Three Essential Qualities of a Successful Chinese Start-up

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China’s rapid economic growth has led to a boom in new companies and new entrepreneurial and technological ideas.  With over 12,000 businesses registering in China every day, China is a booming market for startups.  But with this surge in the number of new businesses, there is also an increase in the number of businesses that fail and leave the market.  It is simply the nature of the business cycle, but the companies that do succeed have three key advantages.  Whether small startup or established company reinventing themselves in the digital age, every successful company in China is able to adapt fast to new technology, has an innovative product, and has a dedicated team of experts supporting them.

The surge in entrepreneurial growth in China can be explained by the rapid adaptation of new technologies as well as the huge influx of capital from investors.  Investors in China are eager to invest and there is plenty of money for entrepreneurs to find; however, the nature of the market also works against entrepreneurs.  Because the market is moving so fast and there is so much cash readily available for those who seek it out, companies have only months to take a product from the planning stage to market.  Some argue that Chinese companies work as much as ten times faster than companies in other countries because the speed at which technology is accepted, and the rate that competitors enter the market in China, is just so much faster.  That is why only the companies that have managed to reinvent themselves, adapt, and innovate have been able to succeed.

There are two strategies that have been key in allowing rapid expansion among so many competitors and advances in technology: creating a value chain and creating shared value.  Value chain analysis is where firms analyze their own activities and try to maximize the value of their product at each step of production. Each of these steps in production theoretically forms a chain in which each link makes the final chain stronger. Depending on the type of business typical “links” in this the business chain might include purchasing of materials, product manufacturing, distribution, and marketing.

Creating shared value also allows companies to stay competitive in China and could reshape the relationship between capitalism and its impact on society.  Shared value is a strategy in which companies try to align their business with social problems.  Doing so could help to drive the next wave of innovation and productivity growth in the global economy as new markets are capitalized on and societal gains are realized.  Despite the huge potential of shared value, this marketing strategy is still in its early stages and attaining it will require companies and governments alike to support and regulate in ways that support this type of shared value rather than working against it.

Below are 2 different case studies that will highlight the success of technology adaptation, product innovation, and human capital as well as the success of using shared value and value chain analysis.  In China, as in the rest of the world, new product markets tend to follow path highlighted in Steven Klepper’s product life cycle: early markets experience high levels of entry and exit with high levels of innovation and entrepreneurial efforts, but mature markets have only a few large successful firms left.  Each is still innovating in their own way, but they were successful where others failed.

  1. Mobike – the success of cutting edge technology, big data, and the Internet of Things

Mobike was founded by Beijing Mobike Technology Co. in 2015.  Just 3 years later it is the world’s largest shared bicycle operator in the world having over 100 million registered users and handling as many as 25 million trips per day on its service.  Although there are still quite a few different companies offering bike share programs, the market is beginning to age and there are only two main contenders left: Ofo and Mobike.  Despite the maturity of the market, Mobike has no intention of giving up on their entrepreneurial spirit.  They are continuing to implement innovations planning to enable new services such as courier delivery as well as planning to aggressively pursue international expansion.

Mobike’s success, in part, is due to their willingness to accept new innovations into their product.  Mobike’s goal to solve the “last mile issue” where commuters try to get from their place of work or their house to the larger transportation network, and to do this more efficiently Mobike’s bikes are dock-less.  This ability to leave them anywhere is only available because of the cutting-edge technology that Mobike has adapted and implemented into their bikes.  Each bike is embedded with a GPS using NB-IoT technology to connect to the main network of bikes in each city they service.  This technology is part of the internet of things (IoT).  Each bike becomes essentially a computer that is then connected with every other bike on that network.  Through this each bike’s location can be monitored and each bike can be unlocked by scanning a QR code.

In part Mobike would not have the success it did without its willingness to adapt to new technologies and innovate.  The Chinese market gave Mobike an opportunity (in 2017 Mobike got over $1 billion from venture capitalists; however, it was Mobike’s innovation that allowed it to thrive where other companies have struggled.  Mobike is also an excellent example of a company creating shared value. The service that Mobike offers benefits is thought to be beneficial to society reducing road congestion, lower pollution levels, and making it easier for people to get around.  This alignment of social values has without a doubt allowed the company to attract more investment and become the highly successful international company they are today.

  1. Jing Dong – rapid growth fueled by daring adaptations of new technology and ways of life

Jing Dong (also known as JD.com) is a Chinese ecommerce company headquartered in Beijing and is currently one of the largest B2C online retailers in China.  In less than two decades the founder of Jing Dong, Liu Qiandong, grew the company from a small booth in Beijing’s Zhongguancun area into one of China’s biggest online retailers.  The rapid growth that JD.com experienced was likely due to innovations to their supply chain and adaptation of new technologies.  When creating his company Liu initially sold only electronics; however, unlike other companies selling electronics, he sold only genuine products and made a reputation for himself as a trustworthy seller and within five years he had opened twelve stores.  As the company grew Liu made a daring decision to close all of his brick and mortar stores.  He had witnessed the growing popularity of online shopping and decided it was the way of the future.  At the time this was a huge risk and many people opposed it, but the risk paid off and it allowed the company’s growth to soar.  Other risky decisions, including abandoning third-party logistic providers and owning their own warehouses, were also successful and the now public company is valued above $70 million.

This success came about because Liu was willing to adapt his growing business to the new world and accept innovation rather than maintaining his current business model and falling behind.  This entrepreneurial spirit has allowed JD.com to grow where so many other companies have failed.  Since new technology replaces older technology development only years before it is impossible to stay the same in China.  Even now JD.com is experimenting with drone and robotic delivery and they possess the largest drone delivery system and infrastructure in the world. They are even planning to unveil driverless trucks soon.  Even as successful as they are, Liu knows, like all successful entrepreneurs in China, that as soon as he becomes complacent, as soon as he stops innovating, adapting, and hiring new talent he too might fall behind and become obsolete in China’s ever-changing market.

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