How foreign brands can compete with the 60 million online store holders in China with Kung Fu Data

Hello and welcome to this episode of Speak PR. Today I am really delighted to have Josh Gardner, who's a fellow entrepreneur based in China, and he's the founder and managing director of Kung Fu Data. We've got over 135 mutual connections on LinkedIn. Can't believe that we haven't chatted like this before. Welcome, Josh.

Well, thank you so much for having me on the show, Jim. And in literally like 10 seconds, we're like, oh, oh yeah, yeah, yeah, I just talked to him. So it's It's pretty cool. And being we are part, you know, of the leadership of an organization in the past in China, I think that also helps. And the connections are very real. And all of us share the same communal experience of launching and failing and succeeding sometimes in the Chinese market. And I think that's what this is all about, I'm assuming.

Great. And Josh, and you're a legend. I mean, you're part of the EO, the Entrepreneurs Organization. But tell us on this podcast, what we want to know is what problems do you solve for companies and business owners in China through Kung Fu Data?

So actually, the company has a very simple mission, and that's to help non-Chinese brands thrive online in China, in the marketplaces. And that sounds like something great, right? It's easy to do, but China's not easy, right? So consider this: there are 60 million— 6-0— 60 million, more than the population of the UK, has a store as a merchant that's active on Taobao, and Tmall, and JD. So our world is marketplace commerce, what they call the marketplace economy. And these ecosystems in China are absolutely gargantuan, right? Like Alibaba's is going to process over a trillion. They just did a full trillion their last fiscal year. And there are 60 million active merchants selling that volume, right, doing that business. And consider that 10 million of them make the stuff. They're factories. So consumers in China can buy direct from a factory, okay? They can buy absolutely direct from the source, customized, delivered for free in about 30 minutes from the time they order, right? Maybe a couple of hours. Next day would be a disaster, and they'd get complaints. So the truth is that China's digital ecosystem, in my view and experience, is far more sophisticated evolved, interesting, mushy, murky than anywhere else. And so our job is to help people get through this without being burned alive. I literally see it as that stew is filled with crocodiles and piranhas and every other thing that can kill you. And, you know, our job is to build a bridge over it and sort of help people through this process. So we help niche brands find a home in China, and drive their commercial success. And we've done this now for almost 7 years, and we've launched more than 50 brands on Tmall and JD and the core marketplaces. And we've done hundreds of projects just on the market entry side, helping people fix problems. Now, when you say problems, I'd say everything's a problem in China in some respect, right? You can— they're everywhere, right? So if you're coming into China, there's like 50,000 things to check off your list. Our SOW is very specific. However, we end up doing everything. So let me give you some examples. We just signed 2 awesome brands. Brand number one has squatters all over its IP in China, which I know you can appreciate. So there are like no less than 3 or 4 entities, one in Seychelles, one in Hong Kong, and 2 in China, sitting on various versions of the brand's name in Chinese and English. And they need to get back their category. So one of the things we did first is connect them to some partners in China who specialize in taking control of IP, right? That's one example. Another one this last week, which is the worst-case scenario, another competitor of ours, but another operator on Tmall, JD, and in the ecosystem got in a huge fight with a brand. The brand wanted to switch. severed the relationship, but there's now a lawsuit and they are refusing to turn over control of the stores and the social accounts to the brand, even though they've accepted the cancellation, even though they're in arbitration, they're still holding it hostage. And so that hostage negotiation is no fun. And so my team is triage. It's like being a surgeon in an emergency room. We're like, on the phone with all different aspects of Alibaba management, different directors of different Tmall categories, trying to get someone to give us the new logins, and there's all this process. And so something I would never deal with anywhere in the world, like you'd fire a vendor, they don't control your IP, like you can automatically take your store back. In China, it's never like that. So it's never simple and it's not one thing. But the key problem we solve is sales and amplification. So if you're coming in the market, uh, my team is extremely good at taking brands from 1 to 100 pretty quickly. Now we can't predict when water is going to boil in China for you. Like, I have a brand, it took 2 years. I'm embarrassed. Like, literally 2 years of torture, like, like almost no movement. And then, uh, September, we just Reported 3.2x, 320% growth over last year, same month. So it, you know, China, it takes time to do that activation. It's very painful for a lot of people. So one of the things we do is we're responsible for selling and managing the brand online and handling all the problems related with that. So that's logistics, customer service, returns management, all the tech integration, IT data reporting, results delivery. platform management, events, media, marketing, creative, you name it, we have to do it all. We are the in-market marketplace partner. So in addition to that ridiculous amount of stuff that we have to do, outside of that, we have to connect people to things that we don't do. So, you know, the social media and sort of the, you know, PR and seeding, what you do, we don't do. We actually focus entirely on integrating assets and marketing inside the Ali ecosystem and the JD ecosystem. So we basically bring as much love into the platform as we can, and our goal is to drive visible brand equity, make it bigger, stronger, and push it in through the official channel, which is the flagship stores or the authorized dealerships. And that's our job, is to manage that commerce, drive it, grow it, expand it, make the brand stronger and, and as strong as possible. And with that, you get a lot of resources from the platform. So you create winners. Now, some numbers. Only 1 in 20 stores ever hits $1 million in year-over-year sales. So to give you an idea, in my portfolio, hey, entrepreneurs, right? We've got some dogs in there, right? Like I said, it took me 2 years just to boil water for this one guy. Can you imagine? I've got 3 or 4 stores out of the 17 now that do not do €1 million. Okay, so they're still trying to get up into the top echelon, but all the other ones do. So you're looking at a hit rate over 80% or 70%. And I think for China, that's super hard to do. So I consider having a success rate on 0 to 1 or 1 to 10 and even 100 or 1,000. Some of our clients go into the hundreds of millions of GMV category, but most don't, but they build a good business.

Is it a fair playing field? Is it, when you say 1 in 20 foreign companies are making it, is that the same number for Chinese companies? Or are foreign companies doing better or worse? And what's the appetite then amongst the Chinese for foreign brands? My experience with launching Morgan was, you know, there's a lot of appetite for foreign brands. So is it a fair fight?

It is a fair fight, right? Like, as fair as it's going to get, right? So in the end, You know, obviously, what is it? What do you have in China if you're Chinese? Home court advantage. What's your biggest advantage? You know the playing field. You know exactly how people are going to act and what behaviors are going to happen to you. So what? You don't fall into traps. Now, you and I are professional trappers, right? We've been in China a long time. We not only know how to find the bears, but we can get them, right? We can find them and trap them. But most people coming in don't. It's not that there's no demand for their products. The demand is outrageous. It's really strong. The issue is not that, it's that internally, they are resource deficient, they are not educated and trained to think the right way about China, and they don't have cultural fluency. You don't need linguistic fluency, you need trade culture fluency. You need to understand what you're going to be up against in the environment, and you need to act accordingly, and you need to plan properly because China is You know, for every competitor, let's say you have 10 competitors in the US or the UK, as an example, or Europe. In China, you're gonna have 100 in the same category. It's a 10x factor. So think about, I mentioned before, the amount of competition is insane, coupled with the fact that you're not unique, right? So you've gotta build, you have to have some kind of unfair advantage or a defendable position in some way. Right? And that is the game, and I'm sure you've played it many times. So you need to use relationships, uh, different forms of IP, connecting a community. You have to find a position that allows you to build and grow because you're going to be attacked constantly. There's always alligators snapping at your ass in the swamp, and what you got to learn how to do is drain the swamp or build a bridge over it, right? And so that's where guys like you and all of our friends who've been in China a long time That's what we learned to do. We go to China and we fumble a lot. And if we get burned, we lose money, we don't get paid, we get a million things happen to us. And then within a few years, yeah, I'm China ready. And then your next venture, like my first 3 ventures failed in China. Like they didn't, some of them made money, they failed eventually. My next 4 all made it. Why? Because I was burned alive for 10 years and then I figured out how to do it, right? So it's like 8 years of pain. Until I was like 31 or 32, and then all of a sudden I figured this thing out.

Well, I think for all of us with China, the old saying is the longer you're there, the more you realize you don't know, right? So a company like yours with Kung Fu Data, right, a company would come to you, and what kind of companies are you working in? Retail? You're working in business-to-business? Is it the same set of challenges?

It's a good question. So I just did something today with the Amp Champ Committee in Shanghai. They had me on, and actually I was explaining that these ecosystems are now all-encompassing because the 10 million factories are online and have Tmall and Taobao stores. Now commercial purchasing managers, like actual professional trade, is now happening in the retail platform. It's a big mess. It's kind of like your WeChat account is, you're running your business on it, you've got all your teams on it, you've got all your friends on it, you've got communities on it. It does it all. It's not one thing. But like if you go to Instagram, it's just friends and family. But in China, WeChat is everything. It's a super app, but it's an everything in my life app. Taobao's an everything you can buy app. So now B2B and B2C and B2B2C and M2C is all happening in the same place, a giant soup, and the soup doesn't always taste good, right? It's kind of nasty, right? Sometimes you have to be careful what you're getting into. We— us, our focus obviously is building brands in China online, you know, in the marketplace, building and finding homes for brands. And so we really deal with mostly consumer brands. But I have 4 customers who have done very well, and they are professional brands. We call them prosumer brands, right? The thing about Chinese consumers is they're all self-trained experts in everything they buy, even toilet paper. Your wife is an expert at everything. Ask her what the price for, like, her favorite brand is in 6 cities globally. She'll tell you. She'll tell you exactly what it is, how to get it cheap. Like, they are so good at trading. and buying and managing how they buy things. It's like a game. And so to me, that plays out big in this marketplace. So our customers who are skeptical of launching, you know, a retail store have built pretty big businesses. One of them has a 150 million RMB business on Tmall.

Wow.

All right, through— they built a huge dealer network to go with it. I was so impressed. I was like, wow, this is amazing. So you can, you can do it all there. It's like anything in China, it's not perfect, but I think you can do all those things there. But our core customer is a brand.

Let's just think about protection then. So let's say you've got the product, and you've got the stores up and running. With Morgan, we had some people try and make a Morgan 3-wheeler, you know, and said, and we have pictures online, right? If you've got success, the old thing in China was that someone else would try and steal that success, Joshua. How are you helping a company that's made it to keep it?

Man, retaining that position is tough. Right? So, well, you've got 2 things. The first hurdle is getting through the big moat filled with alligators. Once you're on the other side, you're in the winner's pool. That's even harder to stay. Right? Because now you're a target. Right? A real target. So your point is valid. So a couple of things. I always tell my clients, you've got to arm yourself to the teeth. And what I mean by that is You need to have a budget for things you don't normally. So I tell my clients a very simple thing, which is come armed to the teeth in China. Armed to the teeth. What do I mean by that? I don't mean you bring guns, but I do mean you bring it all. And so, and you don't tolerate. So acceptance is, you know, you've resigned yourself to lose. So the first thing we do is you just don't launch until you control your IP. That's number one, right? Now, if the ship sailed, which happens to a lot of people, next step is you need people that can really get things done. So, uh, my team is good at what? We can box you out inside the platform. So essentially, we can control the demand routing on anyone's trademark with proper registrations with Alibaba's brand control unit. So what we'll do is make sure all the brand's traffic, all its IP, its visible brand equity is going to the official channels, both us and any licensed resellers. So that's one way to control it. But the more aggressive way, which I don't discourage, in fact, I make introductions. There is a law firm that was founded by folks from China's military, like military attorneys. They're good, okay? They do over half a million takedowns a year. And man, if I was one of those guys with like a fraudulent, you know, set up or I'm doing counterfeit, I would not want to go up against these guys. They literally built the equivalent of like the Marines of IP protection, right? So what you do is you work with competent partners and they always surround themselves with the same kind of talent in different verticals, right? So like I have a law firm that just does Woofy hosting. If you want to be in China but you don't want to be in China. So we place you there and they've got 50 attorneys. So like the tax bureau is not going to bother you. You don't want to come up against attorneys.

They sue you.

They do all sorts of stuff, right? We've got the guys who do takedowns. We've got, you know, 3PLs that are owned by foreigners. So your inventory is safe and they can't seize it. We've got, you know, so you have to build infrastructure around you that secures your position. And the most important thing is you should turn up the juice on marketing and PR. Don't back off when you're successful. Go the other way, double down. And then you get into a position where you are unequivocally so far ahead of everyone else, it requires a major disruption and creates something that can kind of flank Tencent and Alibaba, right, who are so dominant, right? But the goal would be, once you've crossed the horrible note, you've lost a leg, you're scarred, you're in pain, but you got it, you're in the winner's circle, The next thing to do is double again. You're relieved, but nope, you got to double down again because you don't want to give anyone a chance coming through behind you to catch up. Otherwise, they can take you down. They still can.

So the old Andy Grove, only the paranoid survive, along with the Teddy Roosevelt, walk softly and carry a big stick. You kind of need the 2 things together, right? Yeah.

And you don't even need to be like a buccaneer in here. I mean, you don't need to be someone who's coming in as a mercenary. The idea is if you win, you want to secure your winnings. You want to protect yourself. So, you've got to invest in the right resources at every stage. China requires you to double every stage. You've won, now you double up again. And if you don't, you can be knocked out. Don't be paranoid, just be practical.

And Josh, if someone wants to be practical and get ahold of you first at Kung Fu Data, how can they do that? Because you've obviously got a a mine of information, also an artillery of support. How can people get a hold of you, Josh?

That's the easiest thing if you want to learn about China and entry and have all this information is to reach out to me on LinkedIn. We publish 330 or 340 times a year. So you'll have access to tons of resources. And then if you actually gather up the cojones to come to China, feel free to reach out to me, and I'll hook you up with my commercial team. They'll kick the tires and see if your brand's ready or not.

Josh Gardner, thank you so much for joining us today on the Speak PR Podcast.

You're welcome. I appreciate it, Jim.

It's fun. Only too short. And thank you so much for listening to this episode. You've been listening to Josh Gardner, who's the founder of Kung Fu Data, who's currently holed up in Hong Kong, but is also having an office in Shanghai and works across China. So you've been listening to the Speak PR Podcast. We're trying to solve problems for business owners who have got value locked up in their business and just want to find some simple— and in China's case, not so easy— but profitable routes to get noticed and get profitable. Thank you for listening.