source_from: NETEASE NEWS Jun 13,2016
Liu Yu participated in founding WOWO 6 years ago, it’s a Chinese internet based group buying company, which was listed on NASDAQ in 2015. I noted the potential of fast growing consumption by Chinese young generation through WOWO rapid growth. Thus, I started the investment company to focus on consumption upgrading, especially by China’s young-generation. I have some thoughts described as below on how to seize the market bonus of consumption upgrading in transition China.
The first opinion is a viewpoint of the development of consuming patterns .The consumption patterns have been undergoing dramatic changes. China has a middle class of 200 million people, and the tier three and four cities have had big growth. The number and spending power of the consumer groups had fast annual growth, representing the world's most powerful consumer market. The fast release of this spending power also brought two significant issues, firstly, the internet-led consumption led to the rapid growth of consumption patterns, which is mostly contributed by post-80s and post-90s of China young generation who prefer to purchase online. Secondly, compared with the fast growing consumption patterns, the product, service and technology are still lagging far behind. Thus, the main conflict is between fast changing consumption patterns and the seriously lagging of good consumer contents, products, technology and high-end services. Since the consumption pattern in China’s 1980s and 1990s is going through great changes, from the pursuit of cost-effective to individual customization, from tourism consumption to experiential consumption, and from passive consumption to active consumption, my first conclusion is : based on the changes, the key issue of seizing the opportunity with consumption upgrade is the integration in investments associated with internet companies to improve their innovative consumption mode. In the past 4 years, our company has been focusing on integration in invests mainly in three industries: automotive aftermarket and car servicing, healthcare service and fashion culture &entertainment.
The second aspect is a viewpoint of industry consolidation, as I have mentioned that the biggest contradiction in China is the rapid growth of consumption patterns and the seriously lagging consumer contents, products and services. That is to say, the largest industry consolidation opportunity between China and Britain is that Britain has the most high-tech industry, high-end services, as well as innovation. If those abilities can be enlarged in China consumer market, which is ten times larger than UK consumer market, it will bring great opportunities to the future economic and trade cooperation, and investment cooperation between China and Britain. Besides, there will be a industry consolidation as a series of chemical reaction between the consumption growth in China and the industry consolidation of UK high-end products, services and technology solutions. So the first thing we have been doing over the past few years is to integrate the consumer channels in Chinese vertical industry, and then to consider to re-integrate with the global high-quality consumer contents, products and services, rather than simply buying and selling companies. For example, the China largest community-based elderly care service company we have invested in recent years is now covering more than 100 cities with more than 4,000 offline stores. It is a good basis for our further integration with global health care products, chronic disease management and high quality assets of medical and healthcare services. Therefore, my second point is to integrate one of the domestic vertical markets with specialized needs through innovative Internet channel before going for global M&A to integrate with those related high quality assets.
The third opinion is a viewpoint of financial investment: I believe that there are two biggest structured opportunities. The first lies on the structured chance associated with estimated valuation gap between the innovative industries like Internet industries and the traditional industries, and the second exists in the value differentiation of the assets securitization among industry fields and nations. Integrating these two structured opportunities into M&A will bring unimaginable investment potentials.
The above three points are my main opinions about M & A and industries integration between China and the UK. President Xi’s visiting to the UK in last year brings us golden collaboration chances and opportunities, and we sincerely hope to cooperate with partners from UK to promote M & A and industry consolidation together.