---
title: "Involution Creates Giants"
description: "Involution is an inevitable phenomenon in the evolution of most industries and a necessary process of competitive rivalry. It occurs in stages: price, channel, supply chain, and brand, ultimately leading to industry concentration and the emergence of giants. To escape involution, one must compete at a higher dimension."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2024-01-19"
language: "en"
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# Involution Creates Giants

> Involution is an inevitable phenomenon in the evolution of most industries and a necessary process of competitive rivalry. It occurs in stages: price, channel, supply chain, and brand, ultimately leading to industry concentration and the emergence of giants. To escape involution, one must compete at a higher dimension.

Let me start with a few conclusive viewpoints. If you agree, continue reading.
> **First, involution creates giants.** Involution is an inevitable phenomenon in the evolution of most industries and a necessary process of adversarial competition.
>
> **Second, involution has front-stage and back-stage forms.** When building scale, involution is front-stage; when adding value, it is back-stage. Front-stage involution is visible with clear tactics. Back-stage involution is invisible, testing internal strength.
>
> **Third, involution evolves in four stages: price, channel, supply chain, and brand.**
>
> **Fourth, if you think others are not involved in involution, it's because they have already gone through it, especially past the front-stage stage, reaching the highest stage of involution: terrifying balance.**
>
> **Fifth, only competition across dimensions can escape involution, i.e., high-dimension striking low-dimension.**
Involution is a common phenomenon in competitive fields. Sports, war, marketing, politics, economics—which field is not involved? It's impossible to escape. Sometimes it seems there's no involution, but it's actually higher-level involution.
Some define involution as a phenomenon where the ratio of effort to return decreases. But now involution more often refers to setting higher barriers to competition, thereby accelerating elimination and concentration.
Involution has a premise: competition under the same dimensional conditions. When high-dimension strikes low-dimension, involution is less intense.
**Giants come from involution**
Where do giants come from? When thousands of small enterprises share market share in an industry, there are no industry giants.
In industry analysis, there is an indicator: industry concentration, usually measured by CR4 and CR8, i.e., the market share of the top 4 or 8 companies.
**Market concentration is also an indicator of industry maturity.** The emergence of giants indicates high industry maturity. Industries that should be concentrated but aren't show immaturity.
Where does industry concentration come from? From involution.
When discussing involution, it's important to emphasize the concept of the final industry structure's concentration. An industry typically has three end states:
**First, oligopoly (high concentration)**
Industries formed after the Industrial Revolution and externally introduced industries are mostly oligopolies. Industries like automotive, home appliances, mobile phones, computers, beverages, and instant food are dominated by a few (usually 3-5) companies. Externally introduced industries like beer and dairy are also highly concentrated.
**The more oligopolistic the industry, the more severe the involution.**
Only involution can cause the majority of enterprises to die, then market share concentrates among a few. The proportion of dying enterprises is often over 90%, sometimes over 99%, or even over 99.9%.
In the beer industry, almost every county used to have a brewery; now there are only "three big and five small" in China. The instant noodle industry once had hundreds of brands; now few know who the fifth is. Mineral water industry concentration gave birth to China's richest man, Zhong Shanshan. Huaqiangbei once had many mobile phone companies; when Redmi came out, involution succeeded, cleaning house.
One general's success costs ten thousand bones. Only extremely fierce involution, with mass enterprise deaths, can complete industry concentration.
**Second, high fragmentation**
Some industries allow enterprises of all sizes to survive, so involution is less intense. Examples include Chinese-style catering, local specialty condiments, and local specialty snacks. These are mostly from the agricultural civilization era, fragmented for thousands of years.
**Third, limited concentration**
Between oligopoly and fragmentation, such as cosmetics, clothing, and baijiu, where differentiation captures market share. There are giants and small enterprises.
Among these three end states, the higher the concentration, the more severe the involution. Involution is the natural state for these industries.
**Price war is the most primitive involution**
**The essence of price war is to raise the industry's break-even point**, with the premise of economies of scale, and the outcome is the "mass death" of enterprises below the break-even point, thus increasing industry concentration.
For example, before the price war, the industry break-even point was 1 billion; after, it rises to 3 billion. Then enterprises below 3 billion will face extinction, and it will be concentrated extinction.
When we talk about price wars, there are two completely different types:
**First, low-price harassment by SMEs**
When SMEs face difficulties, their first thought is often to cut prices. But this doesn't affect the industry break-even point; it only harasses large enterprises without substantial impact, so the price-cutter often gains a little.
**Second, price wars by industry leaders that change the break-even point**
When this type of price war starts, leading enterprises collectively respond, market share quickly concentrates among them, and SMEs' response is futile.
In such a price war, winning makes you the industry leader; losing means disappearing or being acquired. Because it changes the industry break-even point, it cannot be ignored; not participating is admitting defeat.
The earliest price wars were in home appliances. Each category had hundreds of companies; after price wars, the number of brands rapidly decreased, and now it's oligopolistic.
Beer, instant noodles, and ham sausage industries, now oligopolistic, have basically all fought price wars.
I remember price wars over 20 years ago; almost all industry experts opposed them. Many talked about win-win, or doing strong before big. I participated in those price wars. Price wars must be fought, and must be won. When it's life or death, where's win-win? Colluding for win-win violates market economy laws.
**Price war was one of the highest survival strategies of that era.** I even called it the price war strategy. The purpose was to "clean house" and roll over competitors.
When multinational companies entered the Chinese market, they were already giants, having gone through involution, with high-dimensional advantages. It's unrealistic to have Chinese SMEs that haven't gone through involution compete directly with multinationals at high dimensions.
Chinese enterprises first involute among themselves, creating giants. Then they gain the qualification to compete with multinational giants at high dimensions.
Some ask: Are current promotional wars involution or disguised price wars?
**My view: Promotions are one of China's unique business methods, aiming to let consumers "get a bargain," a form of soft discount.**
Even now entering the hard discount stage, soft discount models may persist long-term. Therefore, promotions with recoverable prices should not be considered price wars.
**Channel war is front-stage involution**
The involution the public perceives is all front-stage. Price wars are front-stage; channel involution is front-stage. But channel involution is only felt by experts and insiders, not the public.
**As long as it's front-stage, there's adversarial PK. Adversarial PK is definitely involution.**
If you do provincial agency, I'll do municipal; if you do municipal, I'll do county; if you do county, I'll do deep distribution; if you do deep distribution, I'll do terminal interception; if you do terminal interception, I'll do user operations (bC integrated operations).
Channel barriers are getting higher and higher—what is that if not involution?
**Raising the barrier to the point where opponents give up is involution.**
What's the cost? On the surface, it's channel flattening, getting closer to terminals and consumers. In essence, internal management layers increase.
To cover over 6 million terminal stores in China, the sales department's internal management plus channel layers inevitably reaches 6 levels.
So, what does channel involution actually compete on?
Under the premise of small-scale distributors, first, whether manufacturers can recruit and train tens of thousands of marketing personnel; second, whether they can effectively manage up to 6 levels of channel hierarchy.
Whether a channel team of tens of thousands can form an effective organization is also a form of involution. Deep distribution seems simple but is extremely difficult involution; most companies retreat when they see the difficulty.
Involution under adversarial competition is setting new barriers. If you can cross the barrier, you move forward together; if not, you give up, admit defeat, and abandon the ambition to be an industry oligarch.
So, in the early stages of deep distribution, salespeople fought over stores, and promoters got injured in competition.
Many don't consider channel involution, but channel involution doesn't cause "mass sudden death" like price wars; it causes "chronic death."
China has many industries considered highly fragmented, but because some companies took the lead in deep distribution, industry giants emerged. Examples include stationery (Chenguang, Deli), electrical outlets (Bull), and frozen food (Anjoy). In recent years, I've served a small fragmented industry; with a little effort in deep distribution, many small companies disappeared.
**Brand is high-barrier back-stage involution**
Brand awareness might not cost money, but brand communication is a costly marketing activity.
In the mass media era, media resources were scarce, and attention was scarce. Raising the barrier for advertising and communication, excluding many participants, turning it into a game for the super-rich, is certainly involution.
What is good advertising? Ye Maozhong said, "The more money spent, the better the ad." There's no such thing as "low-cost advertising" in this world.
A leading company's CEO said: "CCTV ads are so ineffective now, why still invest heavily in continuous communication?" It's to **set higher barriers for competition**—others can't afford it, so I play alone. That's involution.
World-famous brands already have high awareness; why do they continue investing in communication? It's **to exclude competitors from the competitive threshold through high investment.**
Brand is also involution, but back-stage. It seems smokeless, but it's actually more severe.
The scarcer the resources, the more severe the involution.
**The endgame of involution: terrifying balance**
Twenty years ago, I visited the industry leader in a developed country and found they had declining sales for three consecutive years. I asked how many salespeople they had and why they weren't grabbing market share.
They replied: "We have no salespeople, only customer service personnel. Service staff don't grab market share because if you grab it, competitors will grab it back."
So, how do they compete? They said: "Make good products and services, reduce costs. Through capital market competition, we can acquire the other side."
I understood. **When industry competition shows oligopoly, both sides have the ability to "mutually destroy." This ability is "terrifying balance."**
Under terrifying balance, front-stage involution like price wars and channel wars are basically fixed or outsourced, but back-stage competition continues. Back-stage is competition to change consumer cognition, a smokeless involution.
**Escaping involution through high dimensions**
Involution is an inevitable phenomenon in same-dimensional competition in competitive fields.
To transcend involution, you must take the route of high-dimension striking low-dimension.
When competition enters innovation, it becomes cross-dimensional. At that point, competition can't be called involution, which is same-dimensional.
**People don't consider high-dimension striking low-dimension as involution.**
At the start of reform and opening, multinationals were high-dimensional in marketing, while local Chinese companies were low-dimensional. So, severe involution among local companies was normal. They looked up to multinationals' high-dimensional competition but lacked the strength.
**As China rises and Chinese enterprises rise, brands go global. Chinese companies now have the qualification for high-dimensional competition, especially in internet commerce, where China has first-mover advantage. First-mover advantage is also high-dimensional.**
**In defense of involution**
The term involution has been super popular in recent years and continues to be.
Not only popular, but also very negative.
Looking up to high-dimensional competition is not wrong. But transcending the times, like children doing adults' work, is wrong.
At the start of reform and opening, Chinese and foreign enterprises competed on the same stage, but the gap was huge, competing at different dimensions. Admiring others and belittling oneself became the norm.
Following the times and doing what should be done—Chinese enterprises have done this well. They've been denied all along, yet they've succeeded all along.
I've always defended Chinese enterprises; the preface to my "Chinese-style Marketing" 15 years ago was "In Defense of Chinese Marketing."
In the past 40 years, Chinese enterprises, through involution, have rolled out world-class scale companies domestically, finally qualifying to compete with multinationals at the same dimension, or even higher.
**Involution not only creates giants; after involution, it evolves to high dimensions, gaining the qualification to strike low dimensions from high.**
**Supply chain revolution is a new type of involution**
**The supply chain revolution is a newly started involution model. Back-stage is smokeless involution, testing internal strength.**
Look at Xiaomi and Huawei's supply chains; supply chain involution is even more brutal, beyond measure, even involving international politics, economics, relations, and the rise and fall of great powers.
In the past, FMCG supply chains were discussed from the brand side forward, covering pre-manufacturing supply. Dairy supply chain competition has entered raw milk source competition. So, truly competitive leading companies basically have vertically integrated supply chains.
The new supply chain revolution changes the concept of supply chain again.
The old channels have been disrupted by retailer-initiated supply chain revolutions. The original structure of brand, distributor, and retailer has formed a new structure: some retailers build their own factories, some find manufacturers for OEM, some seek direct supply from brands.
**The result of the supply chain revolution: low-price hard discount becomes a private label haven for retailers; many SMEs without scale effects die; brands concentrate on mass price points; companies without super single products are in danger.**
Moreover, in the new supply chain system, retailers will drastically reduce SKUs. Thus, brands' massive SKU strategies fail, and sales concentrate on super single products. Therefore, a new round of super single product involution is coming.
The supply chain revolution is an efficiency revolution. In a nutshell: **eliminate certain links, optimize processes, and set higher barriers for participants.**
Under the new involution of the supply chain revolution, who will be the giants? Who will be eliminated? If you want to be a participant, witness, or even promoter of this [supply chain revolution], don't miss this conference!
**From March 14-16, the [Supply Chain Revolution] 9th China FMCG Innovation Conference & 2nd China FMCG Hard Discount Conference & China FMCG Distributor Conference will grandly open in Chengdu!**
**Over 3 days, one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, over ten sub-forums and closed-door exchanges, plus the first major debut of the [Ultimate Supply Chain] Brand Factory Direct Sourcing Fair,** will bring together thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu for continuous brainstorming, discussing the challenges and opportunities, changes and ways out in the era of supply chain revolution.
I hope every attendee will still have a place in this wave; I believe this will be a worthwhile conference!


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