China and its giants are entering a new era, having conquered most of the local market, they extend to foreign markets to support their growth. With companies like WeChat, or Xiaomi Alibaba that are increasingly found outside China, they become a real threat to GAFA. How are these companies get there?Back on the history of entrepreneurship in China.
Between 2015 and 2016, Chinese companies have hit the headlines with transactions worth billions of dollars and major successes:
- The telecom giant Huawei equipment has established itself in the smartphone market, becoming No. 3 after Samsung and Apple ,
- Suning Commerce Group, a chain of retail with annual revenues amount to $ 50 billion, has agreed a partnership $ 6 billion with Alibaba to help the company e-commerce to grow its efforts O2O (online-to -offline)
- The giant Chinese social network Tencent, with its email application WeChat, shared have processed $ 50 billion of transactions via its internal payment system for the month of January 2016, double that PayPal handles in a year ,
- The merger of $ 15 billion between the group buying website Meituan (think Groupon on steroids) and Dianping restaurant reservation application in 2015 gave birth to an entity that has raised a 3.3 billion dollars this year . 1 of 5 with Chinese using these shopping sites grouped, the group is now one of the leaders in the sector of local services online.
The common point between these four stories? Each comes from one of the four ages of the Chinese tech entrepreneurs like Edward Tse summarized it in his book ” China’s Disruptors “.
The first wave of pioneers 1980: Huawei and Haier
The first wave of pioneers began in the 1980s, although they have been successful in the next decade. Companies were then the property of individuals and the founders had little education or business experience.
Zhang Ruimin, for example, did not the university (most were closed during the Cultural Revolution), and rose through the ranks of obscure local businesses through hard work and reading management books for his free time. When promoted to head of what was still Qingdao refrigerator factory in 1982, his career has accelerated. After a visit to Germany, he understands that the poor quality (up to 20% of the refrigerators were faulty) prevented the company to grow.
During a spectacular day of 1984, Zhang Ruimin has asked its workers to destroy the mass 76 defective refrigerators to instill the concept of high quality products, hammering ” Destroy them! If we let these 76 refrigerators for sale, we perpetuate a mistake that will ruin our firm . “
The legend continues with two strategic choices made by Zhang Ruimin:
- the takeover of what Zhang Ruimin called “stunned fish”, firms with large volume, but knowing sluggish growth due to poor quality standards. In 1991, various companies are renowned Qingdao Haier Group,
- the reorganization of the company 80,000 people in 2,000 zi zhu ti jing ying (ZZJYTs), autonomous teams that perform different roles on the principle that ” if the company did not challenge themselves, someone else will .”
Today, Haier has the largest market share in appliances, beating competitors such as Whirlpool or Electrolux, with 32.8 billion dollars in revenue for 2014.
The Huawei’s story is slightly different, although it has experienced the rise of a similar profile entrepreneur. The success of the company is mainly due to an initial target of hearings generally more niches overlooked by major telecom providers and IT, and a high level of customization, such as creating smaller devices to reduce the bill energy.
When he started the company in 1987, its founder Ren Zhengfei was fresh out of the People’s Liberation Army, where he led some of the technological research effort. Back to business, he moved to Shenzhen, a city that was composed of migrants and was declared a “special economic zone” by the Chinese premier at the time Deng Xiaoping. It has become in a few years a megalopolis of 10 million inhabitants and is today regarded as the Silicon Valley hardware .
In the first decade of its development, Huawei Ren Zhengfei and “just trying to survive on the entrepreneurial scene ” but had a vision to make the global top 3 in this sector in the course of the next 20 years.
Ren continued to inject vitality to the company, as well as enforcement. His visit Bell Laboratories in the United States, where he would have cried “for love”, caused a stir. On his return, it is with passion that he shares his experience with his employees. During the second decade of the company, he decided to hire IBM executives to give more structure to the company.
Other key leadership principles have helped the company to grow sustainably. For example, Ren has just 1.4% share of the company, while some 80,000 other employees collectively hold the remaining shares .
Today it is China’s largest private exporter with two thirds of its turnover of $ 39 billion from abroad.
From government to business, the second wave of the 1990s: Suning, Vantone Holdings, Taiking-Life Insurance
If this second wave is not technology itself, unlike the first, third and fourth, it marks a significant change in terms of production and behavior.
Politically, the second wave is launched by the “Southern Tour” Chinese Premier Deng Xiaoping in 1992, during his visit in Shanghai and Shenzhen, Guangzhou and Zhuhai to reaffirm the principles of a more open and liberal economy . There have said: ” Getting rich is glorious “, which triggered a change of mentality with more entrepreneurship.
The key founders at that time worked in roles of government (local or national):
- Lung Feng worked for a decade in various state bodies such as the Party School, before gathering some money with friends to launch Vantone Holdings, now a real estate value of $ 2 billion.
- Chen Dongsheng was a research assistant in the former Ministry of International Trade and Cooperation in Beijing. He, too, has launched companies following the southern tour of Deng Xiaoping, beginning in 1993 with China Guardian Auction, a sales platform for art auctions, third behind that of Sotheby’s and Christie. Three years later, he opened Taikang Life Insurance, the first private insurance company (and now the fourth largest in China)
Edward Tse collectively calls these entrepreneurs the “Gang of ’92” alongside Guo Guangchang of Fosun (industrial conglomerate, investments, insurance, real estate), Wang Wei SF Express (equivalent of FedEx in China) and Zhang Jindong of Suning Group (retail sales).
As China began to open to the world, its leaders began to visit other countries, to sign contracts involving technology transfers, and find gaps in public enterprises are now exposed to global competition. The opening of the Chinese market has destroyed many inefficient firms, and opened the way for the rise of a first batch of successful private companies, the third wave will simply multiply.
Internet entrepreneurs of the third wave with Baidu, Alibaba and Tencent in the early 2000s
As China entered the World Trade Organization in 2001, the country has been more exposed to new ideas and concepts, which triggered the rise of a third generation of entrepreneurs.
If Jack Ma, founder of Alibaba, has been widely documented, and is best summarized in the documentary of the former VP of Alibaba, Irish Porter Erisman, “Crocodile in the Yangtze.”
Jack Ma, founder of Alibaba
During a visit abroad, Jack Ma has not only China is not yet connected to the Internet, but no other country has access to the Chinese market from oversea. His vision – whether for his first startup, similar to the Yellow Pages, or Alibaba – is to create a bridge between China and the world through the internet and marketplaces.
Other notable entrepreneurs of this generation include:
- Pony Ma, founder of Tencent (locally known as Ma Huateng), which began with much hassle with a small game studio started in 1998, before launching the mobile instant messaging service QQ and WeChat in 2011. Tencent is now a giant 600 million active users at the intersection of social networking, messaging and e-commerce.
Pony Ma, founder of Tencent
- Robin Li of Baidu was raised partly in China and partly in the United States, where he was educated at the University of New York Buffalo in computer science. The equivalent of Google (search engine), which was listed on NASDAQ in 2005 and has since invested in geolocation, carpool applications and e-commerce O2O.
Several companies of this third wave and their founders started to believe they could export abroad and (slightly) reduce their dependence on the Chinese regulatory environment.
Most of these entrepreneurs are born after the Cultural Revolution of 1950-1960, and grew up in a period of rapid expansion of the Chinese economy, which has boosted their confidence and desire for conquest, and their respect for Communist leadership.
Interestingly, these companies respond to a type of web users which is quite different from Westerners: Chinese Internet users are younger, most children are unique, and they seek primarily entertainment. So $ 4 billion virtual goods were sold in gaming Tencent, while its advertising transactions accounted for $ 1 billion.
Meituan, Xiaomi, Yiahodian: the fourth wave of entrepreneurs of the 2010s meet the more complex needs of consumers
The latest wave of Chinese entrepreneurs are the Millennials, born in the 1980s and have never experienced unconditional communism of Mao.Almost all children are unique since they were born after the one-child policy launched in 1978. They combine ” opportunism with pragmatism ,” says Edward Tse, and have sometimes been educated abroad or at least worked with multinationals in China.
The author of “China’s Disruptors” mentions the case of Jessica Wong and Frank Yao that illustrate this trend. After working in multinationals, they launched cosmetics brand Panda W in 2011. They then developed an application called “Magic Mirror” recommends beauty products based on user pictures. They are now a team of 20 from 2015.
The fourth wave of entrepreneurs leaves less room for error-test and they adopt more systematic managements techniques, with many of them becoming serial entrepreneurs.
Wang Xing launched a first digital enterprise, Xiaonei, which he sold to Facebook in 2005. He then launched Renren, a social media platform that is briefly become China’s fourth largest Internet company after Baidu, Alibaba and Tencent . After leaving this second company, he launched an equivalent of Twitter called Fanfou, which disappeared because of government pressure. His latest venture, Meituan , is a group buying site, which has agreed a merger of $ 15 billion with Dianping, equivalent to TripAdvisor in 2015.
Lei Jun is another famous entrepreneur of the fourth wave, which helped make Xiaomi a multifaceted company that many love to compare with Apple (and he, with Steve Jobs). Previously, he was general manager of Kingsoft, a giant Chinese software company, and then president of UCWeb, a mobile browser than 500 million users. Xiaomi is now valued at over $ 40 billion.
How these entrepreneurs run their companies is also different Asian traditional top-down system . Kelly Zong took over the management of China’s largest beverage producer, Wahaha, previously run by his father, after studying in California. It changed the way the company is run to make it more participatory and less hierarchical. China Beverage News shared that“the 30,000 employees of the group were accustomed to receive instructions from the founder Zong daily by fax after it has traveled the tons of reports received at his hotel each night. This management system has questioned whether the company could function properly without it. “
Challenges and opportunities of the Chinese corporate elite: the export success
All these success stories, very few can boast of a success abroad – Huawei seems to be best placed.
WeChat messaging / application services, has invested heavily in overseas marketing, making Leo Messi one of the brand ambassadors. WeChat also now allows the Chinese to use the application to pay from abroad (although the merchants in Europe and the United States are not yet ready to accept such payments), and launched an accelerator in South Africa . So far without success as was reported in Asia Tech in May 2016 .
Xiaomi is trying to impose in India, particularly in the market for smartphones, but Huawei working on his flower beds, and tons of other Asian manufacturers, including Indian, maintain pressure, Micromax to OnePlus and many others. Recent figures show a decline in sales and strategy to create an ecosystem of products for the connected home is not mature enough to be considered a solid new revenue.
The next wave of growth is not made easier this year with a Chinese market in decline and fierce competition abroad in all key markets.
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