Thematic Report

Future of Chinese Innovation

by Edward Tse / Sep 1, 2018

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With China’s digital-savvy consumers now accounting for over half of the country’s economy, the next phase of its development and coming ‘mega opportunities’ are decidedly consumer-focused. Speaking at last year’s CLSA Investors’ Forum in Hong Kong, Edward Tse, one of China’s leading global strategy consultants and author of China’s Disruptors, outlined the six sectors tipped to explode over the coming years: new retail, entertainment, finance, healthcare, mobility, and products and services related to smart homes and workplaces.

Underpinning those mega opportunities are ‘mega ecosystems’ created by China’s technology giants, particularly Alibaba and Tencent, who paved the way for China’s consumption boom through the introduction of mobile payments that enabled the country to overcome the constraints of its underdeveloped payments infrastructure. With the troves of consumer data they gathered in the process, Alibaba and Tencent went on to build all-pervading ecosystems of consumer offerings – either themselves, or through acquisitions or partnerships with third parties – ranging from retail and entertainment to mobility and wealth management.

Expanding horizontally
Chinese companies have been more inclined than their Western counterparts to migrate across sector boundaries, contends Tse, observing that even Google and Amazon are not as diversified as China’s tech giants. This is partly a function of Chinese companies being unconstrained by the “core competencies” doctrine that has permeated corporate strategy thinking in the West for the past 30 years, leading to Western companies largely focusing on growing upstream or downstream of their original focus. By contrast, a company like Alibaba has transformed at breakneck pace from a B2B platform to an “everything company,” as its founder Jack Ma calls it.

Apart from Alibaba and Tencent, companies like Ping An Insurance, Baidu and JD.com are also intent on building mega ecosystems, says Tse. Even traditional manufacturers have adopted the ecosystem mindset, with the likes of automaker Zhejiang Geely Holding Group – helmed by the forward-thinking Li Shifu – moving towards becoming a diversified transportation services provider. Indeed, Geely is clearly looking even further than that, with strategic acquisitions positioning it to provide consumer services such as finance through the connected vehicle dashboard of the future.

The spread of mega ecosystems is set to accelerate on the back of internet of things and 5G mobile networks, and competition will heat up both domestically and abroad as China’s tech giants move increasingly into new sectors and foreign markets. So, while both businesses and consumers stand to benefit from the immense value mega ecosystems will unlock over the coming decade, the message for consumer-focused companies that fail to either build their own ecosystems or join one is clear: partner up or be disrupted.

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