixed-use development complex at a premier site in Beverly Hills, Los Angeles, the company’s first step into Hollywood’s film industry.

Wanda said in a statement it will also set up an office in Los Angeles to handle entertainment sector investments, while its New York office will be responsible for commercial sector investments.

“The Los Angeles project is expected to aid China’s entry into Hollywood’s film industry and generally promote Chinese culture abroad,” the company said.

Pilot pay at flag carrier to soar by 360m yuan

An Air China airliner arrives at Guiyang’s international airport in Guizhou Province. The flag carrier of China will spend 360 million yuan to raise its pilots’ compensation. The move is expected to benefit 4,560 pilots at its five subsidiaries.

Air China raising salaries following protests by captains over long hours

Air China Ltd, the flag carrier of China, will spend 360 million yuan ($58.06 million) to raise each of its pilots’ income by 80,000 yuan annually on average, which will benefit 4,560 pilots at its five subsidiaries.

The pay-raise plan is under discussion and still awaiting approval, an insider told China Daily.

In order to reward core employees, captains and instructors will get 18 percent more annual income on average, which will be around 174,000 yuan per person, said the plan. Usually, pilots’ income is combined with a basic salary and floating wage, called an hourly fee and calculated by their flight hours.

Air China will increase the percentage of the floating wage, and the hourly fees of flight instructors will go from 409 yuan to 549 yuan, according to the plan.

“We are basically satisfied with the plan, although the increase is not very large,” said a captain from Air China, who declined to be identified.

Air China had no official comment on the plan yet, said Ding Yue, a spokesman for the airline. An internal Air China document said that the company planned to spend 360 million yuan on pilots’ pay raises.

The carrier’s financial report showed that its net income was 3.319 billion yuan in 2013. The airline also forecast that its net profit would drop by 55 to 65 percent in the first half of 2014 compared with the same period in 2013.

But even with the raises, Air China pilots still will make less than pilots of other airlines, some business insiders said. Pilots’ salaries at Air China are lower than other carriers in China, “especially compared with privately owned airlines”, said Zhang Qihuai, vice-president of aviation law research for the China Law Society.

Zhang said as the flag carrier and State-owned carrier, Air China attracts pilots for its resource advantages.

But the rising privately owned and local airlines, which pay much higher salaries, are threatening the State-owned carrier’s superiority, he said. “To raise salaries for pilots is a huge advance for Air China, but it is still low for the industry,” Zhang said.

The plan was floated following the signing of a public letter by hundreds of Air China pilots in April. They complained of such things as long hours and unequal treatment of Chinese and foreign pilots.

“The company provides more benefits to Chinese pilots, such as medical treatment and pensions, which the foreign pilots have to foot themselves,” Air China said, explaining why the carrier pays foreign pilots a higher salary. It did not address the issue of the hours.

“Money is not everything for the pilots, who are already a high-income group, and they want more labor rights,” Zhang said.

During the peak season, some pilots work close to 100 hours per month, which is the authority’s upper limit, said a captain from a domestic airline. The reason is a lack of pilots in China, Zhang added.

At the end of 2013, 35,505 pilots were licensed to fly in China, while the number of civilian aircraft totaled 2,145, according to the Civil Aviation Administration of China.

Boeing Co forecast in 2013 that China would need to add 77,000 new pilots during the next 20 years.

Internet vital to China’s economic transformation

Businesses, policymakers should look to technology for efficiency gains

With some 632 million Internet users, China is now in the midst of a digital revolution. Last year alone saw the country’s number of active smart devices grow from 380 million to 700 million, according to a report from Umeng, an app analytics firm. Meanwhile, its e-tail market stood at 1.84 trillion yuan ($295 billion) in annual sales in 2013, surpassing the size of the US market and becoming the largest in the world, data from iResearch show.

Until now, China’s Internet economy, which is already 4.4 percent of GDP, has been largely consumer-focused, while many Chinese businesses have been slower to go digital. Across most sectors of China’s economy, the Internet holds the promise of large improvements in labor productivity. As companies embrace Web technologies, their operations become more efficient, translating into productivity gains.

According to a McKinsey Global Institute (MGI) report, the Internet could fuel some 7 to 22 percent of the incremental GDP growth through 2025, depending on the speed and extent of Internet adoption by Chinese enterprises. By that point, it could generate 4 to 14 trillion yuan in annual GDP. Some 10 trillion yuan will be at stake in annual GDP by 2025, so capturing this potential will be critical for China’s future competitiveness, particularly as the country’s labor costs increase and its demographic dividend diminishes.

Perhaps even more important, the next wave of Internet development will help China shift toward an economic model driven by productivity, innovation and consumption. The heavy capital investment and labor force expansion that fueled China’s rise over the past two decades cannot be sustained indefinitely. The Internet, by contrast, is facilitating the ongoing process of moving China’s industry from less productive to more innovative and technologically advanced business models.

Much of the Internet’s impact will likely come in the form of productivity gains. China has posted high rates of labor productivity growth in recent years, but its progress began from a very low base, so the productivity remains well below the levels in advanced economies. Meanwhile, China’s labor force is projected to begin shrinking by 2015. To avoid a slowdown and continue to improve living standards, China will have to make its existing labor and capital stock more efficient, and wider technology adoption will be central to this effort. As Chinese companies digitize their operations on a wider scale, they will gain the ability to streamline operations, open new sales channels, accelerate the research and development process, and become leaner.

Take small and medium-sized enterprises (SMEs) as an example. Going digital can neutralize some of the disadvantages faced by Chinese SMEs today. The Internet provides a platform for entrepreneurs with new ideas to scale up rapidly and at low costs. It once took years to establish a huge sales force and wide distribution network, but e-commerce marketplaces grant SMEs instant and direct access to consumers, along with associated support services, such as payment and logistics.

Moreover, limited access to capital is a common challenge for SMEs. Yet, this picture is about to change. Big data to manage credit risks and online channels to reduce transaction costs provide financial institutions with greater capabilities to increase lending to SMEs. Private banks and Internet finance providers are injecting new competition into the financial services sector. Alibaba, for instance, provides micro-loans to its e-merchants. In addition, the Internet can also boost the export capabilities of SMEs, turning them into “micro-multinationals.” They can reach overseas consumers directly by listing on foreign B2C and C2C platforms. In fact, 3,835 Chinese sellers were already on eBay with more than $100,000 in sales as of November 2012.

When SMEs have a platform for growth, collaboration and experimentation, the overall economy benefits. The rate of innovation increases, as new ideas and offerings can now be tested and rolled out quickly, easily and cheaply, introducing more competition and thus raising productivity in various industries.

The growth of SMEs in China could also create a disproportionate number of jobs. Helping SMEs flourish could mitigate job losses that could occur as labor productivity improves in the rest of the economy. China’s ability to realize these benefits will depend on whether SMEs recognize the advantages the Internet can provide and are willing to adopt it in large numbers.

Facilitating more widespread Internet adoption is nothing simple; the Internet can also be a disruptive force. So the government is expected to face multiple policy challenges in harnessing the Internet for economic growth. First, a balanced set of regulations enhancing privacy protection and data sharing could remove constraints on big data adoption. Second, liberalize markets to encourage new innovations, allow robust competition and accelerate productivity. Third, the government can ensure that training programs are available to help workers continually refresh their skills. Fourth, building out networks is crucial to bringing more of the population online and facilitating industry adoption.

New-energy vehicles exempted from tax

Lack of charging network dampens consumer enthusiasm

The Chinese government formally announced Wednesday to waive the purchase tax for new-energy vehicles in a bid to support the industry but experts said there is still a bumpy road ahead.

From September 1, 2014 to December 31, 2017, new-energy vehicles approved for sale in the Chinese market, including imported ones, will be free from purchase tax, according to a notice jointly released by China’s Ministry of Finance, Ministry of Industry and Information Technology and the State Administration of Taxation Wednesday.

The new-energy vehicles approved for sale in the Chinese market include electric vehicles, plug-in hybrid electric vehicles and fuel cell vehicles.

The three governmental bodies will release a new-energy vehicle catalogue later to specify the vehicles that will be exempted from purchase tax, and automakers as well as vehicle importers can start applying for the preferential tax policy starting now, according to the notice.

The new policy follows a decision made at a State Council meeting on July 9, which said consumers who buy new-energy -vehicles can be exempted from the purchase tax, which is equal to 10 percent of the net vehicle price, from September 1 till the end of 2017.

“The notice shows that the government is supporting new-energy vehicles as it promised, which is a good news for the industry,” Gao Jian, an industry analyst at Shanghai-based consultancy LMC Automotive, told the Global Times Wednesday.

In a bid to promote the new-energy vehicle industry, the government has released a number of policies, such as requiring the share of new-energy vehicles to be at least 30 percent in government procurement of vehicles by 2016 and making provisions for additional subsidies for new-energy vehicle purchase.

Several first-tier cities including Beijing and Shanghai have also adopted favorable license plate policy for new-energy vehicles.

With the subsidy and purchase tax exemption, the low-priced domestic new-energy vehicles will become more appealing to customers, but the shortage of charging facilities remains the biggest concern, Gao noted.

Without a stable charging facility network, it will be hard to persuade general customers, he said.

New-energy vehicles have failed to generate enthusiasm among the Chinese consumers due to a lack of charging stations and reliability and driving safety concerns caused by immature technology, according to a research note by global management consultancy A.T. Kearney on China’s new-energy vehicle market sent to the Global Times Tuesday.

The new-energy market may bloom for a while with government support but it will not be able to achieve long-term growth without a strong natural demand from consumers, according to the research note.

Alibaba offers lifeline to Nokia China workers

Alibaba Group yesterday offered a glint of hope to the thousands of Nokia Corp employees expected to lose their jobs as a result of Microsoft Corp’s takeover.

The United States-based software giant plans to lay off 18,000 jobs globally by next year after completing its US$7.2 billion acquisition of the former world No. 1 phone maker.

About 90 percent of Nokia’s China workforce — most of whom are based in Beijing and Tianjin — are set to lose their jobs by the end of this year.

Hangzhou-based Alibaba, however, said on its Sina Weibo account that it will seek to recruit people laid off from Nokia China to help develop its cloud computing business.

“Nokia is a great company … and we are willing to offer a platform for those employees to achieve their dreams,” the world’s biggest e-commerce firm said.

Mercedes-Benz to cut prices of auto spare parts in China

Beijing Mercedes-Benz Sales Service Co, the German premium carmaker’s sales, marketing and after-sales unit in China, announced on Sunday that it would lower the prices of some of its spare parts in the country in response to Chinese authorities’ ongoing antitrust investigation of the auto sector.

The price cut, which will take effect on September 1, covers over 10,000 spare parts of all Mercedes-Benz models, and will be as much as 15 percent for some parts after the adjustment, the company said in a statement e-mailed to the Global Times.

“The adjustment…would lower costs for users and further enhance Mercedes-Benz’s competitiveness in the after-sales market,” the statement said.

In July, the company already lowered its maintenance prices by around 20 percent.

The price adjustment comes at a time when the auto sector is undergoing an antitrust investigation launched by China’s top economic planner, the National Development and Reform Commission (NDRC), and the Ministry of Commerce.

Several premium auto brands have decided to lower their prices recently.

The China unit of UK high-end auto brand Jaguar Land Rover, for example, said on July 25 that it would cut the prices of three models in China by some 200,000 yuan ($32,366.13) each on average.

FAW-Volkswagen Automotive Co, which produces Mercedes-Benz’ rival brand Audi in China, announced on July 26 that it would lower the prices for spare parts.

In a statement e-mailed to the Global Times in late July, the company said that its Audi unit has been “actively” cooperating with the investigation launched by the Chinese authorities.

As Mercedes-Benz follows suit, BMW, another premium auto brand in the Chinese market, is also very likely to make similar decisions, Wu Shuocheng, editor-in-chief at industry portal auto.gasgoo.com, told the Global Times on Sunday.

Wu noted that the price cut could bring benefits to both consumers and the overall after-sales market.

It is a foreseeable trend for high-end carmakers to lower their prices in China because of increasing competition, said independent analyst Zhang Zhiyong.

“But the authorities’ antitrust investigation will increase their price cuts,” Zhang said.

“As a result, the price difference between premium cars sold in China and abroad will be narrowed,” he added.

Chinese authorities have stepped up efforts to fight monopolistic behavior. In the latest case, the State Administration for Industry and Commerce confirmed last week that it had launched an antitrust investigation into Microsoft Corp.

Avaya eyes China’s medium-sized firms

Avaya, a global provider of business communications and collaboration systems and services, has an ambitious plan to target China’s medium-sized firms, said Lily Fu, channel director of Avaya (China) Communication Inc, in Beijing.

“We used to get most of our income from large enterprises, but in recent years the medium-sized firm market has showed growing strength with climbing revenues,” Fu said during an interview with China Daily website in Beijing.

“We are confident about China’s medium-sized firm market and are willing to help our customers realize their big dreams”, said Fu.

On July 22, 2014, Avaya announced that Jingtian&Gongcheng, one of China’s first private and independent partnership law firms, has deployed an integrated Avaya IP Office voice and video collaboration solution to provide staff in the Beijing headquarters and three branch offices with rich tools to enhance collaboration and operational efficiency.

“Smaller and medium-sized businesses are eager to enhance their competitive edge with leading communication and collaboration technologies, and demand flexibility, scalability and ease of management. Avaya is focused on providing dynamic organizations like Jingtian&Gongcheng with tailored solutions that deliver significant business results, which will adapt and grow with their changing needs, and deliver full voice, video, data and mobile collaboration on a single platform”, said John Wang, Greater China Managing Director of Avaya.

More than 400,000 Avaya IP Office systems, the company’s flagship collaboration solution for small and medium-sized businesses, have been deployed worldwide, supporting more than 15 million users.

The IP Office business maintained growth in China for 19 consecutive quarters.

“Avaya is not the only provider of comprehensive solutions to the small and medium-sized enterprises, but we are the best. We do not simply put several product lines together, but making tailored product set for them,” said Fu.

Earlier, the company had announced plans to form a special team in China to provide services to small and medium-sized firms.

“We will input more during the approaching fiscal year of 2015,” said Fu.

More freedom set for booming game market

A character from a video game is set up in Shanghai New International Expo Center for ChinaJoy 2014, the country’s biggest annual game fair that opens on Thursday.

China will simplify the procedures needed to launch video games and strengthen intellectual property rights to boost the industry, Shanghai Daily learned at ChinaJoy 2014 on Wednesday.

Integration among games, films, telecommunications and theme parks is a rising trend in the domestic market, industry officials said during the opening of the country’s biggest annual game fair.

The government will continue improving efficiency by giving more cities the power to approve games, greatly simplifying application procedures, said Sun Shoushan, deputy director of the State Administration of Press, Publication, Radio, Film and Television.

Shanghai is the only city now allowed to approve games, Sun said.

In the first half of this year, revenue in the domestic game industry totaled 49.6 billion yuan (US$8.03 billion), up 46.4 percent from the same period last year. Mobile games accounted for a quarter of the total and jumped 395 percent year on year. Domestic game firms generated combined revenue of US$800 million overseas, rising 67 percent year on year, Sun added.

But some game titles based on popular novels and films face IPR problems, which holds back the industry, speakers told the forum.

“New policies must be set to crack down and prevent IPR infringement in the industry while game developers should have a better understanding of their social responsibilities,” Sun said, without providing more details.

About 30 executives from leading firms including Tencent Inc, Shanda Games, Qihoo 360, Giant and Blizzard Entertainment shared ideas about the industry and their development strategies.

Chen Jie, vice president of Qihoo 360, said mobile games will be the company’s new focus as the number of users increased from 170 million a year ago to 250 million now.

“It’s more convenient to play mobile games on smartphones because people always bring their phones with them,” said Xiao Hong, the chief executive of Perfect World.

The speakers spoke highly of industry integration between gaming companies and other sectors like film and literature.

Cheng Wu, vice president of Tencent, said they will continue focusing on cooperating with various industries such as creative art and media to provide a variety of games.

Huayi Brothers, one of China’s top film studios, plans to work with different companies to build a theme park in Suzhou. Huayi Chairman and CEO Wang Zhongjun said the goal is to combine games and movies with recreation facilities.

Microsoft Corp’s Xbox One will debut on the Chinese mainland in September with a starting price of 3,699 yuan (US$596) through local partner BesTV, making it the first foreign game console to be sold on the mainland in the past 14 years.

More than 70 games by 25 developers including EA, Ubisoft, Tencent and Perfect World will be available for the Xbox on its mainland debut.

Chinese-language and free games will also be available for the new Xbox. Other games will cost from 99 yuan to 249 yuan each, according to Microsoft.

Game console sales were banned in 2000, but it was lifted with last year’s launch of the China (Shanghai) Pilot Free Trade Zone. In May, Sony Corp said it would set up a joint-venture with Shanghai Oriental Pearl Group to bring the PlayStation 4 console to China.

Both Sony and Microsoft are attending ChinaJoy 2014.

Meanwhile, Microsoft will also offer a Kinect package with the Xbox One for 4,299 yuan, which includes several games. The Xbox One and Kinect package costs US$449 on Amazon.com in the US market, 35 percent cheaper than the price on the Chinese mainland.

Yum Brands says China sales hit by food scandal

Fast-food owner Yum Brands says the food safety scandal connected to one of its meat suppliers has had a “significant, negative impact” on its sales at its KFC and Pizza Hut outlets in China over the past 10 days.

In a regulatory warning to investors, Yum says if the sales impact is sustained, it will have a material effect on full-year earnings.

Yum Brands has severed its relationship with Shanghai Husi, the meat processing facility which has been accused of repackaging expired meat products and selling them to fast food outlets, including KFC and Pizza Hut.