Is the future of business Made in China?
24 April 2019
Like Shenzhen, in China, it is today the symbol of the country’s business and innovation dominance.
In recent times, I have made several trips to China. Some by invitation, others by work. I remember a lecture I gave about 15 years ago, where I said that “One day, China will have our lunch”. Today I can say “China already has our lunch. Now, watch out for dinner.”
About 30 years ago, China’s GDP per capita was just over €250, and now it is close to €9000, or 36 times higher. Never in the history of the world’s economies had anything like this happened. And I am not only referring to the millions of people who, in less than a generation, have left poverty and entered the middle class, but also the high-speed trains, the giant network of motorways, the countless skyscrapers, the urban public transport network, the ports and the increasing number of “unicorns” (start-ups with a valuation of more than one billion euros).
When we talk about Chinese business dynamics, there are two predominant paradigms about the country. One is Chinese companies as “copy cats”, a cheap production center, where companies are copying ideas and products (including high-end cars). This paradigm automatically leads us to think of the thousands of “Chinese stores” scattered throughout our country, and their cheap products and generally considered to be of less robust quality (the “imitations”).
Lately a new paradigm has emerged, which seems to coexist with the first. China as a country that has surpassed the US in its investment and application of Artificial Intelligence, Number of Patents, and also as an incubator for thousands of world-leading companies in the most diverse areas. Some of these companies had their beginnings based on copies of existing products or services, but their innovation policies and practices, large investments and huge markets, and the attraction of talent, allow them to be at the forefront today. An example of this is Tencent, a Chinese company that developed WeChat and QQ and surpassed Facebook in terms of market value. Another example is the giant BYD. This company is currently based on the most advanced automotive platform in the world to build its cars, thus reducing the risk, the expenses inherent to the initial process, and increasing the speed of production, becoming highly competitive. Xiaomi also came to steal the spotlight and market from the Apple vs Samsung rivalry. In the case of companies that started from scratch, we have the largest drone company in the world, DJI, which is also located in China. This side of China makes many CEOs around the world tremble and the concerns of the leaders of the world’s strongest economies.
However, my research and curiosity led me to find another Chinese reality. Occupying the two paradigms mentioned above, there is a third that, in my view, has even deeper implications and where the most interesting business dynamics in China are taking place. To understand this, we have to go to a market, called Huaqiangbei Market, in the city of Shenzhen, where in every corner there is a seller of smartphone parts or any other electronic device. It was in this place that the shanzhai was born, which meant “stronghold of bandits”, but which today refers to companies based on counterfeit or pirated products. Here, if I want, I can build my own phone from scratch, the way I want. Or even any other device, based on the “internet of things” or IOT. And it was this same market that made Shenzhen the birthplace of some of the world’s largest technology companies, such as Tencent, the gaming and internet giant, the telecommunications company Huawei and the smartphone manufacturer ZTE, as well as the world’s largest drone manufacturer DJI and the robot kit manufacturer Makeblock.
It’s hard to imagine that, some 35 years ago, Shenzhen was little more than a coast-side fishing village that watched with envy the large and valuable city of Hong Kong on the other bank. Since then, its population has increased by more than 5000% and its economy by more than 9000%, thus becoming one of the main technological and financial centers in China, reaching values higher than Hong Kong. Shenzhen’s growth is just a microscopic piece of the growth of Chinese technology industries, in this 3rd paradigm, based on the concept of an open design culture where entrepreneurship happens in an accessible, fast-paced environment based on the sharing of knowledge and resources. This has the dark side of ignoring much of the intellectual property, but it does explain how Chinese companies have taken successful product ideas in the West and tweaked and innovated them, often becoming better, or at least more attractive to the Chinese. For example, WeChat copied WhatsApp and then took it far beyond a one-dimensional texting service. WeChat allows, in addition to WhatsApp features, to call a taxi, order food, book trips, consult a doctor, among other applications that make it have already conquered more than 1 billion people.
The open design platform means that almost anything you would like to do can be done within this ecosystem made up of circuit manufacturers, component suppliers, plastic and metal parts, coatings, certification testing, and other offerings; all very close and in less than six days, just like in the Huaqiangbei Market. Meanwhile, it took us in Europe six months to create a functional prototype. It is within this ecosystem that more Tencents and Xiaomis are being born. Shenzhen currently surpasses all Chinese cities in terms of innovative capacity and has an average economic growth of 25.8%, well above the 9.8% recorded by the Chinese as a whole. The small fishing village is now the giant metropolis of the Chinese economy. Those who do not know this China, do not know the future of business in the world.
