INNOVATING NEW BUSINESS MODELS IN CHINESE MARKETS

By Blessing Waung


In McKinsey Asia Chairman Gordon Orr’s keynote speech, he boldly announced that technology would be the “key game changer” in the near term for Chinese companies, in order to maximize efficiency and to provide functional excellence for companies to succeed at their current breakneck pace.

Before he took the stage, key opinion leaders in the Chinese innova­tion arena converged to discuss trends and key takeaways confirming this, from sectors such as the piping hot mobile phone enterprises, to the advertising and digital realm, to group innovation. All the experts agreed: China is creating its own streamlined and uniquely efficient way of doing business, tailor-made for the unwieldy and increasingly savvy customer base.

“When we talk about Chinese insight, we do think there is something that characterizes the commercial landscape,” says Tom Doctoroff, Asia Pacific CEO of JWT. “The master insight and tension into the heart of Confucian societies that is both very ambitious and very regimented.”

“This results in polarized impulses, projection of identity and status on one end, and an equally trenchant need to protect oneself from uncertainty. This tension character­izes what we’re seeing in the new models or the innovative platforms of doing business. My thesis is that when we think of the future of innovation, we cannot divorce it from the more primeval, instinctual cultural impulses that do exist across China’s landscape.”

According to Doctoroff, from a Chinese consumer’s perspective, the Internet is a blank canvas of safe self-expression and self-exploration, and relative to the West, much more emotional and relatively less functional. In China, 10,000 virtual enterprises are opened every day, he says. That is representative of the project of ambition phenomenon he alluded to, where Chinese consumers are free to use Weibo and WeChat applications to engage in virtual communities.

Relative to people in America, more people are spending time blogging, on social media and instant messaging, says Doctoroff. He also cites a Morton’s study which points out that 75 percent of Chinese versus 20 percent of Americans post product reviews every week. Their emotional attachment is very deep on the Internet, he says.

Self-protection is also happening, the advertising executive also points out. Whereas only eight percent of Americans seek advice of online opinion leaders, 23 percent of Chinese do so before they make decisions about what products and brands to buy.

From a business model perspective, e-commerce has undeniably exploded in China. In order for it to succeed, though, protective imperatives were resolved in terms of delivery, return policy and virtual transactions. eBay, for example, failed “miserably” in China in its bidding and auction model because it did not have the correct protective measures in place.

(From left) Tom Doctoroff, Steve Monaghan, Joy Tan, Xiang Wang and moderator John Dawson
(From left) Tom Doctoroff, Steve Monaghan, Joy Tan, Xiang Wang and moderator John Dawson

Steve Monaghan, Regional Director and Head of Edge (Group Innovation) at AIA, concurred with Doctoroff’s point in his experience working for different innovation teams such as Compaq and Dell.

“When you look at Chinese innova­tion, it’s often looked as being a copy market. I just disagree immensely,” Monaghan says. “I would go around Asia copying my little heart out, because there were things happening on the ground here that you wouldn’t see elsewhere in the world.”

Innovation in Silicon Valley is successful because it is in the middle of a demand market, Monaghan reiterates. The demand now is shifting, and there in turn is a massive innovation shift.

In China, Monaghan cites the example of Alibaba, which is one of the most famous success stories in an innovative Chinese business model. For example, the Alipay model was initially illegal. However, Jack Ma said at a Credit Suisse event that without it, commerce was just a dream. There­fore, he broke the law and changed the value chains that defined business models.

In 2013, the average life span of a company was ten years. Volatility and agility is indeed the “New Normal”. In order to stay relevant, companies must be quick to adapt to customer needs, and according to Monaghan, it is not happening faster anywhere in the world than China.

Huawei Technologies Co. Ltd is one such example of a Chinese company innovating at a breakneck pace, trying to keep up with the consumer base that is ever-evolving. Joy Tan, President of Global Media and Communications at Huawei, says that she sees three key technologies that will drive the transformation of business as we know it: mobile wireless, the cloud, and big data.

While most countries are currently deploying 4G, Chinese consumers are already accustomed to it, and Tan says their research for 5G is “way ahead” of that of others.

“Can you imagine what your life will be like in a 5G world?” Tan asks. “An eight GB movie will take one or two seconds to download. You’ll have virtual reality on your mobile phone. All those things that could not be realized before …it will change all the traditional industries.”

Xiaomi is another brand that has burst onto the global scene, with its affordable yet high-quality smartphone devices. Xiang Wang, the company’s Senior Vice President, says that Xiaomi is much more than just a smartphone manufacturer, with millions of devices that are shipped out monthly.

“We hope to make the best product in the pricing segment we are in,” Wang says. “We focus on user experi­ence, so the first thing we want to make is the best product. When you buy a made-in-China product, we hope consumers will think high-quality, high-performance product first.”

“We treat customers as a friend,” Wang says. “ There is a very traditional Chinese saying, we treat our customers as God. No, we are not doing that. We try to treat our customers as a friend. Why a friend? Because God is too senior. We want equal communication.”

One of the company’s trademark innovations is taking fan feedback and incorporating them into weekly software updates. Xiaomi’s MIUI operating system was only created in its original iteration in two languages, Simple and Traditional Chinese, and English. The other 30 languages now available were developed or designed by fans.

Put simply, the business model is this: Xiaomi listens, and then it delivers. “We work with our fans,” Wang says.

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