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Nikkei Asian Review | Recognizing the growth in China’s auto market

EDWARD TSE and BILL RUSSO
November 28, 2018 14:46 JST

Expanding mobility and digital services are offsetting the decline in vehicle sales

China is set to record its first annual decline in car sales in decades — at least, if the downward trend of the last four months continues. Sales in the world’s biggest car market fell 11.7% in October.

The gathering gloom about Chinese car sales, especially among foreign manufacturers, misses a fundamental point, however: growth in automotive services in the country is offsetting the decline in vehicle sales. We estimate that overall Chinese “automobility” revenues will rise this year to $590 billion, up $10 billion from last year. This figure is on track to top $1 trillion by 2025.

Chinese demand for mobility products and services has continued to rise as a growing population of urban residents earns higher wages and engages in economic activities requiring that they move around. An expanding range of options faces them: A city dweller can own or lease a car for her personal use, pay per use for a car to drive or ride in, or use public transportation. Demand for the purchase of new vehicles is also increasingly tempered by the growing availability of good-quality used cars.

The presence of commercially aggressive digital players like Baidu, Alibaba Group Holding and Tencent Holdings, together with their associated convenient mobile payment services, is helping to create a new competitive landscape in China.

Didi Chuxing, the country’s largest mobility services platform, handles some 30 million trips a day for over 550 million registered users. Bolstered by the huge popularity of short-distance ride hailing in China, Didi has become one of the world’s most valuable technology startups, with a valuation of more than $50 billion.

The new game of providing mobility services for people and goods represents an “automobility” business model based on the utility that vehicles can deliver, rather than on the sale to car owners.

The old model depended in part on the underutilization of vehicles sold to individuals and companies. Utility under the new model can be measured by kilometers traveled and the consumption of services linked to the connectivity features of new vehicles.

Shared-use vehicles, including those deployed for ride hailing, public transportation and carpooling, represented about 7% of China’s total passenger vehicle fleet last year. We forecast that their share will rise above 30% by 2025 as further service innovations emerge.

This means Chinese sales of new vehicles will continue to be under pressure. The automobility business model will increasingly commercialize connected, electric and autonomous vehicles through the economics of digital ecosystems. Companies such as Alibaba, Tencent, Baidu, Alphabet, Microsoft and Apple are viewing mobility-related services as a means of expanding their platforms.

Source: Baidu

How should foreign carmakers best capture the emerging opportunities in China and mitigate risks against the background of falling restrictions on their investment in local vehicle production and declining vehicle sales?

First, given the sheer size and speed of change of the Chinese market, the country needs to be placed at the core of carmakers’ global automobility strategies and not simply treated as a fringe market. This requires building an empowered corporate organization in China, developing market-specific capabilities while also leveraging the company’s global capabilities.

Traditional carmakers have generally been slow to embrace mobility services. They lack the digital DNA necessary for monetizing relationships with users of smart mobility services. Innovation linked to the digital economy and deepening relationships with end users will be key to survival in the increasingly technology-enabled new game in China.

Third, building a smart vehicle will not be enough. Emerging players, from Baidu and Alibaba to startup automakers like NIO, Byton and Weltmeister, are all focused on winning in the new game.

These companies aim to achieve intimacy with end users through digital platforms and monetize customer value through both mobility services and offerings for digitally connected lifestyles. NIO, for example, expects services to provide a bigger share of its revenue in the future than vehicle sales. It will be offering car battery-swapping services as well as creating a network of NIO Houses that will act as lifestyle hubs for users to connect, relax and play while getting vehicle support.

Traditional carmakers need to figure out a way to engage in this new model. Moving into software or services and becoming part of the digital ecosystem will be necessary, but will likely be difficult for companies who have long focused on the branded relationship with vehicle owners.

Lastly, companies need to create bespoke innovations in China for Chinese customers. The country’s vast market presents challenges and opportunities that are relatively new to foreign companies and they must adopt new ways to innovate to remain relevant.

The challenge already extends beyond China’s borders. Didi, for example, has recently expanded into Australia and Mexico. It has also invested in peers around the world including Grab, Lyft, Ola, 99, Taxify and Careem, creating an informal network that covers 80% of the world’s population.

Carmakers should pivot to where growth is heading. The traditional sources of competitive advantage for carmakers no longer guarantee success. Instead, they must build a new set of capabilities derived from digital ecosystems and mobility services partnerships.

For those who get it, the reward will be significant and will impact their global business. Those who do not will be marginalized and eliminated. Such is the nature of the new game in the world’s largest, most disruptive and most innovative market.

Edward Tse is chief executive of Gao Feng Advisory Co., a global strategy and management consulting firm with roots in China. Bill Russo is the firm’s managing director and former Chrysler vice president for Northeast Asia.

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SCMP | The Game Changer

By Edward Tse

Edward Tse says multinational companies are realising that they cannot ignore Chinese innovation and must embrace China-specific strategies

Original published by South China Morning Post on November 19, 2018. All rights reserved.

Chinese President Xi Jinping met a group of entrepreneurs on November 1 and underscored the government’s support for the private sector. Soon after, Guo Shuqing, chairman of the China Banking Regulatory Commission, pledged that at least 50 per cent of new corporate loans by China’s banks would be provided to the private sector.

These moves reaffirmed Xi’s earlier position that both the state-owned and private sector are critical to China. In fact, a “three-layered duality” working model has emerged and is providing resilience for China’s economic development. At the top, the central government sets the overall development priorities. At the grass-roots level, private-sector entrepreneurs have become a major driving force behind the economy. Sandwiched in the middle, local governments, in response to the central government’s direction and strategy, collaborate and compete in regional clusters, often by teaming up with entrepreneurs.

Source: Internet

Another major initiative by Xi was highlighted in his speech at the opening ceremony of the China International Import Expo in Shanghai, on November 5. He emphasised China’s commitment to opening up and reform, inviting more foreign participation in the country’s growing market. He further endorsed multilateralism on global trade and finance, forging a win-win platform so countries can together create greater prosperity for the world.

Over its 40 years of reform, China has been gradually opening up, sector by sector, to non-state and in particular, foreign companies. Many sectors are already open to foreign participation, including consumer goods, retail, automotive parts and appliances.

Beijing recently set a timeline to phase out the ownership cap on the automotive industry. It has also committed to liberalisation in other sectors such as financial services, agriculture, aircraft and ship manufacturing. Clearly, liberalisation of market access will be carried out against a set of constraints defined by the Chinese government. Key industries touching on “national security” – military, defence, mission-critical public utility, data and cybersecurity – will continue to be subject to investment restrictions.

All these moves carry profound meaning, especially in the context of the US-China trade war. Reuters reported in October that, as the cost of production rises, a large percentage of US companies are planning to shift supply chains out of China. However, among this growing list, only 1 per cent said they had any plans to establish manufacturing bases in North America.

[Xi has] emphasised Beijing’s commitment to opening up and reform

For many foreign multinational corporations, including American companies, the China market has become so important that an exit is almost not an option. Take the auto market as an example. Though China recorded the sharpest sales decline in car sales in September since 2011, the country remains the world’s largest market. For most major international carmakers, it is a must-win market. China is also of strategic importance to the likes of Apple, Starbucks, Nike, Adidas, L’Oreal, Johnson & Johnson, and many other global companies.

Source: Internet

While US politicians and lobbyists are pressuring China for “reciprocity” – that is, more market access – they and many foreign companies have missed China’s waves of business innovation, probably the country’s most important development in the past decade. This innovation, often led by Chinese entrepreneurs, is creating new paradigms across the board. Terminologies such as “automobility”, “new retail”, “OMO” (online merged with offline), “smart homes” and “big health” signify how industries are being reshaped.

For example, the auto industry is quickly evolving into an “automobility” industry, driven by three major forces – electrification, autonomous driving and “mobility-as-a-service”. The latter enables people to completely plan trips using digital platforms that integrate booking, planning and ticketing across public and private services. This new paradigm involves both hardware and on-demand personal mobility services, such as ride-hailing services, in contrast to the old one of people owning traditional internal combustion non-digitally-connected cars. Though car sales in China are under pressure, the automobility market size is forecast to expand from around US$30 billion in 2017 to over US$210 billion by 2025.

Global carmakers have found that, to participate in this new paradigm, they need to build competitive advantages specific to China and embrace innovations in China for China.

Thus paradoxically, as the auto market opens up – and therefore “reciprocity” is in theory achieved – foreign carmakers are not shedding local partners to form wholly owned operations. Instead, new forms of partnerships among foreign, local, state-owned and privately-owned companies are being formed.

Source: SCMP

In September, Ford and Zotye Automobile, a Zhejiang-based privately owned enterprise, formed a joint venture to focus on providing customised smart electric vehicles to fleet operators and drivers in China’s ride-hailing industry. In October, Daimler and Geely, another Zhejiang-headquartered private enterprise, announced they would set up a joint venture to offer premium ride-hailing services.

Investments by foreign multinationals in China are not shrinking but expanding. In recognition of the strategic importance of the China market, for instance, Ford has just announced an elevation of its China operations to a separate business unit led by a newly recruited CEO, who is a Chinese national, reporting directly to the company’s global headquarters.

Innovation, not reciprocity, is the real game changer. In the past, foreign multinational companies have either dismissed or ignored Chinese innovations due to a combination of a lack of awareness and disbelief. Today, most have come to realise the power of the innovations by the Chinese players, as well as the growing importance of China’s market despite the trade war with the US.

As new technologies such as artificial intelligence, the internet-of-things, 5G and blockchain emerge, old knowledge from the past and from the West will no longer be enough. Global CEOs need to develop a “new game” strategy to win, or just to survive, under a drastically different set of conditions. Those who get it will be able to reap major benefits and build a strong position not only in China but for the world. Those who don’t will be marginalised over time.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. He is also author of China’s Disruptors.

 

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新浪财经 | 谢祖墀: 新任GE总裁来自的公司来历如何？

文| 谢祖墀

不久前10月1日，通用电气（GE）公司宣布将原来的CEO约翰·弗兰纳里（John Flannery）辞退，同时任命劳伦斯·卡尔普（Lawrence Culp）为新任总裁，马上上任。

众所周知，GE公司是美国传统的皇牌公司，过往的业绩非常出色，特别是在杰克·韦尔奇（Jack Welch）担任CEO的时候，他被誉为是那个时代美国，甚至世界上最伟大的管理大师。韦尔奇从1981年到2001年执掌GE，公司市值从130亿美元暴增到5800亿美元，曾一度是美国市值最高的上市公司。GE更是被视为一家充满创造力的伟大企业，俨然成为在美国乃至全球商界里最受人推崇的企业之一。

后来2001年韦尔奇的继任者杰夫·伊梅尔特（Jeff Immelt）接任之后，GE的业绩就陆续走上江河日下的道路。到2017年8月伊梅尔特卸任时，韦尔奇打造的传奇企业几乎走到了崩溃边缘。在伊梅尔特执掌公司的18年时间里，GE的发展远远落后于多个竞争对手。到2017年8月，GE董事局换上了新的CEO约翰•弗兰纳里，未料他的表现更为不济。2017年，GE股价暴跌45%，今年直至9月底又已下跌了30%多，市值已跌至不足1000亿美元。2017年第四季度，GE更是巨亏100亿美元。直到今年10月份，弗兰纳里被突然辞退，他也因此成为GE有史以来任期最短的CEO。

2018年4月，卡尔普就已经被任命为GE的董事。在此之前，卡尔普在一家名叫丹纳赫（Danaher）的公司担任CEO十多年（2001年-2015年），在任期间成功带领丹纳赫从工业制造业公司转型为科技公司。在卡尔普执掌丹纳赫期间，投资者回报高达465%，期间标普500的回报率为103%。公司市值从200亿美元增长至500亿美元。而GE的前任CEO伊梅尔特在差不多同一时间执掌的GE，其股东回报率仅为17%。2014年，卡尔普被《哈佛商业评论》评为全球百大杰出行政总裁，名列第38位。

究竟丹纳赫是谁？这家公司是非常低调的，在美国如此，在中国知道的人更少。但它的业绩表现却是非常不俗的。我对它有点认识，因为它是我以前服务的斯咨询公司（Booz ）的客户之一，最近我的好朋友，《战略与经营》杂志（Strategy + Business）的主编阿特•克莱纳（Art Kleiner）在其杂志上发表了一篇有关丹纳赫的文章，其中提到了不少该公司的发展和成功的地方。

丹纳赫公司Danaher Corporation创立于1969年，前身是Diversified Mortgage Investors, Inc.，1984年改名为丹纳赫，总部位于美国华盛顿特区。丹纳赫是美国领先的跨国医疗及工业仪器制造商，也是一家快速成长的世界500强公司。在专业仪器、工业技术以及工具和部件领域处于领先地位，并对知名且活跃的国际工业企业进行长期投资。从创立之初的1984年起，30多年来，曾收购400多家企业，营业额也从1986年的3亿美金增长到目前的200多亿美金，目前位列世界500强第144位，总市值高达700多亿美金。

总体上，丹纳赫主要有五个平台，包括工业、测试和测量仪器、牙科、生命科学与诊断学、环境与应用解决方案。生命科学及诊断是丹纳赫最大的两个业务部门，去年收入都在50亿美元以上。从丹纳赫的视角，其旗下子公司运营非常独立，在共同领域可以共同行动。从公司大的方向上，市场增值较快的方式会从丹纳赫的角度去推广。丹纳赫公司从上游研发到下游生产都有解决方案的，会在公司水平产生协同效应。

简单来说，丹纳赫公司俨然是一家很精明于投资的公司。作为一家主张“建立公司的公司”，丹纳赫以整合者的身份，通过并购和卓越的运营能力来提升价值。其子公司大多是B2B类里的领先者，始终如一地为专业，医疗，工业和商业客户提供高质量的产品和解决方案。其精益管理能力在西方企业中排名第一，全球排名第二，仅次于日本的丰田汽车。

与一般的PE（Private Equity，私募股权投资）公司不一样，丹纳赫建立了一套严谨的管理方法“丹纳赫管理体系”（Danaher Business System, DBS），源于日本的一系列管理方法如精益管理、Kaizen（改善）等，并通过这套管理体系，协助旗下各公司在管理能力方面做出持续的提升。

此外，丹纳赫也十分重视人才，这包括在人员招聘和培养两方面。长期以来，丹纳赫都在和心理学家们合作，为公司的管理层们设计一套合理的能力及文化契合度的评估体系。丹纳赫寻找的是积极进取、聪明、以度量为导向、能接受失败、不带政治色彩、不具防御性的、并能提出有建设性观点的人。当丹纳赫考虑是否聘请一个人作为高管时，最关键因素是他/她是否能接受丹纳赫的流程开发和持续改进的文化，目的在于雇佣、发展和留住强大的领导者，他们能够创造并持续改善必要的流程，以最终实现我们的目标和期望——而不是需要暴力。这就是丹纳赫创造竞争优势的途径。

总结来说，丹纳赫的能力体系包括了以下几个重点：

收购和整合：丹纳赫通过收购和整合将在其文化和能力系统中蓬勃发展的公司而获得成功。
领导力发展：通过这种能力，公司让员工们学习复杂的管理实践。
高密度的持续提升（丹纳赫管理体系）：这种能力促进了质量，服务，可靠性和成本的运营能力提升，并产生了高于市场的增长和收益。
科技创新：丹纳赫的创新能力使产品开发能够满足不同客户群不断变化的需求。
产品和服务组合：丹纳赫拥有的40多个业务遍布在五大部门中：工业、测试和测量仪器、牙科、生命科学与诊断学、环境与应用解决方案。

期望在卡尔普的领导之下，GE可以再创辉煌！

原文发表于《亚布力观点》（2018年11月刊）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。

 

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China Daily | China’s Burst of Tech-enabled Innovation

By Edward Tse | China Daily Africa | Updated: 2017-12-08

AI, internet of things to change the way companies acquire, connect, communicate, interact and service customers

The fourth World Internet Conference, which just concluded in Wuzhen, Zhejiang province, attracted a large number of senior participants – ranging from government officials and multinationals to leading tech companies and academics – under the theme of “Developing Digital Economy for Openness and Shared Benefits – Building a Community of Common Future in Cyberspace”.

Top foreign tech company executives, including Apple CEO Tim Cook and Google CEO Sundar Pichai, along with the leaders of China’s internet giants – Jack Ma (Alibaba), Pony Ma (Tencent) and Robin Li (Baidu) – attended the conference.

For a long time, China has been viewed as a nation reliant on low manufacturing costs and products and services copied from the West. Very few people believed that China had the ability for innovation. However, its development has proved otherwise.

Since the beginning of this decade, innovation and entrepreneurship have become key drivers for China’s economic development. An increasing number of young Chinese entrepreneurs and their fearless experimentations in new technologies have emerged. And, to the surprise of many, some Chinese entrepreneurial companies, notably Tencent and Alibaba, are now in the league of the world’s most valuable companies.

So what drives innovation and entrepreneurship in China? I think it is the following seven key factors:

Why not me? The question of “why not me?” is a key engine that drives the Chinese entrepreneurial spirit. Young Chinese entrepreneurs, post-’80s and post-’90s, believe that if Jack Ma and Pony Ma can become men with great wealth, why not me? They are inspired by these legendary success stories, spawning a desire to strive for their own success. Armed with a fearless attitude toward failure, they are often very agile and responsive to market shifts.

Market opportunities provided by the State-dominated economy: State-owned enterprises have important roles to play in the Chinese economy, but they are usually big and slow to react in a fast-changing market that is marked by intense competition. This created immense opportunities for innovative private companies able to take advantage of this market gap.

Transformative and intense competition: It has taken several decades for China to gradually transform from a planned economy to a market economy, and will likely take another couple of decades more, if ever, for a complete transition. A number of sectors opened up during the transformation, attracting numerous players and igniting intense competition. Against this background, innovation is the best way for companies to enhance their competitiveness and to stay ahead of competition.

Chinese society’s pain points: During the transformation process, Chinese society’s pain points, which had been hidden from sight before, became readily visible. Entrepreneurs considered these pain points as golden opportunities for innovation. Many innovations came about for the sake of solving societal ills or easing the pressure created by societal pain points.

Prevalence of technology, especially wireless internet: Technology is definitely a major enabler for innovation. Smart devices debuted a decade ago and are now becoming a core part of Chinese’ consumers daily connected lifestyle. Wireless Internet, 5G network and artificial intelligence all provide tremendous disruption opportunities for innovators and entrepreneurs.

The massive scale of the Chinese market: The size and fast-changing nature of China’s market allow companies to rapidly scale up. At the same time, there is plenty of room for innovators and entrepreneurs to learn via trial and error. Leading Chinese companies are also benefiting from high valuations that are based on favorable forward-looking expectations of China’s market potential. This gives them the needed capital ammunition to support their growth.

Capital resources: The availability of venture capital and angel funds, both overseas and local, is another key driver of innovations in China. Chinese companies have greatly benefited from the vast sums of capital provided by both foreign and homegrown investors over time.

In a congratulatory letter to the this year’s conference, President Xi Jinping said deep integration is needed between new technologies, such as the internet, AI, big data and the real economy, in a bid to fuel growth of the digital economy and sharing economy in China.

Using AI as an example, China’s unique capacity among nations to combine strong top-down government directive (both at central and local government levels) with vibrant grassroots-level innovation and an entrepreneurial ecosystem bodes well for success in its AI development. China has positioned AI as a national strategic priority, aiming to gain first-mover advantage in the revolutionary AI technology to leapfrog foreign peers and to become a world leader in science and technology development. The State Council, China’s Cabinet, released a “New Generation AI Development Plan”, which declared the goal for China to become a global leading AI innovation hub with an industrial scale of over 1 trillion yuan ($151 billion; 127.7 billion euros; ￡112.6 billion) by 2030.

Not only is the central government very supportive of AI innovation; local governments in China are also devoting resources and investing heavily into AI technology innovation in a bid to gain regional competitive advantage. For example, Guizhou, one of poorest provinces in China, positions itself, with support from the central government, as China’s “Big Data Hub” and has attracted major companies, such as Apple, Alibaba, Tencent and Qualcomm, to set up new data centers. Guizhou was able to achieve 10.5 percent growth in GDP, which was the second-highest in China.

Local governments also have a “coopetition” mindset, willing to collaborate with cities in a cluster and region and grow together. For example, cities within the Guangdong-Hong Kong-Macao Greater Bay Area, such as Dongguan, Guangzhou and Shenzhen, have all been competing with each other for a long time, but they will also collaborate to incorporate AI into their development plans and leverage it as a key economic growth engine for the Greater Bay Area cluster.

The government’s favorable policies have further promoted innovations across a wide range of tech players. Leading internet giants such as Baidu, Alibaba and Tencent, rising startups like Face++ (cognitive services), iCarbonX (healthcare), Mobvoi (natural language processing) and SenseTime (computer vision), as well as unicorns like Didi Chuxing and Xiaomi, are either already adopting AI technology in their operations or investing in it.

Another key technology area in this year’s conference was the internet of things, a network connecting physical devices, such as vehicles and home appliances, and data. This technology can help to digitize a user’s offline activities, connect the isolated information and data together and generate insights from the big data.

Looking ahead, new technologies such as AI and IoT will fundamentally change the way companies acquire, connect, communicate, interact and service their customers. In the future, industry boundaries will become blurred, and the new technologies can help companies to build customer-centric organizations with ubiquity, segment of one, connectivity and interactivity. Tencent CEO Pony Ma gave a speech in which he said that, in the past, wireless internet solved the pain points of individual users, while in the future, internet companies with new technologies will enable different industries and solve their pain points.

There will be many challenges waiting for China along the way to reach its goal of taking a global leading position on AI or IoT. However, like anything related to technological innovation these days, it would be imprudent to rule China out.

The author is founder and CEO of Gao Feng Advisory, a global strategy and management consulting company with roots in China. He is also author of China’s Disruptors.