Seeing the Unseen
Description
In the last few years, we have seen a meteoric rise of Chinese tech companies across the world. Alibaba stock price movements unnerved investors globally, venture capitalists searched for the next Meituan or Pinduoduo in Southeast Asia and Latin America, and of course, Tik Tok, the most popular content platform in the world today, originated from China. The founders of such companies are typically credited with the "tenacity to rough it out," the "courage to venture into the unknown," and the "vision to take their companies to new heights." However, the same can be said about Silicon Valley founders, or any successful entrepreneur. So, what gives Chinese founders and their companies the advantage in becoming multi-billion global enterprises? How does their leadership set strategies? How do they motivate their people? How do they move so fast and defend their turf in China's hyper-competitive tech market? When they expand overseas, how do they determine what they keep and what they need to let go of? And most importantly, what do these things mean to you as a competitor, investor, regulator, or even as an executive or customer of such companies?
Seeing the Unseen: Behind Chinese Tech Giants' Global Venturing answers these questions and delves into the fascinating world of Chinese logic that shapes how tech leaders make and implement decisions, many of which are seldom seen outside China.
In this book, you will gain an accurate, concise understanding of Chinese tech companies' reflections as they scale. You will understand the different generations of Chinese tech giants from Alibaba, Tencent, Baidu and Huawei to Pinduoduo, Meituan, ByteDance, Xiaomi and more.
In this Seeing the Unseen, the analysis behind the success and lessons learned is summarized into a unique framework that touches on People, Organization, and Product and Leadership (POP-Leadership). The book covers:
- How Chinese history, folklore and Mao Zadong's political strategies have shaped the strategies of Chinese tech leaders, even today
- The mindsets of Chinese tech and internet companies and how they have evolved over the last two decades
- The unique business culture and leadership styles that steered these companies through uncertain and ultra-competitive periods
- How Chinese companies structure their organizations and products and how they remain agile as they scale
- The limitations of Chinese POP-Leadership, and what these companies must shed to keep up with international players in global markets
- How Chinese POP-Leadership is now becoming international, and how international players are leveraging these learnings
- How the worldwide expansion of Chinese companies will alter the business landscape in the coming decades
Chinese firms undertaking overseas ventures can challenge our thinking on global strategy and implementation. This book gives you a better understanding of these emergent players in the global arena.
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Persons
GUOLI CHEN, PHD, is a Professor of Strategy at INSEAD, one of the world's top-ranking international business schools. He received his doctorate in strategic management from Pennsylvania State University and is an expert in China strategy, value innovation, strategic leadership, and corporate governance.
JIANGGAN LI is the Founder and CEO of Momentum Works, a Singapore-headquartered venture outfit that enables digital economy across emerging markets through insights, community, and ventures. Momentum Works counts some of the top tech entrepreneurs from China, Southeast Asia, and the United States as investors. Its subsidiary Momentum Academy has been entrusted by corporates, startups, and investors for actionable insights and immersive learning experiences.
Content
Preface ix
Acknowledgments xi
About the Authors xiii
Introduction 1
Part I: Understanding Chinese Tech Companies
Chapter 1: The Shark versus the Crocodile 15
Chapter 2: Strategy and Tactics of Chinese Tech Companies 29
Chapter 3: Everyone Is Going Global 39
Part II: Pop- Leadership
Chapter 4: Leadership 47
Chapter 5: People 73
Chapter 6: Organization 101
Chapter 7: Product 123
Part III: Resteering the Wheel
Chapter 8: The Inflection Point 151
Chapter 9: The Global Chinese Community Fills the Gaps 161
Chapter 10: Connecting the Dots 185
Chapter 11: Cross- Pollination of Global Markets 199
Epilogue 217
Index 219
Introduction
IN MAY 2020, KEVIN Mayer, a seasoned media executive, resigned from the Walt Disney Company to join ByteDance, raising a lot of eyebrows.
For the first time, an established Chinese tech company managed to convince such a high-profile American executive to join-in the executive's home market. Even more impressive, Mayer's new role, CEO of TikTok and COO of its parent company ByteDance, made him the first American executive given the power to run a major and most critical business unit of a Chinese internet company.
He was obviously qualified: at Disney he was in charge of streaming businesses, international channels, advertising sales, and distribution, as chairman of Walt Disney Direct-to-Consumer & International (DTCI). There were rumors that his departure was because Bob Iger, the outgoing CEO of Disney, named Bob Chapek instead of Mayer as the successor of the Disney empire.
Commentators were, however, split. Some cheered this as a new era, where Chinese tech companies can tap into top global talent; others were more skeptical, citing the cultural fit that has crippled many other foreign executives (mostly of lower ranks) in Chinese tech companies. Either way, people agreed on ByteDance's boldness in international expansion, taking a step that East Asian companies rarely take.
Barely three months later, Mayer announced his resignation from his roles at ByteDance, leaving the company.
Even from the outside, the three months looked like a wild roller-coaster ride. The Trump administration gave ByteDance an ultimatum to either shut down TikTok or sell it to an American company. Intensive discussions happened with multiple acquirers and potential partners, including Microsoft, Oracle, and Walmart. Pressure probably mounted also from investors, internal teams, and the Chinese government. Only Mayer himself knows what he went through.
Some wondered, if Trump had not forced a sale, would Kevin have survived or thrived under Zhang Yiming, the founder of ByteDance, one of the most valuable private tech companies originated from China which is well known globally for its crown jewel app TikTok?
ByteDance, together with many other Chinese tech firms such as Alibaba, Tencent, Baidu, Xiaomi, Pinduoduo, and Meituan, have become more and more regularly hitting the news headlines in the past decade, not only because of their extraordinary growth, recent upheaval (due to China's tech crackdown and US-China geopolitics), but also their increasing international presence and market influence.
From copycats of Silicon Valley's trendy ideas to increasingly making their global presence known, Chinese tech and internet companies have come a long way, in a very short period of time.
However, beyond the media headlines and financial reporting from a few big-listed companies, little is known about China's tech firms: Who are they? How did they become what they are today? What are their real competitive advantages? What are their global ambitions? Can they achieve these ambitions?
These questions frequently surface in our discussions with various tech stakeholders across continents, and for the right reasons: companies need to figure out whether to compete, or collaborate, with these Chinese firms, and how. Experienced talent is getting recruiter calls from these firms, but the talent has heard little about these firms' culture or their financial prospects. Regulators need to figure out how to deal with hundreds of permutations of business models, some never seen outside China.
Media and analyst reports can also be misleading. For example, Didi was penalized because of its monopolistic behavior (the main concern is cybersecurity). Pinduoduo, which really started as a gamified version of Taobao, is often portrayed as "social ecommerce"; Ant Group's credit-scoring system (Zhima Credit) is credited with helping the company increase the performance of its lending products (it's not a full picture).
In this book, we seek to first give the readers an accurate, concise understanding of Chinese tech companies, and then, more importantly, we want to focus on their global expansion efforts. We have summarized the key lessons and future propositions into a POP-Leadership (POP stands for product, organization, and people) framework, which will be discussed later.
The journey has not been smooth for most of the companies, with failures more common than successes. However, it is important to note that as a whole, Chinese tech firms learn very fast, from their humble beginning as copycats.
WHO SHOULD READ THIS BOOK?
Who will find this book interesting? In a market that has only recently emerged, these Chinese tech giants are influential, yet understudied. While abundant media coverage has been produced about some of these companies, little information exists regarding their leadership thinking, strategy, organization, strengths, and weaknesses. Now is such a crucial time-with potential opportunities yet a lack of information-for regulators, potential partners, competitors, suppliers, customers, experienced professionals, and other stakeholders to better understand how these companies operate.
We believe you will find the book useful if you are any of the following:
- A senior executive leading a company to compete or cooperate with Chinese companies, in or outside China.
- A business owner embedded in the supply chain or ecosystem led by Chinese tech firms.
- A budding entrepreneur who would like to replicate the business models outside China.
- A consultant who advises on the strategies Chinese high-tech firms have used to rapidly grow over the past decades.
- A professional receiving a call from a headhunter who is going to offer you a generous package to work for a Chinese tech firm in Phnom Penh.
- A researcher aiming to write a report with a specific focus on the Chinese tech industry.
- A government official who would like to formulate policies to attract and manage foreign direct investment (FDI) and new business models from China (and yet are bewildered by the recent regulatory crackdowns on big techs in China).
This is because, whether you are of Chinese background or not, a tech company or an entrepreneur, a researcher or business enthusiast, this book aims to fill a gap in understanding how Chinese companies create, compete, and venture into the international landscape. In addition to these companies, the global Chinese community has already been copying models from their cousins in China and achieving successes outside China-Singapore-based Sea Group (market cap: $159 billion on December 1, 2021) is a case in point.
SCOPE OF THIS BOOK: WHAT ARE TECH/INTERNET COMPANIES?
We use the terms "high-tech" and "internet" firms loosely, but what are internet companies? Before we get into more details about our framework, we would like to define the term and set the scope of this book.
A narrow definition of internet firms is those companies that rely on the internet (more recently the mobile internet) as the main distribution channel to reach out to their base of customers. A broader definition involves companies using (mobile) internet as a key differentiator that separates them from other firms serving the same demand (think about ecommerce as compared to traditional retail); it also includes firms that serve these companies using internet-enabled technologies, such as logistics, supply chain management, credit assessment, and cloud computing.
Internet companies generate revenues and profits primarily through:
- Fees or commissions for facilitating transactions/sales (marketplace model)
- Advertising
- Charges for providing a piece of infrastructure or service (e.g., logistics, credit assessment, cloud)
- Direct online sales
- Financial transaction fees and interests
- Ecommerce live-streaming
- Payment for gaming/content and other in-app purchases
Among these monetization methods, 1 and 2 are mainly levied on businesses; 3, 4, and 5 are levied on businesses and/or consumers; 6 and 7 are usually levied on consumers.
Because of their nature as disruptors in a very fast-growing field, large internet companies tend to be strategically aggressive in fending off potential disruptors. One method is by expanding their customer offerings and providing additional value to attract more customers and retain existing customers.
FIGURE I.1 The matching between companies in emerging markets and Chinese internet firms
Source: Momentum Works.
This leads to what we call the "super app" strategy,1 as demonstrated by WeChat, Meituan, and Alipay: consumers can shop, order food delivery, make payments, and access municipal and other services, all on the same app. The strategy helps the firms deepen their moat and fend off potential competitors. It also helps the companies extract more value from their customers-this is especially the case in China where the average customer value is still considerably lower compared to their US peers.
Certain US companies are also taking the same approach, albeit with less urgency; companies in emerging markets tend to copy the Chinese model more, as the market realities they face resemble those of China more (Figure I.1).
The definition of internet companies given at the start of this section helps us generate a table of Chinese versus US internet firms in...
