SCMP | China and the US on Technology: Racing or Dancing?

Originally published in South China Morning Post with title, “Why the US Should Not Try to Thwart China’s Blockchain and Digital Currency Ambitions.” All rights reserved.

In the October 23 Congress hearing on Facebook’s digital currency Libra, Mark Zuckerberg, the founder and CEO of the social media giant, warned Washington that blocking Libra would give way to China’s growing technological supremacy, which would eventually jeopardise America’s democratic values.

Zuckerberg’s remarks, though somewhat apocalyptic, fit into the rhetorical framework of the battle for technological leadership between the world’s two largest economies, the United States and China. Identified by the Trump administration as a revisionist power and strategic threat, China has been at the forefront of tech-enabled innovations, such as digital currency, since 2014.

During a meeting last month, President Xi Jinping endorsed blockchain as the nation’s core technology. China’s plan to launch a sovereign digital currency is also triggering new appetites for start-ups, traders, investors and researchers.

As the underlying technology of digital currencies such as bitcoin and Libra, blockchain is a distributed, decentralised and public digital ledger system which allows information and data to be immutably stored and transparent to all. The technology promises unparalleled efficiency, security and transparency and carries profound implications in a variety of scenarios from finance to manufacturing and energy.

In the finance sector, for example, blockchain can help traditional banks reduce operation costs, allowing individuals to perform transactions in a secure environment. The technology is also set to be involved in the development of smart, digitally connected cities. Blockchain-enabled parking platforms, for instance, would provide real-time information on parking spaces for drivers to reserve spaces, thus reducing congestion and on-street parking.

Source: SCMP

In the private sectors, demand for blockchain solutions for supply chain and logistics is quickly expanding. In a traditional supply chain, payments can take up to days, and contractual agreements involve different layers of third-party costs; the increasing globalisation and complexity of trade makes it almost impossible to trace products back to the source, compromising supply-chain integrity.

According to PwC, 40 per cent of food companies find food fraud difficult to detect with current methods, and 39 per cent believe their products are easy to counterfeit. Blockchain could be the answer to such supply-chain frictions.

China’s three-layered development model has lent resilience to its development. The central government sets the overarching strategy of developing a technologically advanced, innovative society while thriving entrepreneurial, private-sector companies drive business innovations, with local governments in the middle as liaisons. Guangzhou’s Huangpu Development district authorities, for instance, recently published regulations on blockchain use to cater for a major increase in applications, while a blockchain platform was launched last year in Shenzhen to serve the Guangdong-Hong Kong-Macau Greater Bay Area.

Source: SCMP

The US, meanwhile, is unsettled by China’s rapid expansion into the frontier technologies. President Donald Trump is set to help the US solidify, or regain, its position as a global innovation hub, despite his complicated love-hate relationship with the tech industry. In February, Trump signed an executive order to maintain America’s leadership in artificial intelligence. Last month, the White House revived the President’s Council of Advisors on Science and Technology, a group of experts who work to inform public policy on science, technology, education and homeland security.

The private sector is an important source of innovation in the US, as epitomised by Google’s milestone achievement in quantum computing – a technology that will produce a strong symbiosis with artificial intelligence and cryptography.

The de facto punchline of Trump’s tech move, though, was to cut Chinese companies off America’s technology value chain, especially the core scientific know-how. Over the course of the year, Washington repeatedly put pressure on Chinese telecom equipment and smartphone maker Huawei and blacklisted it, citing the company’s alleged coziness with the Chinese government, while reining back China’s dominance in 5G technology. Another 28 Chinese companies were later added to the blacklist, including the supercomputer maker Sugon along with three of its microchip subsidiaries.

Given the intensity and speed at which the rivalry is escalating, Zuckerberg’s warning is not totally unjustified. If China’s digital currency is adopted in more countries, America’s oversight and regulation of the global financial system will become challenging. This gap will only increase as the two countries diverge further into separate trajectories of the technology.

Hostile competition is likely to result in a zero-sum game. Continued blacklisting will do more harm than good, wreaking havoc on jobs and disrupting the global technology supply chain. As China develops applications of blockchain system, it should adopt best practices and international benchmarks, and establish a clearer, full-bodied legislative framework.

Source: SCMP

Though differences exist, and will continue to exist, the world will benefit if the two leading economic powers can seek commonalities, rebuild trust, cooperate on technological initiatives, and establish global governance and a code of conduct on blockchain technology as well as its applications. After all, increasingly, the issues facing humanity transcend national borders and require big powers to work together.

On the business level, such collaborations are already happening. For instance, IBM, Walmart, Chinese retailer JD.com and Tsinghua University launched a project in December 2017 to develop food safety solutions using IBM’s blockchain platform. The project also involved major food suppliers such as Dole and Kroger, benefiting offline and online consumers across the globe.

On a global level, blockchain’s potential trade-related applications could transform various aspects of international trade, including finance, customs and certification processes, logistics, and intellectual property. But for the technology to empower global growth, countries would have to cooperate with one another.

SCMP | Foreign Businesses Need to Better Understand China

The NBA and Apple Cases Show Foreign Businesses Need to Better Understand China, and Its Boundaries

By Edward Tse
October 21, 2019

Original published by South China Morning Post titled The NBA and Apple Cases Show Foreign Businesses Need to Better Understand China, and Its Boundaries on October 21, 2019. All rights reserved.

Gao Feng Advisory’s CEO Dr. Edward Tse’s latest op-ed was published on SCMP. In this article, Dr. Tse pointed out all countries have their own “boundary of sensitivities”, and foreign companies doing business should be mindful of the host country’s boundary. This applies to the recent cases of the NBA and Apple in China and will also apply to Chinese companies as they expand overseas.

The months-long protests in Hong Kong have not only attracted international attention, but have also begun to involve major foreign powerhouses like the NBA and Apple. The fallout caused by Houston Rockets general manager Daryl Morey’s tweet led Tencent and China’s predominant broadcaster CCTV to suspend the airing of NBA games, and Chinese companies such as Ctrip.com (China’s major travel booking platform) to terminate NBA sponsorship.

Meanwhile, Apple’s approval of an app which allows users to track protest activities received an immense backlash from the Chinese government and consumers. Apple has since removed it and released a statement that the app “violate[d] our guidelines and local laws”.

Some critics were quick to jump to the conclusion that China is victimising foreign companies and preventing freedom of expression. However, as in every country, China has certain boundaries of sensitivity.

Issues such as racial discrimination are highly sensitive in the US. In 2014, Donald Sterling (the former LA Clippers owner) was fined US$2.5 million and banned from the NBA for life because of his racist remarks. The NBA reacted to the unacceptability of these comments in US society, even with freedom of expression considered.

It is common sense that companies doing business in a foreign country need to observe and understand the host country’s boundaries of sensitivity and understand what is, and is not, acceptable. Not doing so is generally the result of ignorance, incompetence, arrogance or a combination of these things.

In 2012, many pundits were quick to say that Japanese companies had no chance of succeeding in China during a period of anti-Japanese sentiment (regarding a territorial dispute over the Diaoyu/Senkaku Islands). During this time, some Toyota and Honda dealerships in China were burnt down and their sales in China plunged.

Today, Japanese carmakers are actually doing well. Japanese brands’ market share in China has steadily increased, and today is the second-largest in terms of foreign passenger car brands (measured by country where the companies’ headquarters are based).

I agree with the assertion in The Economist’s June 28, 2018 Schumpeter column that “[t]he sense of victimhood is over the top; American firms have done reasonably well in China”. The NBA has been very popular and was on the rise in China for over a decade before Morey’s tweet.

Were the Chinese people’s reactions appropriate? It depends on your point of view, of course. The negative impact for the NBA in China is likely to be temporary. After all, a company’s success is a function of its competitive advantages, especially its products and brand, so the NBA can recover.

Despite the recent controversy, passionate Chinese fans turned out for a preseason NBA basketball game between the Brooklyn Nets and Los Angeles Lakers at the Mercedes Benz Arena in Shanghai on October 10. Photo: AP

There are already signs of this, as Tencent lifted its temporary ban on live-streamed NBA games, and recently streamed two NBA games in China. Of course, the NBA and its stakeholders should continue to work on damage control.

Apple remains a strong brand in China, even while facing competition from local players like Huawei and others. The uproar regarding the Hong Kong app was simply China’s view on how a sensitive boundary had been crossed (by design or not, the app helped Hong Kong protesters organise around the city).

Apple’s response was swift and, from the Chinese perspective, appropriate. On its own, this episode will have a limited impact on Apple’s position in China.

These two episodes do not represent the institutional barriers causing difficulties for foreign companies in China. Beijing continues to open up its market, sector by sector, for foreign companies, especially since the US-China trade war started.

However, foreign companies’ success in China increasingly requires a recognition that the world is diverging into “two systems” – one led by the US; another by China. Multinationals are finding that they need to develop different strategies for each system. Striking a balance will be critical for global operations and success.

In the auto industry, for instance, global companies such as Toyota and BMW need to create strategies to meet the dynamics of these very different markets. Toyota has developed completely different and separate ecosystems, recognising the need to meet China’s unique communications, IT and software requirements.

This includes building different “mobility as a service”, technological (such as autonomous vehicle technology) and business model solutions. For example, Toyota partners with Monet (a mobility-as-a-service joint venture between Japanese carmakers and the tech investment firm Softbank) and Uber in Western markets, and with Guangzhou Automobile Group and Didi Chuxing in China.

Foreign companies in China need to step up their game if they want to capture the full potential it offers. Increasingly it’s not just about the China market but also the nation’s impact on the rest of the world, especially developing markets, which are increasingly evolving in a fashion similar to China.

They need to understand China much better. While this may sound like a broken record, significant gaps remain, partly due to the context of China, which continues to evolve and is in many aspects proceeding into unknown territory.

Foreign companies need to adjust their products, services and business models to the Chinese context. To this end, they should seek to better appreciate and incorporate China’s quickly developing innovations, and integrate them into the core of what they do in China.

At the same time, they need to be extremely perceptive of where China’s boundaries lie and respect them, while deploying measures to anticipate and manage risks.

About the author
Dr. Edward Tse is founder and CEO of Gao Feng Advisory Company, and a founding Governor of Hong Kong Institution for International Finance. One of the pioneers in China’s management consulting industry, he built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies, investors, start-ups, and public-sector organizations (both headquartered in and outside of China) on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas, as well as to the World Bank and the Asian Development Bank. He is the author of several hundred articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version of 《创业家精神》).You may visit Dr. Tse’s blog to explore more of his intellectual capital: www.edwardtseblog.com

SCMP | Under ‘One World, Two Systems’, Companies Must Evolve

Under ‘One World, Two Systems’, US Companies that Stay in China Must Evolve

By Edward Tse and Bill Russo
27 Sep, 2019

Original published by South China Morning Post titled Under ‘One World, Two Systems’, US Companies that Stay in China Must Evolve on September 27, 2019. All rights reserved.

More US companies are staying in China than are deciding to leave, despite Donald Trump’s trade war rhetoric. But there is an increasing need to devise different strategies, as China’s market conditions become more sophisticated and unique

In a recent business report by the American Chamber of Commerce in Shanghai, 77 per cent of the surveyed companies reported that their China operations are profitable. Around 60 per cent are optimistic about the five-year business outlook and nearly half are increasing investment in 2019.

The findings were consistent with those of another report, by the US-China Business Council in August, suggesting that 87 per cent of the US companies operating in China do not want to leave.

Both are slaps in the face for US President Donald Trump, who earlier called for American companies to leave China and to return to the US. Very few, if any, have followed.

In July, 100 academics and policy advisers around the US wrote an open letter to Trump, advising that Beijing is neither an economic nor national security threat that must be confronted in every sphere.

US animosity towards China will eventually damage its own reputation, as well as the economic interests of all nations. There can be no winner in a zero-sum game.

The above-mentioned survey results and reactions are consistent with our first-hand experience of consulting for the senior management of many US companies in China.

As Trump’s trade war drags on, while some foreign companies have chosen to leave China – usually those in labour- or cost-intensive sectors such as shoe and apparel manufacturing – most have chosen to stay, simply because of the size of the China market or the high degree of integration of their supply chain with Chinese suppliers and manufacturers, or both. Paradoxically, after Trump’s plea, US retailer Costco opened its first store in Shanghai.

Also, electric vehicle maker Tesla is set to start production by the end of this year in its wholly owned manufacturing plant in Shanghai.

Among those that have chosen to stay, there is an increasing need to devise different strategies for China and the US. As China’s operating environment evolves, its market conditions are becoming more sophisticated and unique. For example, in the tech sector, some aspects of the two countries are diverging and companies will need to consciously adapt.

Terry Gou, founder of Apple supplier Foxconn, expects a divide in 5G technology between China and the US, because of underlying differences in strategic positioning, development and market needs. As fifth-generation cellular networks and their commercial applications evolve, the divergence will only increase.

On a broader scale but in the same vein, the G2 – the US and China – will replace the G20 in a new leadership framework: “one world, two systems”.

China’s three-layered development model is the key to the country’s resilience. At the top, the central government sets the overarching strategy for developing a technologically advanced, innovative society. At the bottom, the thriving entrepreneurial, private-sector companies are driving China’s business innovations.

In the middle, local governments connect the central government and businesses by building infrastructure (not only the physical kind but also, increasingly, smart infrastructure) and by being a funding source and incubator for start-ups. The smart infrastructure, for instance, is empowering the automotive industry as vehicles become more intelligent, connected and ultimately autonomous.

An integrated smart city allows real-time governance of a city’s major functions. Local governments are raising the stakes: for example, Hangzhou is managing traffic congestion with the City Brain and Wuxi is establishing a pilot zone for autonomous driving.

Some companies are already aware of the importance of a strategy of “one world, two systems”. For example, Toyota has realised that striking a fine balance between China and the US will be critical for its global operations. Meanwhile, it faces the delicate task of creating a strategy for meeting the industry and technological specifications unique to China.

This trend began to emerge even before the trade war began. China is evolving into a leader of innovation with new disruptive technologies such as artificial intelligence, the internet of things and blockchain, and is moving ahead of the US to build the world’s biggest 5G networks.

Businesses – in particular, the entrepreneurs working in concert with governments, both local and central – will take China through new paths onto new platforms.

As a result, the industry structure, competitive conduct and financial performance for all sectors in China will evolve in their own ways. Companies, no matter whether headquartered inside or outside China, should adjust their strategies going forward.

US companies that choose to stay in China need to be much more sophisticated. Copying and pasting business models from the US to China won’t necessarily work any more. Local innovation will be critical and, in many cases, US companies will need to join with local companies and governments.

While differences exist, the world will benefit from cooperation between the world’s two largest economies. Both Andrew Ng, the former leader of the AI teams at Baidu and Google Brain, and Jack Ma, founder of Alibaba, have suggested there is plenty of room for technology partnerships between China and the US.

Huawei founder Ren Zhengfei has said the company is open to selling 5G technology to US companies to create competition and a more unified global technological environment. Companies so far only focus on beating their competition, and the idea of creating competition and sharing advantages would be a breakthrough, if implemented.

There is more room for the US and China to collaborate than fight in the face of global challenges, many of which will transcend national borders.

About the authors

Dr. Edward Tse is founder and CEO of Gao Feng Advisory Company, and a founding Governor of Hong Kong Institution for International Finance. One of the pioneers in China’s management consulting industry, he built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies, investors, start-ups, and public-sector organizations (both headquartered in and outside of China) on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas, as well as to the World Bank and the Asian Development Bank. He is the author of several hundred articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version of 《创业家精神》).

Bill Russo is Managing Director of Gao Feng Advisory Company, he is also Founder and CEO of Automobility Ltd.

SCMP | Common Goals : the US and China should Collaborate instead of Simply Focusing on Competition

Original published by South China Morning Post on May 6, 2019. All rights reserved

Embroiled in a trade war with China, the Trump administration, in February, signed an executive order aiming to spur the development of artificial intelligence, in response to the rising fear in academia and government that the US is losing the race for global AI leadership to China.

Such fears are not entirely unfounded. China has a well-funded commitment to the development of AI. The leadership in Beijing has outlined its ambitions in various development plans, including the initiative to build “advanced manufacturing”. According to Tsinghua University’s China AI development report, released last year, China has secured a leading position in the AI echelon in both technology development and market applications. China ranked first in the total number of AI research papers and AI-related patents, and second in terms of the size of its AI talent pool.

There are several key drivers of China’s progress. First, it enjoys a fundamental system advantage. In the past four decades since its “reform and opening up”, China has somewhat unconsciously evolved its own “three-layer duality” development model. At the top, the central government’s guiding hand sets goals and directions for the country, giving the rest of the nation clear targets to follow. At the grass-roots level, private-sector entrepreneurs have re-emerged and become a major force in driving economic growth.

In the spirit of driving the development of advanced manufacturing, provinces and cities across China have instituted preferential policies for AI start-ups. For example, Tianjin, a major port city in the northeast, launched a US$16 billion fund last year to bolster the local AI industry. Tech companies collaborate with local governments on AI initiatives such as smart city, health care and autonomous driving. Alibaba’s ET City Brain project uses AI to tackle traffic jams, reducing traffic delays by 15.3 per cent in parts of Hangzhou, the city in which Alibaba is headquartered.

Second, the massive size of the Chinese economy allows companies, especially AI companies, to rapidly scale up. China now boasts more than 800 million internet users, roughly 58 per cent of its total population and three times larger than the number in the US. According to the China Internet Network Information Centre, 98 per cent of them are mobile internet users. The large online population generates an abundance of data, on which algorithms can conduct large-scale research and experiments much faster and more intensely than is possible in the West.

For better or worse, Chinese are more relaxed about data privacy than Westerners, at least for now. What may be viewed as a violation of privacy by some could be advantageous for AI developers wanting to extract a large amount of data. This situation allows Chinese AI developers to achieve more accurate machine learning models in areas such as facial recognition, voice and gesture recognition, consumer behaviour analysis and robotics process automation.

Third, a “why not me” mindset drives Chinese entrepreneurs, who are eager to show that they too could succeed. Today, younger entrepreneurs view their successful predecessors as role models and want to replicate their success. China’s hypercompetitive environment harbours cutthroat commercial activities and transformative business models, allowing the fruits of AI to quickly spread across the economy.

China tops the list of the number of active AI companies and venture capital investment. Leading players, such as Baidu, Alibaba and Tencent, are investing heavily in AI technology. For example, in 2018, Tencent invested about US$120 million in Shenzhen-based humanoid robot designer UBTECH Robotics. Baidu not only poured US$1.5 billion into its Apollo Fund for autonomous driving, but has also developed a neural-network-based machine translation system that has at times achieved speech recognition accuracy higher than that of humans.

Rising start-ups, on the other hand, have created tremendous value. Among those is the previously mentioned UBTECH Robotics, the world’s highest-valued AI start-up at US$5 billion. ByteDance, the company behind AI-powered news and information content platform Toutiao and popular short video platform TikTok, has grown 230 per cent in revenue in the past two years.

While the Chinese tend to favour applications of existing technologies, the West focuses more on the science and infrastructure behind AI. Fundamental research is high-hanging fruit that would take much more time and risk to achieve results than commercial applications.

However, there are signs that this is also beginning to change. The Chinese government is planning support for AI education, research and development. One of the newer projects, the Next Generation Artificial Intelligence Development Plan, offers a forward-looking blueprint for basic theory and common key technologies. Another project on brain science and brain-inspired research is comparable to Europe’s Human Brain Project and the US’ BRAIN Initiative. Inevitably, some of these technological experiments will fail but others will make it. It is through experimentation that progress can be made.

Should we simply focus on the winner of the “race” between China and the US? “Race” implies a zero-sum game, as if the two countries must treat each other as “strategic competitors” and acknowledge a mutual threat. While there is competition, there is also plenty on which to collaborate. In today’s increasingly interconnected world, we need organisational means to address issues that transcend national borders, including those of AI development and governance.

Some level of collaboration in AI among American and Chinese researchers is already under way. For example, the Partnership on AI, an organisation founded by Amazon, Google, Facebook and others, announced last year that Baidu would join its network. The consortium of companies recognised the importance of global discussion around the future of AI and showed a desire to counter the arms-race narrative. There is a need for China and the US to focus more on similarities and common goals for the betterment of the entire world.

Picture Source | Google

SCMP | Levelling the Field

By Edward Tse

Levelling the Field: Foreign Firms will Need to Raise their Game in China with New Investment Law

Original published by South China Morning Post on March 23, 2019. All rights reserved.

China has just passed a new law that will replace existing regulations on wholly foreign-owned enterprises and on joint ventures involving overseas companies. In response to changing global realities and the need to further open up its economy, the new law includes many stipulations that aim to foster a level playing field for foreign and domestic enterprises.

Forced technology transfer, one of the main issues driving the US-China trade war, will now be banned. The law also emphasises intellectual property rights protection for foreign investors and encourages technological cooperation. Other incentives include establishing special economic zones with attractive tax and business regimes, allowing the transfer of profit and capital gains out of the country and shortening the list of prohibited investment projects. Moreover, China will encourage foreign investors to participate in the mixed-ownership reforms of state-owned enterprises.

These changes are certainly welcome news for foreign businesses and the circle of politicians and lobbyists in Washington, who have long complained about a lack of market access in China. For many foreign multinational corporations, China has become one of their largest markets, if not the largest, in the world. Even for those that are only considering first-time entry, such as cross-border payment or credit card businesses, their global business models wouldn’t be complete without a credible presence in China. However, though a favourable signal, these legal changes cannot guarantee foreign multinationals success. The market conditions in China have evolved quite significantly over the past decade.

A major shift in the past decade has been the emergence of Chinese companies as bona fide competitors to foreign multinationals. Whereas foreign multinationals still enjoy advantages in sectors such as luxury goods, premium-branded cars and patented pharmaceuticals, Chinese companies have become serious competitors in e-commerce, fintech, fast-moving consumer goods, appliances and logistics.

Source: SCMP

Some of these Chinese competitors are large state-owned enterprises, especially in sectors that require strong state roles, such as energy and telecommunications. However, the most formidable, and the majority, are private companies marked by their speed, agility and creativity, in sectors where the playing field is practically open and even.

This phenomenon is part of the rise of business innovations in China over the past decade, as a combined result of increasingly prevalent technologies, local and central government policies and grass-roots level entrepreneurship. Ridding itself of the “copycat” stigma, China has nurtured a new internet and tech sector – ranging from ride-hailing to e-commerce, robotics and artificial intelligence – that grew 20 per cent in 2018 to a total value of US$142 billion.

Two Chinese companies, Tencent and Alibaba [the owner of the Post], are now among the world’s top 10 most valuable companies. Unicorns – unlisted companies that are less than 10 years old and valued at or above US$1 billion – are thriving. Ant Financial, a Chinese fintech company and an affiliate of Alibaba, is now the world’s largest unicorn with a valuation of US$150 billion. ByteDance, owner of Toutiao, a popular newsfeed app, and Tik Tok, a popular short video app, is valued at US$78 billion, ahead of the US-headquartered ride-hailing app Uber.

Regrettably, foreign multinationals have largely been bystanders to innovation of Chinese origin. However, the rapid changes in China’s innovation context is forcing them to react.For example, in the automotive industry, transformative trends such as electrification, autonomous driving, connected and intelligent vehicles and “mobility as a service”, which combines multiple private and public transport options for users, are forcing even the leading global carmakers to adapt. Across sectors, foreign companies are eager to connect to digitally savvy Chinese consumers through means such as super-apps like WeChat and online payment systems like Alipay and WeChat Pay.

Belatedly, foreign multinationals have began to recognise the need to learn from China, to innovate in China for China and perhaps even for the world. This will not be easy, as foreign companies need to embrace China as a breeding ground for innovation and for new thought leadership in business strategy. To do this right, they have to put China at the core of their global strategy, instead of seeing it merely as a market, albeit an important one.

So far, most of the foreign multinationals’ localisation efforts have remained basic – hiring local managers and assigning them only roles involving execution, while strategic planning and decision-making take place outside China, either in global or regional headquarters. Not only is this process not fast enough, it also does not take into account sufficiently the changes in the overall China context that can have a disproportionately large impact on a company’s China, and even global, strategy. Foreign multinationals should add substance to their localisation plans by appointing local thought leaders to senior levels, with the appropriate decision-making power and resources.

Foreign multinationals have tended to try to run their business in China by themselves, perhaps with some joint ventures here and there. Going forward, that won’t be enough as the changes in China, especially in innovation, will require capabilities beyond those that foreign multinationals are aware of. They should adopt a more open-minded approach with the idea of business ecosystems in China, and form collaborative partnerships with local companies, including established companies, start-ups, academics and research institutions, to augment their capabilities on the ground.

Like every new measure that comes out of China, the new foreign investment law will not be immune from scepticism from outside. However, the new law signals a friendlier environment that enables foreign multinationals to capture greater value in one of the world’s most important and dynamic markets. In the meantime, they should remember that in this ever-changing, increasingly competitive landscape where innovation is critical, they need to step up their game in China to capture the potential that the market offers.

SCMP | Fuelling Bright Ideas

 

By Edward Tse | SCMP

Edward Tse says the trade war is helping to accelerate the mainland’s reform and innovation

Original published by South China Morning Post on February 4, 2019. All rights reserved.

In trying to curb China’s supposedly unfair trade practices and substantially reduce its trade deficit with China, the United States is unintentionally helping to accelerate China’s reform and innovation.

Washington’s trade war has gained support from many in the Sinophobic circle of politicians, businesses and lobbyists, who have long complained about Beijing’s treatment of foreign businesses, especially those from the US, on issues such as intellectual property protection, forced technology transfer and market access.

However, while it is arguable that China’s market liberalisation could be faster, it is unfair to say Beijing has blocked most foreign companies. In the tech sector, pundits lament that Facebook and Twitter are blocked in China, but neglect to mention Apple, Amazon, Bing, LinkedIn, eBay and Airbnb are not.

While Chinese tech giant Huawei has met with the American and other governments’ roadblocks overseas, its American counterpart Cisco continues to do business in China. As The Economist’s Schumpeter column notes in the June 28 edition, the picture of American firms being victimised in China is exaggerated.

Since US President Donald Trump’ tariff war broke out, China has accelerated the opening of its market to foreign companies. Last April, Beijing set a timetable for phasing out foreign ownership limits in the automotive industry. It is also easing curbs on sectors such as banking, securities, insurance, agriculture and aircraft manufacturing. Recently, BT Group became the first non-Chinese telecom company in China to get a nationwide operating licence. S&P Global’s Beijing-based wholly-owned subsidiary was also given a green light to enter the Chinese bond rating market.

Source: Internet

Reform is also coming to the private economy. To boost the private sector, Chinese President Xi Jinping met entrepreneurs last November, and China Banking and Insurance Regulatory Commission chief Guo Shuqing followed up with a statement that no less than 50 per cent of new loans should go to private businesses.

At the same time, China is stepping up mixed ownership reform, that is, diversifying the ownership of parts of the state sector. According to the National Development and Reform Commission, 100 more state-owned enterprises will join the mixed-ownership reform programme. Along the way, many “zombie” enterprises will be eliminated.

To improve the protection of intellectual property right, China’s top court has started to rule on intellectual property cases since the beginning of this year; laws are also being drafted to ban forced technological transfer.

In Davos, Chinese Vice-President Wang Qishan stressed that China would continue to carry out structural reforms and adhere to multilateralism.

Last November, The New York Times wrote in a special report: “The Chinese economy has grown so fast for so long now that it is easy to forget how unlikely its metamorphosis into a global powerhouse was.” In fact, China owes the remarkable resilience of its economy to its own evolving development model of “three-layer duality”.

At the top, the central government sets goals and directions, giving the rest of the country clear targets to follow. At the grass-roots level, private entrepreneurs have re-emerged and become a major force in driving the growth of China’s economy. And in the middle, China’s local governments channel their resources into national and local priorities, often competing but also collaborating within regional clusters. To this end, they work closely with entrepreneurs who bring innovative ideas to bear.

Undoubtedly, the current trade dispute has generated much uncertainty and volatility for China, as well as the rest of the world. It has exposed a fundamental mistrust of China in certain parts of the West, and given some Western businesses an opportunity to amplify their long-standing concerns about China, justifiable or not, through their respective chambers of commerce. This should have woken up the Chinese government to the fact that it needs to adjust its approach. This is why Beijing is reinforcing its commitment to globalisation and accelerating reform.

Source: Internet

The short-term issues brought on by the trade dispute would naturally unsettle some foreign multinational companies operating in China, but for many others, especially the larger ones, China has become so strategically important that they must figure out a way to overcome the challenges.

China’s innovation – the fast-evolving consumer demand patterns, rapidly developing government policies and regulations, increasingly prevalent tech-enabled business innovations, and the emergence of bona fide innovative and competitive local companies – has led many foreign multinationals to the realisation that what they have learned in the West won’t give them an advantage in the local market any more. Their success in China is no longer guaranteed if they rely only on what they already know. They will need to learn how to innovate in China, for China, and also in China for the world – and this won’t be easy for many.

China has reached a turning point. The age of single-minded pursuit of growth is over, and there will instead be a focus on refining the country’s economic structure, quality and sustainability. However, many in the West and even some within China are doubtful about whether Beijing will be able to make the necessary changes in a timely manner.

The challenge remains for the Chinese government to demonstrate its commitment and ability to fully implement the changes. Paradoxically, the pressure from outside, intended to thwart progress, is likely to push China into more reform and opening. Expect new waves of developments and new opportunities for companies from all over. The companies who can seize these opportunities will be among the true winners in the trade dispute.

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.

 

SCMP | Powering Ahead

By Edward Tse

Original published by South China Morning Post on October 8, 2018. All rights reserved.

The topic of the Fourth Industrial Revolution topped the agenda last month at the World Economic Forum “Summer Davos”, where over 2,000 top-level representatives from politics, business, social sectors and the arts gathered in the Chinese municipality of Tianjin.

China has been one of the leading countries in this imminent revolution, characterised by cutting-edge new technologies that are “blurring the queues between the physical, digital and biological spheres”, according to forum chairman Klaus Schwab. The Made in China 2025 initiative, for example, has set China’s vision to take on global leadership in advanced manufacturing and hi-tech industries.

China has rid itself of its “copycat” stigma and has emerged as a global innovation hub in business. In 2017, the internet and technology sector–ranging from ride-hailing to e-commerce, robotics and artificial intelligence–grew at 18 per cent, substantially outpacing the overall economy, which grew 6.9 per cent, according to Xinhua.

In a recent op-ed in The New York Times, journalist Thomas Friedman quoted internet and technology analyst Mary Seeker as saying, “Five years ago, China had only two of the world’s largest publicly traded tech companies, while the US had none. Today, China has nine of the top 20 and the US has 11. Twenty years ago, China had none.”

In a recent Forbes op-ed, financial writer John Mauldin pointed out that China is building the world’s largest innovation economy and that its Greater Bay Area, which comprises Hong Kong, Macau and nine cities in Guangdong, is like “Silicon Valley on steroids” due to its size, policy support and innovation competitiveness.

The Chinese are fully embracing new and emerging technologies like artificial intelligence, the internet of things and blockchain, as well as 5G, to further enable innovations. Governments at both central and local levels, as well as the private sector, are investing significantly in revolutionary fields. These technology breakthroughs will enable a higher level of automation, connectivity and intelligence, as well as more game-changing business models.

For example, in a drive for automated manufacturing, in 2016, China added a total of 87,000 industrial robots, just slightly shy of Europe and the United States combined, according to the International Federation of Robotics. Schwab characterises China’s initiative in advanced manufacturing as “a supply-side miracle, with long-term gains in efficiency and productivity”.

Two-thirds of the world’s investments in AI have been going into China and have enabled a 67 per cent growth in the industry just in the past year, according to recent research from Tsinghua University.

A report by ABI Research says that Chinese AI start-ups overtook their US counterparts by raising nearly US$5 billion in venture capital funding in 2017. The Chinese companies also filed the largest number of domestic AI-related patents, trumping Silicon Valley by as much as seven times, according to data from CB Insights. Last November, Shanghai Municipality announced a new plan outlining a road map towards becoming a major, national AI hub.

In China, new value chains for the use of blockchain in different industry sectors have emerged. Around 450 blockchain technology companies have been registered in China, according to the Ministry of Industry and Information Technology. The regulatory attitude has turned from scepticism to acceptance and now encouragement.

This year, the Chinese government has funded multibillion-dollar initiatives to develop blockchain-based networks, with Hangzhou city government investing a total of US$1.6 billion in the Global Blockchain Innovation Fund this April.

In the automotive sector, innovations in new energy vehicles are gaining speed, in addition to autonomous driving and “mobility as a service”, which aims to reshape how city-dwellers get around. Traditional carmakers, both foreign and local, are trying to reposition themselves as future new-energy vehicle makers, while competing or collaborating with dozens of new, non-state-owned players, such as Nio, which was recently listed on the New York Stock Exchange.

Source: SCMP

China will be in the front seat, witnessing the turning point into the Fourth Industrial Revolution, perhaps ahead of most, but not all, other countries. Innovation has become and will continue to be a global, prevailing theme, and a country’s future well-being hinges on its willingness and ability to embrace this trend.

Many foreign companies and their lobbyists have complained for a long time about the lack of market access in China and have demanded “reciprocity”. While they remain fixated on such issues, they have largely ignored the major shift in China’s innovations in the meantime, and have become bystanders.

The US-China trade war notwithstanding, China will emerge as a larger and more capable innovative economy. China’s pathways will inevitably involve many ups and downs, some experiments may not work out as planned and some resources will be wasted.

The lack of core technologies such as cutting-edge microchips have exposed China’s weakness but this has also given the Chinese the impetus to catch up. Many start-ups will fail, but a small percentage will make it. It would be foolhardily for anyone to discount China’s will and ability to achieve its goals.

Innovations will certainly create social challenges such as job dislocations, educationre – configurations and increased wealth disparity but they will also bring about advances to humanity and create major opportunities for companies and individuals who can anticipate the opportunities and figure out ways to capture them. Those who can’t, or won’t, run the risk of being marginalised or worse. It’s time to ask yourself: which side of history would you rather be on?

Edward Tse is founder & CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).

GF Viewpoint | China at Front Seat of the Fourth Industrial Revolution

In his 2017 book, The Fourth Industrial Revolution, Professor Klaus Schwab, chairman of World Economic Forum (WEF) wrote of an upcoming era characterized by “a range of new technologies that are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries.” It would, according to him, shift and disrupt the means that we live in this time of great promise and peril.

Source: Google

One year later on, at WEF’s ‘Summer Davos’, over 2000 top-level representatives from political, business, social sectors and the arts gathered in the Chinese municipality Tianjin. Topping the agenda were emerging and new technologies underlying the Fourth Industrial Revolution such as artificial intelligence (AI), the Internet of Things (IoT), gene editing and robotics, as well as how countries should collaborate and ensure these technologies will bring about a human-centered, sustainable and inclusive future. The Forum also highlighted China’s rapid developments in the upcoming revolution. In recent years, China has accelerated its progress towards technological leadership through a series of initiatives, including the Made in China 2025 that aims at closing the gap with Western hi-tech prowess in 10 areas.

High-tech and innovations may not come up as the most intuitive or relevant topics to China, since China has been branded as a “copycat” for decades. Western media and other pundits paint a picture that China’s industrial regulations represent forced technology transfer, confer unfair advantages on domestic companies, penalize foreign participants and cheat on the country’s commitments to the World Trade Organization.

However, particularly in the past 10 years, China has gradually moved away from its “copycat” image and emerged as a global innovation hub. Grass-root innovations have proliferated. In 2017, the growth in the internet and technology sector – ranging from ride-hailing to e-commerce, robotics and AI was 18 percent, substantially outpacing the overall economy which grew 6.9 percent, according to Xinhua. In the same year, a report by Deloitte and China Venture says that China accounts for more than a third of the total number of “unicorns” globally, becoming the world’s second-largest birthplace of companies valuing above US$1 billion. Internet giants like Alibaba and Tencent, benefiting from the scale and speed of China’s market as well as the prevalence of technology, are able to rapidly scale up and have created extensive sophisticated and lucrative business ecosystems. Today, this pair is within two of the world’s top ten most valuable companies, according to Kantar and WPP’s 2018 BrandZ™ Top 100 Most Valuable Global Brands.

Source: Google

With plans and programs in mind, China upped the ante in nascent technologies that are just around the corner and that would, if properly captured, enable yet another age of growth and opportunities.

In 2016, in a drive for automated manufacturing, China added a total of 87,000 industrial robots, just slightly shy of the combined total for Europe and the US, according to the International Federation of Robotics. Schwab characterizes China’s initiative in advanced manufacturing as “a supply-side miracle, with long-term gains in efficiency and productivity.”

China aims to become the global AI powerhouse by 2030 with a domestic AI industry that will be worth about US$150 billion. The Ministry of Industry and Information Technology released last December a three-year action plan that calls for “major breakthroughs in a series of landmark AI products”, focusing on such “core competencies” as the production of intelligent sensors and neural network chips. The plan is paralleled by governments on all levels, most notably of which are Beijing, Shanghai and Zhejiang.

Source: Google

Domestic technology giants and startups alike will be the integral players in this endeavor. For example, Baidu, Alibaba, Tencent and iFlytek formed the “national AI squad”, respectively backing the development for autonomous vehicles, cloud-empowered smart cities, medical imaging and voice recognition. Up till now, two-thirds of the world’s investments in this sector have been going into China and have enabled a 67% percent growth in the industry solely in the past year, according to recent research from Tsinghua University. Chinese companies also filed the largest number of domestic AI-related patents, trumping Silicon Valley by as much as seven times, according to data from CB Insights.

In China, new value chains for the use of blockchain in different industry sectors have emerged. Around 450 blockchain technology companies have been registered in China, according to the Chinese Ministry of Industry and Information Technology. The regulatory attitude towards blockchain turned from skepticism to acceptance and now to support. Throughout 2018, the Chinese government has funded multi-billion-dollar initiatives to develop blockchain-based networks, with Hangzhou city government investing a total US$1.6 billion in the Global Blockchain Innovation Fund this April.

In the automotive sector, China is poised to be at the world’s forefront in going through a four-phased evolution – from car ownership, on-demand mobility, then smart car ownership and lastly personalized “automobility” happening as early as 2030 or thereabouts. Traditional carmakers, foreign and local, are trying to reposition themselves as future electric vehicle makers, while collaborating and competing with more than a dozen of newer, non-state-owned NEV players such as NIO, which went public in the New York Stock Exchange recently. Caocao Zhuanche was launched by Chinese automaker Zhejiang Geely Holding Group in 2015 as the country’s first all-electric vehicle ride hailing company. In July, carmakers Dong Feng Motors, FAW Group and Chang’an Automobile launched T3 Mobile Travel Services as a new ride-sharing platform, indicating they will seek other partners to push into driverless cars.

While promising higher levels of automation, connectivity, intelligence and more game-changing business models, these new technologies also pose critical questions as to how governments and entrepreneurs should properly leverage them and minimize societal externalities. Corporates shall think critically about socially responsible business models going forward, and governments will need to rebalance the gives and takes among growth, security, privacy and citizen wellbeing.

China will be in the front seat witnessing the turning point into the Fourth Industrial Revolution, perhaps ahead of most of, but not all other countries in the world. Many foreign companies and their lobbyists have complained for long about the lack of market access in China and have demanded “reciprocity”. While they remain fixated on such issues, they have largely ignored the major shift in China’s innovations in the meantime and have become as bystanders on the sidelines. Innovation has become, and will continue to be, a global, prevailing theme, and a country’s future well-being hinges upon its willingness and ability to embrace this trend.

Source: Google

The US – China trade dispute notwithstanding, China will emerge as a larger and a more capable innovative economy. China’s pathways will inevitably involve many ups-and downs, and some of the experiments may not work out as planned and some resources will be wasted. The lack of core technologies such as cutting-edge microchips have exposed China’s weakness but this has also given impetus for the Chinese to catch up. Many start-ups would fail, but a small percentage will make it. It would be fool-hardily for anyone to discount China’s will and ability to achieve its goals.

Innovations will certainly create social challenges such as job dislocations, education re-configurations, and increased wealth disparity but it will also bring about advances to humanity and create major opportunities for companies and individuals who can anticipate the opportunities ahead of time and can figure out ways to capture them. For those who can’t or won’t, they run the risk of being marginalized or even disrupted away. It’s time to ask yourself, which side of history would you rather be on?

Dr. Edward Tse is founder and CEO of Gao Feng Advisory Company. A pioneer in China’s management consulting industry, Dr. Tse built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies – both headquartered in and outside of China – on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas. He is the author of over 200 articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version «创业家精神»).

SCMP | Younger, Better Educated and Not Afraid to Fail

By Edward Tse and Josie Tai

Original published by South China Morning Post on August 22, 2018. All rights reserved.

Female entrepreneurship is on the rise in China. In the 2017 Forbes list of the world’s 56 self-made women billionaires, there were 21 Chinese entrepreneurs, accounting for 37.5 per cent of the total.

In 2017, China’s female/male ratio of an index measuring entrepreneurial activity is 0.87, above the global average of 0.7. The Total Early-stage Entrepreneurial Activity index, published by the Global Entrepreneurship Monitor, reflects the percentage of the 18-64 population who are either a nascent entrepreneur or an owner-manager of a new business.

In fact, female entrepreneurship is not new in China. Among the older generations, women who succeeded include Yang Mianmian, Haier’s co-founder and former president who helped turn the company into one of the leading white-goods makers in the world; Sun Yafang, who was chairwoman of Huawei, the world’s leading telecommunications equipment maker, from 1999 to 2018; and Dong Mingzhu, the former chairwoman of Gree Group, the world’s largest household air conditioner maker. Younger women have also made their mark, such as Lucy Peng Lei, a co-founder of the e-commerce giant Alibaba (owner of the South China Morning Post).

Before 1950, women entrepreneurs were almost unheard of in China. The strict gender roles in Chinese culture mean aspiring businesswomen face many challenges.

Source: SCMP

Why, then, are more Chinese women becoming entrepreneurs, and succeeding? Of course, both the women’s liberation movement in the West and communist China’s promotion of gender equality, especially workplace equality, have had some influence.

A closer look reveals some interesting dynamics. First, China’s women entrepreneurs are young. According to a 2017 report by the Chinese online platform 36Kr and start-up incubator GirlUp, women entrepreneurs in China today tend to concentrate in the 21-30 age group. In the national female workforce, those in the 36-45 age group predominate.

Studies in the past found that successful businesswomen cut their teeth in state-owned enterprises, where they honed their business acumen, improved their managerial skills, and saved up the capital needed to start a business. Today, more are starting from scratch, and starting earlier in their lives.

Failure is no longer stigmatised; in 36Kr’s sample, many women were second- or even third-time entrepreneurs.

Source: SCMP

Second, technology has empowered Chinese women more than ever. Several years ago, traditional sectors such as real estate and logistics were the fastest path to wealth for women. Now, new technologies are helping to unleash the internet-based economy – ranging from e-commerce and ride-hailing services to AI and robotics – that is transforming businesses. The digital economy accounted for about 32 per cent of China’s total gross domestic product in 2017, according to the China Internet Plus Index Report released by Tencent earlier this year.

Women, in particular, perceive the non-traditional industries to have lower entry barriers and a more gender-neutral environment. 36Kr found that 36 per cent of Chinese women entrepreneurs surveyed worked in the digital economy, of which around 64 per cent were in the BAT (Baidu, Alibaba, Tencent) ecosystem.

Tech entrepreneur Gong Haiyan is one of them. She grew up in a poor farming family in Hunan province but made it to university. While in graduate school in Shanghai, Gong paid 500 yuan (US$73) to register with a dating site to find a lifetime partner. But she discovered that the company used stolen profiles. That motivated her to start her own dating service. Like Facebook, Gong’s website, Jiayuan.com, was set up from her college dorm. Today, 15 years later, the site has nearly 190 million registered users across China.

Source: SCMP

Another example is Diane Wang Shutong, who once held senior management positions at Microsoft and Cisco, founded DHgate.com and grew the company into a leading business-to-business cross-border e-commerce platform.

Third, improvements in education attainment have also encouraged more women to strike out on their own. More Chinese are attending university overseas, and many return home to start a business. About 60 per cent of China’s women entrepreneurs were educated abroad; among them, 51 per cent attended college in the US. Having been exposed to a relatively egalitarian culture, they are bolder in seizing opportunities.

While many women entrepreneurs in the past were driven by the “poverty push” to start a business, after being laid off in the restructuring of state-owned enterprises in the 1990s, today’s cohort seem to be more motivated by the “opportunity pull”. The Global Entrepreneurship Monitor has found that today’s women entrepreneurs were more opportunity-driven compared to their predecessors, even their male counterparts.

In other words, instead of seeing entrepreneurship as a last resort, these women chose to start a business because of the perceived opportunities, “pulled” by their personal ambitions and goals of success.

They face several obstacles unique to them, of course, not least gender discrimination. For example, women start-up founders are often underestimated and thus overlooked for financing opportunities, and women businesswomen, like women in other professions, are expected to commit to family and child-rearing responsibilities.

Helping and fostering the next generation of female entrepreneurs will need support from everyone – men and women, government and non-government – to create a level playing field, a safe, sustainable business environment, and a fundamental change in the traditional perception of gender roles.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Josie Tai is a research analyst at the firm.

 

SCMP | How We Can Help Next Generation of Entrepreneurs

By Edward Tse

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

The Yabuli Youth Forum took place in Hong Kong last month. More than 200 people attended the offshoot of the idea-exchanging platform, the China Entrepreneurs Forum.

Government and business leaders from Hong Kong, the mainland and Macau – including former Hong Kong chief executive Leung Chun-ying, former chairman of the China Banking Regulatory Commission Liu Mingkang and Vincent Lo Hong-shui of Hong Kong Trade Development Council – spoke of deepening cross-border collaboration to foster innovation for growth. Other speakers included young entrepreneurs from different backgrounds and industries.

Almost as one, the speakers highlighted the strategic importance of talent in developing the Greater Bay Area. In particular, Albert Chuang, president of the Y. Elites Association of Hong Kong, suggested that Hong Kong youths should look beyond the city, to the Greater Bay Area and even the rest of mainland China, where changes are taking place at an unprecedented rate.

Indeed, though the 1970s and 1980s witnessed Hong Kong’s rapid growth, with a booming service sector and light industries, this former land of opportunity is now struggling with slower economic growth, especially when compared with the mainland. Skyrocketing property prices, a narrowing industry structure and, most critically, the lack of upward social mobility, make young people increasingly disillusioned about the future.

Source: Internet

Some politicians attribute Hong Kong’s problems to the “one country, two systems” model. However, this misses many of Hong Kong’s own pitfalls. First, people have become too Hong-Kong-centric and unwilling to better understand the outside world. There is, in general, a lack of outward-looking perspectives and foresight.

Second, although some high-end sectors, such as financial services, still offer attractive jobs, Hong Kong’s economic structure lacks diversity and remains disconnected from the new economy.

Vital industries, such as real estate, communications, transport and even food, are monopolised by cartels and oligopolies and thrive on cronyism, virtually immune from the digital transformations that are redefining businesses elsewhere in the world. As a result, the city’s talent pool is insufficient to meet the needs of the future economy.

Meanwhile, the Chinese mainland has emerged as a global innovation hub. In the prospering internet and technology sector, ranging from ride-hailing to e-commerce,robotics and artificial intelligence, entrepreneurs are getting younger and more geographically diverse.

China Youth Daily reported in 2016 that the average age of first-time entrepreneurs was below 25; another study showed that although start-ups generally prefer top-tier cities, they are also reaching inland, towards lower-tier cities such as Xian, Xiamen and Qingdao.

Source: South China Morning Post

With these dynamics on the mainland, Hong Kong’s youth needs to better understand the opportunities and take advantage of them. Such opportunities and innovation can occur purely through osmosis – that is, interaction, particularly among people and a sharing of ideas.

To encourage such osmosis, governments from both sides should seek to minimise the physical limitations on the movement of people and goods, and most importantly, ideas, which is also one of the main objectives under the Greater Bay Area scheme. The scheme promises a combined economic output of some US$1.4 trillion and, if done right, the unique complementary capabilities of Bay Area cities would generate huge synergy and create a bigger pie for all.

Second, officials should organise more multilateral interactions like the Yabuli Youth Forum and work together to pool resources, training and space to help young people start businesses with lower opportunity costs.

Third, role models are key to stimulating entrepreneurial activities in Hong Kong. The city needs more entrepreneurial examples – like GoGoVan, the on-demand logistics service and Hong Kong’s first US$1 billion start-up, and SenseTime, the world’s highest-valued AI start-up – to inspire others to turn ideas into action.

Young people are the future. To help Hong Kong benefit from the growth of China and make the Greater Bay Area plan work, it is critical that we focus efforts and resources on talent development and create “osmosis” to nurture the next generation of entrepreneurs.

Edward Tse is founder & CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).

 

GF Viewpoint | Seeking Commonalities while Maintaining Differences

By Edward Tse and Josie Tai
July 16th, 2018

On July 6th, President Trump’s tariff on $34bn of Chinese imports, ranging from water boilers and lathes to industrial robots and electric vehicles, marked the escalation of the tit-for-tat trade war with Beijing. In retaliation, Beijing immediately raised tariffs on a list of US goods that include soybeans, seafood, and crude oil.

Some analysts point to the falling trade imbalance and weakening Chinese currency, as evidence that the US has the more to gain and can weather through the short-term negative consequences of a trade war. Nevertheless, the real issue of a full-fledged trade war is not about who will gain, but that who will lose, and the answer is everyone. A brief overview of the economic history and a basic understanding of economic theories suggest that any such conflict would result in the worst disruption to the global economy. Linda Yueh, American-British economist and Adjunct Professor of Economics at London Business School, warned that trade barriers would not only damage both countries but would also disrupt global supply chains, raising prices for consumers worldwide.

Source: internet

In an ever more interconnected world, the two countries are deeply straddled in a globally intertwined supply chain, and to look at the trade relationship as merely bilateral is a gross oversimplification of its nature. Intel, for instance, carries out the most capital-intensive and technologically demanding part of its semiconductor manufacturing in the US, Ireland, and Israel;the resulting wafers are shipped to China for final testing. Even though China takes a relatively low-value step in the process, given that a number of chips from Intel or the like flow back to the US, the new tariffs will backlash against domestic companies and consumers.

In addition, American companies with operations in China are likely to find themselves in the firing line. 80 percent of products made in China by US companies were sold in the Chinese market; these companies include McDonald’s, which only owns 20 percent of its China business since the majority of its business is held by China’s state-owned conglomerate CITIC, and General Motors, which sells more vehicles in China than in any other market through joint ventures with state-owned automakers SAIC Motor and FAW Group.

Wei Zhen, head of China research at global index provider MSCI, wrote that “5.1 percent of the revenues of companies in the MSCI USA Index come from China and may be at risk as a result of a trade war. In comparison, only 2.8 percent of the revenues of the companies in the MSCI China Index come from the U.S.”

In fact, the US was actually the leading advocate of globalization that began decades ago, and in the process, it encouraged more divisions of labor across different countries according to their respective comparative advantages. The supply chain has developed through years around locations of manufacturing: while some of the most important technologies like micro-chips are largely retained in the US, China is evolving from a primitive-level world factory to a manufacturing powerhouse, and India is also picking up on software development. As a result, more and more companies are moving their operations in China to achieve maximum economies of scale.

Source: internet

After decades of the globalization experiment, however, the US is turning around the table. It is redefining the rules and beginning to set up barriers against other countries like China, in a bid to curb China’s “unfair trade practices” and “substantially reduce trade deficits”. Even though protectionism can be somewhat beneficial on the local level, based on operations research, any attempt to optimize based on local conditions without understanding the big picture will not likely produce a globally optimal, sustainable solution – and trade protection will eventually take its toll on US businesses themselves.

Avoiding a global economic disaster requires cool-headed discussions and an appreciation of commonalities from both sides. The US and China have more shared goals and responsibilities than trade disputes: building a permanent peace mechanism on the Korean peninsula, resolving terrorist threats and the refugee crisis, maintaining global economic stability and creating an international environmental regime. RAND Corporation, a US think tank, recommended in a recent report that the US should establish a comprehensive strategy and leave open the potential for cooperation to manage emerging rivalry with China.

Source: internet

The two countries also share many commonalities on the business level. Although often questioned by the West, China follows its own development model where the central government sets trajectories at the top, the grassroots entrepreneurs thrive and drive growth at the bottom, and local governments compete and collaborate in the middle. The private sector has been opening up, now supporting more than 60% of China’s GDP growth and 80% of jobs, according to statistics published by Xinhua last year.

Chinese entrepreneurs look to the West for inspiration, not only modeling their organization design on Silicon Valley but also pouring billions into US startups. Tencent Holdings, for example, holds significant stakes in high-growth American companies such as Snapchat and Tesla, becoming the second-largest foreign investor in the US tech industry. The rhetoric portraying Chinese VC investors as players of a technology transfer scheme skews the nature of and disregards the tremendous tangible benefits from these investments.

US companies can also benefit from participating in China’s thriving innovations. China’s entrepreneurs are highly driven to grab new opportunities through “multiple jumping”: they may focus on their existing core competencies at first, but when new opportunities come up, they will try to catch these new opportunities even if they don’t have all the capabilities needed to run the new business. They would collaborate with partners, and thereby building ecosystems and crossing business boundaries. For example, Meituan-Dianping, the popular food delivery app with 400 million active users in China, entered mobility service by leveraging its huge consumer database. Thus, there are still many potential benefits that American firms can capture by exploring new business models in light of the myriad of Chinese innovations.

Admittedly, a full-blown trade war is already taking shape, and it would put economic growth in both countries at risk and wreak havoc on the global supply chain. However, it is not too late for the US and China to prevent further deterioration of trade relationships. Both countries should rethink about the collateral damage of ill-conceived trade actions, establish mutually beneficial agendas and replace polarizing rhetoric with rational economic arguments.

About the Authors
Dr. Edward Tse is founder and CEO of Gao Feng Advisory Company. A pioneer in China’s management consulting industry, Dr. Tse built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies – both headquartered in and outside of China – on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas. He is the author of over 200 articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version «创业家精神»).

Josie Tai is a Research Analyst at Gao Feng Advisory Company. Josie is a Yale undergraduate majoring in economics and psychology, with interests in Chinese consumer behaviors, the tech industry and US-China trade relations. Her previous experience was in legal consulting, journalism and startup, and she was also trained in empirical data analysis, industry research as well as accounting and valuation.

Bernice So, Research Analyst, also contributed to this article.

 

南华早报 | 共同利益:中美可通过关注共同目标来避免修昔底德陷阱

文 | 谢祖墀

英文原稿于2018年6月11日在《南华早报》发表,版权归该报所有

中国与美国这两个世界上最大的两个经济体正在陷入一场修昔底德陷阱(Thucydides Trap)吗?哈佛大学教授格雷厄姆·阿利森(Graham Allison)认为美国和中国正重蹈伯罗奔尼撒战争 (Peloponnesian Wars) 之覆辙,这种类似的竞争动态也曾招致17世纪初英国和荷兰、20世纪早期德国和英国、20世纪40年代日本和美国间的战争。

中美之间一场不可避免的战争红色警示灯表面上似乎正不断闪烁。针锋相对的关税战,似乎将发展成一场全面的贸易战。美国政府对中国电子通信设备制造商中兴通讯的惩罚措施,意味着贸易冲突变得更加复杂,也揭露了一个更关键的格局背景:美国想要阻止在国际电子产业链中步步攀升的中国。

此外,南中国海的紧张局势令区域性军事冲突的可能性不可忽视。近期,美国国防部部长吉姆·马蒂斯(Jim Mattis)警告说,如果中国继续在争议岛屿进行军事部署,将面临“更严重的后果”。伯罗奔尼撒战争的结果和基础经济学都表明,任何此类的冲突都会对全球经济造成最严重的破坏。

但是,当今世界与古希腊和第二次世界大战前的世界已经截然不同。与过往相比,今天政治经济和军事的本质已经发生了根本上的改变。现代武器的巨大破坏力让大国之间几乎不可能爆发全面战争。而且,在一个相互联通的世界里,大国之间的战争对全球所造成的破坏几乎不可想象。

为了避免陷入修昔底德陷阱,中美双方可以更多地关注双方的共性,并找到解决分歧的方法。无论意识形态的差异和地缘政治摩擦如何,两国都应该共同合作开展全球治理,以应对全球共同的挑战:建立朝鲜半岛长期和平机制,寻求解决恐怖主义和难民危机的办法,帮助维护全球经济的稳定增长,并创造一个全球化的环境保护体系。

虽然特朗普政府似乎在无视某些两国甚至多边共同的挑战,中国国家主席习近平却多次强调,中国希望能够与全球各国建立一个“人类命运共同体”和实现各国共赢发展做努力。在国际治理方面,中国渴望扮演一个更积极的角色。美国智库兰德公司(RAND Corporation)最近发布的一份报告建议美国应该制定一个全面的战略,释放合作潜力,以妥善处理与中国之间正在产生的竞争。

尽管中国遵循的是自己的一种发展模式,而这种模式往往受到西方国家的质疑;不过在商业层面上,中美之间其实拥有很多共同之处。中国的私营企业一直在蓬勃发展,并推动了十多年来的国内经济增长。据新华社去年的一份报道,私企现在贡献了中国GDP增长的60%以上,并提供了超过80%的工作岗位。以电子商务和汽车出行服务业等为代表的新兴互联网经济的增长速度,是2010至2016年GDP整体增速的两倍。

中国创业和企业家们,如阿里巴巴、腾讯、小米和滴滴出行等企业的领导人,与他们的美国的创业和企业家一样,都是能够和愿意承担风险的,同时他们能够接受不确定性并积极地寻求经济回报。在建立自己的创新意识和组织形态方面,他们主要参照美国科技公司,而非中国的国有企业。

这些企业家往往通过西方国家,特别是美国西海岸来获得灵感,例如腾讯就是美国科技行业第二大非本土投资者。同时,许多美国风险投资基金,如红杉资本(Sequoia Capital)和IDG资本,在中国科技公司中的投资回报都很丰满。

预防贸易战也需要合作的意愿。前新加坡驻联合国大使基肖尔•马赫布巴尼(Kishore Mahbubani)敦促利用合理的经济论据,代替两极化的政治和简单化的意识形态,来为酝酿中的贸易战降温。将美国贸易赤字归咎于中国的冷战言辞,忽略了与中国的紧密融合为美国经济带来的巨大利益。

首先,对中国的出口,给包括美国人在内的许多人带来了就业机会。根据中美商务委员会撰写的报告,2015年美国对华的商品和服务总价值为1650亿美元,占美国出口额的7.3%和美国GDP的1%左右。由于中国已深深地融入在全球供应链中,这些数据低估了美国经济从中的获利,因为它没有考虑从其他国家向中国转口的产品,或中国邻国在其影响下购买的产品。

其次,美国投资者也受益于中国经济近年高达7%的持续增长。报告称,美国公司在中国制造的产品中有80%在中国出售; 如果这些利润重新分配给股东并在国内投资,将支撑103,000个就业岗位和119亿美元的美国GDP。同时,中国企业开始在美国投资。据估计,中国对美国和在美国的中国公司的直接投资,将支撑104,000个就业岗位和108亿美元的GDP。

第三,中国的商业创新正在突飞猛进,但总的来说,美国企业还没有充分利用这些机会和参与其中。尽管突破这些边缘可能意味着巨大的投资和回报的机会,但一般外国公司还只是倾向盲目复制他们的商业模式到中国来,缺乏足够的对中国市场的深刻了解和创新意识。

美国政治顾问罗伯特·卡普兰(Robert Kaplan)在他最近的著作《马可波罗世界的回归:战争,战略与美国利益》(MarcoPolo’s World: War, Strategy and American Interests)一书中,描述了一个将以欧亚大陆(Eurasia)为冲突中心的亚洲世纪。

虽然小规模军事冲突或贸易战争升级的可能性不容忽视,中美两国避免坠入修昔底德陷阱是有可能的。中美双方都应保持冷静,并认识到稳定互利的重要性。同时双方应遵循理性行为,和对彼此对话、合作和共同目标的认可。

我认为这是可以做得到的。

(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。

SCMP | Mindset for Success

By Edward Tse | SCMP
April 20th, 2018

Edward Tse says while foreign companies clamour for China to speed up its market reforms, they need to rethink their strategies to survive in an increasingly competitive business environment

At this year’s Boao Forum, President Xi Jinping reiterated China’s commitment to further open the country’s market to foreign companies and improve intellectual property rights protection, an issue that has long been a concern for foreign companies operating in China.

A couple of weeks before Xi’s speech, at a press conference at the end of China’s Two Sessions, Premier Li Keqiang said China would not force foreign companies to transfer their proprietary technology to China.

Source: Google

While some say the plans lack detail, the leadership’s commitment to opening up China further for foreign business shouldn’t be underestimated.

So, what are the implications for foreign multinational corporations? Is there anything CEOs should do differently?

For a long time, some Western politicians, business executives, lobbyists and the media have held the view that foreign companies can’t grasp all the opportunities in China because of a lack of market access, unfair competition and poor intellectual property rights protection.

While such criticism is not unfounded, it is not the whole truth. Since its reform and opening up some 40 years ago, China has been gradually opening different sectors to foreign participation. Today, while some sectors, such as commercial banking and insurance, remain relatively closed, many others are entirely open, such as consumer products, appliances, retail and automotive parts.

Though there is a 50-50 joint venture requirement for automotive manufacturing, China’s automotive market as a whole is very open in terms of products and markets. And, Beijing has just announced it will scrap the foreign ownership restrictions in the automotive manufacturing sector over five years. In the tech sector, pundits have correctly pointed out that Facebook and Twitter are blocked in China, but they forget to mention that LinkedIn, eBay, Airbnb and Amazon e-commerce are not.

Source: Google

A remarkable development in China in recent decades has been the rapid rise of entrepreneurship. Today, China’s economy is best described as a duality (state and non-state). Business innovation, often enabled by technology, is thriving, driven largely by entrepreneurial companies, such as Alibaba and Tencent, which are now some of the world’s largest by market capitalisation. Droves of young people are being entrepreneurial, aspiring to be the next Jack Ma or Pony Ma. An increasing number of fast-growing, sizeable innovative companies are emerging that have built large ecosystems of collaborative partnerships.

China has found its own development path, the “China development model”. At the top, the central government actively plans the direction of the country. At the grass-roots level, entrepreneurship is thriving, driving economic growth. In the middle, local governments compete and sometimes collaborate in clusters of cities within regions. This model has become a major source of resilience for China’s growth.

Given this evolution, corporate decision-makers need an informed and sophisticated view of the country to devise an effective China strategy.

First, their strategy requires a thorough understanding of the China context, which is evolving in a peculiar and multidimensional manner. While China’s reform has been largely gradual, changes can at times be abrupt and rapid. Too often, foreign companies enter China with a market strategy at the business-unit level, using a linear, incremental approach. By focusing on the micro conditions, they often miss the big picture.

Second, China should be at the core of any global strategy. The speed of development, uniqueness, complexity and strategic importance of China requires foreign multinationals to fully embrace China as an integral part of their strategy and organisation, not just one of many markets.

Third, companies should participate in China’s thriving innovations, rather than being bystanders due to a lack of awareness or unwillingness to take risks. Companies could consider engaging in businesses that may not be their traditional core but could provide opportunities for growth, and also form ecosystems with Chinese companies.

I am not advocating diversifying aimlessly. However, I have seen numerous cases when CEOs missed opportunities in China because they either didn’t know about them or felt they needed to focus on their “core competencies”. As a result, they also missed out on the chance to learn from Chinese consumers and the best Chinese companies.

For example, by investing in Autohome, a leading Chinese online automotive advertising platform, Telstra, an Australian telecom and media company, whose core business in China is restricted by foreign participation rules, made a profit of around US$2.5 billion in less than 10 years.

Source: Baidu

Fourth, foreign multinationals should train their China managers to be thought leaders and place them at senior levels. Too often, they treat their managers in China merely as operational people. Strategy and major decisions come from the global or regional headquarters, making it difficult for businesses to come up with an effective strategy for China.

Finally, foreign companies need to shorten their decision-making process and become more agile and flexible. After all, China is evolving fast and competition is intense. Chinese companies are known for bring fast, nimble and innovative. Foreign multinationals should become “more Chinese than the Chinese”.

The rise of China and the simultaneous development of technology are changing the country – and the rest of the world – fast. China is on the verge of a sustained, generational rise that will generate even more opportunities, and challenges, for global businesses. Foreign companies need to figure out how to deal with this.

Clamouring for equal and full market access is not entirely fruitless but that is not where the real game is being played. China will reward those who are innovative and discover new ways of creating value. This requires foreign multinationals to approach China with a different mindset.

China will continue to open up and embrace the rest of the world, perhaps not all in one go, but its direction is clear. CEOs and boards should ask themselves: “How can we capture the potential that China offers us?”

Edward Tse is founder & CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).

 

SCMP | Open For Business

By Edward Tse | February 7th, 2018

China-US trade and investment is thriving inpockets on the ground, despite the policy frictions

Edward Tse says while concerns about unfair Chinese trade practices and Chinese companies’ ties with the government are not totally unfounded, they ignore the real and growing business collaboration as the private sector takes the lead

Two recent failed deals involving Chinese companies seeking to invest in the US have made headlines. US telecoms company AT&T walked away from a deal with Huawei, a Chinese telecom equipment and smart device maker, under pressure from US Congress. The US government also rejected the intended acquisition of MoneyGram, a US money transfer company, by Ant Financial, an affiliate of China’s internet giant, Alibaba.

It was reported that both deals triggered US “national security” concerns. The media are now saying that, on Capitol Hill, there is a prevailing wind of “trust deficit” in US-China relations on trade and investments.

There seems to be two parts to this story. The first concerns Chinese companies investing in the US. The theory goes like this. The Chinese government is behind everything that Chinese businesses are doing and state-owned enterprises, because of their government ownership, will act on behalf of the Chinese government’s interests. By implication, their motives are not trustworthy. In addition, the Chinese government employs strong industrial policies that create an unfair playing field for companies and countries.

The second part of the story is about the perception of how US companies are treated in China. The key thesis here is that the Chinese market is closed to US (and for that matter all foreign) companies. The Chinese government favours local enterprises, especially state-owned companies, and so US companies cannot be successful in China. Many US politicians and lobbyists are asking for “reciprocity”.

There are some elements of truth in both of these arguments. However, they do not present the complete picture.

While the state sector is certainly prevalent in China, the non-state sector is actually becoming more powerful in its own right. According to Chinese government statistics, the non-state industrial sector’s revenue in 2016 was close to four times that of the state sector. About the same ratio also applies to the total profit.

Source: Baidu.com

Based on a study by the Institute of Population and Labour Economics at the Chinese Academy of Social Sciences, China’s “new economy” – internet-based businesses including e-commerce and car-hailing services – grew twice as quickly as China’s overall gross domestic product in the 10 years to 2016. By definition, these new-economy companies are mostly, if not entirely, private-sector companies. Entrepreneurship and business innovation are thriving in China and they come mostly from the private sector.

US President Donald Trump has called for the “re-shoring” of manufacturing to the US. Ironically, some Chinese companies were among the first to respond to the call.

Companies such as Fuyao Glass, Foxconn and Great Wall Motors – all non-state owned – announced plans to invest in the US. (Foxconn is, of course a Taiwanese company but its operations are mainly on the Chinese mainland). And Jack Ma, Alibaba’s chairman, pledged to create “one million jobs” in the US. Alibaba is the owner of the South China Morning Post.

Since its economic reform that started some four decades ago, China has gradually opened its sectors to foreign participation. Today, while there are still some that are closed or largely closed to foreign companies, a much larger number are open to competition, for example in consumer products and retail.

For US companies such as Nike, Starbucks, Apple, Ford and General Motors, China is one of their largest markets, if not the largest, in the world. And, China’s importance to these companies continues to rise. The “golden era” of foreign companies, at least for these successful ones in China, is certainly not over.

Many pundits have suggested that China’s “Great Firewall” has blocked all US tech companies from doing business in China. The likes of Facebook and Twitter are indeed blocked in China, and others like Google chose to withdraw as a stand against China’s censorship requirements. (It’s worth noting, however, that Google recently announced the establishment of a major artificial intelligence centre in Beijing.) However, there are many other tech companies that are not blocked. LinkedIn, Airbnb and Amazon’s e-commerce are all operating in China. Uber and eBay were allowed but they decided to divest largely due to extremely strong local competition (from the non-state sector).

Source: Baidu.com

At the 19th national congress of China’s Communist Party last October, President Xi Jinping made the pledge that China will continue to open up its economy to foreign companies. In November, the government announced plans to ease limits on foreign ownership in a range of financial services. Further liberalisation is expected over time.

Similar to how US companies are investing in China to try to capture the Chinese market, more Chinese companies are also investing in the US. Triangle, the third-largest Chinese tyre manufacturer, is investing in a US$580 million plant in North Carolina. To many Chinese companies, the US is an attractive market and the conditions for manufacturing are becoming more favourable.

As Chinese innovation and entrepreneurship continue to thrive, there will certainly be more opportunities for start-ups involving both Chinese and US entrepreneurs, and venture capitalists. Technology, especially AI, will increasingly be embraced for innovation.

Both the US and China are now leading the world in the development and application of AI, and this trend is likely to continue to accelerate. The interactions between China and the US at the start-up and investors’ levels are actually taking place intensively as there is so much to share and many opportunities to jointly pursue. Much of this is reflected in cross-border investment.

It would be naive to expect smooth sailing for the US-China trade and investment relationship this year. However, I don’t believe all will be bad, either. There will be areas of tension and differences in points of view and policies, but there will also be areas of collaboration and alignment.

“Coopetition” is perhaps the best word to describe the nature of this relationship. It won’t be a zero-sum game, especially not in today’s world of increasing connectivity.

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

 

SCMP | What’s in Store for China & US in 2018

By Edward Tse
January 11th, 2018

China is perennially a top of mind issue in American politics. Former President Barack Obama’s “Asia pivot” strategy had China as its centerpiece. President Donald Trump’s election campaign also centered around China, but in a very different light. He reasoned a key reason why America “wasn’t great again” was because of China’s increasing competitiveness which manifests itself mostly in its trade surplus against the US. As he vowed to make “America great again”, he sees China as a “strategic competitor” to the US.

In 2017, China made huge strides in stepping up its leadership position in global politics as the US, under President Trump, receded. At the World Economic Forum at Davos, Switzerland in January, Chinese President Xi Jinping underscored the criticality of globalization against the backdrop of Trump’s US-centric rhetoric. While the US withdrew from the Trans-Pacific Partnership, China stepped up its “Belt and Road” initiative with the formation of the Asian Infrastructure Investment Bank (AIIB) whose member countries now number 84 (as of Jan. 2018). While China (together with the European Union) pledges its commitment to reduce global carbon emissions according to the Paris agreement, the US decided to walk away.

As Trump called for “re-shoring” of manufacturing to the US, paradoxically some Chinese companies were amongst the first to respond to the call. Companies, such as Fuyao Glass, Foxconn, and Great Wall, announced major plans of investing in manufacturing in the US. (Foxconn is of course a Taiwanese company but its operations are overwhelmingly in Chinese Mainland). And, Jack Ma, chairman of China’s leading Internet company Alibaba, announced it will create “one million jobs” in the US.

So what will happen to the US – China relationship in 2018?

It seems likely the “co-opetition” nature of the relationship between the largest and second largest economies in the world will continue.

Donald Trump’s “America First policy”, or at least its rhetoric, would most likely continue and to that end, China will likely continue to be a target of a “strategic competitor” to the US. In global geopolitics, China will likely continue to step up its position as a global leader as China continues to seek its “Renaissance” while the US would continue to fortify its “Me First” position.

In business, as China’s economy continues to grow at around six to seven percent, China will continue to present numerous opportunities for US companies (and those from other countries). At China’s 19th Party National Congress back in October 2017, Xi Jinping made the pledge that China would continue to open its economy to foreign companies. Sure enough in November, the Chinese government announced plans to ease limits on foreign ownership in a range of financial services sectors. We expect the further opening for foreign participation in China’s growing economy will take place in 2018, allowing more degrees of freedom for US companies operating in China.

As China’s middle-class will continue to grow in size and the level of its purchasing power heighten, Chinese consumers will become even more important customers for US products and services both domestically and outside of China. For US companies, such as Apple, Starbucks, Nike, General Motors, Ford and Honeywell, China has become one of their largest, if not the largest, markets in the world. And, China’s importance to these companies will inevitably continue to increase. While competition is super intensive and technology is driving major, discontinuous change in the China market, more US companies will realize the incredible upside potential of the China market and will seek ways to capture its rightful potential. Even Google, who decided to withdraw from the China market several years ago, have recently announced the establishment of a major Artificial Intelligence (AI) Center in Beijing.

China has also become the world’s largest country of outbound travelers. In 2017, the number of Chinese outbound tourists is estimated at around 130 million. Chinese consumers will likely become even more globally active in 2018. The US will continue to be one of the most favored destinations for the Chinese. The Chinese consumers tend to spend a lot as they travel and that would bode well for the US travel and tourism industry.

In 2018, more Chinese companies are expected to invest in the US and to exploit the potential of the US market. For instance, in December 2017, reports claim that Huawei, China’s leading telecom equipment and smartphone maker, would partner with AT&T to sell its Mate 10 smartphones in the US. If true, this would be a breakthrough development, as for a long time, Huawei was not able to penetrate into the US market. Triangle, the third-largest Chinese tire manufacturer, is going to invest into a $580 million plant in North Carolina in 2018. Keer Group, a textile producer in China, plans to invest $218 million over next five years to expand the capacity of its facility in South Carolina. To many Chinese companies, the US is an attractive (and in some cases necessary) market and the conditions for manufacturing are becoming more favorable.

As China’s innovation and entrepreneurship continue to thrive, there will certainly be more opportunities for start-ups of both Chinese and US entrepreneurs, as well as for venture capitalists. Technology, especially AI will increasingly be embraced for enabling innovations by entrepreneurs. Both the US and China are now leading the world in the development and application of AI, and this trend will likely continue to accelerate. The interactions between China and the US at the start-up and investors’ levels are actually taking place intensively as there is so much to share and many opportunities to jointly pursue. Much of this has already manifested in cross-border investments between the two sides. We expect this would happen even more in 2018.

Inevitably, the US government will continue to send rhetoric on trade friction between the US and China, and will announce more policies to address the trade imbalance. Additionally, the US government will likely continue to view China as a strategic competitor, and national security will continue to be a key consideration by both governments when it comes to investments by organizations from the other side. However, common interest would prevail both at the government level and at the business level. In 2018, we expect the US- China relationship would continue to move along. There will be areas of tension and difference in points of view and policies, but there will also be areas of collaboration and alignment. Co-opetition is perhaps the best word to describe the nature of US – China relationship in 2018. After all, it won’t be – and shouldn’t be – a zero-sum game especially not in today’s world of increasing connectivity.

Original published by South China Morning Post on January 11th, 2018. All rights reserved.

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

 

SCMP | How China is Leading the ‘New Retail’ Revolution

By Edward Tse and Jackie Wang

Edward Tse and Jackie Wang say market moves by Chinese firms like Alibaba, Tencent and JD.com show how key players are experimenting with various forms of tech-driven ‘new retail’ in the O2O world, making the industry more dynamic than ever

While the past two years may have been brutal for brick-and-mortar stores worldwide, China’s online and offline retailers have witnessed a “new retail” revolution, driving an increasingly stronger national consumption.

Since China launched economic reforms in 1978, the country’s retail industry has undergone multiple stages of development.

With foreign retailers flooding in after China joined the World Trade Organisation in 2001, the scene was diversified. Offline retail started to be challenged by Taobao, Alibaba’s online shopping platform, which was founded in 2003 and grew -exponentially in the following decade. The transaction amount for Alibaba’s “Singles’ Day” 24-hour online sales each November 11 has grown from 50 million yuan (HK$59 million) in 2009 to 168 billion yuan this year (Alibaba owns the South China Morning Post).

With e-commerce booming, businesses have been adopting an “online to offline” (O2O) model, using online channels to attract offline traffic. In the past few years, this phenomenon has evolved into the notion of “new retail”.

New retail represents a trend of online merging seamlessly with offline, resulting from the prevalence of digital technology, like mobile payment, wireless internet, sensors and artificial intelligence (AI).

In this model, online is no longer just a sales channel, but provides ubiquitous touchpoints to interact with consumers and their social groups. By contrast, offline retailers are trying hard to keep consumers in their brick-and-mortar stores for longer, offering better customer experiences by leveraging digital technologies.

From sales and marketing to -logistics and inventory management, the new retail revolution is transforming the industry. For example, Amazon Go, the pioneer in new retail in the US, tracks purchasing behaviour with sensors placed on supermarket shelves. After consumers choose their products, they can just walk out of the store, with the amount payable automatically deducted from their mobile payment account.

Some aspects of the retail operation are also becoming less human-led. In China, logistics firm Cainiao is incorporating hi-tech-enabled hardware and software to improve efficiency. In its logistics park, -Cainiao deploys drones to monitor the security of the venue. Within the warehouse, several robots called “Geek+” work with staff to sort packages. It also uses computer vision to identify, monitor and -arrange different orders.

Improved logistics efficiency is contributing to the consumer experience as well. Consumers will not only receive their packages faster, but also with fewer errors and get fresher goods.

Whereas in America, Amazon is at the forefront of the new retail revolution, China’s speed and intensity have gone into orbit. Players big and small are experimenting with various forms of new retail, making the industry more dynamic than ever.

Driven by the huge market -opportunities and abundant venture capital, start-ups in China are actively participating in this revolution. For example, Xingbianli, a convenience store and vending machine start-up, offers many popular Korean and Japanese products that could mostly only be bought via daigou (individuals who shop overseas and resell to Chinese consumers). More importantly, it is testing the area of unmanned retail.

Products have their own bar code, which can be scanned by consumers when they choose their shopping and then check out on the Xingbianli app. There is also a mini-library and a -café within the convenience store, aimed at making consumers linger.

Traditional local retailers are also incubating their own new retail formats, such as Super Species, a subsidiary of China’s largest supermarket chain, Yonghui Superstores.

Super Species specialises in selling fresh produce, such as vegetables and seafood, and combines the traditional market with restaurants, -cafés, florists, and so on. It has also introduced a Yonghui Partnership Plan, allowing staff to present more innovative retail ideas and pilot them within the stores. Super Species itself is becoming an incubator for those innovative ideas, and new retail here is no longer just about changing the store format, but also the mindsets of all staff.

Tech giants like Alibaba, Tencent and JD.com are heavily investing and competing head to head in the offline battleground. Alibaba -invested US$2.9 billion in one of China’s largest supermarket chains, Sun Art Retail Group, in November. It aims to transform Sun Art’s offline business of over 400 -Auchan and RT-Mart branded -hypermarkets and provides technology to enhance customer data and inventory management.

In 2015, JD.com invested US$700 million in Yonghui Superstores. This month, Tencent, a close ally of JD.com, acquired a 5 per cent share in Super Species, and made capital injection for a 15 per cent stake in Yonghui Yunchuang Technology, Yonghui’s supply chain and logistics subsidiary.

To further compete with Alibaba online and enrich their own ecosystems, Tencent and JD.com are -investing in VIP.com, a Chinese e-commerce platform specialising in discounted products for women.

They will together own 12.5 per cent of VIP.com and, as they further monetise their traffic, the new retail battle with Alibaba will -get fiercer.

Foreign companies are also -actively piloting their new retail strategy in China. Earlier this month, the world’s largest Starbucks -Reserve Roastery opened in Shanghai, leveraging Alibaba’s technology to give consumers a more immersed Starbucks journey.

This is also the first mass offline application of augmented reality (AR) technology. Consumers can use the Taobao app to unlock the AR features in the store, such as learning about the details of the Starbucks coffee brewing process.

Technologies are enabling these companies to create new business approaches, while intense competition is driving all players to -become better. They can’t afford to slow down. China’s scale also allows companies to use the market as a business laboratory and to experiment with business models.

Through fast launch and adaptation, players can fine-tune their business model at a rapid pace.

Beyond retail, the future consumption landscape will be much more complicated and sophisticated. Digital technologies, especially AI, 5G network and the internet of things, are already blurring the boundaries of industries.

Eventually, retail will be merely one layer of the consumer lifestyle, albeit a high-frequency one. The internet of things will create a new ecosystem that is ubiquitous and interconnected. Also, 5G network development will facilitate this process in the near future and bring about disruption in the retail world.

Assisted by machine learning and big data, consumers will -increasingly be viewed as a “segment of one” and receive more personalised solutions, not just in -retail, but in every facet of their life.

To that end, China will be at the global forefront of innovation and experimentation.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Jackie Wang is a senior consultant of the firm

This article appeared in the South China Morning Post print edition as: The future of retail

 

「南华早报」中国欲成为全球AI领导者,如何在2030年前击败谷歌

文 | 谢祖墀,王金千
编译 | 新智元
曾被视为技术落后的中国,如今将 AI 视为超越国际竞争对手的契机
在过去几年间,中国大力投入人工智能研究,旨在成为这一颠覆性技术领域的全球领导者。
《经济学人》数据显示,2012 到 2016 年期间,中国的 AI 企业获得的政府资助为26亿美元,美国企业则高达179亿美元,但情势迅速发生了转变。曾被视为技术落后的中国,如今将 AI 视为超越国际竞争对手的契机。
在全球 2015 年发表的顶尖 AI 学术论文中有超过40%包含有一名或多名中国作者。2010年到2014年减,中国的 AI 技术相关专利申请增长了 186%,相比较于前一个五年是一个极大的飞跃。与此同时,近两年 ImageNet Large Scale Visual Recognition Challenge 中成绩优异的团队均为中国团队,其中半数以上都植根于中国本土。
中国政府发布的推动中国人工智能企业于2030年前成为全球领导者的目标确定了基调。这一计划与中国政府最新的五年发展规划并驾齐驱,将科学技术发展确定为首要战略。
《中国制造2025》、《“互联网+”人工智能三年行动实施方案》及《新一代人工智能发展规划》等政策均致力于推动中国 AI 技术的发展。
中国多个省份及城市也纷纷出台优惠政策及丰厚的政府资助,扶植 AI 初创企业。以沈阳为例,该市投资人民币 200 亿元重点发展机器人技术开发项目。
这些优惠政策促进了小规模企业及大型互联网企业共同的技术创新。产业巨头如百度、阿里巴巴及腾讯,初创企业如旷视科技、碳云智能、出门问问及商汤科技,另有滴滴出行及小米等独角兽企业,均大力投入 AI 技术的研发。

例如,百度开发的应用神经网络的机器翻译系统,其语音识别准确率已超过人类,他们同时发布了自动驾驶解决方案的开源平台,命名为“阿波罗计划”,推动自动驾驶技术的研发。腾讯也建立了自己的 AI 实验室,汇集全球顶尖的 50 名科学家、研究人员及专家,提出“内容 AI,社交 AI 及游戏 AI”的目标。今年早些时候,腾讯开发的机器人“绝艺”击败了日本围棋高手 Ryo Ichiriki。
专注于计算机视觉技术的旷视科技在《麻省理工科技评论》评选的2017年50家“全球最聪明企业”中名列第11位,其面部识别产品 Face++已为全球一亿人刷了脸。科大讯飞的智能语音识别及自然语言处理技术为全球领先,这家市值已达到约120亿美元企业的语音识别技术甚至可分辨中文中的方言。
在学术领域的 AI 研究已经从少数顶尖中国高校拓展到全国。在活力充沛的学术环境下,中国研究人员可以同时汲取中文及英文的各类资源。大批的理工科专业毕业生投身 AI 产业。中国互联网及智能手机的用户基数向 AI 学习算法提供了巨大数量的有价值的训练数据。
相比较外国同侪而言,对于大量行为模式及日常数据的获取使得中国的 AI 研究者们能够以更高的速度及密度进行更大规模的学习和实验。
中国要成为全球AI领导者,政府、学界和产业界都需转变思维模式
中国完全有能力成为全球 AI 领导者。但要实现这一目标,政府、学术界及产业界均需要转变思维模式。

迄今为止,突破性的技术创新仍主要在西方国家中产生,科技及基础建设是推动AI 技术的关键。中国的学术界则多注重现有技术的全新应用,这也是中国政府一贯以来奖励实际研发成果做法导致的结果。AI 相关基础科学的研究耗时更长且并无保障。
中国的企业擅长迅速在市场上推出新产品和产品的新特性,因为长期以来他们对新商机的把握已得心应手。和学术界的状况类似,中国企业也停留在已有技术的应用阶段,而不是自主研发新技术。目前状况下,如推动了谷歌 AlphaGo 那种基础科学研究的激励并不存在。
如想成为全球 AI 领导者,中国必须实现基础性的转变。对于新技术而不是新应用应投入更多关注。所带来的挑战会在于,中国政府要重新考量政府资助、研究提案及研究计划所带来的影响的审议标准。
中国企业,在把握商机时一往无前,但仍缺乏微软及谷歌那样略带疯狂的创新理念。
此外也存在地缘政治方面的潜在风险,如果未来技术的互通受阻,中国迅速转型的速度也会被拖慢。

一份五角大楼的报告中称,中国企业在过去6年间向美国的 AI 初创企业投资达7亿美元,但美国国防部视之为针对美国国家安全的潜在威胁,并建议美国政府对此类投资予以禁止。
国外顶尖的研究者们也有可能因为担心自己的研究成果被“另作他用”而拒绝为中国企业工作。
为实现于2030年前成为全球 AI 领导者的目标,中国需要采取以下两个措施:第一,改革奖励机制,鼓励产业界及学术界研发新的AI 技术;第二,政府及产业界共同致力于将中国学术界发展成为全球 AI 研究领域的基石。
吴恩达曾将 AI 比喻为新电力,称其改变的不是一个领域,而是整个世界。
AI 可以,并且已经被应用于各个领域,为激活新的商业模式创造了前所未有的机会。AI 时代的资源也更加开放。企业原有的竞争力也许一夜之间就被跨领域的理念及技术融合所摧毁。
企业未来的优势在于掌握数据及具备预见性。
中国会成为全球AI领导者吗?这需要时间。但是正如在当今所有技术创新相关的领域一样,在 AI 领域无法忽视中国的力量。
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。著有《China’s Disruptors》一书。

王金千(Jackie Wang)是高风咨询公司咨询顾问。

 

SCMP | Intelligent Future

By Edward Tse and Jackie Wang
UPDATED : Sunday, 27 August, 2017, 7:41pm

Edward Tse and Jackie Wang say China is more than capable of reaching its goal of global AI leadership, but it will require a change in mindset to carry out and support groundbreaking research, not just follow existing technology

In the past few years, China has dived head first into artificial intelligence (AI) research, with the goal of becoming the de facto world leader in this game-changing technology.

According to The Economist, from 2012 to 2016, Chinese AI companies received US$2.6 billion in funding while US peers received US$17.9 billion, but this is quickly changing. China, earlier seen as a technology development laggard, is now grasping AI as an opportunity to leapfrog foreign peers.

Over 40 per cent of the top AI-related academic papers published worldwide in 2015 had at least one or more Chinese researchers. Chinese AI-based patent applications grew 186 per cent between 2010 and 2014, a huge increase from the previous five-year period. Also, in the past two years, all the top-performing teams in the ImageNet Large Scale Visual Recognition Challenge, an influential AI computer vision contest, were Chinese, while half the teams were Chinese-based.

Source: Baidu

Beijing’s declared goal for Chinese companies to become global leaders in AI technology by 2030 sets the stage. This goes hand in hand with China’s latest five-year plan, which defines science and technology research as a strategic priority.

Policies such as “Made in China 2025”, the “three-year guidance for internet plus AI plan”, and the “new generation AI development plan” all aim to take the nation’s AI technology forward.

Various Chinese provinces and cities are also offering preferential policies and generous financial ¬incentives to AI start-ups. For example, the city of Shenyang has set up an investment fund of 20 billion yuan (HK$23.4 billion), focusing on robotics development.

These favourable policies have inspired innovations from both smaller firms and internet giants in China. Leading players such as Baidu, Alibaba and Tencent, rising start-ups like Megvii, iCarbonX, Mobvoi and SenseTime, and unicorns like Didi Chuxing and Xiaomi are all investing in or experimenting with AI technology.

Baidu, for example, has developed a cutting-edge neural-network-based machine translation system that has achieved a speech recognition accuracy higher than that of humans. It has also launched an open-source platform for autonomous driving solutions, namely Project Apollo, to speed up the ¬development of self-driving vehicles. Rival giant Tencent has also established its own AI lab, gathering 50 world-class scientists, researchers and experts to focus on “content AI, social AI and game AI”.

Its “FineArt” AI software defeated the high-ranked Japanese Go player Ryo Ichiriki earlier this year.

China’s tech titans discuss the future of AI
Ranked 11th in the MIT Technology Review’s list of the 50 smartest companies in 2017, Chinese start-up Megvii specialises in computer vision technology. Its facial recognition product, Face++, has recognised and distinguished over 100 million faces so far. iFlytek, a global leader in intelligent speech and natural language processing, has reached a market cap of around US$12 billion, and its speech recognition technology is able to differentiate between Chinese dialects.

Source: Baidu

AI research in academia has spread from being a focus at a few elite universities to those across China. Chinese academics have built a robust research community, which allows them to tap AI resources in both Chinese and English. Large numbers of Chinese science and engineering graduates are now flocking to the industry. With its large population of internet and smartphone users, China has an abundance of data, providing valuable training datasets to be fed into AI learning algorithms.

Access to large datasets of the behaviour patterns and daily lives of Chinese citizens allows AI researchers to conduct mass-scale studies and experiments, at a much higher speed and intensity than their foreign counterparts.

Artificial intelligence powers China’s tech future
China is more than capable of becoming a leader in AI. But doing so would require a change in mindset of the key stakeholders – the government, academia and business.
As of now, groundbreaking – research is still mostly being done in the West, where the focus is on the science and infrastructure behind AI technology. Chinese academics, on the other hand, tend to research new applications of pre-existing technology. This is mainly the result of the Chinese government’s ¬rewards for tangible results from research; researching the basic ¬science behind AI takes much more time and is far riskier.

Chinese companies are very good at launching new products and features quickly to the market, as they are well-versed in tapping newly identified opportunities. In the same vein as academia, Chinese companies primarily rely on new applications of pre-existing technologies rather than creating new ones. As things stand, there is little incentive for basic science research that powered AI breakthroughs like Google’s Alpha Go.

China needs a fundamental change to truly become a leader in AI. There needs to be a greater ¬emphasis on developing the ¬science behind the technology rather than emphasising new applications. This could be challenging, as the government would need to rethink the way it evaluates grants and research proposals, and the ¬defining metrics for evaluating the impact of ¬research projects.

Chinese firms, adventurous when it comes to identifying and “jumping” into new opportunities, are still underdeveloped in the “moon shot” mindset of Western firms like Microsoft or Google.

Google co-founder Sergey Brin on taking moon shots
There is also a risk due to geopolitical issues, where access to foreign technology and know-how could be cut off in the future, hampering China’s capability for a speedy transformation.

Source: Baidu

According to a Pentagon report, even though Chinese have invested over US$700 million in American AI start-ups in the past six years, the US Department of Defence views this as a potential threat to national security and wants Washington to ban such investment.

Leading foreign researchers could refuse to work with Chinese companies and academics if they believe their research will be used for “authoritarian” purposes.

To achieve the goal of becoming a global AI leader by 2030, China will need to take at least two essential steps. First, it should redraft its ¬incentives policies to motivate local companies and academics to conduct research on new AI technologies. Second, both the Chinese government and the business community should continue to nurture domestic academia to make it a cornerstone of the global AI ¬research community.

Andrew Ng, a leading American AI researcher, once said that AI would become the “new electricity” – transforming not just one industry, but all of them.

AI can be and, in fact, is already being utilised across different sectors, creating unparalleled opportunities to “activate new businesses”. Resources in the AI era are becoming more open. The competitive advantage of companies can be disrupted overnight by cross-pollination of knowledge and ideas across different sectors.

The edge for companies in the future will increasingly be data, and the ability to gain foresight, not only hindsight, from this new “mine”.

Will China be able to take global leadership in AI? Even if it can do so, it may take some time. However, like anything related to technological innovation these days, it would be imprudent to rule China out.

Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China, and author of China’s Disruptors.
Jackie Wang is a senior consultant of the firm.

 

SCMP | Eyes on the Future

29 June, 2017
By Edward Tse

Edward Tse says though Hong Kong did not adapt well to the global rise of China and the game-changing tech revolution, there are now opportunities for it catch up – through the Greater Bay Area development and the belt and road plan

The 20th anniversary of Hong Kong’s return to Chinese rule is almost upon us and now is the time to reflect on our lessons learned and examine what the future may hold.

At the core of the handover is the “one country, two systems” principle. People who support this idea say it is a masterful invention by Deng Xiaoping ( 邓小平 ) and an ingenious way to resolve Hong Kong’s handover issues.

I believe China had no other choice. As a British colony, Hong Kong’s political and social systems mimicked those of Britain. Suddenly stripping away the social and political institutions Hong Kong people grew up with and forcing them to assimilate into a very different mainland system would have created major chaos. In trying to find a fair solution to the integration process, Deng took the risks and proceeded with “crossing the river by feeling the stones”.

The ambiguity surrounding the “one country, two systems” concept has resulted in different interpretations, leading to major disagreements among the different stakeholders – and not just in politics. These disagreements have become the root cause of the stale mate on various issues that have plagued Hong Kong society.

Hong Kong grew rapidly in the 1970s and 1980s because it was the only window into a closed-off China for the rest of the world. Hongkongers’ entrepreneurial spirit propelled the territory forward in a big way. And, when China began to open up, Hongkongers were the first batch investing in the mainland.

However, since that time, Hongkongers have not changed their operating paradigm much. Hong Kong’s investment in mainland China was mostly geared towards processing materials and re-export. While that worked in the early days, it became unsustainable as China’s labour costs rose. Much of the capital investments Hong Kong entrepreneurs made in China were marginalised and some companies were forced to shut down. Others have tried to build brands in China; while some did a fairly good job, many just didn’t have a clue about what it takes to be competitive in the mainland market.

How Hong Kong’s Basic Law can serve the interests of all China
Since the handover, Hong Kong people have become more inward-looking, with many focusing on the past and present. There is, in general, a lack of outward-looking perspectives and foresight.

As Hong Kong struggled in a state of entropy, two transformational global forces gained momentum: China emerged as a major economic and geopolitical power, and technology became ubiquitous. These forces are fundamentally changing the world, especially in Asia, and they are creating major wealth for those that are able to tap into them. Unfortunately, Hong Kong’s role in either of these two forces has not been commensurate with its potential.

In the first dotcom era, Hong Kong actually had a chance. It was then the Asian hub for the new dotcoms, venture capital and angel capital. Mainland China was not as open yet and the likes of Chinadotcom and PCCW were enjoying the nectar of success.

After the dotcom bubble burst, however, the Hong Kong dotcom community vanished virtually overnight and, for the next decade and more, no one rekindled the spirit of innovation and entrepreneurship, especially in the tech sector.

When will Hong Kong’s next Octopus moment occur?
Meanwhile, mainland entrepreneurs ploughed on. They fanned the flames of innovation and entrepreneurship that spread throughout the country, feeding and growing the venture and angel capital industry that was necessary to fuel innovation.

Today, the Chinese mainland has emerged as a global centre for innovation and entrepreneurship leveraging on the ubiquity of technology, such as wireless internet and the internet of things. China now has the world’s second-largest number of unicorns (start-up companies with a valuation of over US$1 billion), after the United States, and the number is growing fast.

Be afraid: China is on the path to global technology dominance
Hong Kong has been left in the dust. Hong Kong’s gross domestic product represented some 18 percent of China’s GDP at the time of the handover; today, it is about 3 per cent. The divergence between the paths taken is startlingly clear.

Another huge problem in Hong Kong is the lack of upward mobility of its young people. Some people attribute this to “one country, two systems” – incorrectly in my mind – believing that the cause is too much intervention from the mainland government. The pro-democracy camp asserts that if Hong Kong had universal suffrage, life in the city would be much better, including for its youth. Hong Kong’s attention has turned inward and it is myopic.

So what can we expect for the future? Better yet, what can we do to create a better future?

Hong Kong must become more outwardlooking. Not only should we let go of our myopic views on the past and immediate issues, but more importantly, we must look towards the future and anticipate the major trends and key drivers that will bring huge changes for the region and the rest of the world.

There is much that Hongkongers can do in this respect. The Greater Bay Area is probably the most important initiative. It will unite various cities in the Pearl River Delta, including Hong Kong and Macau, into a region with an economic output of approximately US$1.4 trillion. If done right, the unique capabilities of these cities – ranging from Shenzhen’s role as a global hub of innovation, Guangzhou’s role as a centre of cutting-edge high-value-added manufacturing, to Hong Kong’s role as a global centre of finance – would help power this new hub and create greater opportunities for people in the region, including Hongkongers. The spirit of “co-opetition”– cooperation amid competition – will guide the partnership.

The Belt and Road Initiative also holds huge promise for Hong Kong. China’s ambitious global trade and infrastructure project covering a large number of the world’s nations will provide Hong Kong with a chance to buttress its identity as a hub of commerce, trade, and logistics, while also creating opportunities for it to reinvent itself.

Hong Kong trade promoter to form consortiums with firms looking for ‘belt and road’ ride
Beijing will continue to view Hong Kong strategically, as part of its overall chessboard. It will see the city playing an important role in both the mainland’s domestic reform and the country’s pursuit of leadership in the evolving global order.

The value of Hong Kong to China goes beyond statistics
Hong Kong has another 30 years to go in the current framework of “one country, two systems”. We are now close to the midpoint. “One country, two systems” is the only framework that works for Hong Kong under unique historical and geopolitical circumstances. We cannot and should not throw it away. We should find ways to make it work even better.

To this end, we will need the leadership in both Hong Kong and on the mainland to direct matters in the right direction, with the right speed and intensity. Hong Kong people should also better understand the priorities and align themselves accordingly. Sometimes, taking a step back now actually means gaining a few steps forward later. Making progress in the midst of imperfections is often better than asking for precision, clarity and certainty in every step.

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

 

SCMP | Despite the Doubters, China Can Revive ‘Silk Road Spirit’

PUBLISHED : Tuesday, 23 May, 2017
By Edward Tse

Edward Tse says Beijing’s vision for its ambitious Belt and Road Initiative involves more than just building good infrastructure and, despite the doubters, China has the means and commitment to spur inclusive growth for all

With the rise of protectionism in the West, President Xi Jinping ( 习近平 ) has vowed his support for globalisation through China’s “Belt and Road Initiative”. The recently held forum in Beijing symbolised China’s ambitious claim to global leadership, and the belt and road – which Xi calls a “project of the century” – serves as a critical pillar of his diplomacy.

The belt and road is China’s game-changing strategy for the world, and it will fundamentally alter the dynamics of world trade and geopolitics. None of it will be easy, however.

Some nations remain sceptical about the practicality and coherence of the large number of belt and road projects, while a number of critics have labelled the initiative a form of neo-colonialism. Some countries even refused to endorse this grand plan due to concerns about China’s commitment to social and environmental sustainability and transparency.

The belt and road is China’s game-changing strategy for the world, and it will fundamentally alter the dynamics of world trade and geopolitics. None of it will be easy, however.

Some nations remain sceptical about the practicality and coherence of the large number of belt and road projects, while a number of critics have labelled the initiative a form of neo-colonialism. Some countries even refused to endorse this grand plan due to concerns about China’s commitment to social and environmental sustainability and transparency.

But what makes the belt and road potentially transformative is not merely the investment and technical infrastructure in the works, but, more importantly, the new values and philosophy that form the belt and road’s ideological framework. “The Silk Road spirit”, as Xi calls it, embodies the spirit of “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit”.

As one of the largest beneficiaries of globalisation in the past several decades, China is trying to leverage its understanding of the needs of developing nations to transform their economy and improve the well-being of their people. Xi seems to be trying to build the belt and road based on soft power rather than brute force. Clearly, this is very challenging and perhaps risky. Nonetheless, it provides a vision of a new global order.

Historically, aid from traditional Western powers typically dangled economic development as bait to enforce Western political ideologies on the recipient nations. By contrast, the vision for the belt and road, according to the Chinese, is to form a “big family of harmonious coexistence” by turning the legends of the ancient Silk Road into a modern-day story of inclusive growth and global cooperation. This sounds a bit like a fairy tale, but the Chinese rationale is that the building of bridges and railroads in Central Asia and ports in Africa and South Asia will help these nations participate in the global economy to the best of their ability.

This is different than forcing any country to, in exchange for aid, conform to political behaviour desired by the donor country.

In addition to physical infrastructure, the belt and road also includes building “virtual Silk Roads” in the form of cross-border digital highways. China already leads the world in many ways in e-commerce and other forms of digital business innovations. This aspect of the initiative offers major potential to all involved.

The belt and road presents significant opportunities for companies with headquarters in China, and also those in the rest of the world. Yet, most companies outside China have not yet fully figured out how to get involved or maximise the full potential of the belt and road. This is understandable, given the initiative’s complexity and lack of adequate clarity.

At this stage, many people put the emphasis on the tangible belt and road elements, such as the size and scope of the infrastructure, the total monetary investment, the large number of nations involved, and declare that this is an unrealistic mission.

Many pundits claim that the sheer size and China’s inexperience in managing these types of projects will lead to their eventual failure. There are definitely many challenges ahead, but one would expect that China has been learning from past experiences – good and bad – and has now a better sense of how to best proceed.

While many Chinese state-owned enterprises will be the vanguard of the belt and road, the private sector will also play a major role. Compared to state-owned enterprises, China’s private companies are in general more agile, market-driven and entrepreneurial. The belt and road could provide the very best private companies a platform to evolve and grow to become global companies.

So, what can we expect from the initiative? Over the next decade, we will see a major step-up in global connectivity, and China’s geopolitical influence is likely to continue to grow. China will continue its migration from the fringes of the world stage to the centre.

If done right, the belt and road could provide the global economy with a necessary jolt for growth, lifting more people out of poverty and expanding the consumer class. Trade between European and Asian nations, for instance, could see an increase as belt and road infrastructure makes it possible for goods to be shipped more efficiently.

Given the initiative’s scale and complexity, one would expect some hiccups along the way, perhaps some pretty major ones. And, it is not a given that China can have all the tools and resources at hand to address every single issue correctly, at least not the first time. Preconditions such as the continuous well-being of China’s domestic economy are also necessary.

China will learn and adapt along the way, but the longer-term objectives and direction should be pretty clear. The belt and road won’t be easy and its impact won’t happen overnight, but it will be difficult to dismiss China’s wherewithal to make it a success.

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

 

SCMP | How China’s ‘Copycat’ Tech Companies are Now the Ones to Beat

PUBLISHED : Thursday, 30 March, 2017
Edward Tse

Edward Tse and Marco Gervasi say the country, once derided as good only for producing fake products, is today producing leaders in innovation, becoming a model for others to follow

For a long time, Chinese companies have been known for copying market-proven products, brands and business models from the West and adapting them for the local market with only minor modifications. Such a phenomenon is known as shanzhai, a Chinese term thatwas originally used to describe a bandit stronghold outside government control. In today’s slang, it refers to businesses based on fake or pirated products.

Shanzhai has been prevalent in China in recent decades and this has earned China the reputation of being a“copycat nation”. Western media report that China’s preferential policies and regulations to restrict market access, such as the the “Great Firewall” in the internet industry, and the lack of intellectual property protection, give Chinese companies an unfair home advantage to create copies.

Yet, the by-product of such protectionism has been the development of a unique innovation ecosystem. The innovation brought about by China – an evolutionary approach on a mass scale –is different from that in the West, and it is influencing both emerging and developed economies.

While shanzhai is common across a range of products and services, it is particularly prevalent inthe internet sector. Chinese internet companies are often compared to theirWestern counterparts based on the similarity of their business models. For example, Baidu is known as the “Google of China”, Alibaba as the “eBay of China”, and Xiaomi as the “Apple of China”, just to name a few.

What is usually neglected in these comparisons is the underlying context in China that gave birth to these companies and how they have evolved. For example, though Alibaba adopted an eBay-like model in its early years, it has gone through so many changes that, today, its business model can best be described as a combination of the models of at least three internet titans – Google, eBay and Amazon. In fact, the success of many Chinese companies, across sectors, has depended on their ability to evolve and adapt foreign ideas for the mass market. This form of evolution, with continuous micro-innovations, is touching the lives of hundreds of millions.

Another example is Tencent ,which launched WeChat in 2011, a simple instant messenger mobile application that gradually evolved into a global “super app”, with one-stop hybrid features of Western models such as WhatsApp, Facebook,Instagram, Skype, Uber, Tinder and others. Today, WeChat has 846 million monthly active users worldwide.

Largely due to the success of WeChat, Tencent expanded into other innovative business models in social networking and mobile gaming. Tencent now leads in the world in terms of mobil eapp monetisation. The recent developments of Facebook Messenger, WhatsApp and Kik Messenger have shown a clear reference of WeChat’s strategy and functionalities.

The innovation brought about by China – an evolutionary approach on a mass scale – is different from that in the West

Besides Tencent, there are also a number of areas where Chinese companies are ahead of the rest of the world, such as in the emerging industries of internet finance, new social media,artificial intelligence, virtual reality, augmented reality and intelligent transport. Justin Kan, founder of Twitch.tv, a US-based video game broadcasting platform that has been acquired by Amazon, said: “Like everybody wants to know what is happening in Silicon Valley, I think we should also be aware of innovations coming from China. You will begin to see a lot of Chinese innovations diffusing into the US.”

For the first time, Western tech models are being challenged by those from China. And people are beginning to recognise this development. At a technology conference held last year in Beijing, Uber’s founder and CEO Travis Kalanick predicted that in“next five years, there will be more innovation, more invention, more entrepreneurship happening in China, happening in Beijing than in Silicon Valley”.

Last year, Baidu, Huawei,Tencent, Didi Chuxing and Alibaba (which also owns the South China Morning Post) were named the “50 Smartest Companies” by MIT’s Technology Review, alongside Tesla, Nvidia, SpaceX, Facebookand others. DJI and Ehang, two Chinese drone makers, have become the world’s leading innovators in unmanned aerial vehicles.

In the post-shanzhai era, China will see a proliferation of business models and innovations. Some companies in the rest of the world are beginning to “reference” Chinese companies, especially in the tech sector. We call this phenomenon “reverse shanzhai”.

Tokopedia, Indonesia’s No 1e-commerce platform, markets itself as the Taobao of Indonesia. “I really like how visionary Jack Ma is,” said William Tanuwijaya, Tokopedia’s co-founder, who adopted Alibaba’s business model after research.

A worker at Indian e-commerce company Snapdeal makes a call to acustomer before delivering a package in Ahmedabad, India, in 2015. Beforelaunching Snapdeal, Kunal Bahl and his partner Rohit Bansal visited China in2011 and noticed that the Indian market had more in common with the Chinesemarket than with the market in the US. Photo: Reuters

Snapdeal, dubbed the “Alibaba of India”, is a top e-commerce company in the country. Before launching their platform, Kunal Bahl and his partner Rohit Bansal visited China in 2011 and noticed that the Indian market had more in common with the Chinese market than with the market in the US. They realised Alibaba’s platform strategy would solve India’s biggest issue: aggregating India’s millions of small brands and sellers.

The same happened in Nigeria, where e-commerce website Konga.com was originally launched as a local Amazon at the beginning of 2014, only to morph a few months later into the “Alibaba of Africa”. And this trend is not limited to e-commerce. Indian entrepreneur VIjayShekar Sharma, an admirer of Jack Ma, modelled his company Paytm after Alibaba.The company, seen as the “Alipay of ­India”, has raised fresh funding from Ant Financial.

Stationless bike-sharing is the latest export of China-originated innovation. Mobike, the leading player, has gone from zero to 23 Chinese cities in 10 months, recording 200 million ridessince its launch in April 2016. It is now expanding into overseas markets.Others, such as oBike and LimeBike, have already been rolled out in Singapore and Silicon Valley respectively.

In some cases, Chinese companies enter new overseas markets by making strategic investments in foreign companies. For example, Alibaba invested in Singapore-based e-commerce leader Lazada to build an “Alibaba of Southeast Asia”. Didi Chuxing also invested in Grab, the leading ride-hailing platform in Southeast Asia.

Malaysia’s Prime Minister Najib Razak (third from left) and Alibaba Group founder and executive chairman Jack Ma (centre) in Kuala Lumpur this March, at the launch of the country’s digital free trade zone. Photo: AFP

Furthermore, Jack Ma has been appointed a key adviser to the Malaysian and Indonesian governments for theirdigital economy aspirations. This is a significant achievement as it provesthat China is becoming the benchmark, rather than the follower.

Yet, “reverse shanzhai” is not simply “copy and paste”. The recent struggles of the likes of Xiaomi and LeEco have shown that some Chinese companies still lack experience to sustain their business beyond borders. Often, one cannot simply transfer Chinese business models to another market without any adaptation. As Tokopedia’s Tanuwijaya putit: “Chinese e-commerce is a source of inspiration, but it is not a format that can be simply imposed on any market. You have to grow it from within.”

The trend of “reverse shanzhai”will be increasingly prevalent internationally, as China’s innovation and entrepreneurship continue to thrive.

The world should take notice.

Edward Tse is founder and CEO of Gao Feng Advisory Company and author of China’s Disruptors.

Marco Gervasi is executive director of Red Synergy Business Consulting and the author of East Commerce.

 

SCMP | Oiling the wheels

UPDATED : Thursday, 05 January, 2017, 7:34pm

How Chinese Entrepreneurs Can Help Trump ‘Make America Great Again’

Dr. Edward Tse says Chinese investment and job creation are just what the US economy needs to sharpen its edge, not isolationism and trade wars

Donald Trump’s recent appointment of Peter Navarro to head his newly formed White House National Trade Council has sparked controversy.

Navarro is known for his hawkish views on China and many believe that, by appointing him, the US president-elect is signalling that he will play hardball with China on trade when he takes office.

Navarro has written a number of books and filmed a documentary in which he criticised China for unfair trade practices, especially with the US. He has called China “a cheat”, “brutal” and “amoral”.

Perhaps his most quoted book is Death by China (published in 2011), in which he accused China of purposely hollowing out America’s manufacturing sector, manipulating its currency to make exports cheaper, and creating an unequal playing field in which China can exploit US markets while ensuring American companies are squeezed out from the Chinese market.

‘Cheating, rapacious, venal, disease incubator’: here’s what Trump’s new trade tsar thinks of China

Trump has openly said that he read the book and found Navarro’s arguments to be clear. By implication, this would seem to be at least part of the reason why Navarro was picked for the job.

External views of China, as the country transforms, range from being very positive to very negative. However, most of these views, especially the negative ones, fail to take into account the full China context and its continued evolution.

A recent Wall Street Journal article calls Navarro’s arguments “hyperbolic and out-of-date ”.

China has evolved significantly since Deng Xiaoping (邓小平) pushed for greater economic opening up, during his landmark 1992 “southern visit”. During the 1990s and part of the 2000s, the country certainly benefited from cheap labour, with its limited worker protection and low overall environmental standards. However, China’s labour costs have been rising steadily due to more stringent regulatory standards and salary pressure, coupled with much higher benefits.

While China still has significant environmental problems, it is now a leading proponent of global cooperation against climate change and is investing billions of dollars to combat its own pollution issues.

Currency manipulation is another common mantra of Chinese alarmists. Currently, China is using its foreign currency reserves to stop the renminbi from getting weaker.

Even though some industry sectors are still closed or partially closed to foreign companies (and non-state Chinese companies), more sectors are increasingly being opened for companies, regardless of their origins. And, in these open sectors, competition is often extremely intensive, driving attempts at excellence.

While not every US company operating in China has done well, it would be inaccurate to say that US companies are in general unfairly treated in the country and squeezed out. Nike, Starbucks, General Motors, Ford, Honeywell and Apple are examples of how companies across different sectors are all doing very well in China.

Many economists of various political leanings have voiced support for free trade. In 2015, more than a dozen well-known, mainly conservative economists, including Alan Greenspan, Charles L. Schultze, Ben Bernanke, and Greg Mankiw wrote to the US Congress in support of various free trade deals, declaring free trade as being a fundamental good for the US economy. Paul Krugman, the Nobel-Prize-winning liberal economist, is an open proponent of free trade. Trade is not a zero-sum game.

Instead of launching a trade war, collaboration is the way to go. Fuyao Glass, a privately owned Chinese automotive glass company, recently announced it would invest US$1 billion in its US operations to open manufacturing plants in both Ohio and Michigan . These plants would create over 3,000 jobs for American workers.

Study: US-China investment ties are bigger and deeper than anyone thought

Fuyao chairman Cao Dewang said the economics of manufacturing in the US is now competitive relative to that in China, at least for his company. The US auto market is significant and having an established presence next to its customers is crucial for Fuyao. A report by US research company Rhodium Group, published in December and titled “Chinese Investment in the United States”, said Americans employed by Chinese firms have grown from less than 10,000 in 2009 to more than 100,000 today.

Rhodium also found that the majority of American firms acquired by Chinese companies have undergone expansion after the initial acquisition, and that Chinese companies’ investments are becoming capital-intensive production and research and development operations, that will bring in more jobs for American workers.

Fivefold surge in Americans on Chinese firms’ payrolls, US study shows

Earlier, Rhodium forecast that Chinese companies would invest between US$100 billion and US$200 billion, and create 200,000 to 400,000 jobs in the US by 2020.

Perhaps Trump will be concerned about investments by China (or other foreign countries) in sectors that the US government feels would endanger its national security interests. However, there is still lots of room for investments outside this area. The Fuyao investment is one such case. Manufacturing of other types of auto parts or supplies, construction machinery, building materials, consumer products and retail come to mind, too.

Chinese firms pour money into US R&D in drive for innovation

Attracting Chinese companies to invest in the US and build plants, especially in the Rust Belt, is probably the fastest way to create jobs where the US most urgently needs them.

Many of the Chinese companies with such plans or interests are not “leaving China”. Take Fuyao: China remains and will be its largest market, but investing overseas also makes sense, given the emerging international opportunities.

In addition to hard-core manufacturing, Chinese investors are also interested in the services, media and entertainment sectors , as well as internet-centric technology. Such investments would also create a substantial number of local jobs.

The competitiveness of a country is based on its relative, sustainable competitive advantages. And they are driven by innovation, openness and collaborative leverages. Given Trump’s stated desire to “make America great again”, he must focus on how to increase the competitive advantages of the US, and that will not come from isolationism and launching trade wars.

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

 

南华早报 | 特朗普VS 中国:博弈的四个解读

唐纳德·特朗普当选下任美国总统,引发了人们对中美关系的猜测,尤其是有关投资和贸易方面。很多人想知道,特朗普当选对中美两国的企业会有何影响。

我们可以从不同角度来看待这一状况。

首先,孤立主义不可能为任何国家带来可持续发展。历史反复验证这一观点,中国过去也曾有过深刻的教训。

在郑和下西洋后,明朝政府开始闭关锁国,由此开始了中国数个世纪的衰落。讽刺的是,在现代中国不断开放的同时,特朗普却在支持美国这一孕育出现代世界开放贸易体系的国家变得封闭起来。

第二,美国仍是世界上最大的经济体(占世界GDP的25%),但其人口数量还不到世界人口总数的5%。中国的经济总量虽为世界GDP的15%,影响力与日俱增,但中国人口占世界人口的比重超过了18%。无论特朗普对中国采取何种贸易政策,中国已经成为世界最大的贸易国,并很可能一直保持这一地位。

中国在强化自身在世界贸易领域的影响力方面,没有采取任何消极的措施。“一带一路”就是一个很好的例子,该计划会不断地影响全球的大部分地区。无论美国(和日本)是否参与其中,“一带一路”战略计划仍会实施下去。据路透社报道,习近平主席称,2015年中国和参与“一带一路”的国家贸易额已超过1万亿美元,这可是特朗普提出的五年基础设施建设计划的两倍规模(约5500亿美元)。

11月10日,詹姆斯·伍尔西(特朗普的顾问,美国前中央情报局局长)在香港《南华早报》上写道,他认为美国没有加入亚洲基础设施投资银行是一大错误。对此,我也表示赞同。

中国的国内市场还会不断增长,但如果特朗普真的实施保护主义政策与反华贸易政策,中国市场可能会受到一些负面影响,增速放缓。但中国市场不太可能会暴跌。中国市场的持续发展、演变以及一个巨大中产阶级的崛起仍会是许多美国企业创造价值的主要源泉。对来自其他国家的企业而言,同样如此。比如说汽车行业:中国现在是通用汽车和福特(以及德国“三大”汽车制造商)的主要市场。对苹果、星巴克、耐克、通用电气和霍尼韦尔而言亦是一样。

第三,一些美国企业可能会将部分制造业务从中国回迁美国,但大量制造业回流美国本土并不太可能发生。让制造业返回美国并非易事,尤其是那些涉及技术的制造业。此举不仅关乎成本,还与质量及反应能力有关。制造业的供应链极为复杂,通常会涉及到多个层次的供应商。制造商不能简单随心地变迁工厂地址,因为他们必须确保其他供应商愿意和他们一同迁移。

中国用了几十年的时间,才在全国范围内不同地方建立起制造系统的集群功能,成为世界工厂。例如,在电子行业,美国的制造业链条非常少。如果要回迁所有工厂,美国将要耗费大量的时间、资源才能够成为中国那样的世界制造业中心。

即使有大量企业愿意把生产线移回美国,这也不是一蹴而就的事情。另外,制造业朝着自动化生产的趋势发展。因此,成为制造业基地就可以创造成千上万份工作的观点未免过于简单,甚至是错误的观点。一些选民基于特朗普复苏美国制造业的承诺才为其投票,那么这些选民是否有足够的耐心等待制造业的回迁?

对于大的部署而言,四年并不长,但是在美国经历了几十年的制造业外流后,马上重新在本土引入制造业是相当困难的,美国于制造业方面已经缺失了能力。

第四,虽然制造业应当是大型、可持续发展经济体的核心组成部分,但是现在不少的经济价值却来自于服务业和商业模式创新。其中很多的经济价值就源于数字行业或是互联网,要在这部分“进口产品”上收取“关税”比较困难了。

在数字和互联网行业,一些中国企业发挥着显著的作用。事实上,相比起中国的传统体制,中国数字行业的领导企业与他们的美国同行在企业文化、价值观以及组织形式上更为相似。不少中国的数字企业从总部于美国的风险投资基金处获得投资,反之亦然。中美两国的关系比许多人想象还要错综复杂。

在大选中做出承诺,产生“话题价值”是一码事,但改变公共政策则又是另一码事。鉴于中美关系的重要性和复杂程度,特朗普在与顾问决定政策方向及基本内容时,必定会重新考虑一系列因素。中国崛起,成为世界主要消费国和工业经济体,惠及许多美国的跨国公司。同样受益的有许多总部设立在美国的风险投资和私募股权基金。中国商人投资美国公司,通常能维持,甚至是增加美国的就业率。

近来,全球化进程看似受挫,但全球化的进一步发展与区域化的基本潮流依旧强劲。

在最近的一次会议上,阿里巴巴集团的副主席蔡崇信所说的话非常正确:“中美关系将会决定本世纪的走向。如果中国消费者不购买美国产品,中国投资者就不会投资美国,创造就业岗位,那样美国就会面临大麻烦。”

在过去几十年间,数以亿计的人们脱离了贫困。我们可以理解经济民族主义复苏的原因,但以我个人看来,很难看到经济民族主义会大范围、可持续地取代全球化进程的局面。

原文2016年11月27日刊登于香港《南华早报》。原文标题为:Four reasons why Trump will learn a Chinese lesson on how isolationism never works

 

SCMP | Claim the Future

Hong Kong’s angry youth can find hope in innovation and entrepreneurship
Edward Tse says a chance of upward mobility through business may placate a young generation frustrated with the status quo, and they can learn from successful peers on the mainland

It is no understatement to say that, over the past several years, Hong Kong’s youth have displayed increasing frustration. Occupy Central, riots at Lunar New Year, campaigns against parallel goods traders, the Hong Kong independence initiative, along with the controversy over the Wang Chau housing plan, clearly reflect the frustrations of our young generation.

So, what’s behind this? There is probably no single reason, but rather a variety of political, social and economic factors.

Hong Kong’s young people today live in a city that is very different from the one their parents grew up in. Hong Kong in the 1970s and 1980s was tough, but the city was growing and there were plenty of opportunities for young people. There was potential for upward mobility and young people working hard could build a better life for themselves.

However, today’s youngsters have it pretty hard. Hong Kong’s economic structure has become much more narrow. There are still some good jobs available offering upward mobility, such as in the top-end financial services sector, but our youth do not have any distinctive edge over mainland or overseas competitors.

So, what is the best way for Hong Kong’s youth to find new opportunities for social mobility? I believe the answer lies in innovation and entrepreneurship.

Innovation is a process of creating substantial value through new ideas. These “new ideas” could come from existing concepts, tools or technologies. It is different from invention, which often refers to creating a product or introducing a process which is entirely new.

So, in business, it can take the form of product innovation, service innovation or business model innovation. Sometimes, the core of the innovation is due to the introduction of new technology; sometimes, it is simply enabled by existing technology; and, at other times, it can have no relationship to technology at all, simply a new way of doing things.

During the first dotcom era at the end of the 1990s, Hong Kong had a short period of pretty vibrant innovation and entrepreneurship. Quite a number of entrepreneurs emerged and some were able to create a mark for themselves. Unfortunately, those roots were not planted firmly enough.

When the dotcom bubble burst, Hong Kong’s wave of innovation and entrepreneurship vanished. The city’s economic structure reverted to being driven by property development, financial services, travel, tourism and retail and, in this process, the possibility of upward mobility for our youth faded.

Meanwhile, mainland China has thrived on innovation and entrepreneurship. Entrepreneurs are getting younger (many are post 80s or post 90s). They are not only in big cities like Beijing, Shenzhen or Shanghai, but also in Hangzhou (杭州), Chengdu (成都)and Chongqing (重庆). They are all over China.

From the end of the 1990s, the private sector in China has grown much faster than the state sector in terms of both overall revenue and profit. Many of the noteworthy entrepreneurial companies are in the internet sector, but there are also many in non-internet-centric technology areas, financial services, connected mobility, retail and health care. While some of these thrive on technology innovation, many derive their growth from business model innovations.

There are a number of reasons why China has become a major breeding ground for business innovation. The years behind the gradual transition from a planned to a market economy has created many discontinuities, exposing society’s “pain points” and thus providing many opportunities for observant entrepreneurs. The prevalence of technology, especially wireless internet, has acted as a major enabler. Coupled with that is the massive market allowing business innovation to rapidly scale up; and last, but not least, capital is abundant through well-funded venture capital and angel investors.

For Hong Kong’s youth, mainland China can provide real opportunities for entrepreneurial pursuits for those who are willing to see it in this way. Increasingly, the mainland is putting more value on knowledge and the environment is tolerant of multiple trials and errors. In terms of intrinsics, Hong Kong’s youth are not so different from those on the mainland. China’s operating environment for businesses has many flaws but those who make it are those who can achieve things in spite of these imperfections. Hong Kong’s youth just need to try. In fact, the mainland can become the platform for Hong Kong youth to become the world’s best in their own chosen area of focus.

There are cases of Hongkongers making it in China, such as Martin Lau Chi-ping, president of Tencent, and Victor Koo Wing-cheung, founder of popular video hosting service Youku.

Today, exponential value creation increasingly comes from entrepreneurs’ command of knowledge. Of course, there will still be people who can create wealth in other ways, both on the mainland and in Hong Kong. However, as technology and other factors drive down artificial barriers, knowledge is becoming more prevalent in value creation. And, innovation and entrepreneurship are merely the means to capturing and leveraging knowledge.

Hong Kong’s youth must focus on capturing knowledge, and use it for innovation and entrepreneurship to create value. Entrepreneurship is by definition difficult. Only a very small percentage will succeed. However, that small percentage could capture significant value and can become role models.

The Hong Kong government’s creation of the Innovation and Technology Bureau is a good move. It allows a top-down approach of driving innovation and entrepreneurship. However, this isn’t enough. Success requires a partnership between the public and private sector, as well as collaboration between Hong Kong and the mainland. Shenzhen and neighbouring cities in Guangdong, given their proximity to Hong Kong, would make the most natural partners.

For this to take off, it only needs a few successful cases of Hong Kong youth making it big, serving as role models for the next generation of entrepreneurs. This multiplier effect can lead to significant upward mobility for Hong Kong’s youth and is a way for them to truly take back the initiative for their future.

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

 

SCMP | Midea’s Move for German Robot Maker Kuka May be a Turning Point

PUBLISHED : Sunday, 21 August, 2016, 10:00am

Midea’s Move for German Robot Maker Kuka May be a Turning Point for Chinese Manufacturing

Edward Tse says the takeover bid is emblematic of how Chinese companies are shaking off the copycat label in the march towards ‘Industry 4.0’ and ‘Made in China 2025’

Chinese electrical appliance manufacturer Midea’s move to acquire Kuka, the German robot maker, could be a defining moment in the evolution of China’s manufacturing sector. China’s reliance on low-cost, labour-intensive manufacturing to power its immense economy is no longer attractive, mainly due to the rise in labour and other costs. The world’s second-largest economy needs to seek alternative ways to grow and companies like Midea are showing the way.

Midea was founded in 1968 by He Xiangjian as a small township enterprise. Leading a group of residents in Beijiao, Guangdong province, He raised 5,000 yuan (HK$5,834) to establish a bottle lid production workshop. Midea has since transformed into a global player pushing the technology and innovation frontier.

It currently owns some of China’s top home appliance brands and its total group revenue globally in 2015 was over US$21 billion. Its rise epitomises the thriving Chinese innovational and entrepreneurial spirit that emerged after the economic reforms spearheaded by late paramount leader Deng Xiaoping (邓小平).

For a long time, China’s manufacturers were branded copycats (shanzhai). Even though there are still plenty of shanzhai companies around, many more established companies like Midea are transforming themselves into market leaders and disruptors through innovation, evolution, experimentation and a closer connection with consumers. Midea’s latest acquisition target marks its foray into Industry 4.0.

So why is a maker of fridges and air conditioners interested in state-of-the-art industrial robotics? The heart of the matter can be found in two key phrases, “Industry 4.0” and “Made in China 2025”.

“Industry 4.0” refers to the concept of fully automated production facilities that require minimal human involvement. This fourth stage of the industrial revolution represents the convergence of the internet of things and the control of cyber-physical systems.

‘Made in China’: the smart revolution blueprint set to bring Beijing into the digital age

“Made in China 2025” is an initiative by the Chinese government to drive manufacturing innovation, strengthen the industrial base and promote breakthroughs in key industrial sectors, with the ultimate goal of enhancing international competitiveness and improving the image of Chinese brands. It is one of the most prominent concepts in China’s 13th five-year plan.

China’s latest strategic plan not only involves acquiring foreign companies, but also embracing the principles of Industry 4.0. This was seen in the 2014 Sino-German Cooperation Action Plan under the theme “Design Innovation Together”. This plan facilitates bilateral cooperation where both countries commit to improving collaboration in areas such as mobile internet, the internet of things, cloud computing and big data, along with policy and regulatory support.

Industry 4.0 envisions a future with shortened model and upgrade cycles, and a higher degree of personalisation. For a white goods maker, it means being able to adapt quickly to changing consumer needs while reducing production overheads, costs and the capability to offer solutions based on consumers’ exact needs.

Haier is a good example of a company that has already begun its foray into Industry 4.0 territory. Its latest “Connected Factory Programme” allows it to mass produce personalised products instead of the traditional large-scale factory that only produces one type of product per cycle. Thanks to this new factory model, Haier’s customers will be able to order tailor-made products such as air conditioners that filter out methanol.

While China has traditionally enjoyed low labour costs with a comparatively higher labour-to-production ratio, its workforce of young, cheap labour has become scarce. Facing these new demographic changes, Industry 4.0 stands to shift China’s industry to more automated and labour-light practices. Fang Hongbo, Midea’s chairman, said this was a major motivating factor for their offer for Kuka.

Many regard most industries in China as still operating in the “Industry 2.0” era – a more traditional mass production assembly line system. For these manufacturers, directly diving into Industry 4.0 would be an incredibly difficult leap due to the cost of replacing and upgrading their plants and infrastructure.

This is where Kuka comes into play for Midea. By investing in Kuka, which is heavily focused on digitising its industrial manufacturing solutions, Midea stands to directly benefit from Kuka’s Industry 4.0 expertise and its vast foreign network. Kuka can provide vital technologies to help Midea build up its Industry 4.0 strategy and production lines, while Midea will assist Kuka with its expansion plan and growth strategy in China.

Stuck in the past: how China’s manufacturing powerhouse of Dongguan got left behind

The acquisition would be a turning point that might very well help Midea become part of China’s very own Industry 4.0 vanguard. Other Chinese firms that have recently acquired German companies with Industry 4.0 capabilities include ChemChina (machinery maker KraussMaffei ), Shanghai Electric Group (hi-tech equipment manufacturer Manz) and Shang Gong Group (knitting machine maker H. Stoll).

This trend in acquiring robotics and automation technologies should bring increased efficiency and production to China’s manufacturing. It will also help drive down costs for Chinese companies and assist in reaching their goals of transforming into Industry 4.0 enterprises.

Chinese manufacturers have come a long way from being shanzhai companies, and are now increasingly technology-driven and innovative. Judging from recent developments, it looks like their time has come.

Not many Chinese manufacturers may get there, but some will, and as I’ve always said: “A small percentage of a large number can still be significant.” And, those who do “make it” will serve as role models for many more to come.

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

 

谢祖墀 | 重温组织DNA 理论

在博斯公司 (Booz&Company) 工作的时候,我们发展出了不少的管理理论。但我个人认为,最受企业界重视和最具应用价值的是“组织DNA”(Org DNA) 的理论。

 

该理论的提出者是加里·尼尔逊(GaryNeilson),博斯公司的一位高级合伙人。我与加里认识已经近20 年,他是一位美国人,常驻芝加哥办事处,是一位非常成功的企业组织的研究专家,在业界享有盛名。

 

“组织DNA”的理论是加里于2005 年正式提出来的。当年他和博斯的另外一位高级合伙人布鲁斯·帕斯特纳克(Bruce Pasternack) 合作出版了一本书,名为《Results》(《成效》)。于书里,他们全面介绍了“组织DNA”理论。

 

当年此理论在西方企业界受到了高度重视,不少企业客户都来请教博斯公司如何重塑它们的组织DNA。当时,我亦在中国企业界中推介了此理论,还与当时哈佛《商业理论》的忻榕教授合作,做了一次针对中国不同类别企业的组织DNA 的调查,调查结果在企业界很受重视。

 

十年过得很快,在此时间里,中国企业发展非常迅速,在管理理念上取得不少进步,同时不少企业家和观察者亦提出了不少新的观点,特别是在互联网时代,新的管理和组织概念层出不穷,让不少人眼花缭乱。

 

个人认为,在无数的貌似混沌的观点背后其实还有一些原则性极强、基石类的管理理论,它们的重要性是跨越时空的。我认为,“组织DNA”的理论既是这些基石理论之一。

 

在博斯的研究中,它们将企业自身的属性特征类比于生物体的DNA。就像生物DNA 的双螺旋结构由四种核苷酸分子的不同组合所决定一样,企业DNA
由组织架构、决策权、信息传导和激励机制四个基本要素组成,这些基本要素通过无数种组合方法形成企业的独特性。我们经常谈及的战略、创新、执行力、企业转型等焦点问题,无一不深深地根植于企业本身的DNA
之中。

 

根据博斯公司的研究,企业DNA有这七种类型:

 

1. 韧力调节型

这种企业非常灵活,能迅速适应外部市场的变化,但同时又能始终坚持清晰的经营战略,并围绕它开展业务。企业具有前瞻性,能经常预测未来的变化,并未雨绸缪地做好准备。它能够吸引积极进取、具有团队精神的人才,不仅为他们提供催人奋进的工作环境,还提供资源并授予他们权力以有效解决各种棘手的问题。

2. 随机应变型企业

这种企业对变化不能始终做到未雨绸缪,但仍然能在必要时显示出“随机应变”的能力,而且不会失去企业发展的大方向。尽管它能设法留住好员工,财务状况也尚可,但它仍然无法由“好”变成“卓越”。这种企业很容易与一些机会失之交臂,它的成功往往只是侥幸取得,而不是一种必然。然而,尽管有诸多令人失望的地方,它仍然是一个充满挑战、富有激情的工作场所。

3. 军队型企业

通常由少数有经验的高层管理团队领航,主要借助企业领导层的意志和远见卓识取得成功。企业有能力制定并执行极好的战略,有些时候还会反复执行。这类企业最重要的课题是做好充分的准备,以便在现任领导任期结束之后继续保持增长。企业内资历浅的人才通常是通过观摩而不是身体力行来学习,中层管理人才经常抛弃现有职位离开企业,让正处于上升阶段的新人们意识到他们必须离开企业才能获得实际经验。

4. 消极进取型企业

这种企业看上去很协调,好像没有任何冲突,这是一种“决策一致,但无法得到实施”的企业。对于重大变革,要形成一致意见并不难,难的是实施变革。长期扎根于员工中的无形阻力可以让企业的所有心血付之东流。由于缺乏必要的权威、信息和激励措施开展有意义的变革,一线员工很容易忽视来自总部的指令,认为“这没什么大不了的”。面对这样一个缺乏热情的企业,高层管理只能对花了很大精力却不能实现预期价值而感到痛心疾首。

5. 时停时进型企业

这种企业内有许多人都非常聪明、才华横溢而且积极进取,但他们常常不能一起朝同一个方向努力。如果他们能够做到这一点,就能取得辉煌的、突破性的战略进步,然而这种企业内特别缺乏相应的制度和协调机制来保持辉煌。这种企业能够激发人的聪明才智和主动性,它能创造很多机会让那些具有企业家精神的人尝试自己的想法和挑起重任,但往往事与愿违,大家各行其是,导致企业濒临失控。

6. 过度膨胀型企业

企业的扩张超出了组织模式的负荷,导致运该转不灵。企业机构过于庞大和复杂,少数高层管理人员已经无法再有效控制企业,大部分的组织潜力无法发掘。企业权力的集中化容易导致企业步履维艰,企业常常发现自己“墨守成规。”这类企业经常会错失良机,战略总是无法得到有效执行。

7. 过度管理型企业

受多层管理的拖累,该类企业容易陷入“分析瘫痪”(analysis paralysis)的困境。即便企业确实取得进步,也是事倍功半,效率低下。在把握机会上常常落后于竞争对手。管理人员通常会捡了芝麻丢了西瓜,把大量时间花在相互检查工作而不是探索新的机会或防范潜在威胁上。这些企业常常带有官僚作风和强烈的政治色彩,易于挫伤主动进取和追求实效的人。

 

最优良的DNA是韧力调节型,而随机应变型和军队型是次佳,余下的四种DNA 都是非良性的。在过去几十年的发展中,中国企业们的发展和表现总体证明了这个观察在实践中是正确的。问题是在未来的发展中,企业家们如何在建设适合组织DNA 方面作出深刻的观察和塑造。一个组织的DNA 其实是会改变的,本来良性的DNA 可以变成非良性的,反之亦然。

在互联网时代,不少人提出了一些新的组织形式,但无论是“自组织”或传统自上而下的组织架构,核心仍旧是该组织的DNA。

 

十多年后重温组织DNA 的理念,仍觉对今天的企业非常受用。在此,我将这个理念推荐给每位中国企业家,也希望引起企业界更多的思考:你的企业的DNA是怎样的?

摘自《亚布力观点》(2016年6月刊)并保留所有权利

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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SCMP | A More Complete and Balanced View on China is Needed

Edward Tse
South China Morning Post 2016-02-23

One of the most talked-about topics these days is undoubtedly China. Is the country going to have a “hard landing”, as George Soros has proclaimed, or will it continue its transition to stability andprosperity?

Of course, numerous people have expressed their views on China over the years and these views cover the entire spectrum, from hugely negative to widely optimistic. For such a big and complex country, to expect smooth sailing all the way when it tries to reform itself is pretty naive. The world’s most populous country has a long history and civilisation but only a relatively short, though influential, period of a planned economy; its transition to a market economy is a complicated process, to say the least. Anyone can poke into China’s transition at any given point in time and find imperfections.

To start with, we must recognise the reality of what the Chinese government has done, lifting hundreds of millions of people out of poverty to a reasonable standard of living and enabling a significant degree of connectivity with the rest of the world. This, by any measure, is no mean feat.

People’s views on China will depend on who they are and, insome cases, their motives. A hedge fund speculator who has shorted China would, of course, propagate the view that the Chinese economy is going to crash or at least slow down. However, is this based on facts or merely a hope to maximise financial gains? In any case, these views tend to have a very short-term focus.

On the other hand, a chief executive of a multinational corporation would probably have a more balanced view of the short, medium and longer terms. It would be shaped by the experience he or she has had in China and the industry sector the company is in. If, for example, they run Home Depot, a US retail store whose business is built on customers’ “do it yourself” (DIY) habit, they would certainly be disappointed by China because Chinese don’t really “DIY”. Or, if their business is in China’s steel industry, which is suffering from excess capacity, they would probably concur that China’s short-term outlook is pretty gloomy.

For the past couple of decades, when China was growing at 9-10 percent every year, the tide was rising fast and as long as you jumped into the water, you would be carried upwards. Today, the tide is no longer rising as fast, though a 7 percent increase of the world’s second-largest economy still produces an annual increase the size of Switzerland’s gross domestic product.

With a slowing tide,the diversity in China’s landscape has become more pronounced in several ways. Some parts of China are growing much faster than others, for one. According to government statistics, the western municipality of Chongqing grew by 11 percent last year while the northeastern province of Liaoning grew by a mere 3 percent. Sector divergence is also becoming more visible. Some sectors, such as steel and cement, are experiencing serious overcapacity while those revolving around China’s digital revolution, and the consumer and service industries, are generally doing well. Some sectors are being left behind as newer forms of technology are adopted.

The type of company could also make a difference. Large state-owned enterprises continue to enjoy some policy advantages; however, as technology and other enablers kick in, more sectors are opening up (intentionally or unintentionally) and large state-owned firms have found it increasingly difficult to outpace their competitors.

By contrast, many private companies are leveraging their nimble, agile and entrepreneurial ways to gain competitive advantages. Pockets of opportunities are popping up in China, even in the midst of a slowing tide. Urbanisation, technological upgrades in manufacturing, environmental improvements, the service economy and the internet will be key drivers of growth opportunities.

In 2015, China’s box office sales reached US$6.3 billion, making it the second-largest film marketin the world. Chinese travellers spent US$184 billion abroad, making them one of the largest tourist segments globally by spending. China has become the world’s largest robotics market, with purchases making up 25 percent of the global total. The on-demand mobility app Didi Chuxing totalled 1.43 billionrides in 2015 alone, in contrast to Uber, which took six years to hit 1 billion rides worldwide.

And, to top it off, global acquisitions by Chinese companies totalled nearly US$1 trillion. Perhaps in recognition of these pockets, foreign direct investment into China continued to rise in 2015 and multinational corporations’ confidence didn’t seem to dwindle much.

China’s service sector has already exceeded 50 percent of the country’s total GDP. The size of China’s middle class is significant. Depending on calculations, it is now anywhere between 150 million and 250 million people, or more. And all estimatesare projecting further growth.

Importantly, with more exposure, Chinese people are increasingly interconnected with the rest of the world. Social media such as WeChat, Weibo and LinkedIn (and, for those who can climb over the “Great Firewall”, Facebook and Twitter) ensure that the information they receive from China and the rest of the world can be received “anywhere, anytime”.

And, of course, the Chinese development model, which is built on a combination of the government’s “visible hand” and bottom-up entrepreneurship, continues to function in its ownway. This model, which created the so-called “China miracle” over the past 20 years, also has many issues. The model is likely to change, given China’s transition, but its effectiveness – as well as its problems – will continue to reveal themselves.

So here we are. A big and influential China will continue to evolve in its own way, well, with Chinese characteristics. The path forward won’t be perfectly smooth, but it won’t be doomed, either. The immense diversity of the country is both an issue and a major source of resilience.

It’s very easy for people to focus on China’s problems but they should also appreciate the immense progress it is making. To fully understand what’s happening, a more sophisticated view is needed.

Edward Tse is founder and CEO of Gao Feng Advisory Company, a strategy and management consulting company, and author of “China’s Disruptors” (Portfolio, 2015).

 

SCMP | Well connected: The growing reach of China’s internet sector

Author: Edward Tse and Matthias Hendrichs
South China Morning Post
update 2016-01-03
Wuzhen, a small town in Zhejiang (浙江) province, became the centre of global attention when it hosted the second World Internet Conference last month. The theme was “An interconnected world shared and governed by all: building a cyberspace community of shared destiny”. More than 2,000 participants joined the event. Among them were President Xi Jinping (习近平) and other heads of state, prominent local internet business leaders and leaders of major foreign internet companies such as Brian Chesky (Airbnb), Jimmy Wales (Wikipedia) and Reed Hastings (Netflix). The conference included discussions on a range of topics, from global internet governance, cyber security and the internet industry as the engine of economic growth, to social development, technological innovation and philosophy of the internet.

President Xi Jinping delivers a keynote speech at the opening ceremony of the second World Internet Conference in Wuzhen. He called for governments to cooperate in regulating internet use. Photo: Xinhua

Xi gave the keynote speech, underlining the growing importance of the internet industry for China. He set out his vision of “cyber sovereignty”, urging the international community to support a “multilateral” approach to the governance of a shared future cyberspace, while also emphasising the need for all nations to join hands in fighting internet surveillance and cyberattacks.

Alibaba’s Jack Ma pointed out that the internet has drastically changed almost every aspect of people’s lives in China and that the potential for internet entrepreneurs to incubate more innovative business models and breakthrough technologies is limitless.

Other Chinese internet leaders expressed their optimism about artificial intelligence, virtual reality and the Internet of Things. Baidu exhibited its prototype of a self-driving car. Its CEO, Robin Li, believes such cars will be commonplace in three to five years. Tencent aspires to build platforms that connect people with other people, products and services. CEO Pony Ma believes the internet can “help unlock the full potential of public services” such as health care and education by eliminating inefficiencies and lowering costs. Jia Yueting, CEO of LeTV, a fast-growing company which started as a content provider over the internet, talked about his vision of creating “lifestyle ecosystems” for consumers.

China’s internet industry saw strong growth in 2015. The number of users reached 670 million, with mobile users accounting for close to 90 per cent. Purchases from mobile phones account for around half of all Chinese e-commerce retail sales. Last year also marked a series of market consolidations, including mergers between mobility service providers Tencent’s Didi and Alibaba’s Kuaidi; classified advertising websites 58.com and Ganji.com; group-buying website Meituan and local review platform Dianping.com; as well as online travel agency platforms Ctrip and Qunar.

Leading Chinese internet companies took further steps to “go out” to the rest of the world. Alibaba hired former Goldman Sachs executive J. Michael Evans to help make it a major player in the US. Recently, it opened offices in Munich and Paris to expand its European operations.

The World Internet Conference showed that Beijing sees the internet as a national priority; China can play a leading global role. Photo: Xinhua

To take on Uber in markets outside China, Didi Chuxing has invested in Lyft, Uber’s main rival in the US, India’s top car-hailing app Ola, and Singapore-based GrabTaxi. Guided by former Google executive Hugo Barra, smartphone company Xiaomi is expanding in India, Brazil and Indonesia. And LeTV is funding a US$1 billion investment in Nevada to build an electric vehicle manufacturing plant, saying it wants to take on Tesla.

On the other hand, more foreign tech companies are looking to China as an essential part of their global plans. December saw Apple and Samsung each reaching agreements with UnionPay to bring their payment systems to China. Google may follow with AndroidPay. That news came after Uber announced a US$1 billion China push, LinkedIn took its total number of China users past the 10 million mark and Airbnb secured US$1.5 billion for its China expansion plans.

This year should see the growth of China’s internet industry accelerate further. Lower-tier cities and rural markets will become the next frontier. Online retail sales in China’s rural markets are expected to reach 460 billion yuan (HK$ 549 billion) this year, nearly three times higher than in 2014, according to Ali Research. Beijing is also investing heavily in internet infrastructure, spending US$182 billion over three years to extend the country’s broadband and 4G network reach to almost every part of the country.

Issues such as the “Great Firewall”, media censorship, inadequate intellectual property and data privacy protection continue to present challenges for both foreign and domestic firms to grow their internet businesses in China. These issues will continue to be tension points between China and other countries, especially the US. Successful Chinese entrepreneurs will continue to take advantage of imperfections in Chinese society to identify new opportunities and build innovative solutions that address rapidly evolving consumer preferences and needs.

Baidu chief executive Robin Li speaks during a session of the World Internet Conference, where his company exhibited its prototype of a self-driving car. Li believes such cars will be commonplace in three to five years. Photo: Reuters

The World Internet Conference showed that Beijing sees the internet as a national priority; China can play a leading global role. Some observers have ridiculed, rightly or wrongly, China’s proclamation of a “world conference” given its censorship practises. Regardless, the government seems determined to move forward and it is trying to align with the private sector to continue building a thriving internet sector and use it to drive innovation and entrepreneurship in China.

In this context, Chinese entrepreneurs are developing a wide range of innovative ideas, and seem in general much more confident and outward-looking. In their attempts to build ecosystems, some Chinese tech companies will end up collaborating with others, while others may compete head-on. More foreign tech companies would like to enter – or re-enter – the Chinese market, given its huge size. Some will seek to collaborate with Chinese firms. At the same time, more Chinese tech companies and investors will seek partnerships or investment opportunities outside China, especially in Silicon Valley or Israel, creating a web of relationships unseen before. There will probably be more consolidation, through mergers and acquisitions, as well as the emergence of new entrepreneurial companies. This year, expect more excitement from China’s internet sector, which will increase its relevance on the world stage.

Edward Tse is founder and CEO, and Matthias Hendrichs is managing director, of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Dr Tse is author of China’s Disruptors (www.chinasdisruptors.com)

 

SCMP | How Foreign Tech Companies Go Local Survive and Thrive in China

By Edward Tse & Matthias Hendrichs
Updated 2015-10-15

 

The “Great Firewall” can limit foreign tech companies’ activities in China. For some, this represents an inconvenience while, for others, it represents a challenge on deemed values and principles.

Many foreign tech companies are taking a closer look at China again. During the recent visit of President Xi Jinping to the United States, leading tech firms such as Microsoft and Facebook sought discussions with the Chinese leader. Even Google, which was not invited to the events, is rumored to be contemplating a return to China. Over the past few years, many people have come to believe that local companies have risen to occupy leading positions in the growing, lucrative Chinese internet industry simply because foreign tech companies were blocked from the market. However, real-life examples present a different case.

In 2003, for instance, eBay entered the Chinese market by acquiring the then leading Chinese platform for consumer-to-consumer auctions, EachNet. But, by 2006, eBay decided to shut down its Chinese EachNet site. By failing to understand the local market context and choosing to migrate everything to the global eBay platform, eBay forced its Chinese customers to suffer a degrading user experience while its competitor Alibaba, with a new platform called Taobao, moved in the exact reverse direction and enabled its customers to dictate many new terms over the same period of time. Besides allowing users to exchange messages, Alibaba created Alipay, an escrow payment service that provides convenient, secure online payment, at a time when online credit or debit card payments were not common in China.

eBay’s lack of success in China is not a result of a ban or government protection for local competitors. Rather, the problem was how the company ran its Chinese business. Not understanding the Chinese market made it hard to win over local customers.

eBay forced its Chinese customers to suffer a degrading user experience while its competitor Alibaba, with a new platform called Taobao, moved in the exact reverse direction.

Google’s retreat from the Chinese market was slightly different. Google China, formally established in 2005, at first complied with the internet censorship laws in China and imposed self-censorship on its search engine until January 2010. Due to tightening censorship and alleged cyber-attacks from Chinese hackers, Google China decided to stop its self-censorship and moved its servers to Hong Kong. Eric Schmidt, Google’s CEO from 2001 to 2011, said in his book How Google Works that senior management views on the move were divided. Schmidt argued that Google should stay in China, while co-founders Larry Page and Sergey Brin strongly favoured a withdrawal due to the censorship.

In this case, government regulation was clearly an important factor. But was it the main reason for Google’s retreat? Every company will have to decide what is right for itself.

LinkedIn, the leading global professional social networking service, is a good example of how to enter the Chinese market. Linked- In officially launched a dedicated Chinese site, Lingying, in February last year, conforming to China’s online censorship regulations. Sequoia China, a venture capital firm that understands the China context, helped LinkedIn navigate the local competitive dynamics and government relations. Instead of hiring a figurehead “China GM” who would merely follow orders from corporate headquarters, LinkedIn decided to hire a “China CEO” who is given a high degree of autonomy to run LinkedIn China like an independent start-up company.

This autonomy enabled LinkedIn China to cater to local needs and to take targeted action addressing those needs. “China only” innovations include the partnership with Tencent’s WeChat, the predominant instant messaging app in mainland China; allowing users to link profiles across both platforms; and the launch of “Chitu” (which literally means “red rabbit”), a mobile-first business social networking app for Chinese users, which is fully independent from the global headquarters.

China is one of Uber’s most important markets. Despite the challenges it faces with the government, it has made China a core of its global strategy.

Following the same principle, Uber, the ride-sharing service, is heavily engaged in China with a strong local organization, competing with local rivals like Didi Kuaidi, which is backed by Alibaba and Tencent. Uber China is set to become a “Chinese” company with Chinese investors, Chinese management and decision rights to act independently from other markets.

China represents one of the most important markets for Uber. In just nine months, three Chinese cities – Chengdu , Guangzhou and Hangzhou – have each accounted for more rides than New York.

Despite the challenges that Uber faces with the local government, it is still committed to the Chinese market and has decided to make it a core of its global strategy.

It is too early to tell whether these companies can succeed over the long run, but at least they seem to be heading in the right direction. The factors that these companies adhere to in China are: understanding the local context, identifying and empowering the local decision rights, seeking local leadership talent, building collaborative ecosystems with the right partners, and building innovative business models to engage with consumers.

Obviously, the “Great Firewall” and China’s censorship rules can limit foreign tech companies’ activities in China, and they are unlikely to go away soon. For some, this represents merely an inconvenience while, for others, it represents a challenge on deemed values and principles.

Clearly, every company will need to judge what is acceptable and what is not. However, a generalization that all foreign tech companies feel the same way and are “blocked” is also far from the full truth.

Edward Tse is CEO, and Matthias Hendrichs Managing Director, of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Dr Tse is author of China’s Disruptors. www.chinasdisruptors.com

This article appeared in the South China Morning Post print edition as The China test

 

SCMP | Positive Disruption

UPDATED : 2015-07-18
BY Edward Tse

Dr. Edward Tse believes the rise of Chinese entrepreneurship will remake the country and change the world.

Many people believe China’s economy is dominated by its state owned enterprises, which are typically large, supported by the government and enjoy preferential market access. Some call it “state capitalism”. While this perception is not entirely incorrect, it is being challenged by the rapidly developing private business sector.

Over the past two decades and more, entrepreneurship in China has grown at an exponential rate. As a result, it is bringing forth disruptive changes not only in China but increasingly on a global scale.

In 2000, total revenues earned by Chinese state-owned industrial companies and those in the non-state- owned sector were roughly the same, at about 4 trillion yuan (HK$5 trillion) each. By 2013, while total revenues at state-owned companies had risen just over six fold, revenues in the non-state sector had risen by more than 18 times. Profits in the same period showed an even more remarkable difference, with state-owned companies showing a seven fold increase but profits at non-state-owned ones increasing nearly 23 times.

China’s entrepreneurs will be the ones driving the nation forward in the coming decades. Moreover, the entrepreneurial spirit runs deeper than just in business. It manifests itself in the government, and in the desires of ordinary people, most of whom share the dream of seeing their country reclaim its place as one of the world’s great sources of scientific ideas and technological advances.

China has the potential to emerge as a key force indetermining the direction the world will take through the 21st century. The reason is the role its entrepreneurs have assumed in the nation’s development.Through this process, they will change the world – not because they set out to do so, but because they can’t avoid it.

Given the inter connectedness of our world and China’s enormous scale, they cannot realise their potential without changing China, and they cannot change China without changing the world. China’s entrepreneurship, shaped by the country’s history and culture, both in theshort and long term, will inevitably intermix with global entrepreneurship.

As this happens, China’s entrepreneurs will no longer be able to ignore the most pressing global problems, above all, climate change and the environmental stress generated as more people become wealthy and begin consuming more of everything. They will have to be involved in solving these problems. Because of this, thanks to its entrepreneurs, China will be a leading source of the thinking and practices needed to overcome the challenges facing the world in the coming decades.

The world is interdependent and, barring major disasters, will only become more so. The question, therefore, is how and on what terms should other countries engage with China, and vice versa. Given China’s rate of economic growth, and the fact it could overtake the US in the near future to become the world’s biggest economy, the initial reaction in much of the West is to see it as a threat.

Indeed, already, it is clear that it is difficult for many in America and Europe to view with equanimity a world in which a new power with its own agenda is emerging. The current world was shaped by ideas that came out of Europe and America in the 18th through to the 20th centuries. But, now, with the emergence of Asia and especially China as a new centre of global economic gravity, new thinking is needed.

With the West looking less confident about its position, and its leadership losing credibility in many parts of the world,there is an opportunity for revolutionary new approaches. Despite the fears about the rise of a powerful China, the rest of the world needs to consider howbest to react to this change. Othersneed to see China’s re-emergence from a broader perspective, rather thanjust an economic story. They need to see that China’s entrepreneurs are alsodriving a renaissance that will have a wide-ranging impact in a host of fields,much of which they, too, can benefit from.

A unique phenomenon is taking place in China today.While its political system is in herited from a top-down planned economy hierarchy, its leading entrepreneurial companies, especially in the internet industry, which are young and dynamic, borrow much of their mindset, cultureand structure from America’s Silicon Valley.

In fact, many are closer to Silicon Valley than Beijing. In these companies, China’s political and economic structure is mixed with Silicon Valley culture, each influencing the other.

Finally, I believe that as a consequence of theopening driven by China’s entrepreneurs, the push to invest in science,research and development, and the new freedoms that people are enjoying, China has embarked on a renaissance that could bring it back to its historic heights.

The jury is still out but it is moving in the right direction.

This time, China’s impact could extend much further– with the country playing a crucial role in shaping global well-being and even global governance.

Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy consulting firm with roots in China. He is the author of the book, China’s Disruptors. www.chinasdisruptors.com

Used title: “China will reclaim its place at the top of global order, thanks to its new breed of entrepreneurs” on South China Morning Post Website.

SCMP | Hong Kong’s Way Forward is through Innovation

Edward Tse and Sunny Cheng
Monday, 02 March, 2015

Edward Tse and Sunny Cheng say setting up an innovation and technology bureau is a necessary first step for Hong Kong on the road to creating an ecosystem for entrepreneurs

Smartphones have changed the world. In many ways, they are more powerful than a personal computer because people carry them around all day, every day. App developers all over the world are constantly thinking of new ways to make them even better, doing things we never dreamed possible on a portable device.

After the 2011 earthquake and tsunami in Japan, and the subsequent nuclear disaster, many Japanese lived in fear of eating food contaminated with radiation, so they sought new ways to measure radioactivity and share the information with others. In less than six months, cheap Geiger counters emerged and Japanese were able to share their measurements online in real time.

Professor Nick Negroponte, the charismatic founder of the renowned Massachusetts Institute of Technology Media Lab, said the guiding principle for the lab was “demo, or die”. Twenty years ago, he had to demonstrate his idea of using a finger to move an object on a screen before anyone would believe it was possible. Today, even a toddler can do it on a smartphone. The world is changing rapidly and we cannot afford to lag behind. A couple of years ago, the Media Lab hired a new director, Joi Ito, and he changed their motto to “Deploy, or die.” The rapid deployment of a mass radioactive monitoring network is a good demonstration of that motto.

Ito visited Shenzhen last year and was surprised to find it a hub of innovation. While Silicon Valley remains the media’s star, Shenzhen is emerging as the centre for new devices. Ito said in his blog, “…I believe that Shenzhen, like Silicon Valley, has become such a ‘complete’ ecosystem that we’re more likely to be successful building networks to connect with Shenzhen than to compete with it head on.”

Shenzhen has much to offer. On Valentine’s Day, the media highlighted Chinese rock star Wang Feng’s proposal to movie actress Zhang Ziyi using a drone. That drone was made by DJI, a Shenzhen-based technology company founded by Hong Kong University of Science and Technology graduate Wang Tao. Today, it is the global leader in small consumer drones with sales of some 3 billion yuan (HK$3.78 billion).

Shenzhen and Hong Kong can emerge together as a strong, innovative hub for the world, and a gateway to the huge China market. Unfortunately, most people in Hong Kong are still napping; they need to wake up and seize the opportunities that China offers.

Our education system nurtured the birth of DJI and many others, but we must not stop there. Setting up an innovation and technology bureau is a necessary first step, but it will not be enough. We need the public and private sectors to work together. We must continue to set up incubators and provide the venture capital and angel investors so innovative firms can grow. We need an ecosystem like Silicon Valley, a place where entrepreneurs go to succeed and fulfil their dreams.

The HK$1 billion foundation set up by Alibaba’s Jack Ma to help young Hongkongers start their own ventures is an inspirational step. Hong Kong tycoons should consider giving back to the community, too. They need to inspire our young people. Hong Kong prospered in the 1970s when the immigrants who arrived in the 1950s and 1960s seized the opportunities and made the city a global trading hub. Our young people should seize their own future, as our forefathers did.

The civil service, meanwhile, needs to review where the Innovation and Technology Commission went wrong, and why. An innovation and technology bureau must be more than just a “renamed” commission. The government should also reflect on the West Kowloon Cultural District’s failings.

Legislators have already done enough damage with their filibustering. It’s time for them to stop interfering and using Cyberport as a reason for blocking the new bureau. We just need to make sure we learn from past mistakes. Lawmakers should help build a better Hong Kong, not kill any hope of a bright future.

It should also be remembered that failure is the master of innovation; all science and technology students can learn from failures and mistakes. So an innovation and technology bureau must allow for failure, without which there will be no innovation.

Just as Apple’s Steve Jobs advised college graduates to follow their hearts, the head of the bureau should also follow his or her heart and become a leader of innovation. Falling short of this mark would make the bureau useless, which is what the pan-democrats are campaigning about.

The idea to create such a bureau is the government’s first major move following the Occupy protests to help our youth secure a better future. The people of Hong Kong must leave the past behind. Only when everyone moves forward with a new vision can we foster real change. The time for change is now.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Sunny K. W. Cheng is an environmental technology consultant.

This article appeared in the South China Morning Post print edition as Innovate, or die

 

南华早报 | 中国汽车业将进入另一个黄金时代

谢祖墀, Bill Russo
2015年01月24日
来源: 南华早报中文网

中国经过十年惊人的经济增长,2009年已超越美国成为全球最大汽车市场。从那时起,尽管美国汽车销量恢复增长,但中国汽车销量却拉阔了与美国的差距,达2350万辆,而美国的销量为1700万辆。

然而,中国汽车销量去年增长7%,仅为2013年的一半左右。实际上,过去四年的其中三年,中国汽车销量都维持在个位数增长,促使许多市场追随者认为这是“新常态”。有人说,中国汽车业的光辉时代已经过去。

事实上,有很多值得担心的理由。除了中国整体经济增长放缓外,越来越多城市限制汽车销售,以应对交通拥堵和气体排放问题。上月,深圳就联同其他城市(包括北京、天津、上海、广州、杭州和贵阳),通过限制购车以阻止汽车增加。

此外,未售出车辆的库存不断上升,促使中国汽车流通协会公然挑战国际名牌车商(包括宝马和丰田),要求他们增加对经销商的鼓励措施,调低2015年销售目标。虽然这些情况在中短期内令人关注,但我们认为,中国汽车市场正在进入另一个阶段:为本地和全球汽车制造商提供全球最有利可图的发展机会。事实上,中国汽车产业正面临重大变革,这种变革将彻底改变行业格局,也会带来机遇和挑战。

低效率、由资产驱动经济增长的时代已经成为过去。总体而言,由于部份厂商之前对经济前景过份乐观,结果出现产能泡沫。该问题在中低档市场最为严重。由于制造商试图以比竞争对手更低的价格出售多余存货,将令原本已极为激烈的竞争环境雪上加霜。

中国汽车业要健康、稳定地发展,就有必要经历行业重组。政府实施政策30余年,让中国获得外国技术和资本,以壮大内地产业。这方法虽有助于刺激整体经济增长,但却无助于巩固国内汽车制造商的基础。因此,弱势品牌最终会被整合、淘汰。

中国汽车业将以一个较可持续的速度持续扩张,二、三线城市的首次购车人士将持续增加,加入较发达地区的再购车人士及换车人士,成为车主。

一个进阶版的“二进制”市场将会出现,即一线城市的消费者会继续倾向购买国际品牌,二、三线城市消费者将以购买廉价品牌为主。

然而,二、三线城市的新富人士将会大幅增加,他们将开始模仿富裕阶层的消费习惯。

这个发展将为国内外厂商带来黄金商机。例如福特和长城汽车就曾预测,人们将倾向购买小型运动型多用途车(SUV),而这种汽车的销量一直高于业界平均水平。与此同时,由于高净值客户越来越多,欧洲高档汽车制造商(如奥迪、宝马、奔驰和路虎)的销量近年都录得大幅增长。

在未来,市场可能会出现如混合型多功能车和多用途车辆等新产品,但这些车款未必会像SUV/豪华房车般那样具有庞大市场或赚取高额盈利。因此,我们相信,中国汽车产业将会进入另一个黄金年代。中国仍将是全球最大、增长最快的汽车市场。经过多年来移动连线技术、“大数据”和社交网络的发展,“汽车互联网”(internet of vehicles)技术正在改变业界格局,而连接移动(connected mobility)技术,则令导航、分析、驾驶安全及驾驶辅助等技术发展更加迅速。

旧有的汽车产业模式为中产消费者带来流动上的便利,但现已不再符合中国国情,也不利于发掘创新机会。

鉴于中国都市运输业正面对严峻挑战,加上传统汽车污染环境,问题日益受到关注,因此,一种专门应对个人城市流动问题的解决方案,很可能会应运而生。事实上,传统的汽车所有权模式,正因为许多因素而出现转变,其中包括城市化、年轻消费者期望不断提高,以及通信科技和“大数据”的迅速发展等。

许多新概念正在涌现,将非传统企业(其中许多都是国内企业)带入了市场生态系统。其中一个例子就是出租车应用程序,例如阿里巴巴的“快递打车”和腾讯的“滴滴打车”,每天各自处理的交易宗数就超过500万宗。

中国作为全球主要汽车市场,有望能彻底改变环球汽车业格局,以迎来以智能车辆和移动连接科技为主的新时代。

谢祖墀是高风咨询有限公司创始人兼首席执行官,Bill Russo是该公司董事总经理。高风咨询公司是立足于大中华区的全球战略和管理咨询公司。

(翻译/ Nelson Cheng;编审/ Alison Yeung)

 

SCMP | Restructuring will set stage for new golden age of China’s auto

Author: Edward Tse and Bill Russo
Source: 《South China Morning Post》

Restructuring will set stage for new golden age of China’s auto industry

Edward Tse and Bill Russo say the days of rapacious growth may be over for China’s auto industry, but it will still set the pace with its sheer market size and mobile technology

After a decade of breathtaking growth, China surpassed the United States as the world’s largest automotive market in 2009. Since then, in spite of a recovery in US sales, China has widened the gap, with sales of 23.5 million vehicles compared with 17 million in the US.

However, the 7 per cent growth of last year was about half that achieved in 2013. In fact, China has witnessed single-digit growth in three of the past four years, prompting many market followers to label this the “new normal”. Some say the best times for China’s automotive industry are now in the past.

Indeed, there are many reasons to worry. In addition to the overall slowdown of China’s economy, a growing number of cities are implementing curbs on car sales, seeking to address concerns about congestion and emissions. Last month, Shenzhen joined a growing list of cities, including Beijing, Tianjin , Shanghai, Guangzhou, Hangzhou and Guiyang , in an effort to cut the growth of the car population by limiting purchases.

Meanwhile, the rising inventory of unsold vehicles has prompted the China Automobile Dealers Association to openly challenge global brand-name manufacturers, including BMW and Toyota, to increase incentives to their dealers and lower sales targets for 2015. While there is certainly cause for concern in the near term, we believe China’s auto market is moving into a new phase, one that still offers the most profitable growth opportunities in the world for both local and global carmakers. Indeed, China’s auto industry is on the cusp of major change that will fundamentally reshape things, bringing both opportunities and challenges.

The age of inefficient, asset-driven growth is over. Overall, there is a capacity bubble after some manufacturers over-estimated growth prospects.The problem is worst at the middle and lower end of the market. An already hyper-competitive environment will become more cutthroat as manufacturers try to undercut competitors’ prices to sell excess stock.

Restructuring China’s auto industry is essential to ensure its stable and healthy development. Government policies were implemented over 30 years ago to allow China to acquire the capabilities and capital from foreign sources to build up its domestic industry. While this has helped spur overall growth, it has not yielded a strong base of domestic carmakers. Consolidation and the elimination of weaker brands is inevitable.

China’s automotive industry will continue to expand, but at a more sustainable rate, with a steady stream of first-time purchasers from lower-tier cities joining the repeat buyers and those upgrading in the more established regions.

A more “binary” market will emerge, with consumers in upper-tier cities continuing to prefer global brands, while those in lower-tier cities will seek no-frills products.

However, pockets of “new wealth” will emerge in lower-tier cities, too, and these people will begin to mimic the buying patterns of more affluent customers.

This presents unique opportunities for both foreign and domestic manufacturers. For example, Ford and Great Wall anticipated the shift towards small SUVs and have been enjoying above-average growth. Likewise, European luxury carmakers, such as Audi, BMW, Mercedes-Benz and Land Rover, have seen sales rise exponentially in recent years as a result of the growth in the number of high-net-worth consumers.

In future, new segments, such as crossover and multi-purpose vehicles, may emerge but they may not be as large or as profitable as the SUV/luxury sectors. Thus, we believe a new golden age is on the horizon for China’s auto industry. China remains the largest and fastest-growing automotive market in the world. After years of advances in mobile connectivity, big data and social networks, “internet of vehicles” technology is now shaping the industry as “connected mobility” drives advances in navigation, analytics, driver safety and driver assistance.

The old automotive industry model – a way to provide mobility for middle-class consumers – no longer fits the Chinese context, creating opportunities for innovation.

A new solution to personal urban mobility is likely to emerge in China, given the scale of its urban transport challenges and increasing concerns over the environmental impact of conventional vehicles. Indeed, the traditional car-ownership model is being reshaped by urbanisation, the rising aspirations of young consumers, and the development of communications technology and “big data”.

A number of new concepts are emerging, bringing non-traditional players, many of whom are Chinese, into the ecosystem. Examples include taxi-hailing apps such as Alibaba’s Kuaidi Dache and Tencent’s Didi Dache, which each process over 5 million transactions a day.

As the leading automotive market, China is poised to revolutionise the global car industry, ushering in the next age of smart vehicles and connected mobility.

Edward Tse is founder and CEO, and Bill Russo is managing director, at Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China

This article appeared in the South China Morning Post print edition as New golden age

 

南华早报 | 中国数码经济改写全球商务格局

作者:谢祖墀, Matthias Hendrichs
来源:南华早报中文网

“光棍节”(双11)是内地1990年代创建的节日,专为单身人士而设。几年前,阿里巴巴将它变成一个网购狂欢的日子,当日该网大批商品大幅度打折销售。今年,淘宝和天猫等与阿里巴巴相关联的平台在这一天的购物总额达到571亿元人民币(720亿港元),较2013年激增58%,据估计是美国感恩节周末网购销售额的三倍左右。

这是中国数码经济快速增长的又一证明。目前,中国网民人数约6.4亿,其中5.3亿是移动互联网用户。一批新兴互联网公司在中国涌现。全球十大互联网公司中,四家都是中国公司。他们并没有盲目模仿西方经营模式,而是根据中国国情自行创建经营模式,并以自己的方式创新。

中国数码经济有几个值得关注的趋势。

首先,许多领先的数码公司增长速度惊人。中国智能手机公司小米,四年前还不为人知,现在已跻身全球前列。小米是目前全世界产量第三大的智能手机公司,据报估值400亿美元,远远超过去年的100亿美元。

腾讯旗下的微信是非常受欢迎的传讯平台,2011年推出,当年年底用户只有5000万,现在已在全球拥有4.68亿用户。以阿里巴巴旗下的“快的”和腾讯旗下“滴滴打车”为首的打车应用软件市场,不足两年就吸引了1.54亿用户。

第二,电子商务不但在一线城市日渐普及,在中小城市、甚至农村市场的普及速度更快。电子商务在中小城市和农村的发展速度往往超过传统营商模式。 2012 年,农村用户的消费只占淘宝购物总额的7.1%,到今年第一季度已经升至9.1%。据估计,农村用户今年的网购总额将达到1800 亿元人民币。

此外,农村用户也在尝试开网店。比如说,广东揭阳一个490 户人家的村子,几乎每人都开了一家网店。网店销售非常可观,尤其是双11 期间,因此这些家庭认为这是更好的创业选择,胜过外出打工。

第三,相对于使用电脑等传统方式,以移动设备网购的趋势更为亮眼。阿里巴巴今年的双11销售额,当中约43%都是用户通过移动设备完成的。今年第三季度,移动设备网购总额达到2309.6亿元人民币,占网购总额约三成。

移动电商的重要助力之一就是移动支付解决方案。中国和西方国家不同,信用卡支付并不流行。阿里巴巴旗下支付宝是全球最大的网络支付平台,拥有1.9 亿移动用户,已经成为日常生活的一部分。支付宝不仅是内地网购的标准支付方式,还提供转账、免手续费付费(公用事业费用、电话费和信用卡还款)、公交和火车票购买(甚至可在中国境外购票),以及银行对账单等服务。

腾讯旗下财付通是中国第二大支付平台。它起源于社交媒体平台,为腾讯旗下微信的姐妹应用程式,但目前已经可以提供类似支付宝的各项服务。

最初,中国数码商务的兴起是因为西方的应用和平台往往被屏蔽,因而有需要提供本土出品的选择,同时也希望顺应中国用户的行为方式,寻求满足其不同的需求。但如今,虽然中国数码公司仍将国内市场视为重点,但也积极拓展国际业务。今年的双11 期间,就有来自217 个国家和地区的用户下单,远高于去年的130 个。

小米也迅速拓展国际业务,印度是其第二大市场。微信在中国境外增长迅速,与对手WhatsApp 展开竞争。到2013 年底,微信的活跃国际用户已经超过1亿大关。

这些趋势有着重大意义。中国消费者的需求模式和购买行为正在发生根本性的转变。传统零售模式的销售额增长最高也只在个位数低端,而几乎各类商品的网络销售额增速都远超传统模式。

对各个品牌、零售商和房地产开发商来说,近年对实体门店、大型商场和零售基础设施的投资都成了沉重的负担。越来越多消费者选择更方便、价格更优惠、服务也更加个性化的网购方式,导致实体资产的生产力日渐下滑。

企业经营模式也因此显著改变。业内老手受到新创公司和互联网公司的挑战。进军市场不再受到高壁垒所阻,商家能够轻易接触消费者。在许多情况下,主导网络市场份额的不再是传统企业,而是拥有创新经营模式的新创企业。

为应对这种转变,传统零售商想出O2O(离线商务模式)这个新概念,以门店为展厅吸引潜在消费者,真正的交易在网上完成,商品从仓库直接送到消费者手中。当然,这个模式反过来也可行,网店吸引客户,促进实体商店及食肆的业务。在许多行业,数码技术都颠覆了行业边界和价值链的定义。

新的生态系统正在形成,企业不但要考虑竞争问题,同时也要考虑合作事宜。就是在这种情况下,中国涌现各种创新方式。

许多公司都在思考:应该怎样调整战略、业务模式和组织结构?需要构建怎样的文化和心态?这些问题的答案都很重要,而要达致成功,需要做出的改变可能非常艰难。

这些改变会将行动迟缓或无力适应的公司挤出市场。很多情况下,还会为现行制度和政府政策带来挑战。数码经济正在蓬勃发展,不但改变了中国的商业格局,也会逐步改变全世界。

谢祖墀是高风咨询有限公司创始人兼首席执行官,Matthias Hendrichs是该公司董事总经理。高风咨询公司是立足于大中华区的全球战略和管理咨询公司。

南华早报 | 香港必须为年轻人创造向上流动性

香港必须重燃年轻人的希望,并疏导他们的精力。

社会流动性之说有一个基本假设,即上升空间是存在的,年轻的工薪阶层都有机会攀上社会阶梯。不过,如果一个地方经济发展停滞、没有上升空间,要打破社会流动性僵局,唯一途径便是创建新产业,由此创造新职位和流动性。

如今的美国,就业增长主要由科技产业推动。在几乎没有高科技产业的城市,人们只好前往其它地区求职。在西班牙、葡萄牙及希腊,青年人就业是个问题,社会经常弥漫沮丧情绪,社会动荡也越发常见。格拉斯哥是苏格兰其中一个青年人失业率最高的城市,在早前的苏格兰独立公投中,该市由独派胜出。当地年轻人表示:如果我们没有未来,那么我们希望改变。
香港目前每年约有7万名中学毕业生,毕业之时也恰好成年,可以成为合资格选民。香港必须为这些人创造新职位,但不是低薪工作,而是可让他们发展技能的就业机会,培养他们成为10至15年后的商界领袖。

自从香港回归以来,港府一直未能认真处理这一问题,迄今仍采取同样的策略:偏袒现存的大企业;鼓励内地人来港旅游;支持地产市场;加强香港作为金融中心的地位。然而,旅游业及零售业的工作往往薪水很低,从业人员无法真正向上流动。地产行业方面,开发商虽然利润丰厚,却不会分享财富。在金融业界,最好的职位往往由内地人和外国人得到。

与此同时,香港制造业衰败,贸易业也迅速萎缩。15年来港府欠缺应对政策,已经制造出过百万愤怒或失望的选民。此外,香港的经济逐渐失去其多元化的特色,因此也失去了抗逆能力。更甚的是,曾为香港基石的企业家精神,如今也消失殆尽。

过去,香港从不欠缺向上流动性。例如李嘉诚及李兆基等传奇人物都是白手起家。年轻人在跨国企业等各类企业中逐步擢升至要职,此类的成功故事不在少数。
然而在过去15至20年,香港再也没有白手起家的新富豪。国家主席习近平最近会晤的香港商界领袖代表团,成员平均年龄超过70岁,强烈反映香港需要改变。
与香港相反,内地的企业家精神一直茁壮成长,过去十年尤其明显。一批批的企业家不断涌现,涵盖各行各业,例如互联网、食品、汽车、可再生能源、物流、零售、电信及地产等。自1980年代、甚至1990年代以来,许多年轻人都当了老板。其中一些人与政府有人脉关系,或曾经是公务员。但大部分都出身低微,尤其是较为年轻的创业家。

许多人白手起家,而促使他们前进的动力,正是来自对向上流动性的信念。许多此类新兴企业都与美国硅谷的企业架构相似,尤其是互联网公司。资金及企业所有权并非仅由一个主要创始人掌控,而是大家分享,电子商务巨头阿里巴巴便是一例。阿里巴巴上月于美国上市,创美国最大规模IPO纪录,一夜之间令公司逾1万名员工成为千万富翁(以人民币计算)。更重要的是,阿里巴巴为内地无数人创建了一个平台,做些小生意赚钱,这种形式是前所未有的。阿里巴巴的经营者大部分是20多岁或30多岁的青年。今年50岁的马云认为自己“太老了”。腾讯主席马化腾则表示自己最大的担忧,是跟不上90后新一代消费者的想法。

内地年轻人都乐于碰碰运气,自己创业,渴望能成为下一个马云、马化腾或创建百度的李彦宏。 (此三人位列彭博今年的内地富豪排行榜前三位,均在约15年前开始创业。)
内地环境并非十全十美,实际上离完美还差得多。许多人批评内地实施一党制,也有人称之为独裁主义体制;内地腐败仍然猖獗,国企仍享有特权。然而,内地企业家精神迅速崛起,并对全国其它地区产生影响,反映即使在不完美的环境之中,人们仍能设法取得成功。这便是企业家精神的意义所在。习近平表示,这是实现“中国梦”的时代。不过,这不仅是一个梦,还需要有远见、热情、努力、敢于冒险、无惧不明朗因素,并要精心策划每一步。内地许多年轻人明白这一点,或至少正在付诸行动。而香港许多年轻人仍不明白,始终原地踏步。香港与内地之间的分歧,不仅是物质上的,更多是思想上的。

怎样为香港年轻人创造向上流动性?我们认为必须从私营领域开始。 1990年代首个互联网时代揭开帷幕,香港投资氛围活跃,也有若干企业家出现。互联网泡沫破裂之后,这些企业家也随即消失。但在内地,这些人失败后再次崛起,继续努力,吸引投资者将注意力转向内地。
如今,香港的天使投资人和风险投资人都希望了解香港年轻人有何出色的意念。香港年轻人应该善用内地市场,尤其如今信息和意念都已不受地域界限限制,可以轻易分享。

尽管港府曾令人失望,但如今必须提供支持。董建华曾有先见之明,香港创新科技委员会首位主席田长霖曾就创新与科技所制定的报告内容也十分不俗,可惜未能落实。而第二任特首曾荫权忽视了整个创新与科技领域。梁振英重新启动创新及科技局的做法值得肯定,不过当局应给予更高重视,保证该局资金充足,且尽量减少繁文缛节。该局应该与香港所有部门互相合作,每个人都必须意识到,香港的当务之急是创建新行业、新职位,建立中小企业,并聘用年轻的毕业生。港府必须密切与私人企业合作,以达致目标。

最终,香港年轻人应该以自己的能力和热情为基础,利用中国市场,就自己选择的行业努力做到最好。这才是最佳方法,不仅能对香港产生影响,还会影响内地。

香港许多年轻运动员在多年努力训练之后,在近期举行的亚运会上取得奖牌,我们对此深感自豪。在商业领域,我们必须也这样做,为香港年轻人创造新行业和新职位,重燃本港青年的希望,疏导其精力去努力创造更好的未来。香港可以做到这一点。

谢祖墀是高风咨询公司创始人兼首席执行官。高风咨询公司是立足于大中华区的全球战略和管理咨询公司。Sunny Cheng 是环境技术顾问。
来源:《南华早报中文网》

 

SCMP | Hong Kong must create jobs to inspire its frustrated youth

Edward Tse and Sunny Cheng say after years of inaction, Hong Kong must create new jobs for young people to give them the skills they need to become our future business leaders

The underlying assumption for social mobility to exist is that there is room above, so that younger workers can indeed move up. But, in a stagnant economy, where there is no room above, the only way to break the social mobility deadlock is to create new industries, and thus new jobs and mobility.

In the United States today, employment growth is mainly driven by the technology sector. For cities with little hi-tech industry, people simply move to seek work elsewhere. In Spain, Portugal and Greece, where youth employment is a problem, we are seeing more frustration and unrest. In Glasgow, where youth unemployment is among the highest in Scotland, the city voted for independence in the Scottish referendum. The young are saying: if there is no future for us, then we want change.

Each year, Hong Kong has about 70,000 school-leavers. They become qualified to vote at the same time. We must create new jobs for them – not low-wage opportunities but those where they can develop their skills and become future business leaders in another 10 to 15 years.

Since the handover, Hong Kong’s government has failed to seriously address this issue. The strategy so far has been to continue on the same track: favouring incumbent big businesses; encouraging mainland tourism; propping up the property market and fortifying our place as a financial centre. Yet jobs in tourism and retail are often low paying, without real upward mobility. In property, the money goes to the developers, who share little of the wealth. In finance, the best jobs are going to mainlanders and expatriates.

Meanwhile, we have seen the demise of our manufacturing sector, and the trading sector has declined rapidly. Fifteen years of policy neglect has created more than a million frustrated, if not angry, voters. Also, Hong Kong’s economy is losing its diversity and, therefore, its resilience. Worse, what used to be the bedrock of Hong Kong, our entrepreneurial spirit, has now dampened beyond recognition.

In the past, upward mobility was not an issue. Legends, such as Li Ka-shing and Lee Shau-kee, began with nothing. Success stories abounded as young people worked their way into senior positions at corporations, including multinationals.

Yet in the past 15 to 20 years, Hong Kong has had no new, self-made tycoon. The Hong Kong delegation of business leaders recently received by President Xi Jinping had an average age of over 70 – a strong signal for change.

In contrast, entrepreneurship in China has been thriving, especially in the past decade. Waves of entrepreneurs have emerged, from a wide range of industries, such as the internet, food, autos, renewable energy, logistics, retail, telecoms and property; many since the 1980s – even since the 1990s – are becoming their own bosses. Some have ties with the government and were civil servants before, but most, especially the younger ones, come from pretty humble backgrounds.

Many started with nothing, or next to nothing, and it is the belief in upward mobility that has been the driving force.

Many of these new companies, especially internet companies, are organised like those in Silicon Valley. Money and ownership are not controlled only by a key founder: they are shared. For example, the e-commerce company Alibaba, whose initial public offering last month was the largest in US history, overnight helped more than 10,000 employees become yuan multi-millionaires. More importantly, it has created a platform for countless people in China and their small businesses to find a way to make a living that did not exist before. Alibaba is now run by people that are mostly in their 20s or 30s. Jack Ma, who is 50, considers himself “too old”. Pony Ma, of Tencent – owner of the popular WeChat messaging service – has said his biggest concern is falling behind in the understanding of the new generation of post-1990s consumers.

Young people in China are keen to try their own luck and they aspire to be the next Jack Ma, Pony Ma, or Robin Li, of Baidu, the mainland search engine. (They hold the top three places in Bloomberg’s list of China’s richest people this year; all began their businesses about 15 years ago).

China is by no means perfect; indeed, far from it. Many point to its one-party rule: some would call it an authoritarian regime, corruption is still rampant and state-owned enterprises continue to enjoy special privileges. Yet, the rapid rise of entrepreneurship and its impact on the rest of the country have shown that even in an imperfect situation, one can find ways to make it work. This is precisely what entrepreneurship is about. Xi said this was the era of the “Chinese Dream”.But it is more than a dream. It takes vision, passion, commitment, a willingness to accept ambiguity and risks, and a carefully crafted plan. Many young mainlanders understand it, or at least are taking action, while many in Hong Kong still don’t, and are stuck in a rut. The divide between Hong Kong and the mainland is not only physical, but, more importantly, it’s mental.

What can be done to help create upward mobility for Hong Kong’s young people? We believe it must start with the private sector. During the first internet era in the late 1990s, Hong Kong had a vibrant investor community and a number of entrepreneurs, too. After the internet bubble burst, these entrepreneurs disappeared, while on the mainland they (re-)emerged and just kept going, in spite of failures. Investors turned their attention to the mainland.

Today, angel and venture capital investors in the city want to know what good ideas young Hongkongers have. Our young people should utilise the China market, especially when information and ideas are not necessarily constrained by physical boundaries.

The government must support this, though it has a disappointing track record. Tung Chee-hwa had a promising vision and Professor Tien Chang-lin’s report on innovation and technology was good, but unfortunately, it failed on implementation; Donald Tsang Yam-kuen neglected this entire area. Leung Chun-ying’s initiative to re-establish the Science and Technology Bureau is a good one, but it needs to be a higher priority. Funding must be sufficient and bureaucratic red tape minimised.It should be aligned with all bureaus; everyone must see that creating new industries, jobs and small and medium-sized enterprises, and employing young graduates, is a top priority for Hong Kong. The government must work closely with the private sector to make it work.

Ultimately, young Hongkongers should strive to be the best at what they choose to do, building on their own capabilities and passion, and leveraging the China market. This is the best way to influence not only Hong Kong, but also the mainland.
We are proud that many young local athletes won medals at the recent Asian Games after many years of focused training efforts. We must do the same in the business sector and create new industries and new jobs, reignite hope for our young people, and channel their energy into creating that better future. It can be done.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting business with roots in Greater China. Sunny Cheng is an environmental technology consultant

This article appeared in the South China Morning Post print edition as The only wayis up

 

SCMP | Foreign companies must lose their arrogance to win big in China

Ed Tse

A cover story earlier this year in The Economist featured the headline “China loses its allure”. The key point was that, although in the past 30 years a large number of multinational companies have gone to mainland China to invest, this gold rush is now over, even though opportunities remain.
The key reasons, it said, include the slowdown of China’s economy and continuously rising costs; the fact that, even today, many sectors are still not entirely open for foreign companies; the emergence of local competition that has created new competitive threats; and the fact that China’s diversity across regions requires different strategies and operating models.
But has China really lost its allure? The answer depends on the type of company and its development strategies. In fact, for some multinationals, China may even be providing more allure today.
As China has opened up, so the importance of foreign companies in the nation’s economy has increased. They have brought, among other things, capital, technology, management techniques, business models and ways to develop human resources.
After more than 20 years, the experience of multinationals in China is clearly divided. For quite a number, China has become their most important market in the world, or one of the most important. The most notable case is probably the Yum Group’s KFC; more than half their global revenue and profit now come from China. Other notable examples include General Motors, Volkswagen, BMW and Apple.
At the same time, many others have tried their hand in China and eventually decided to leave. Some better-known cases include Best Buy, Mattel, Media Markt and eBay. Foreign multinationals’ experience spans the entire spectrum. Why?
For many, a common mistake was to assume the China market was the same as their other markets in the rest of the world. They believed that since they have been successful elsewhere, it would be easy to do so in China as well. They tended to apply their global business model to China.
Paradoxically, the more successful a multinational is in the rest of the world, the more confidence it has in applying its usual business model to China. However, after their entry, many discovered that China’s market was often much more complicated than other markets. Their original business model only allowed these companies to penetrate a small part of China’s market; often only the top end of their customer base or product pyramid.
Even worse, some foreign business models didn’t actually work in China. A classic case was Home Depot from the US. Its business model relies on customers who enjoy DIY. However, there’s no such culture in China and so the business never really took off.
The root cause of many multinationals’ dismal performance is, I believe, their “arrogant” DNA. When they expanded their business internationally, many were quite successful. Their products, services, brands and business models often helped them capture advantageous positions. Over time, this led many to believe they had a high probability of success wherever they went.
China’s market, however, has given multinationals an important and costly lesson. Over the past 20 years or more, China’s economy has developed into a complicated, fast-changing and often ambiguous operating environment. There are several reasons for this, including: the transition from a planned to a market economy; a mixed economy that includes state-owned enterprises, private firms, foreign companies and “mixed-equity companies”; and, an isolated country increasingly integrating with the outside world.
In addition, China’s large land mass, its large population and major regional disparities mean it is hard for many multinationals to adjust. Some are now beginning to recognise that if they want to be successful in the Chinese market, they need to fundamentally adjust their attitude about China. They need to change from being arrogant to humble, and be willing to learn and accept China’s differences.
Only with such an attitude and mindset can multinationals develop a strategy that is more appropriate for China. Without such reflection and change, it will be hard for them to achieve sustainable success.
Has China lost its allure? Those multinationals that have come to China, tried and failed, probably feel that way. However, for those that have found the right direction, developed effective strategies and, importantly, the right attitude and mindset, China will continue to present a multitude of opportunities.
Its huge market, fast development, increasing deregulation, improving technology, innovation and intensive competition, will make China even more attractive, as well as making it the breeding ground for the next generation of enterprise leaders.
This article appeared in the South China Morning Post print edition as Multinational companies must lose their arrogance to succeed in China

 

SCMP | Chinese entrepreneurs will lead the next revolution

Edward Tse
2014-09-24

Many people outside China still view the country in a very narrow sense, as a nation with a one-party authoritarian regime where the economy is dominated by large state-owned enterprises. Though it remains true that the country’s biggest companies – its major banks and insurers, oil and energy companies, telecom operators, airlines and leading steel, auto and construction firms – are all government-owned or controlled, the often-overlooked private sector is where China’s largest source of growth resides.

There are about 2.3 million state-owned companies in China today, a staggering-sounding number, but not when you compare this to the total number of businesses. In 2013, the country had more than 12 million private companies and more than 42 million proprietorships.

In 2000, total revenues earned by state-owned and non-state-owned industrial companies were roughly the same, at about 4 trillion yuan (HK$4.6 trillion then) each. By 2013, while total revenues at state-owned companies had risen just over sixfold, those in the non-state sector had risen by more than 18 times.

Increases in profits were even more impressive over the same period: up nearly seven times for state-owned companies, but up nearly 23 times for non-state ones. Like it or not, Chinese entrepreneurship is growing in leaps and bounds.

The rise in Chinese entrepreneurship can be seen as four distinct waves. The first one came in the 1980s soon after Deng Xiaoping started economic reform in 1978 and included companies like Huawei and Legend (the precursor to Lenovo).

The second wave was in 1992, after Deng went on his now legendary “southern tour”. This wave lifted the companies established in the first wave and also served as a launch pad for many others. A number of former government officials decided to xia hai (jump into the sea) to become businessmen, forming the so-called “Gang of ’92”.

By the mid- to late 1990s, a third wave of entrepreneurs had established themselves and these included the now notable internet companies – Baidu, Alibaba and Tencent, collectively known as “BAT”.

The fourth wave started in the late 2000s, fronted by those born in the 1980s and after. Many of these latest start-ups are internet-related, building e-commerce businesses. These young people who grew up in the post-reform era try to copy the successes not just of American internet companies such as Google and Facebook, but also of BAT, China’s home-grown giants. This wave came in a much larger number than its predecessors and many of them aspire to be the next Jack Ma Yun, of Alibaba fame, or Pony Ma Huateng, who founded Tencent.

One remarkable thing about the entrepreneurs of the first two waves of China’s economic reforms is how their companies were able to adapt to the changes during this period. They set up businesses when the economy was still dominated by the state. They survived the Asian financial crisis of the late 1990s. They fought off competition from the flood of foreign companies that arrived after China joined the World Trade Organisation. And they rode the worldwide downturn that followed the global financial crisis.

Chinese entrepreneurs do not all fit in a cookie-cutter mould. They are of different ages and educational backgrounds, come from a wide spread of hometowns, and have varying degrees of government influence. Most have run small companies, but some come from management backgrounds in giant companies.

Yet they all share this trait: they are willing to take chances and not at all afraid of failure. Almost all have an extraordinary openness to ideas; they seek inspiration from around the world and are willing to use resources from outside China, especially human talent with the right kind of expertise.

At the heart of China’s entrepreneurial spirit lie three core elements: pride, relating to a desire to once again see China rise and be counted among the forefront of nations; ambition, a belief that aspirations can be achieved; and China’s Confucian tradition, shaping aspirations both for and beyond business. The pursuit of the “Chinese Dream” often comes up when these entrepreneurs speak about their motivations.

I believe that today’s China, both in terms of scale and complexity, is a forerunner of how the world’s business environment will evolve. Just see how technology, especially the internet, is breaking down barriers between industries and fostering more cross-sector competition. To survive, businesses must seek new sources of advantage – even if that means moving beyond their traditional area of expertise.

The internet is not unique to China, but its impact on the country, because of the nascent nature of its economy, is greater and more pronounced than in developed economies. Retailing, for example, is being turned on its head as e-commerce allows shoppers in even China’s remotest regions to gain access to goods, long before bricks-and-mortar stores can be built. The country’s e-commerce giants are moving into finance by offering money-market products that offer higher interest rates than banks can.

Other companies are also stretching themselves. Computer giant Lenovo and telecom equipment maker Huawei are both striving to become international players in the smartphone market, for example.

The complexity and speed of change in China puts a premium on improvisation and innovation. To be successful, entrepreneurs need to seize the advantages of China’s scale and dynamism to make their companies fast-growing, powerful and flexible, ever ready to reinvent themselves continuously and repeatedly.

One Chinese entrepreneur has recently been receiving worldwide attention: Jack Ma of Alibaba, which is about to be listed on the New York Stock Exchange. According to Bloomberg, Ma is China’s wealthiest person, with a net worth of US$21.9 billion. The second and third on the wealth list are Tencent’s Pony Ma and Baidu’s Robin Li Yanhong. These three men built up their businesses from scratch some 15 years ago to become the leading internet companies in China. As far as most people know, they are not princelings, nor do they have any special government privileges; they came from fairly humble backgrounds.

China has embarked on a transformation, one that will bring both tremendous opportunities and challenges. Amid all this, it will be China’s entrepreneurs who play the key role in (re)forming the economy necessary to create a dynamic society whose citizens and government contribute to shaping a new China.

Dr Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. He is author of The China Strategy

This article appeared in the South China Morning Post print edition as The Chinese wave

SCMP | Waves of new entrepreneurs will power Chinese innovation

 

Ed Tse 高风咨询GaoFengAdvisory 2014-09-23

US Vice-President Joe Biden blasted China recently in a speech about foreign policy, arguing that the country hasn’t produced anything innovative. “China – and it’s true – is graduating six to eight times as many scientists and engineers as we have. But I challenge you, name me one innovative project, one innovative change, one innovative product that has come out of China,” he said.
In the same vein, in an article in Harvard Business Review, US academics Regina Abrami, William Kirby and Warren McFarlan sought to explain “Why China can’t innovate”.
Biden and the academics are wrong.
Does China breed innovation? Most who get their information from the Western media wouldn’t think so, as China is often associated with copies, lack of freedom of speech, poor intellectual property rights protection, rote-learning education and an overbearing state sector. Outsiders tend to think China lacks the fundamentals for successful innovation. But this view is both simplistic and superficial.
Lack of intellectual property rights protection is a real issue, but it hasn’t stopped innovation taking place. Over the past decade, there have been many examples of innovation in both product technology and business models.
As for the dominance of the state economy, even that sector can innovate. Large-scale examples include China’s space programme, its expanding high-speed rail network, the world’s highest-elevation railway (to Tibet), and the world’s fastest supercomputer. Like complex world-changing innovations anywhere, they would not have happened without intensive government participation, and it will take years to see their full impact.
However, most of China’s upcoming innovation will not come from the state. It will come from the companies and individuals who compete in China’s increasingly open economy. China is undergoing a measured but definite process of deregulation, sector by sector. The government reaffirmed this trajectory at its third plenum when it was emphasised that market forces will play a “decisive role” in economic development and non-state capital will gain access to more sectors.
The size of China’s market and the potential for profit mean that when the government opens up a sector, it becomes an arena for some of the world’s most intense competition. This forces companies to create the best products, services and business models.
There’s also a strong “why not me?” mentality among Chinese entrepreneurs. They see themselves as innovators, and when an opportunity opens, they go for it. Most may fail, but with such a huge population, even a small percentage of successes will encourage many others to try their luck. In short, waves of new entrepreneurs in China will be pushing for greater experimentation and more innovation.
Xiaomi, one of China’s leading smartphone players, is an excellent example of an innovative company in a highly competitive industry. Xiaomi’s leader, Lei Jun, understood the power of the internet and built his company’s business model by “listening to customers” through social media – the concept known as crowdsourcing. The strategy is working so well that Xiaomi’s revenues grew from zero in 2010 to US$5 billion last year, with the company now reportedly valued at over US$10 billion.
The late Steve Jobs didn’t believe in focus groups; Lei takes the opposite approach, and is convinced customers will be the best ones to tell him how his products should be designed and how its service model should be developed.
At a more basic level of innovation, Haier, a leading Chinese white goods manufacturer, quickly gained market awareness and share by introducing a washer capable not only of cleaning clothes but also potatoes, among many other products. This sprang from a customer complaint and is an example of Haier’s “customer centric” management philosophy.
Some say Chinese companies can’t develop technology. However, in seven years, Shenzhen-based DJI Innovations, started by young entrepreneur Frank Wang Tao, now supplies more than 50 per cent of global demand for unmanned aerial vehicles for the commercial and industrial sectors, and continues to expand.
Not every Chinese company will be like Haier or DJI, but the market is changing so rapidly that there are major incentives for Chinese companies – along with foreign ones and joint ventures – to be agile and innovative.
To successfully breed innovation, a country must be tolerant of mistakes and failures. These failures will include short-lived innovations, but they are part of a process necessary to sustain a culture of innovation. Tencent’s QQ, for example, was a precursor to WeChat, a fast-growing Twitter/WhatsApp type of platform. Although only three years old, WeChat already has over 600 million registered subscribers and over 350 million active users. It introduced voice capability before WhatsApp, along with a more recent payment capability that is undercutting China’s dominant incumbent, Alipay of Alibaba.
Telecoms operators see WeChat and Sina’s Weibo as competitors because they eat into their own text messaging businesses, and the prevalence of the internet, in particular wireless internet, is fast cutting out traditional distribution methods. Only a few years ago, Gome and Suning were the dominant retailers through their “bricks and mortar” stores. Today, Suning is having to quickly transform itself into an “O2O” (online to offline) retailer.
All of this should be seen from a historical perspective. China’s market economy is still developing, and it’s now been slightly over two decades since Deng Xiaoping’s now famous southern tour in 1992. This fundamental transformation from a fully planned economy is still just a small blip in China’s long history.
As China’s economic transformation continues, more and more monopolies will be broken down. Much of this will be driven by the government but some will be driven by the market. State-owned enterprises will remain important, but non-state companies have, for the first time, been put on an equal footing.
Experimental free trade zones like that of Shanghai will eventually be established in more cities, and efforts made to create economic conditions conductive to innovation.
Entrepreneurship is vibrant and omnipresent in China. This spirit and the intensive competition drive innovation, at an unprecedented speed and intensity. An arrogant view that China can’t innovate is not only shortsighted but also untrue.
Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. He is also the author of The China Strategy.
This article appeared in the South China Morning Post print edition as Bright lights