by Joanna Chan
The Chinese economy — much like the daily life in many regions in China — can be characterized by one word: Change. Fast-paced, constant change. It’s been going for decades.
Dr. Mark Greeven is Professor of Innovation and Entrepreneurship in Zhejiang University (Hangzhou, China), Director for the MBA Global Entrepreneurship Program, research fellow at China’s National Institute for Innovation Management and Center for Global R&D and Innovation.
He looked at the drivers behind that change and co-authored the recently published Book “Business ecosystems in China”. We met him in Shenzhen and got interesting insights into the people behind that change.
1. The responders
The first generation of today’s biggest entrepreneurs started in the 70ies. They excelled in adapting their business to a growing demand. A prominent member of that group is Li Shufu. Born into a poor family in Taizhou, he started a small business salvaging gold and silver from discarded electrical appliances. Eventually he set up Geely, originally a manufacturer of refrigerator parts. In the 90ies, Geely ventured into the motorcycle business and subsequently into Car manufacturing. In an interview with the Financial Times he recounts that the first batch of cars had to be scrapped, but eventually they hit their goal of producing affordable cars for the masses.
In 2010, Geely bought Volvo from Ford for 1.8 billion.
2. The internet leaders
The next generation of entrepreneurs were driven by the opportunities the internet and e-commerce brought. We are taking about the BAT: Baidu, Alibaba, Tencent. They are the Chinese equivalent of Facebook, Amazon, Apple and Google (notably, they are operating in a very different ecosystem and with increasingly global impact).
They started in e-commerce, communications and online search but their approach was different. Mark says:
“They choose their focus market and build up a stronghold before expanding and diversifying. Then, they started to do close to everything. Just looking at the reach of mobile payments demonstrates how they penetrate into an ever expanding array of marketplaces: financial services, gaming, entertainment, transportation, retail, public welfare and more. However, nothing is what is seems, as often with Chinese companies, and in fact they follow a clear business logic to expand in complementary services and products.”
In his book he explores in-depth how the ecosystems of Alibaba, Baidu, Tencent, Xiaomi and LeEco grew so rapidly.
3. The change makers
What is there left to do as a startup when faced with a market that is driven by a few seemingly omnipotent players? The answer is disruption. The 3rd generation of Chinese entrepreneurs have emerged over the last 5–8 years. Mark Greeven calls them change makers:
“They don’t follow change. They make it. They often don’t have particular industry experience for the business they go into, but they look at complex problems for their target audience and come up with solutions that offer a better user experience.”
Crucially, they also know how to use digital technologies to scale their ideas and find a core audience and excited users who will put them on the map.
China has a huge share of the world’s unicorn start-ups (unicorn start-ups means they reach a 1 billion USD valuation before listing) and roughly half of them have a disruptive business model. A few examples:
- Tubatu is a B2C e-commerce platform which aims to provide interior design and home décor services by linking customers to local professionals. The company is estimated to be worth US$2 billion.
- Fenqile, an online shopping mall that lets users pay in installments, with students being one of their first target users.
- Ele.me is a platform that offers online food delivery service. Recently, Baidu sold its food delivery service to Ele.me’s mother company.
- Toutiao, a news and information content platform powered by artificial intelligence technology.
Mark stressed that not all of these companies have sustainable business models (yet) and that they might not be around in five years, but they are great experiments and they show how China’s vibrant ecosystem provides a fruitful soil for innovative ideas. It’s worth to keep tracking them.
Business ecosystems in China: Alibaba and competing Baidu, Tencent, Xiaomi and LeEco
Publisher: Routledge, 2017
Synopsis: We cannot afford to miss the remarkable rise of Chinese business ecosystems. Alibaba and their peers Baidu, Tencent, Xiaomi and LeEco showcase unprecedented growth and success in China and are expanding their impact globally. With a combined market capitalization of close to 600 billion USD, incubating over 1,000 new ventures and an average annual growth of over 50%, they have become a force to reckon with for the likes of Google, Microsoft, Apple, Amazon and IBM. ‘Business ecosystem’ is a frequently used concept to describe the unique competitive advantages of the American technology giants. This book explores not only the application of a business ecosystem approach in the Chinese context but also deals with the key strategic question: how did these five Chinese business ecosystems grow so rapidly and successfully? The book takes the growth and transformation of Alibaba’s business ecosystem as a focus case in comparison with Baidu, Tencent, Xiaomi and LeEco.
These business ecosystems developed in less than 20 years and transformed from organic growth to rapid expansion by investment and acquisition, entrepreneurship and incubation of new ventures, continuous innovation and internationalization. This book brings insights and practical lessons on leading, creating and disrupting markets for corporate executives and professionals in global business, a comparative case study for researchers and students of management and food for thought on Chinese ways of doing business.