Will the Chinese internet giants take over the world?

You could say that last year was a good year for Chinese internet titans. E-commerce giants Alibaba and JD.com broke a record $139 billion in sales on Single’s Day, the world’s largest business event. Social media phenomenon TikTok, owned by Beijing-based ByteDance, was number one globally most downloaded app, surpassing the previous favorite WhatsApp. Tencent, China’s largest social media and gaming company, reported a 16% year-on-year increase in revenue, to 560 billion yuan.

Behind the shimmering numbers, however, dark clouds loom. China’s domestic market is slowing amid Beijing’s zero Covid policy and frosty relations with the United States. The government’s crackdown on the tech sector may have eased, but tighter regulations seem here to stay. Despite the difficult environment, Chinese Internet companies aim go global. From e-commerce (Alibaba and Pinduoduo) to social media (ByteDance) and fashion retail (Shein), Chinese players are planting stakes around the world and shaking up more established rivals in the process.

Fast fashion retailer Shein, for example, was valued at $100 billion in a funding round in April, more than H&M and Zara combined. Founded only ten years ago, Shein now sells in 150 countries, including the United States, where it is the dominant fast fashion player.

How did Chinese tech companies get to where they are today? What are their competitive advantages? What are their global ambitions and can they achieve them? What can companies, entrepreneurs and leaders learn from this? How should they react? These are the questions that various audiences and customers have asked us.

We answer these questions, and more, in our new book, Seeing the Unseen: Behind the Global Venture of Chinese Tech Giants. It combines insights from our research and expertise, as well as over 300 hours of interviews with investors, entrepreneurs, and executives with intimate knowledge of global Chinese internet business ventures. In this article, and another to appear in the coming weeks, we share excerpts from the book that outline the key factors behind the phenomenon and the takeaways.

Beyond the “996” Culture

The rise of Alibaba has long since entered into legend. In just 15 years, the company went from a scruffy B2B online marketplace to launching the biggest IPO in history at the time, claiming the scalps of Amazon and eBay in China in the process of road. You would have heard of Alibaba’s famous “996” culture, which operates from 9:00 a.m. to 9:00 p.m. six days a week. Then there’s the story of how founder Jack Ma persuaded Japanese investor Masayoshi Son to invest US$20 million in his then-unknown company by being “a little crazy”. But the success of one of the world’s greatest companies and valuable brands, and that of its contemporaries, is much more complicated than that.

We are all shaped by the environment and circumstances in which we live. For China’s Internet giants, success has been forged in the dizzying changes the country has experienced in the space of a generation. The razing of large swaths of Chinese cities in the early 2000s to make way for high-rise apartments and planned communities, the construction of transportation and telecommunications networks, and the penetration of mobile phones paved the way for e-commerce , to food delivery, to new retail businesses. and many other business models. A national market in which technological entrepreneurship could evolve rapidly was born.

But an even deeper societal shift sowed the seed of homogeneity that led to the rise of the internet giants. The tumultuous early years of the People’s Republic, including the decade-long Cultural Revolution, swept away traditional social hierarchy and powerful vested interests. Indeed, the Chinese Communist Party has allowed more than a billion people to speak the same language (standard Mandarin), receive the same education (nine years of compulsory schooling), and watch the same entertainment programs.

China is today a gigantic homogeneous market with breathtaking purchasing power. The government promotion of “mass innovation” and “mass entrepreneurship” as well as a hands-off approach to regulation (until the 2020 crackdown) provided an additional boost to the emergence of Alibaba , Tencent and their contemporaries.

Mao the start-up strategist

That’s not to say that their success simply comes from being in the right place at the right time. For every business model in China, there are hundreds, if not thousands, of competitors. Success depends on the right strategy and the skillful execution of said strategy.

Some entrepreneurs we spoke with called the Chinese Communist Party a great start-up success story. They were only half joking: we know many entrepreneurs who have read the five volumes Selected Works of Mao Zedongseeking to glean the art of war from a studious peasant son who led an impoverished army to triumph against more established and better equipped foes.

Ideology aside, Mao’s tactical genius when it comes to entrepreneurship lay in knowing when to engage in guerrilla warfare or mobile warfare. Astute commanders deploy guerrilla tactics that make the most of their limited troops when facing an overwhelmingly powerful enemy, and transition to mobile warfare – in which troops are constantly on the move and wipe out entire enemy units a by one – after gaining strength.

Young e-tailer JollyChic and logistics company J&T have apparently emulated Mao’s taste for stealth. The companies have quickly and stealthily become major players in Saudi Arabia and Indonesia over the past few years, disrupting well-established local incumbents, with little disclosure. None of their senior executives had a LinkedIn profile or had even been interviewed by the media. Shein has also squeezed past more established rivals to conquer the US market without much fanfare. The last example is Pinduo-duothe new e-commerce player that quietly launched an online shopping site in the United States earlier this month as part of its first major overseas venture.

Mao also knew his “market” well. Instead of copying the Russians’ strategy of rallying urban workers to protest and seize power, Mao’s Communists established bases in the Chinese countryside to build support and amass supporters before launching swift and decisive attacks against towns.

Inspired by Mao’s core strategy, Alibaba built its e-commerce empire from the bottom up, focusing on low-cost products and individual sellers in the customer-to-customer segment in its early years. As it grew in scale and efficiency, the company moved up the value chain to create the brand-driven Tmall. Other rivals have adopted a similar strategy, including Pinduoduo and online service vendor Meituan.

Copy, innovate and go further

Chinese companies are, of course, notorious for copying. But what many foreigners didn’t realize (and perhaps don’t realize) is that Chinese players have ruthlessly copied products and business models not only from the West but also from each other. , and they did it with breathtaking intensity.

Case in point: When Groupon ventured into China in 2010 with its group buying business model, thousands of group buying websites, including Manzuo, Lashou, and Meituan, sprouted up in China almost overnight. The first merchant partner of the American firm defected on the eve of the launch of their collaboration, seduced by the best offer from Lashou. Groupon’s European managers barely knew what was hitting them. By the end of 2011, Groupon’s foray into China had failed.

Similar tales of cutthroat competition played out across industries and business models in the decade since, including carpooling, O2O (online to offline), bike sharing, live streaming and commerce. cross-border electronics. Copying has even extended to technologically sophisticated fields such as smartphone manufacturing, artificial intelligence, facial and voice recognition, virtual reality and electric vehicles.

However, mere imitation is not enough for Chinese companies to survive and thrive; they must also relentlessly iterate to meet customer needs. The result is incremental innovations that collectively drive entire industries to evolve rapidly. For example, smartphone makers offered a cell phone with seven stereo speakers for construction workers and one that could last a month at no cost for traveling salesmen.

Another key success factor is the extraordinary commitment of Chinese companies to customer satisfaction. Former and current Huawei executives have told us how the telecommunications equipment maker and its rival ZTE have taken over their foreign competitors.

“Huawei and ZTE admitted that their products were inferior [so] they decided to compensate for this disadvantage with better services and quick resolution of problems,” said a former executive. The chief technology officer of a major consumer internet company told us that whenever they encountered network problems, Huawei service engineers rushed to the spot without any problems, even if the Huawei equipment did not. was perhaps not responsible for the problem.

Exploring the background and general strategies behind the rise of Chinese Internet companies, we are faced with even more questions. How do these companies decide which product to offer in foreign markets and when and how to enter them? What resources and managerial attention will companies need to invest in new territories? How will they recruit strong lieutenants to operate and meet the challenges of global expansion?

The next article in our book will focus on the inner workings of Chinese internet companies’ overseas strategies and challenges. Watch this place.

Donald E. Patel