David Solomon on Strategy, Sustainability and Diversity...Accenture’s Julie Sweet on an ‘Innovation Mindset’...China’s ‘Surrogate Shoppers’

Insights on markets, industries and the global economy [Goldman Sachs]( [BRIEFINGS] March 25, 2019 Goldman Sachs' Letter to Shareholders: David Solomon on Strategy, Sustainability and Diversity Above: David Solomon of Goldman Sachs In his first letter to shareholders as CEO, David Solomon writes on the firm's strategic priorities and the opportunity set going forward: "Markets, financial instruments and products and different client segments are converging and competing with one another at an unprecedented pace," he says. "This requires us to simultaneously invest for growth and to create better efficiencies in the way we run certain businesses." He also addresses sustainability and managing the firm responsibly, as well as the importance of diversity to the firm's long-term performance, putting context around Goldman Sachs' recently announced goals for hiring more women and black and Hispanic professionals. "We have a real opportunity through [our] work not only to lead by example in how we run our organization, but to drive sustainable outcomes for our clients and for our communities." [Read Shareholder Letter]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Goldman%20Sachs%27%20Letter%20to%20Shareholders%3a%20David%20Solomon%20on%20Strategy%2c%20Sustainability%20and%20Diversity&body=https%3a%2f%2fwww.goldmansachs.com%2finvestor-relations%2ffinancials%2fcurrent%2fannual-reports%2f2018-annual-report%2findex.html) Talks at GS with Julie Sweet, Accenture North America CEO Above: John Waldron of Goldman Sachs and Julie Sweet of Accenture With technology driving transformation faster than ever, an "innovation mindset" is key to preparing both companies and leaders to adapt, says Accenture North America CEO Julie Sweet. "You can bring the coolest new solutions, but if you don't have a leader that's willing to think differently and able to bring people along a journey, you're not going to be able to change," Sweet explained in a recent Talks at GS episode with Goldman Sachs President and COO John Waldron. "In a time of great change, one of the most important things I think we can do is become great communicators. And I think we don't always, in lots of companies, train and emphasize that...So one piece of career advice I would give to every person starting off is, become a great communicator," she said. Advising on disruptive innovations is one of the core services of Accenture, which serves over 70 percent of the Fortune 500. "If I'm a CEO today, what do I need to make sure I know about for today and tomorrow?" Sweet asked. "It's artificial intelligence, blockchain and 5G...Those are the three big ones that you really have to pay attention to." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%20with%20Julie%20Sweet%2c%20Accenture%20North%20America%20CEO&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2ftalks-at-gs%2fjulie-sweet.html) The Most Surprising Thing About Being an Entrepreneur...and Other Lessons Learned Above: Kobi Wu Pasmore of VisuWall Technologies What is the most surprising thing about starting your own business? At our seventh annual Builders + Innovators Summit, which honors some of the most intriguing entrepreneurs from a diverse set of industries, we asked a group of attendees to reflect on the unexpected lessons they learned starting out. One attendee, Kobi Wu Pasmore, founder and CEO of VisuWall Technologies, a digital ad platform, said that she hadn't anticipated all of the things that can go wrong. "Every day there's something new and something changing and something that you have to address, and it's also surprising how quickly you can adapt to change." For Vaughan Cutillo, co-founder of Montauk Brewing Company, the level of continuous responsibility was the biggest surprise. "Nobody's going to fix a problem except yourself, so you're always on," he said. "When I'm sleeping, I'm working." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Most%20Surprising%20Thing%20About%20Being%20an%20Entrepreneur...and%20Other%20Lessons%20Learned&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpages%2fthe-most-surprising-thing-about-being-an-entrepreneur.html) Briefly...on China's Surrogate Shoppers Outside traditional retail and e-commerce in China lies a relatively obscure "grey channel" for reaching Chinese consumers: a network of resellers, or "daigou," who travel across Asia to purchase in-demand products for resale in China. After years of helping to spur growth for select luxury brands and retailers who cater to the trade, the daigou face a number of headwinds. Christine Cho of Goldman Sachs Research explains. What are the daigou and where are they most active? Christine Cho: The literal translation of daigou means "surrogate shopping" -- these are people who travel abroad to buy products and bring them back in their luggage for resale in China. For years, daigou have been providing accessibility and affordability to consumers in China amid significant supply and demand imbalances of global brands. They often operate in groups, and they are incentivized by lucrative margins from arbitraging prices. We most commonly see daigou buying from Korean duty free stores because large discounts are available when purchasing goods in bulk. While not as lucrative, we also see daigou visiting Japanese department stores and drugstores in Japan for unique products and brands that are unavailable onshore. What are the most popular goods resold? CC: Cosmetics is by far the most popular daigou category, accounting for more than half the sales of Korean duty free stores. This is because of the large price gaps versus mainland China and the relative ease of carrying the products home. We estimate that for the global luxury sector, daigou accounts for about 5% of global sales, a relatively small percentage. What do you expect the future to look like for daigou trade? CC: We're cautious. From an industry perspective, we're seeing greater accessibility in China -- reducing the demand for people who bring these goods back from abroad. Chinese duty free shops are also popping up with competitive pricing and regulatory support. More and more department stores in China are also starting to carry foreign products. From a regulatory standpoint, there have been cuts on import tariffs and consumption taxes, which have shrunk the price gaps between products sold domestically in China and those same products sold overseas. This price gap is crucial to the daigou business model -- it's what incentivizes them and makes them money. We estimate the price difference has narrowed from 30-50% a few years ago to only 20-30% today. What about the shift to online shopping? Is that having an impact? CC: It is. There's a new e-commerce law in China that aims to shift consumer traffic away from daigou and towards cross-border e-commerce. Since January 1st, a daigou must be formally registered as an SME, which has serious negative tax implications. In order to get approval for online reselling, a daigou must declare the sources of their foreign goods to the authorities and pay the respective tariff when entering China, pressuring margins. If strictly enforced, this legislation change could be disruptive to an industry that was previously largely unregulated. Who would be most affected by these changes? CC: We see three groups bearing most of the impact. Firstly, the daigou themselves. Once monetary incentives start to fade the need for the daigou intermediary is going to fade, and quickly. Smaller daigou will be squeezed out of the market or they may turn more toward daigou brokers to source their products. Larger daigou will need to verify product sources, which will pressure margins. Secondly, the retailers whose sales depend on daigou trade. Korean duty free stores, which make nearly half of their revenue off daigou resellers, will be hit hard. Lastly are global brands that have benefited from sales through this channel. They'll certainly be affected, but we see the challenge as more short-term since they can shift their focus to alternative channels such as e-commerce. While this will come with short-term costs, in the long-run these brands should be able to reach similar levels of profitability as duty free shopping, while gaining more control over brand messaging, prices and inventory. SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly...on%20China%27s%20Surrogate%20Shoppers&body=https%3a%2f%2fwww.goldmansachs.com%2finsights%2fpages%2ffrom_briefings_25-mar-2019.html) Goldman Sachs Media Highlights Baltimore Business Journal - March 21 [Goldman Sachs 10,000 Small Businesses Graduates Share Experiences on Growing Their Businesses]( CNBC - March 21 [Economic Slowdown Has Been Exaggerated, Says Goldman's Hatzius]( (2:15) Yahoo! 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