The Effect of China’s Tech Crackdown on Brands

Just three months ago, Alibaba’s Ant group was scheduled for possibly one of the largest IPO’s ever in Shanghai and Hong Kong. Ant’s initial public offering was put on hold by the government just two days before going live. Shortly after a conference where Tech billionaire, Jack Ma, “blasted China’s financial system as outdated and complained that regulators were shortsighted”, Beijing officials halted the fintech giants $35 billion listing, and introduced new regulations relating to monopolistic practices on the internet. The news of this and the timing of it all was considered by many as a move designed to “reign in the most powerful including Alibaba Group and Tencent Ltd.”  For the purpose of perspective, Alibaba and Tencent, who enjoyed years of lax regulatory oversight in China, together with Ant, surpassed state-owned giants in value with a combined market capitalization of around $2 trillion in the end of 2020. 

Although many are speculating the intentions and timing behind the crackdown, we don’t exactly know enough about the reasoning behind the new regulations, except that the countries leaders have attributed the changes to “protecting consumers and maintaining financial stability”. These regulations are designed to curb potentially anti-competitive behavior like below-cost pricing or exclusivity deals, and to ensure that big players in the field don’t leverage their power In ways that contradict competition behavior and law; which has been a long held narrative by many in opposition to the dominance some of these companies hold in the digital ecosystem. The unveiling of these regulations and legislative revisions also placed internet companies under Anti-Monopoly law, which is also a first. 

While these changes aren’t only affecting the worlds biggest tech behemoths; the retail industry is already undergoing further changes, in some part, related to the transition the digital sphere is currently going through. Brands may actually be positively effected by the new regulations. The main impact or difference these regulations will have on brands, is that these tech companies will no longer be allowed to “collude on sharing sensitive consumer data, or stamp out smaller competitors through alliances or loss-making subsidies”. Brands will also still be able to develop exclusive agreements with platforms, but more on their terms than before,  because the regulations also outlaw platforms forcing exclusivity. We will most definitely also see an influx of new, ambitious, platforms and companies making their way into the already fast-growing digital universe, increasing competition and giving brands better, and more, options and deals. Brands will need to stay ahead of the game by developing or adjusting channeling strategies that will set them apart or place them in more desirable positions to be targeted.

Because this past year has witnessed some of the greatest rise and falls in the retail industry,  which has forced brands to restructure their channeling operations and structures in general; it has also brought to surface some consumer behaviors, which have always been around, but have seemingly accelerated in the face of the pandemic that saw some of the largest retail and fashion groups resort to either seek Chapter 11 bankruptcy or fully or partially liquidating their operations. What’s been happening in the restructuring and transitioning of the retail industry is also of primal importance to digitally native fashion companies, who are already fast-emerging and growing, and who undoubtedly consider these high retailers’ fall to administration, as an opportunity to “jump to the chance to expand their own portfolios to further scale their operations”. This is seen in prime example in the recent ASOS‘s $403 million acquisition of Topshop, Topman, HIIT, and Miss Selfridges; a giant deal, described by the group as being a “strategically compelling opportunity that appeal to our core customer base” and attests to the acquisitions ability to further “accelerate our multi-brand strategy’’, to eventually becoming the primal fashion destination for youth all around the world.