新浪财经 | 谢祖墀:组织的好奇心

文 | 谢祖墀

中国员工对不熟悉或模糊的事物会感到好奇,但却较难表达和执行他的想法,从而可能导致员工整体的好奇心受到扼制

在如今错综复杂和不确定性极高的商业环境中,寻求创新之道对于每个企业都至关重要。持续的创新能使企业不断探索和打破传统的业务边界,灵活把握新机遇,并实现连续跳跃。不同的企业都在探索如何去创新,坊间亦流传着很多提高企业创新能力的观点和工具。

近期,高风咨询公司有幸收到全球领先的科技公司默克(Merck)的委托,协助其进行关于组织好奇心(Organizational Curiosity)方面的研究。在研究中我们发现,保持好奇心是促使企业创新的重要驱动力。另外,在今年年初举办的“亚布力中国企业家论坛第十七届年会”上,清华大学经济管理学院院长钱颖一教授亦提出了类似观点,用“创造性等于知识乘以好奇心和想象力(creativity = knowledge x curiosity/imagination)”的公式来阐述好奇心是激发人创造性的重要因素。

今天,我从好奇心的定义、组织好奇心的衡量以及组织好奇心的培养三方面来和大家探讨如何通过保持好奇心来推动企业创新。

首先,好奇心是对新生事物的关注和对未知信息的渴望,是驱使内心无所畏惧的不断探索新的、模糊的和不熟悉事物的能力,是追求新知识的动力源泉。

那如何衡量组织的好奇心呢?默克联合乔治梅森大学的高级科学家和教授托德·卡什丹(Todd Kashdan)博士组建了一个好奇心委员会,并搭建了一个好奇心模型,将好奇心分为好奇(Inquisitiveness)、创造力(Creativity in Problem Solving)、开放性(Openness to Other Ideas) 和痛苦耐受力(Distress Tolerance)四个可衡量的维度,以供组织来衡量和理解其员工和工作环境的好奇心程度。

1. 好奇:好奇会驱使一个人对其未知的领域产生兴趣并通过自发的深入探索和挖掘来填补其现有的知识空白。好奇的人通常敢于自由发问和会进行超越其工作范围的思考。

2. 创造力:创造力使人能灵活思考,打破传统的思维局限,并将已有的概念和想法建立新的联系。创造力强的人拥有挑战现状的渴望和意愿,以及能够识别出新的问题解决方法的能力。

3. 开放性:乐于聆听和接受各种各样的想法和建议,无论这个新点子来自于自身或者其他人,都对其保持开放的态度。

4. 痛苦耐受力:即使在有压力的情况下,也能无所畏惧和坚持不懈的对问题进行探索。有勇气直面工作中面临的挑战而不是选择逃避。没有很强的痛苦耐受力的人通常很难表达他们的好奇心。

2015年至2016年,默克对来自中国、德国和美国的3, 000多名员工进行了好奇心问卷调查来统计受访者的职场好奇心指数,并于2016年11月发布了《2016年好奇心状态报告》。此报告对受访者进行了两组好奇心衡量,分别为:员工指数,指受访者自我评估其在四个维度的好奇心程度;雇主指数,指受访者评估其雇主支持他们好奇心实践的程度。

《2016年好奇心状态报告》显示,三个国家的员工普遍认为雇主的好奇心不如自己,尤其是在好奇和开放性两个维度上雇主得分远低于员工。此外,有高达84%的受访者认为好奇的人更有可能在工作中将创意变为现实,但仅有20%的受访者将自己定义为好奇的。相较于好奇,受访者更倾向于定义自己的品质为有组织性、协作性和以细节为导向性的。调查还发现,鼓励好奇心的组织能够吸引更多好奇的人才,并且提高组织的工作满意度,使员工更乐意长期为公司服务。

中国的雇主好奇心指数总评在三个国家中排名第一,并在雇主好奇程度和雇主创造力两项指数中领先于德国和美国。在员工好奇心指数方面,中国排名第二仅次于德国,其中中国员工的好奇程度高于德国和美国的员工,但在员工痛苦耐受力方面远低于其他两个国家。这表明虽然中国员工对不熟悉或模糊的事物会感到好奇,但却较难表达和执行他的想法,从而可能导致员工整体的好奇心受到扼制。(更多关于好奇心的报告发现,详见默克《2016 年好奇心状态报告》)

那如何才能营造一个充满好奇心的环境呢?第一,赋予员工更多的工作自主权,且提供必要的员工培训和集体学习的机会来引导和激发员工的好奇心。其次,职场信息的透明度亦是很重要的,及时与员工沟通公司的愿景与目标,给员工提供一个清晰的方向,有利于创造力的提升。第三,给予员工足够多的时间来探索和发现新创意。

好奇心是支持企业创新和帮助企业应对不确定和充满挑战的未来的一个强有力工具

在一月份的专栏中,我曾与大家分享了关于组织的显意识和潜意识,认为企业领导者的工作应该是在建立良好的集体显意识之余,引导良好的潜意识。一个充满好奇的职场环境就是组织潜意识的一种表现。比如,海尔近年来通过开放创新平台(Haier Open Partnership Ecosystem,简称HOPE)不断激发组织中和组织外的好奇心和创新能力。对于解决某个商业问题或者创造新产品拥有好奇心和创意的人,都有机会成为海尔HOPE平台上的“创新合伙人”。海尔现在的社群中,聚集了大量的科技爱好者、极客、技术专业人员,他们对智能家居、新型生活方式等前沿课题抱有浓厚的兴趣,在这个平台中,这些创新合伙人不仅可以接触到不同的从用户角度出发的新鲜想法,激发自身的创造力,还可以在遇到挫折或阻碍时,向海尔生态圈中的其他成员寻求帮助,实现快速的迭代创新。

好奇心是支持企业创新和帮助企业应对不确定和充满挑战的未来的一个强有力工具。保持好奇心能帮助企业实现可持续增长,以不同的角度去不断探索和发现这个世界,并不断地推陈出新。

本文发布于新浪财经,原文摘自《亚布力观点》(2017年10刊)并保留所有权利
(注:本文图片均来自网络)

关于作者:
谢祖墀博士(Dr. Edward Tse)是高风管理咨询公司(Gao Feng Advisory Company)的创始人兼首席执行官。中国管理咨询业的先行者。过去的20年里,他创立并领导了两大国际管理咨询公司在大中华区的业务。外界评价他为“中国的全球领先商业战略家”和 “谢博士之于中国企业界就如大前研一之于日本企业界”。他曾为数以百计的公司(总部设在中国及其它地区)咨询过所有关键战略和管理方面的业务,涉及中国的各个方面和中国在全球的地位。他还为中国政府在战略、国有企业改革和中国企业走出国门等方面做过咨询。他已发表200多篇文章并出版了4本书,其中包括于国际获奖的《中国战略》和《创业家精神》。谢博士获得了加州大学伯克利分校工程学博士、MBA以及麻省理工学院的工程学学士、硕士。

 

A New Narrative of Chinese Corporate Growth—Nikkei Asian Review

EDWARD TSE and ALAN CHAN
September 28, 2017 7:14 pm JST

Lower-profile entrepreneurs are achieving exponential growth after humble starts

A growing number of privately owned Chinese companies have been achieving exponential growth and successfully transforming their businesses. Many of them however remain relatively unknown in the West. Unlike famous Chinese internet companies like Alibaba Group Holding and Tencent Holdings and the latest crop of startups with skyrocketing valuations, these less prominent companies are comparatively down-to-earth and generally had humble beginnings but now boast solid business models.

SF Express, Oppo, Vivo and Midea Group are prime examples of this group. Each boasts a unique entrepreneurial story and has been relentlessly pursuing innovative strategies to create new markets and redefine the rules of the game for their sectors. Understanding these companies’ growth and origins can shed light on the complex, multi-dimensional and dynamic context of business in China.

SF Express, dubbed the “FedEx of China,” is a delivery-services company based in Shenzhen. At the age of seven, founder Wang Wei migrated from Shanghai to Hong Kong. After he graduated high school, he began working at a small print shop back across the border in Guangdong Province.

While sending print samples to clients in Hong Kong, he quickly noticed the growing demand for cross-border delivery. At the age of 22, he convinced his father to give him a 100,000 yuan ($15,000) loan and founded SF Express with just six employees and one delivery van.

Wang’s business has grown exponentially since its 1993 founding, riding the development of trade around the Shenzhen Special Economic Zone and other areas of the Pearl River Delta. During the Severe Acute Respiratory Syndrome outbreak in 2003, Wang seized the opportunity to buy five planes from cargo airline Yangtze River Express amid the slowdown in the aviation industry and then secured a license to run charter flights to keep deliveries flowing. The subsequent boom in e-commerce saw demand for timely package delivery services rise yet faster.

Today SF Express is a leading market player, with more than 13,000 service points, 400,000 employees, and a fleet of 15,000 motor vehicles and 36 cargo aircraft. Its revenue climbed 21% last year to 57 billion yuan, while net profit soared 112% to 4.18 billion yuan.

This year has been even more dynamic for SF Express. In February, it completed a backdoor listing on the Shenzhen Stock Exchange via an asset swap with defunct cable manufacturer Maanshan Dintai Rare Earth & New Materials and soon after could claim the highest market capitalization of any company on the tech-heavy exchange.

In May, SF Express announced a joint venture with global package delivery company UPS for services from China to the U.S. In June, SF Express completed its first commercial deliveries using drones after receiving a Chinese airspace license. Then on Aug. 22, it raised 8 billion yuan through a share placement to fund growth initiatives.

Smartphone disruptors
Leading smartphone brands Oppo and Vivo are both based in Guangdong and owned by the same parent company, BBK Electronics, a consumer electronics manufacturer founded in 1995 by entrepreneur Duan Yongping. Over the years, BBK Electronics has produced a wide range of products, from corded phones to household appliances and hand-held language learning devices.

Source: Baidu.com

Oppo was originally founded in 2004 by Duan and Tony Chen, who remains chief executive. Before entering the smartphone business in 2008, Oppo sold DVD and Blu-ray Disc players. Vivo was founded in 2009 by Duan and Shen Wei, who also still serves as chief executive. It entered the smartphone market in 2011 with handsets featuring slim design and high-quality sound.

Today both Oppo and Vivo target young professionals and students in secondary Chinese cities. Both brands feature high-end specifications with modern industrial designs that are comparable to Apple’s latest iPhone models. They are positioned with compelling selling points such as fast charging, large memory capacity and long battery life and boast various custom features for selfie and music enthusiasts.

Both brands rely heavily on traditional retail and distribution channels in secondary cities, leveraging the vast sales network of parent BBK Electronics. For example, Oppo has a presence in more than 200,000 retail outlets across China, with flagship stores in the biggest cities to showcase its models’ high-end image. It also gives attractive incentives to retail partners to push its brand.

In addition, they have invested heavily in traditional marketing, such as product placements, outdoor advertising, celebrity endorsements and television show sponsorships. Oppo is an official global partner for “America’s Next Top Model” and Vivo is an official sponsor of the 2018 and 2022 soccer World Cup tournaments. These marketing efforts are so successful that over half of consumers surveyed in secondary Chinese cities mistook the two brands for foreign companies.

In 2016, Oppo shipped 78.4 million smartphones, surpassing Huawei Technologies, Samsung Electronics and Apple to lead all brands in global totals. Vivo came in third, with 69.2 million smartphones shipped and a market share of 14.8%.

Smarter homes
Many industries in China are undergoing disruptive digital transformation, consumer appliances included.

Midea, founded in 1968 in Guangdong, has in recent years created an ecosystem of digital capabilities to capture new opportunities. Last year, Midea generated more than 10 billion yuan in sales on Tmall, Alibaba’s market-leading business-to-consumer online platform. This past January, Midea announced a strategic partnership with Tmall rival JD.com, aiming to deepen cooperation in the fields of intelligent home appliances, smart homes, channel expansion, personalized products and big data analytics, as well as a strategic partnership with Tencent’s QQ social network to collaborate on the internet of things, cloud technologies and smart home appliances.

Source: Baidu.com

Midea is also making big bets on industrial transformation. In 2016, it completed the 4.4 billion euro ($5.3 billion) acquisition of a 94.55% stake in Kuka, a leading German robotics manufacturer. It is aiming to leverage Kuka’s leading technological capabilities in automation, robotics and logistics solutions. This past February, Midea also acquired 50% of Servotronix, an Israeli automation solutions company, for $170 million.

Midea is now aggressively pushing forward a new “smart home + smart manufacturing” strategy, with the goal of becoming a “world leading technology group, focusing on consumer electronics, air conditioners, robotics and automation.” Midea has already invested 5 billion yuan in building smart factories with advanced automation and data exchange in a number of Chinese cities, utilizing a total of 1,500 robots. It ranked 175th on a European Commission list of the world’s top investors in research and development and was the only Chinese home appliance producer to make the list of 2,500 companies.

The growth mentality and entrepreneurial spirit of companies like Midea, SF Express and BBK should be an inspiration to both local and foreign business leaders. The visionary entrepreneurs who founded companies like these excel in speed, agility and adaptability and are grabbing new opportunities amid market discontinuities and spotting unaddressed needs. They are relentlessly identifying new strategic growth areas through fearless experimentation, jumping over capability gaps and charging across traditional industry boundaries, carving a path distinct from core competence-focused players and from diversified conglomerates such as Dalian Wanda Group.

China is no longer just a fringe or emerging market for multinational companies but increasingly at the core of their global strategies. The proliferation of technology enablers and intense competition will drive further development of business models and technological innovation. With China’s gradual transition from a planned economy to a market-based one, new opportunities will continue to emerge and be identified.

China is increasingly becoming a source of inspiration for new intellectual capital in strategy and management science. This unprecedented phenomenon, as shown by the growth stories of SF Express, Oppo, Vivo, Midea and many other similar organizations, will require the wider business community to look at organizations in new ways.

Edward Tse is founder and CEO of Gao Feng Advisory Co., a global strategy and management consulting firm with roots in China.
Alan Chan is a senior consultant of the firm.

 

China’s Audacious and Inventive New Generation of Entrepreneurs

Sep 23rd 2017 | SHEKOU | The Economist

Industries and consumers around the world will soon feel their impact

“NEW era, new revolution. I am a MAKER, for the hearts of the dream.” So goes a rallying cry carved in giant letters on the wall of a warehouse in Shekou, a seaside enclave near Hong Kong. Many of China’s most promising entrepreneurs flocked there recently for a conference organised by TechCrunch, a technology publisher from Silicon Valley. Yet Baidu, Alibaba and Tencent—established Chinese internet giants collectively known as the BAT—were overshadowed by upstarts such as Didi Chuxing, a ride-hailing firm that chased America’s Uber away from China, and Ofo, a bike-sharing startup that is going global.

They are part of a new wave of inventive young firms emerging from China. A few years ago, Chinese innovation meant copycats and counterfeits. The driving force is now an audacious, talented and globally minded generation of entrepreneurs. Investors are placing big bets on them. Around $77bn of venture-capital (VC) investment poured into Chinese firms from 2014 to 2016, up from $12bn between 2011 and 2013. Last year China led the world in financial-technology investments and is closing on America, the global pacesetter, in other sectors (see chart 1).

China’s 89 unicorns (startups valued at $1bn or more) are worth over $350bn, by one recent estimate, approaching the combined valuation of America’s (see chart 2). And to victors go great spoils. There are 609 billionaires in China compared with 552 in America.

“Innovation moves faster here,” insists Kai-Fu Lee, a former head of Google’s Chinese operations who now runs Sinovation Ventures, a VC fund and accelerator in Beijing. Gone are the “C2C” (copy to China) and “JGE” (just good enough) strategies of their parochial predecessors. China’s nimble new innovators are using world-class technologies from supercomputing to gene editing. Having established themselves in the cut-throat mainland market, many are heading abroad.

There are three main reasons why China’s determined entrepreneurs can expand their businesses rapidly. First, the economy, the world’s second largest, is big enough to let firms attain huge scale just by succeeding at home. It helps that language and culture are more homogeneous than in Europe and physical infrastructure (such as roads and wireless broadband) is new and excellent, unlike in America.

Second, Chinese shoppers are voracious and venturesome, an advantage to innovators with clever products but unfamiliar brands. They are also unusually eager to embrace technology. China’s penetration rates for mobile phones and broadband internet are high, making it easy for startups to reach a vast market cheaply. And China is rapidly becoming cashless. The volume of mobile payments shot up almost fourfold last year, to $8.6trn, compared with just $112bn in America. This is why China breeds financial-technology startups so quickly and is home to many of the world’s most valuable fintech firms. Ant Financial, spun out of Alibaba, may be worth more than $60bn.

Third, state-dominated industries ranging from telecommunications and banking to health care are woefully inefficient and even hostile to consumers. This allows agile newcomers, with business models that put the customer first and deploy the latest technologies, to jump ahead of incumbents more easily in China than their counterparts in developed markets.

Moving at China speed
The government’s inability to run industries well is counterbalanced by a willingness to support new ventures, which in turn hastens innovation in areas such as transport. David Frey of KPMG, a consultancy, believes that it has played a useful role as a “market-maker”, one reason why China is far ahead of America in both electric-vehicle (EV) registrations and the number of charging facilities. A recent announcement of an eventual ban on petrol engines (probably after 2030) could help to secure a long-term lead in the global EV market. But the most useful change was a decision to allow venture-backed startups without previous carmaking experience to enter a field previously dominated by inept firms cranking out subpar EVs.

Consider Nio, a three-year-old automotive company. Its headquarters and research centre are tucked away in a huge complex of low-rise buildings in Shanghai’s Jiading district, a cluster that aspires to become the Detroit of China. It is the brainchild of Li Bin, one of China’s most formidable serial entrepreneurs. He made a fortune through BitAuto, a pioneering online platform for buying and selling cars. He also conceived and launched Mobike, Ofo’s main rival in the booming bike-sharing market, and is still its chairman. Nio, backed by the country’s most astute early-stage investors, including China’s Hillhouse Capital and America’s Sequoia Capital, is valued at around $3bn.

Leaping to a whiteboard, Mr Li calculates that the impact China’s cars have had on the planet over the past decade equals that of all cars in the previous 100 years. “From 2000 to 2017,” he adds, sketching a declining curve, “there was diminishing happiness from owning a car.” Traffic, pollution and accidents were to blame. So too, he adds, is a car industry locked into “a 100-year-old way of doing business”.

Driven by innovation
His solution has three pillars. The first is to combine cloud computing, artificial intelligence and sensing technologies to advance autonomous driving. This will not end traffic jams, he reckons, but it can bestow on erstwhile drivers the gift of free time in their cars. Nio has unveiled Eve, a concept vehicle that is in effect an AI-powered living room on wheels. The second pillar is to speed up electrification. To augment the roll-out of conventional chargers, he will offer rapid battery swapping in big cities. The third, and one in which he thinks startups have the edge, is to design cars specifically for the digital era.

The firm has developed much of its technology in-house. It employs people from 40 countries, some poached from established carmakers including Ford and Volkswagen. Last November, Nio presented its first vehicle at a glitzy event at the Saatchi Gallery in London. The EP9, which holds the world speed record for EVs, is designed to wow critics and show off technological prowess, not for mass-market sales. That will come in time, says Mr Li.

Over the next decade, he sees sales rising to the millions, half outside China. Nio has an affiliate in Silicon Valley headed by Padmasree Warrior, a former chief technology officer of Cisco, which plans to raise funds as an independent entity this year. “We consider ourselves a global startup because we want to solve global problems,” Mr Li reflects. As for rivals, he is confident that “Nio can do much better than Tesla.”

Venturesome consumers also play a role in fostering innovation. The Chinese are keen to try new products and are more forgiving than Westerners if they are not perfect. Deprived of consumer goods and luxuries for many years, they are eager to experiment. Wealthy Chinese are younger (typical Audi buyers in Germany are in their 50s; in China they are in their 30s), and hence more familiar with technology. Because the car is not a cherished cultural icon as it is in America, locals are not addicted to driving and are open to alternative forms of mobility such as ride-sharing.

That has been a boon to Didi. With a reported valuation of $50bn, it is the world’s most valuable startup after Uber. This is thanks to an injection earlier this year of $5.5bn, the biggest-ever funding round for a young tech firm, by a group led by Japan’s SoftBank. Didi’s other investors include all the BAT companies, as well as Apple. Didi is far more than a smartphone app for hailing cars, explains Connie Chan of Andreessen Horowitz, an American VC firm. The willingness of local consumers to experiment has helped shape its business model.

Didi runs car pools, minibuses and buses in addition to taxis and luxury cars. It has services for the elderly and can send a driver to take you home in your own car. The firm provides about 20m rides a day in China, several times the number managed by Uber worldwide. Didi hopes to use AI to predict a customer’s transport needs, be that for cars, public transport or bicycles. Its platform offers 200,000 EVs, a figure set to rise to 1m within a few years, and it plans to promote autonomous cars heavily.

“We’re definitely going global,” declares Jean Liu, Didi’s president. Her firm owns stakes in ride-hailing services worldwide, from India’s Ola and South-East Asia’s Grab to Brazil’s 99 and America’s Lyft. In July Didi and SoftBank ploughed $2bn into Grab. In August the Chinese upstart invested in two Uber clones, Estonia’s Taxify, which serves Europe and Africa, and Dubai’s Careem, which operates in the Middle East. It does not lack ambition: “In the next five years, Didi will grow beyond a mobility service to become the world’s leading automotive network operator and a leader in new transportation technologies,” the firm claims.

Didi’s success shows how local companies can cause global disruptions with sharing-economy services road-tested in China. The country’s urbanites already use smartphones to rent umbrellas, mobile-phone chargers, basketballs and other necessities for a small fee. The firms behind such services are pioneering the use of micropayments and credit verification using analysis of social media.

Accelerating the business cycle
The battle of the bikes is the most closely fought of China’s sharing-economy wars. Ofo and Mobike, rival bike-sharing unicorns worth about $3bn each, have redesigned the humble two-wheeler to be an intelligent, cloud-connected device. China’s big cities are awash with brightly coloured bikes from a rainbow of competitors. Because tracking technology removes the need for dedicated docks, they can be picked up and dropped off anywhere. This convenience creates new problems to solve. Ofo is pioneering a credit-scoring system that rewards well-behaved users and punishes naughty ones, such as those who park in the middle of roads.

Dai Wei, Ofo’s boss, explains that his firm’s rapid rise builds on the explosive growth in smartphones, mobile payments and the internet of things in China. Just three years ago, Ofo’s founders were poor students in Beijing, frustrated that their bikes were often stolen. They now control 8m bikes and provide over 25m rides a day in America, Singapore and Britain as well as China, and expect to operate in 200 cities in 20 countries by the end of the year.

Ofo is moving at China speed but the trail ahead could be bumpy. The mainland has dozens of bike-sharing startups. All are investing furiously. Almost all will be crushed. The chance of failing in China is far higher than in Silicon Valley, explains Xiang Bing, dean of Cheung Kong Graduate School of Business in Beijing. But because so many well-funded firms are chasing so many novel ideas so quickly, he predicts that the battle-hardened winners will become world-beaters.

The inefficiency of China’s state-dominated economy is another powerful force boosting entrepreneurs. Young firms are using new technologies and novel business models to push aside state-run laggards. China’s health industry, for instance, is antiquated and dysfunctional. Long queues are common at state hospitals and access to drugs is complicated by an opaque system of dispensation. AliHealth, an arm of Alibaba, is now a leading online pill-peddler. WeDoctor helps patients book medical appointments using smartphones. Venus Medtech has invented a retrievable heart valve intended for patients with high calcification in their arteries.

The best example of a local health-care disrupter with global potential, however, is iCarbonX, a health-data analytics firm from Shenzhen, a metropolis near Hong Kong. It is the brainchild of Wang Jun, who is a picture of the active health he wants to encourage with his startup. He formerly ran BGI, one of the world’s leading genomics-research firms. The Chinese company was involved in the global race to decode the first human genome and at one time owned half the world’s gene-sequencing equipment.

Healthy competition
Asked why he left, Mr Wang confesses that he grew frustrated by the limits of academic research, even at privately run BGI. A breakthrough in genomics typically does not carry real-world implications. A better approach, he reckoned, would be to marry genomics with data on lifestyle, diet, gut bacteria, blood and so on to find stronger correlations and better treatments. This required entrepreneurship, he reasoned, because “commercial firms are designed for efficiency.”

At iCarbonX he aims to build a predictive digital avatar of each of its customers. The company will start with the goal of 1m punters within a few years, he says, but expects to grow in time to 10m or 100m or beyond as its AI algorithms, supercomputing expertise and analytical methods improve. Within six months of its founding in 2015, Mr Wang had secured enough funding from Tencent and others to become a unicorn—making iCarbonX the fastest firm in the world to do so.

To mine a deep seam of health data, iCarbonX has invested $400m in building a global coalition of medical startups. SomaLogic will supply expertise in analysing human proteins. PatientsLikeMe, which curates an online network of some 500,000 people with chronic diseases, will share patient experiences. AOBiome will contribute its knowledge on the interaction of bacteria and human health.

Fast-mover advantage
Western rivals like IBM and Google have similar goals but Mr Wang is undaunted. “We’ll collect more and better data, and we’ll do it more quickly,” he insists. He just might. With Tencent as a partner, he can expect access to data collected by WeChat, its messaging-and-payments app with about 1bn users. It helps that Chinese consumers are more relaxed than Westerners about sharing personal data. The Chinese government’s supportive stance on “precision medicine” is useful, too.

Other inefficient state-dominated industries are being upended. China’s logistics sector was roughly equal to 15% of GDP in 2016, costlier even than in Brazil or India. Many of the lorries owned by individuals miss out on jobs because they lack information about potential new loads. This is changing fast. “Our target market is ten times as big as Didi’s,” calculates Richard Zhang, the finance chief of Huochebang, a logistics-technology unicorn. He estimates that the empty-load rate in China is 40%, well above the American level. Huochebang’s online marketplace matches drivers with loads at no charge (though he expects this service to become the main earner once the firm starts levying fees). It also offers lorry sales and leasing, insurance and financial services. Mr Zhang vows to go global in the future.

Older firms often stuck with the familiar home market, but the best new ones are born global and have the world in their sights. Many have founders educated abroad; others are backed by foreign venture capitalists. Edward Tse, an expert on Chinese innovation, argues that local startups have world-class people and technology at their disposal: “They know much more about what is going on in Silicon Valley or Israel than do Europeans.”

Mr Lee reckons the country’s vast and growing market, its urban hyper-density and its legions of tech-hungry and free-spending young people provide a better proving ground for aspiring global entrepreneurs than do the stagnant markets of the developed world. He is convinced that China has the most industrious entrepreneurs and the boldest venture capitalists anywhere. As a result, he insists, China’s winners “will inherit a decent portion of the world market.”

China’s new entrepreneurs are clearly on the ascendancy but there are plenty of ways in which they could yet stumble. Outside factors such as a sharp recession or banking crisis could lead to a panicky venture-capital bust. The rule of law in China remains uncertain. Many new firms, such as those in online finance and the sharing economy, operate in grey areas that are vulnerable to regulatory whim. Even the popular bike-sharing firms could one day find their business models undermined by arbitrary new rules.

The high-octane nature of innovation in China may also make for a bumpy ride. The spectacular rise of some firms could be mirrored by the precipitous fall of others. Even so, there are good reasons to think that the best of the bunch will overcome such obstacles and in time enhance competition and provide better goods and services everywhere. A Chinese startup might even give the world that most elusive of inventions, the flying car.

Kuang-Chi Science already makes money by floating helium-filled blimps, chock-full of sensors and communications equipment, high above cities. Liu Ruopeng, its chairman, explains that this is an inexpensive “satellite for smart cities” that can monitor traffic and pollution while serving as a hub for the internet of things. It is perfecting advanced balloon technologies that it hopes will bring tourists and cargo to near-space at a fraction of the cost of rockets within a few years, and owns a majority stake in Martin Jetpack, a New Zealand firm that makes one-man flying machines. “Every individual should be able to fly cheaply, easily and safely!” insists Mr Liu. China’s new wave of entrepreneurs has already taken flight.

This article appeared in the Briefing section of the print edition under the headline “The next wave”

 

Innovation in China: An Interview with Edward Tse

About the Interviewee:
Dr. Edward Tse
Founder and CEO, Gao Feng Advisory Company

About the Interviewer:
Jim Euchner
Chief editor at Research-Technology Management, a US business journal

For more than two decades, Edward Tse has lived and consulted in China and observed the country’s dramatic transformation, one driven by a new entrepreneurialism and encouraged by the Chinese Communist government.

He has seen countless multinationals misread these changes, and a few grasp them. In this interview, he discusses the opening of the Chinese economy, the role of Chinese entrepreneurs in the resulting growth, and what multinational companies can do to succeed in the large, growing, and dynamic Chinese economy.

JIM EUCHNER [JE]: Your book, China’s Disruptors, makes a pretty compelling case that innovation is thriving in China. It’s a surprise to many who see China in the narrower role of a contract manufacturer or an imitator. What has happened in the last 8 or 10 years that has changed how China is innovating?

EDWARD TSE [ET]: One of the biggest impetuses was to open up the private sector in China. For a long time, the Chinese economy was dominated by state-owned enterprises [SOEs]. And while the SOEs have contributed in their own ways to the development of China, business innovation has come largely from the private sector. The private sector has been growing very, very rapidly, which the mainstream media in the West have not fully reported.

The entrepreneurs in China, by definition, are looking for ways to grow their businesses, and many of them are looking at innovation as the way to differentiate themselves from their competitors. And, of course, technology has become a very important enabler—in particular, the development of the Internet. The wireless Internet has been especially important over this period. It may surprise people that China is really a very significant Internet nation. The enabling factors of technology and thriving entrepreneurship in the world’s most populous country have driven the change. There are other factors, as well, but I think these two are probably the most significant ones driving innovation in such a fast and significant manner.

JE: Can you talk about the dance between the opening up of the economy and the official control of both the communications infrastructure and the state-owned enterprises? How does that dance work for the entrepreneurs?

ET: It is certainly true that China is still a very governmentcontrolled country; in many cases, there’s not a full degree of freedom in what people and companies can do. The interpretation of that in the West is that, therefore, it’s very difficult for the Chinese to be innovative. And also, perhaps, the Chinese are not very happy. This is only partially true. In reality, although the control of the government is very, very significant, the entrepreneurs are still able to grow in their own ways. It’s a very interesting case, because it’s becoming a duality in the development of the Chinese economy.

While the state-owned enterprises remain strong in some of the sectors, the private sector also has been thriving in its own ways at the same time, despite not having 100 percent economic liberation (so-called freedom). In a way, the Chinese government has been very, very supportive, in terms of working with the private entrepreneurs and in innovation and entrepreneurship. They have not in general tried to block the development of the private sector. The government, in fact, is encouraging almost everybody in China to be entrepreneurs and to be innovative. It has developed into a very interesting case; despite the imperfections in the society, it is thriving in its own way, which I think defies the assumptions that many in the West have made about the development of China.

JE: Yes, I think so. I had a chance on a trip to China to visit with some entrepreneurial firms, and I was surprised by their willingness to take risks and to invest in the development of new technologies and new processes. The management was nonbureaucratic; it was decisive. Did I just see a good example?

ET: No, what you said sounds right. Entrepreneurial thinking is an extremely widespread and fast-growing phenomenon in China. It is spreading across China, not only in one or two geographic areas; it’s not only in big cities like Shanghai or Beijing.

As you go around China, from the eastern seaboard, where it’s more developed, all the way to the inland area, down south to Guangdong, you see the same thing. Shenzhen is one of the world’s most innovative technology hubs. You see that all around China. People are willing to take risks.

I have found the entrepreneurs I have met in China to be quite bold, and they’re very thirsty for knowledge about technology. They’re very thirsty to understand what the latest technology is and how to apply it to business, whatever makes sense. It’s happening across age profiles. The entrepreneur in China is actually getting younger. We’ve got a lot of young people, who we call the post-80s and post-90s, who have become entrepreneurs. Many of them don’t want to work for big companies anymore; they want to be successful, and they have an urge. They see predecessors, people like Jack Ma from Alibaba and Pony Ma from Tencent. They aspire to become the next Jack Ma or the next Pony Ma.

It’s very encouraging. Of course, entrepreneurship is a low-probability game. Many of these entrepreneurs won’t be successful, certainly at their first attempts. But this has not deterred these young people from all over the country from trying to make it happen. China today actually is culturally accepting of people who fail. If they try and they fail, that’s okay. People can come back again. It’s a very different culture compared to the China of 20 or 25 years ago. Entirely different.

JE: In your book, you profile Alibaba and Tencent. Both had early failures, and yet they ultimately achieved—I hate to sound ethnocentric, but they achieved the great American dream. They achieved the same things we think of the most successful entrepreneurs in the West as having achieved.

ET: Exactly. It’s the pursuit of the same values or ideals, but it’s happening in a very different political and social context. It’s very interesting. I think that there have been assumptions made that for these sorts of inspirations, innovations, or breakthroughs to happen, you have to have a certain context, in politics and the organization of society.
But I think that the Chinese phenomenon is proving that perhaps there’s another way.

JE: It will be interesting to see. In your book, you talk about four things that are driving growth in China, with the acronym SOOT: Scale, Open, Official support, and Technology, especially the wireless Internet. Can you start by talking about the scale effect? There is a large, emerging middle class in China. Is its growth akin to what happened in the US after World War II, where a large number of people moved into the middle class, and there was a bootstrapping going on as the middle class created demand, which drove a growth in good jobs?

ET: In terms of actual scale, it’s bigger than even the US after the Second World War, since China is the world’s most populous country. So the scale is significant. But of course, before the opening up of China, up until the Cultural Revolution, China was closed and the Chinese people were poor. Although there were a billion people, they were not really consumers. But during the rapid economic rise of China over the last 25 years, a real middle class has been developing. And this middle class, depending on your definition and depending on whose analogies you believe, ranges anywhere from 200 million to 300 million or more people.That’s not a small number. And that number will only continue to grow.

Source: Baidu

At the same time, it’s not only the middle class consumers who are driving demand. We’re also seeing demand from the lower-tier consumers, as the rural areas in China are also undergoing major changes. Chinese entrepreneurs have benefited from the fact that the scale of the market for them is significant and, mentally and culturally, many of them are quite willing to take their business model innovations to the market, even though that business model may not be 100 percent perfect. They go to the market with a somewhat imperfect model, use the market to scale up the business and to experiment with the business model; they use the feedback from customers to learn and adapt and refine the business model. The scale of the China market is very, very important because it allows that scaling up in a very fast manner, which allows people to adapt and to improve.

JE: That makes sense. The scale and the pace are two different things. The pace of change is also staggering. How does that play into the entrepreneurial activity there?

ET: The pace is happening in two ways. One is on the demand side; the other is on the supply side. The demand side is driven by the rapid increase in income levels, so everything that’s related to consumers has been changing very rapidly; as income levels go up, people gravitate more to lifestyle needs rather than just the basic consumer needs. That doesn’t mean that the basic needs are not necessary; they’re still very necessary. But at the same time, the upper end of the needs pyramid is also developing very quickly, and it’s happening within a very compressed time frame and with a huge volume. That is what is driving the pace of change on the demand side.

On the other hand, the pace of change on the supply side is also very significant. The underlying driver for all of this is the gradual transition of China from a planned economy, something like the former Soviet Union, to a so-called market economy. Unlike the Soviet Union, which accepted the IMF recommendation when the Soviet Union collapsed and took on the shock therapy, where everything had to be privatized overnight, the Chinese moved more slowly. Deng Xiaoping actually said, “We actually don’t know how this will go, but let’s do an experimental and gradual process.” He called that process “crossing the river by feeling the stones.”

That process is still happening today. Obviously, it has its drawbacks, but at the same time, it also has a significant benefit. Every time there has been a sector that has opened up during this gradual transition, it has exposed additional imperfections in our economy. When entrepreneurs see the imperfections, and combine that with the new technologies, they see opportunities, as well. Once a sector is open, a lot of companies jump into the market and try to get a piece of the action because they see the opportunities.

From the supply side, we often see the world’s most intense competition happening in China. There are SOEs, who want to hang on to some of the market. There are the multinationals, perhaps, who want to get a piece of the action. But there are also some Chinese competitors that you don’t see in the US or in Europe. They are thriving here in China. The birth and the rise of local competitors are significant. Competition drives efficiency, and it drives innovation. With these forces at work, the pace of change is intense. It’s incredible.

But at the same time, competition also drives companies to improve. Some get it, but some don’t get it. Later on, they find out there’s an alternative way to do business that can overtake the incumbents. All of this is happening. The pace is significant because people need to survive and because people want to get ahead. We’re talking about different levels of intensity; China is more competitively intense than in many other parts of the world.

Source: Baidu

JE: As the economy opened, did it do so sector by sector? Did the government open up the entire economy, or did they choose what sectors to open first?

ET: This is a very important topic. The West, in particular the mainstream Western media, have not really clarified this point. So when they make comments on China business, they’re often comparing apples to oranges. The transition from a planned economy to a market economy has been a gradual process in China, starting about 30 years ago. And it’s still going on. In my view, it will continue to go on for decades, if not forever; 40 years ago, everything was 100 percent in the planned economy—it was closed, certainly for foreign investors. And everything was run by state enterprises.

With the economic reform that was started by Deng Xiaoping, the Chinese government has been taking industries one by one from being closed to being open. In this process, some sectors have become 100 percent open; this means that everybody, no matter whether an SOE or a private company, whether a Chinese private company or a Western multinational, can compete in that sector. There’s not much regulation. In fact, in some sectors, there’s almost no regulation except for the common rules and laws that apply, like antitrust. So, some of the sectors are already open, but other sectors are still very closed: they’re restricted to SOEs. Not even private Chinese companies can participate in these sectors, and certainly not the multinationals. We still have some of those sectors in China. Telecom operations is an example. American telecom carriers are not able to offer their services in China.

There are also sectors that are somewhere in between; they’re partially open. An example is the automotive sector. From the standpoint of manufacturing, a foreign OEM needs to have a 50/50 joint venture partner in China to manufacture vehicles. The industry dynamics are totally different between an open sector versus a closed sector, and also between an open sector and a semi-open sector. That process of gradual opening up is still happening. Once a closed sector opens up for nonstate companies’ participation, you often see a drastic change in the industry dynamics. Such changes incentivize a lot of companies to enter the market, including many entrepreneurs who want to get a piece of the action.

So the business climate in China varies a lot by industry sector, depending on the degree to which it is open and how long it has been open.

JE: That makes sense. In your book, you note that official support for entrepreneurial firms and for the environment in which they operate is very important. Can you talk about the nature of official support?

ET: One might hypothesize that because China is a Communist state, it would stifle entrepreneurship, certainly entrepreneurship at the grassroots level. That is the assumption that many people make. But that is wrong. That’s not what’s happening in China.

While the government in China is still very supportive of state-owned enterprises, and while it is trying to achieve a lot of things through the SOEs, at the same time the private sector is developing. When the government sees the fruits that the private sector is bearing, it is very, very supportive of allowing entrepreneurs to do what they’re doing.
The innovation that the entrepreneurs are doing, and the employment and the social impact that they’re creating, and the wealth that they’re creating in the process, are important to the Chinese government. So the Chinese government is not only supporting entrepreneurs but also now regards innovation and entrepreneurship as a key pillar to the future development of the Chinese economy.

JE: And what does that mean? In practice, what does the government do to encourage that pillar?

ET: In general, they are very supportive of entrepreneurs when they are experimenting with new ways of doing business or new business models. As a new business model or new innovation comes about, there may not be a full set of regulations or policies to govern the new concepts, right? The Chinese government is quite willing to work with the entrepreneurs to develop new regulations and policies that are sensible.

The government also encourages the local governments all across China to work with entrepreneurs and to invest in them. There has been a huge amount of venture capital money in different localities in China, and in many cases, the major investor was actually the local government. Local governments are starting up funds that will fund the experiments that the entrepreneurs are suggesting. That’s another way that the government is supporting entrepreneurship.

JE: How fickle is it? Could the government shift its view and affect the fortunes of these entrepreneurial firms? For example, there are an awful lot of very small factories in China; I visited a few of them. I don’t know whether it’s accurate, but I have heard that there’s a state desire that they consolidate and get to the scale that they can become more professionalized. That’s obviously going to have consequences for some of the entrepreneurs who started those businesses. How does that kind of desire on the part of the government work?

ET: In some cases, there may be government action to try to consolidate some subscale operations. And as you also know, in many sectors in China, there is a lot of capacity in production, and a lot of this capacity is not that productive. From the standpoint of the government, it’s critical that there’s a way to rationalize the capacity. In fact, we now call it supply-side economics in China. On the other hand, there are sectors that have been growing significantly without much overcapacity, and in many cases, these are driven largely, if not entirely, by the private sector; in these cases, the government is not blocking private businesses unless there is major risk of fraud. And these firms can grow to a scale that is extremely dominant.

Alibaba is one case of a very significant firm. Tencent or WeChat is another. We’re seeing this phenomenon over and over. The government is not blocking these private entities because they’ve become so significant and so big. In fact, the government is encouraging them to continue to develop innovation. So two things arehappening at once. There is overcapacity in some sectors, which causes the government to respond, but there is also continued encouragement of companies that are thriving and developing dominant positions in their spaces.

JE: That’s helpful. You just mentioned what you call the BAT, or Baidu, Alibaba, and Tencent—the three big, very successful, Internet-based companies. Can you say a little bit about them?

ET: BAT—Baidu, Alibaba, and Tencent—are the leading Internet tech companies in China. They’re all private, entrepreneurial firms; they’re not state-owned. They were formed at about the same time, towards the end of the 1990s; none of them is more than 20 years old. They’re all growing significantly. Alibaba had its IPO in the US two years ago, and it was the largest in US history. Tencent is listed on the Hong Kong Stock Exchange, and it’s now the most valuable company in all of Asia. These companies have become very dominant in China.

Source: Baidu

But their positions are somewhat different. Baidu started with the search engine business, kind of like Google, but now is very much shifting into artificial intelligence [AI], because they view AI as the future. Alibaba has built itself into a diverse business ecosystem, but the core is still in e-commerce, kind of like Amazon and eBay. It has launched various e-commerce marketplaces, including B2B (Alibaba.com), C2C (Taobao), and B2C (Tmall) models. They also have created businesses in cross-border e-commerce, mobile payment, Internet finance, smart logistics, cloud computing, and many others. Tencent started off mostly as a game company—video games and online gaming, and online games have become a significant business for them. But probably their most influential and most commonly adopted business is WeChat. It started off as an instant messaging platform, like WhatsApp, but now is basically a lifestyle and business application. People can do virtually anything on WeChat. And it’s a very, very sticky platform.

All of them are very significant in size and dominance, but each finds its own areas of focus. BAT is at the core of what a lot of people look at as the tech sector in China.

JE: Something that I had not fully appreciated is that there are, in a real sense, two Internets. There’s the Internet in China and the Internet in the rest of the world. Some people talk about the Great Firewall. How important is this firewall to the success of these companies? In some sense, they’re protected against competition from companies like Google because Google won’t comply with the politicalrequests or demands of the government. It’s a differently open Internet. Can you comment on that?

ET: That’s a very good question, and in fact, a question that’s probably on the minds of everyone I’ve talked to about this topic. In general, the assumption, at least from people from the West, is that because of the Great Firewall, people can’t be as innovative as they can in the West, because they don’t have access to all information. Further, they assume that people must not be happy, because they don’t have access to everything from the rest of the world. And the Great Firewall gives unfair advantages to Chinese tech companies at the expense of the West. These are the assumptions.

They are not entirely wrong, but they are certainly not entirely right, either. Some US companies were really blocked: I think Facebook was blocked; Twitter was blocked. Google was not blocked, but they chose not to comply with the requirements of the Chinese in terms of censorship, and so they withdrew.

There are also Western companies in this space that were not blocked at all. They were actually quite welcome to come to China to play. This includes eBay, which tried to enter China 15 years ago, and of course, Amazon, which has been in China since the early 2000s. But despite the prominence of Amazon and Jeff Bezos, and despite the fact that there is not much in the way—the kind of regulations and policies that would prohibit Amazon from operating in China—Amazon has not been able succeed in China in the e-commerce business as it has in the West. And eBay, as I mentioned, was beaten by Alibaba hands down in two years. Alibaba is not an SOE. It had no government support, but succeeded because of its capability and its competitiveness.

So, it’s a factual mistake to claim that all Western tech companies were blocked by China because of Chinese policies and regulations and the Great Firewall. That’s only partially correct. For those who have tried, many have not been able to capture the potential of the China market. Some of the reasons relate to the China context, but most of the issues are internally driven. They are limited by their ability to really understand China and to develop the right China strategy and the right China approach. This applies not only to the Western tech companies but in general to Western multinationals.

Source: Baidu

JE: I would like to segue to what works. What have multinational companies, not just tech companies, but tire companies, auto companies, appliance companies, done to succeed as they’ve moved from manufacturing in China to development in China and finally into innovation in China?

ET: If I had to pick one area where the multinationals have really failed, it is that they have tended to assume that whatever they do in the rest of the world, in particular in their home market whatever product, business model, go-tomarket model they use—would apply equally in China. That is an assumption that many multinational CEOs have made. In the back of their minds, they say, “Well, we’re a successful American company, or we’re a successful German company. We’ve been in business for 50 years, 100 years, 150 years. And we are a leader or the leader in our space in the world. I understand that China is large and growing, but I can just apply my way to China.”

And when they do market analysis, what they can forget or not fully appreciate is that the China market is developing in a faster and more competitive manner, and frankly, in a much more sophisticated manner, than their experience in the rest of the world has prepared them for. The size of China, the pace of China, the degree and intensity of competition in China, the quick development of technology in China, and the willingness to learn via trial and error all contribute to the complexity. Add to this the emergence of consumers who are, from an economic standpoint, middle class, but from a demand standpoint, probably among the most sophisticated and complicated in the world.

Instead of trying to cut and paste your business model or product from wherever it originated to China, start with a really deep understanding of what the China context is. Try to fundamentally understand what China was, is, and will be in the future. And from that, try to extrapolate to what business you should be in and how you can capture the right position in China and the full potential the China market offers to you.

I have worked with a large number of clients over the years. I think that the willingness of global CEOs to do that is actually very limited, including many of the global Fortune 500 CEOs. That is actually the fundamental issue with multinationals in China, rather than China is mysterious, China steals IP, and so on. That’s 20 percent of the issue; 80 percent is the companies themselves.

JE: Can you give an example of a company that’s done it well?

ET: There are some. The auto industry is doing in general pretty well. China is now the largest automotive market in the world. The German manufacturers and also General Motors and Ford, they’re doing very well in China. For those companies, the rapid rise of the auto market, the sheer size of the market, and the willingness of the Chinese consumer to adopt Western brands, really carries the automotive multinationals. And the market continues to grow at double-digit levels.

Source: Baidu

There are also companies that are in very intensively competitive consumer markets that are open; there’s not much regulation, and they’re really thriving. I’m talking about the sporting goods companies like Nike and Adidas. They’re really the stalwarts; they’re the leading companies. Starbucks is also doing well. Why would the Chinese like to drink coffee? Chinese people used to drink tea. Starbucks is doing extremely well in cultivating a new coffee culture in China. A latte in China is more expensive than a latte in America.

Honeywell is a prime example of an industrial company that has gotten it right in China. Honeywell is a multibusiness-unit industrial company with a variety of B2B divisions and a few B2C business units as well. China is now the second largest market in the world for Honeywell, after the US. It contributes the largest growth for Honeywell. They are a good example of a multinational that gets it in China.

JE: And that is because they really took the time to understand the dynamics of the Chinese market?

ET: That’s correct, yes.

JE: One more question, in the limited time we have. When I was in China, I spoke to people about the rich startup movement in China, the equivalent of what’s going on in Silicon Valley, or Austin, Texas, in the US, or Toronto in Canada, or London. I know Shanghai has a thriving startup market, with an active VC community. How is the startup movement in China similar to and how is it different from that in the West? If a company wants to work with startups in Shanghai or one of the other centers in China, how would it operate differently there than in Silicon Valley?

ET: In many ways, the basic tenets of entrepreneurship are not that different between Silicon Valley and the Chinese centers. People are willing to take risks. People see the pain points, and they want to turn the pain points into opportunities. People are enthusiastic about the opportunity and are willing to take risks to act on it. So the basic tenets are more or less the same.

The pace and intensity of entrepreneurship in China is unique, however. You often find, in a very short period of time, a lot of companies are trying to do the same thing or similar things: everyone sees the opportunity, and they jump into it. Very often, the market becomes quite crowded, overly crowded. And when it’s overly crowded, some of the companies will not be able to make it, as in any market. That process is happening at a pace and intensity that’s faster than in any other place in the world—perhaps even including Silicon Valley. And this is happening in a period of significant regulatory uncertainty.

So from a multinational standpoint, when you work with a startup in China, you have to take a somewhat different mindset. Of course, multinationals know that these experiments are a low-probability game, and you have to go into it with that kind of mindset. But in China, the risk and also the opportunities are amplified. They’re magnified even beyond what you see in Silicon Valley. And so, when you’re working with a startup, you have to have a mindset that recognizes the higher opportunity but also higher risk. And at the same time, you have to develop internal processes for managing these sorts of situations.

JE: Is IP a specific concern? I hear it mentioned often.

ET: IP concerns are, in my view, somewhat of an excuse for many multinational companies. You do have to be careful with IP, but at the same time, you cannot let that stifle your willingness to grasp opportunities in China. It’s a careful balance, and every company needs to treat it somewhat differently. But in general, a blanket statement that because of imperfect IP protection in China we shouldn’t be bringing our products or our technology or our innovation and experimentation to China is a flawed assumption.

Over the last 10, 15, or 20 years, entrepreneurship and innovation in China have been happening, led by Chinese entrepreneurs, under a very imperfect regulatory context. The lack of protection for IP, of course, applies equally to the Chinese companies, not only to the multinationals. Yet at the same time, a lot of companies are able to innovate and experiment and create new businesses. And many of them fail, but some of them are extremely successful. One needs to be careful about IP, but one needs to be careful, as well, not to use it as an excuse to not do innovation in China. If you don’t innovate in China, you’re missing a huge opportunity.

JE: If you were advising a CTO or a leader of innovation at a Western firm, what key advice would you give for succeeding in China?

ET: My advice applies equally to the CEO, the CTO, the CIO, or the Chief Innovation Officer: you need to really understand what’s going on in China and in the Chinese market. My advice is to throw away your Western lens for a little while and truly look at China without any constraints; try to understand both the threats—the risks of doing business, but also the competitive threats—and also the huge opportunity China offers. Once you have a full appreciation of the China potential, then devise your innovation strategy and your China R&D strategy. You need to have a lot of good, on the-ground competence in China to drive these things. The capabilities at headquarters are still critical, but headquarters needs to support, not control. You need to empower appropriately. You need to have a good balance between empowerment of the local team and support from the global function. You must build a strong team on the ground, a team that understands the market and really turns the demand side from the market into innovation ideas. This kind of innovation has to be done on the ground in China because of the need to stay close to the market, and also because the competitive environment requires speed and responsiveness.

JE: What’s the best way for leaders to get it? How much time should they spend on the ground in order to really understand China? What do you recommend to someone who says, “Okay, I get your message. I want to understand China. How do I do it?”

ET: The first hurdle is mindset. I’ve seen quite a number of leaders, presidents of business units and so on, who say, “I moved to China. I’m based in Shanghai now,” and they think that gives them the perspective. But from the outside, I can see that the way that he or she behaves is actually still very non-Chinese. I think that where you’re based physically is of secondary importance; the first level of importance is having a new mindset. You can do that from Munich, Germany, or from Cleveland, Ohio, or from Houston, Texas.

Once you have that mindset, and you’re willing to use an approach that is very locally adaptive, the key is to find the right team on the ground that you can work with and that you can appropriately empower. Then, keep a very close connection between the headquarters and the China unit. You should also have good advisors to help you, to remind you, to help you steer the way. That is the basic mechanism that I have seen work.

If you set it up right, it can be very powerful. That is what drove Honeywell to its success in China. It sounds very simple. But in my career, which includes over 25 years in China, it is interesting for me to observe how little multinationals have actually been able to create this mindset.

 

The Father of Business Consulting in China Knows Why eBay Failed

By Joseph Catanzaro
2017-09-01

This article was originally published in INTHEBLACK, Australia’s leading business magazine on September 1st.

The Father of Business Consulting in China Knows Why eBay Failed There

In the early 1990s, when China was still struggling to shrug off the straightjacket of its planned economy, the man appointed to lead the first business consulting firm allowed in the nation was immediately confronted with the scope of the challenge ahead.

“There wasn’t even a concept of what a company was,” says Dr Edward Tse. “Everything was a state-owned enterprise (SOE), and a SOE is very different from a company like we know them today.”

Tse, raised in Hong Kong and educated both there and in the US, was poached from McKinsey & Company by Boston Consulting Group (BCG) in 1993. BCG was the first business consulting firm given approval by the Chinese Government to set up shop in mainland China.

The nation was beginning to open up to the world under economic reforms, and BCG saw potential in both China and Tse. It has proven to be a wise choice. Tse is held in high esteem in China: he’s the man everyone wants to know and he’s regarded as one of the best management consultants in the business.

Made managing partner of BCG’s China practice, Tse says his initial work with China’s fledgling business community wasn’t just about convincing potential clients that his people could do a good job, but being good at convincing them what they did actually constituted a job.

“People asked, ‘what do you guys actually do?’. We’d say, ‘well, we manage a consulting firm to advise companies’. They’d shake their heads. They couldn’t understand what a consulting firm was.”

Fast-forward two decades, and both China and its consulting industry are vastly changed. In 2016, foreign direct investment in China grew by 4.1 per cent year-on-year to US$118 billion, reports China’s Ministry of Commerce. China’s consulting sector, which is helping guide those foreign companies and local businesses, was valued at about US$3 billion in 2015 by UK-based Source Information Services. In early 2017, IBISWorld put the sector’s worth at US$25 billion.

China business pioneer

Sitting on a high-speed train travelling at hundreds of kilometres per hour through what is now the world’s second biggest economy, Tse says he believed early on that the potential rewards of doing business in China would far outweigh the challenges. He waves away the suggestion he is the founding father of China’s now booming consulting sector, despite his role as the first to steer a practice through those uncharted waters. Instead, he puts his appointment down to “right place and right time”.

“At that time there weren’t many ethnic Chinese strategy consultants and so demand and supply made it happen,” he says.

Others believe Tse is just being humble.

“Edward Tse must be considered a pioneer in the field of business consulting in China,” says Shane Tedjarati, a former client and now president of Global High Growth Regions for Honeywell. “I’ve known Dr. Tse for over two decades and he’s provided invaluable advice on numerous industries, including automotive and high technology.”

All Tse will admit is he was busy from the get-go. In the early 1990s, foreign firms suddenly had access to the most populous nation on the planet.
“We [BCG] received a frenzy of inquiries and projects, right away,” Tse says.

In the past 20 years, he has continued to advise companies on how best to enter the China market, initially at BCG, and later as Booz & Company’s senior partner and chairman for Greater China.

Along the way he’s written award-winning books on China business strategy and management (The China Strategy in 2010 and China’s Disruptors in 2015), had board appointments on Chinese state-owned giants including Baoshan Iron & Steel, and been given government advisory roles in Hong Kong and Shanghai.

He’s also earned himself a reputation in business circles as a China whisperer. Tse is tight-lipped about his client list, but it’s understood it includes some of the biggest names in global business, across a wide range of sectors.

The China market evolution continues

Tse, however, is not one to rest on his laurels. He says, in China, it isn’t an option. “The China market is still evolving. The China market we knew 20 years ago is different to the market 10 years ago, and the China market today. It’s a moving target.”

Dr. Edward Tse, widely considered to be the father of business consulting in China. Photographer: Calvin Sit

There are some big factors behind China’s ever-changing business landscape, Tse explains. Foremost is that China’s transition to a totally free market economy won’t be completed for another few decades, meaning the business landscape will continue to shift as protectionist legislation is scaled back and SOE monopolies are challenged.

That’s one reason why Tse has continued his own evolution. Just before Booz & Company merged with PwC in 2014 (becoming Strategy&), Tse struck out on his own to found the Gao Feng Advisory Company, which is firmly rooted in China.

After decades of telling foreign companies their China business needed to be more China-centric, Tse took his own advice.

“China was always at the fringe, not the core, for the big multinational companies,” he says, “and that also applied to the big consulting companies, because they were headquartered in the West.”

Tse’s Gao Feng practice is at the front of a new wave of Chinese consulting firms that are beginning to compete with the multinational players in China. With about 100 consultants spread across Beijing, Shanghai and Hong Kong, it is still a small practice, but Tse says Gao Feng is punching above its weight and is now often “invited to compete with the big firms”.

His first suggestion for businesses looking to break into China is not to arrogantly assume that the one-size-fits-all approach successfully used in 100 other markets will work there.

This isn’t a revelation, because he’s been saying it for 20 years; the surprise is that many foreign business leaders still think their company is the exception, and does not have to adapt.

“China’s transition from a planned economy is still going on and in my opinion it will take another few decades to complete that transition,” he says. “This is unique. I don’t know another country in the world doing this.

“You have got a much more complex [business] ecosystem in China. The players are not just pure commercial players: you have private companies and multinationals, but you have also got SOEs who play a different ball game … the government is also very involved in driving the economy.”

Secrets of success and failure

Underestimating just how different China is, and where problems and competition may arise, has been the death knell of more than one bid to enter the China market, says Tse. This pitfall can be avoided, he adds, but it involves giving up something global head offices rarely like to relinquish: control.

“You have to put the brainpower for the real decision-making here in China,” says Tse.

He points to eBay’s unsuccessful 2002 bid to make it in China. The internet giant ran up the white flag after being beaten by a then much smaller home-grown company, Alibaba. It’s what can happen when a multinational doesn’t give its China office enough autonomy, says Tse.

“eBay didn’t understand the complexities of the China market. They required everything to be done almost exactly as they they did it in the US,” he says.
“Alibaba was smaller but its team was flexible and adapted quickly. They understood what the consumer wanted and they developed a locally accepted version of the business model.

“If it would take a week before eBay [with its head office overseas] could make a decision and come back to China with it, during that one week Alibaba could have made five decisions. This is how Alibaba beat eBay.”

Implementing a Western, “democratic and by consensus” management style has also often proven a mistake, adds Tse. Most of the successful companies in China, both domestic and foreign, are led by a particular brand of executive that resonates with the local Chinese workforce.

“The … leaders who are successful at multinationals are usually in a control mode,” he says. “They tend to be viewed as the big boss, someone with authority who has a lot of decision-making power and is able to drive the business in a very local way despite what headquarters wants them to do. They are really quite good at saying this is what we do, we have vision, we have purpose, and the team will then follow.”

The Chinese consumer

The other, obvious side of the success equation is the reception from Chinese consumers.

Tse says too many multinationals come in with a view that their core product will simply work in China, as is. Yet with little or no brand recognition to rely on, foreign products are often less appealing to consumers than local alternatives.

Tse points to Coke as a company that did a reasonable job of adapting its product presentation to appeal to Chinese consumers and diversified its product line to capture more market share.

“They genuinely tried to create a more locally accepted product line. At the same time, while they are trying to develop local products such as juices and Chinese tea, I think they’re still hanging too much on their core carbonated drinks.”

The biggest challenge facing businesses coming into China now, however, is digital disruption.

Chinese consumers are accustomed to using digital payment systems, expect to be able to order almost every product online on established platforms, and have these products delivered to their door – often in less than 24 hours, says Tse.

China’s level of technology acceptance and integration is unparalleled anywhere in the world outside of Silicon Valley.

“If you’re headquartered outside of China, you don’t get a sense of the rapid digital disruption in China,” Tse says. “The local guys based in China know, and I’m sure they inform headquarters, but they don’t get it. They hear the words internet, mobile, digital payment, P2P (peer-to-peer); they hear the terms but don’t understand deeply the change in China.”

For those thinking they can play catch up or feel their way into the market, the first man in China’s consulting sector offers a last piece of advice: “The Chinese consumer won’t wait.”