Behind the scenes of the rise of Chinese tech giants

The numbers are impressive to say the least. Last year, Alibaba and JD.com recorded record sales of $139 billion in one day, the largest business event in the world. For its part, TikTok, owned by ByteDance, is the most downloaded app and is ahead of WhatsApp, which is owned by Facebook.

To better understand the rapid rise of large Chinese tech companies, we interviewed Guoli Chen, Professor of Strategy at the European Institute of Business Administration (INSEAD), a private management school based in Fontainebleau, Singapore and Abu Dhabi.

in his book ” Seeing the Unseen: Behind the Global Adventure of Chinese Tech Giants », collected more than 300 hours of interviews with investors, entrepreneurs, managers, and all technology company experts in China. It analyzes and decodes the strategies and successes devised by these new giants.

Lemon Squeezer: In your book, you go back to the dizzying rise of groups like Alibaba, Tencent and Xiaomi. Can you explain to us how these companies became tech giants so quickly?

It is a combination of macro and micro factors. From a macroeconomic perspective, it is shaped by the environment in which we operate. China, which has experienced strong growth over the past 20 years, has created the potential for technology companies to grow into giants.

i.e. one market for a billion people with increasing disposable income; The creation of transportation and communication networks and the deployment of mobile phones paved the way for e-commerce, meal delivery, a new retail model, and many other business models.

It is now a gigantic national market in which tech entrepreneurship can develop rapidly. The larger the pond, the greater the capacity of the fish to grow.

American and European multinationals are too “arrogant” to find their place in the Chinese market.

From a microeconomic point of view, the past few decades have seen a wave of ambitious companies with humble beginnings, but they have fully understood the difficulties faced by many ordinary Chinese consumers. They copied each other, competed fiercely, learned from the past and adapted quickly, allowing them to develop innovative business models that work very well in China, and then scale them up due to the above macroeconomic environment.

Another reason is that many American and European multinationals are too “arrogant” to find a place in the Chinese market. Apparently, it is a problem with a product (or service) not suitable for geolocation. However, in essence, there are also people, business and leadership issues that many multinational companies face when expanding into overseas markets. We have seen similar problems among Chinese technology companies as they leave China to engage in global or overseas expansion.

Lemon Squeezer: Shein’s case is particularly interesting. What are the keys to the success of this business?

SHEIN is a pure online digital platform that specializes in international e-commerce. On the demand side, Shein understands consumers and markets well with quick data collected from customers’ browsing and shopping behaviors, as well as data from social media. Big data helps Shein predict fashion trends.

On the supply side, Shein has developed a resilient supply chain ecosystem in Guangdong, China. Compared to traditional fast fashion companies, such as Zara and H&M, SheIn has become a super fast fashion company, with more than 150,000 new SKUs released each year (compared to 12,000 SKUs annually for Zara).

Shein has a shorter production cycle, and the minimum quantity for each batch is 100 pieces (or even less), compared to 500 pieces for Zara. This allows Shein to react more quickly to market demand and increase production if needed. Besides working closely with vendors, Shein’s other core competency is its digital capability. SHEIN is a high-tech company, not a traditional fashion company. It is simply applying its digital power to the fast fashion sector.

lemon juice: Recently, the Chinese government has cracked down on some Chinese tech giants and their CEOs. Can you explain the logic behind this acquisition? Can this policy continue?

Our book attempts to provide an explanation for China’s recent shift toward tech companies (although we don’t quite agree with the rationale behind it and see the potential downsides).

After years of unbridled fierce competition, technology in China appears to have reached a breaking point: “Everyone is forced to work harder for very little extra return – this is called inversion”.

On the antitrust front, the government has been very active – Tencent Music has been forced to give up the exclusive distribution rights to music companies; Meituan was fined for forcing distributors to choose between the two sides.

In short, the Chinese government says it wants to create shared prosperity or an equal society through these initiatives. Some problems arose in light of the dominant positions of tech companies, both in the US and China. I think in particular about the effects of the winner-takes-all principle, the wealth gap, or the polarization of society due to manipulation of social networks and applications.

However, unlike the United States, which tends to be more conservative in dealing with these issues, the Chinese government is less impatient and less reluctant to use the “visible hand” to reform society and try to avoid the pitfalls that its East Asian neighbors have yet to experience. A period of strong economic growth.

lemon juice: In 2022, where are the major Chinese tech companies?

There are fewer and fewer opportunities in inland China, and many are determined to expand into overseas markets.

lemon juice: You said in your book that these tech giants set out to conquer the world, what are their origins to make that happen?

Sorry, if I gave you the wrong impression that these big corporations want to “take over” the world. Any company tends to internationalize once it is successful in the national market.

Globalization is the continuation, or part of the growth of an organization in its geographical dimension. However, some Chinese companies, such as Shein, were already international when they were born because they don’t make sales in China). Others use business models developed in China to open up abroad (such as super apps and live e-commerce).

Don’t underestimate the survival instinct of Chinese companies.

These global expansions also face significant challenges. However, do not underestimate the survival instinct of Chinese companies. Some of them will fail on their outward journey, but they will collectively learn from each other, rely on each other, and some will eventually stand out and excel.

To answer your question, I think their main strengths are: strong production capacity in China and an efficient supply chain ecosystem (for cross-border e-commerce); Billions of consumers to test/develop business models; Abundant, well-trained and hard-working workforce; A highly competitive internal market that is nurturing a generation of talented workers, entrepreneurs, ambitious leaders, and agile organizations.

lemon juice: What are the obstacles that may hinder this expansion?

The obstacles and difficulties are many. The giant Chinese domestic market is a double-edged sword. On the one hand, it can provide the capital and human talent needed for overseas expansion. On the other hand, any change in the Chinese market will attract the attention of executives, which will make them less interested in the global market.

In general, issues of people, company, product, and leadership recur over and over again. For example, in terms of leadership, do you have the necessary mental freedom to face the challenges that arise in foreign markets and make the necessary decisions?

What would the decision-making process be if the company’s overseas performance was very different from initial expectations? Will you be humble and open-minded enough to take the right ideas from the local market, learn and adapt (in fact, one can become very confident and arrogant after succeeding in the local Chinese market)? Does your business have the potential to expand successfully? If not, how can you as a leader develop these capabilities?

lemon juice: It is clear that these companies threaten the dominance of GAFAM. What is the relationship between Chinese companies and American tech giants? Is the competition perfect or are there collaborations and associations?

From a business perspective, they are definitely competing globally. I would like to point out that the competition is not in the direction of a simple rivalry between Chinese and American companies, because American technology giants are also in competition with other American companies (Meta vs Google), and Chinese giants are also in competition with other Chinese companies (Alibaba vs PDD / Meituan ).

A few decades ago, the movement of business ideas and innovations was one-way: Chinese companies imitating American companies. Today, there is more cross-pollination of business models, especially from China to the United States. As an example, we can cite the case of Meta/Facebook putting all its power into Reels, a short-lived video product very similar to what TikTok/ByteDance offers. This phenomenon also occurs from emerging markets to other emerging markets.

When it comes to the relationship between China and the United States, I think a complete separation is unlikely, but we do not expect the world to return to the happy days of globalization. The competition between China and the United States will last for at least ten or twenty years. We must prepare for it, by reducing the risks but also by seizing the opportunities that will arise.

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