Why most companies will fail in China’s sports economy

There are plenty of areas of expertise that companies can develop category leadership in.

The Chinese sports economy has gone through a radical shift in the past five years, with the catalyst being Xi Jinping’s proclamation of China’s sports ambitions. This spurred investors into the market, service providers and a sea of ‘copycat’ companies looking to capture market share from China’s active consumers.

Fast forward three years since that heralded speech by president Xi, and the market has adjusted to the realities of most economies - that for companies to succeed in this space they require both specialization and a quality product. The approach in China has been to do ‘as much as you can’ and eat everyone else’s lunch. Investors are also encouraging this approach, chasing multiple revenue streams so as to diversify the business and what they believe will de-risk the investment.

The problem with this ‘multi-revenue, do everything’ approach is that this method almost never works in the long run, especially when the economy is developing and the market is still taking shape. The typical winners in any new economy are the companies that have established a good business model delivering value in one (or at best two) clear business propositions. As the market evolves and more customers enter the economy, they look for leaders of respective fields. Take, for example, the sports servicing category, in which we play.

As you can see there are plenty of areas of expertise that companies can develop category leadership in. Yet most go with a ‘we’ll do anything in sports’ approach and look to win digital marketing, event activation, sponsorship consulting, marketing research, advertising, and the platforms offer media. We have been successful in China by understanding our core value proposition and staying in our lane. We have said ‘no’ to more work than we have said ‘yes’ to, for fear of distracting from our core mission (lead sports digital marketing in China) and diluting our category position. The theory is the wider you go with your expertise, the less you are considered an expert in any of it.

If you consider the graphic below and ask yourself ‘who is promoting a service within that category?’ You will realize there are so many overlaps of service providers across many categories. In the absence of any clear market leader, the result is a price war with customers until such a clear leader is found.

The challenge in this economy is that most companies consider the business a sprint, in which everyone is racing to the finishing line. This sprint has companies taking a certain course for a short period of time, then quickly considering a new course. Successful companies don’t happen quickly, it takes time to establish yourself, time to build your credibility and more time to fix your position in the customers' mind.

There have been casualties in areas like the digital broadcast landscape with platforms banking early on the nascent industry. Unlike matured Western market, Chinese fans are skeptical when it comes to paying for live sports. Spending millions on live sports and expecting a quick return won’t happen, even in the most mature of landscapes, let alone China. Building viewership and creating quality products should be top of the list for broadcasters rather than spending fortunes and expecting immediate eyeballs.

Industry stability is creeping in but companies must remain focused on their core positioning and value to build trust with their audience. Customers are more likely to make micropayments and test the water than go all-in with a year-long subscription. And this is the case for all areas of China’s sports industry, fans are more demanding and are presented with a proliferation of choices.

If companies servicing this new sports economy in China just took more time, were patient with their company’s development and had a clear difference of positioning they would lay a great foundation for success in the long term. The investors coming in need to recognize what makes a great company, and how short-term profit-chasing can hinder the companies long-term profitability and positioning.

Andrew Collins is the chief executive officer at Mailman.

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