SBI030 - Entrepreneurship and China’s big three
How. Can China's emerging, entrepreneurs, compete, in a culture, that is dominated. By three big companies, Baidu, Alibaba, and Thomson the, B 80s the big three that imitate, or consume, any smaller. Competitive. New company. From. The University, of Sydney Business School this is Sydney business insights the, podcast that explores the, future business. Hi. I'm Sandra Peter and today we talk to Barney, tan about one of the most dynamic entrepreneurial. Environments. In the world China. An. Economy, dominated by, three big companies, but also the place for mass entrepreneurship. And innovation. Barney. Tan is a senior lecturer in business information systems at the University of Sydney Business School and he's conducted, hundreds of case studies in startups of existing, tech giants and entrepreneurs. In China, so. Welcome Barney thank you for talking to us today my pleasure thank you for inviting me so for China's big three in the e-commerce scene. These, big three firms are collectively, known as the be 80 businesses, y2. Which, is a search engine Alibaba. Which is an e-commerce giant and, $0.10 which is a social, media platform and basically, they are the three pillars of the e-commerce arena, in China what, did the bad businesses, represent, for China today so these organizations, are both pioneers, and trailblazers, they've, essentially, shown to, the rest of the aspiring, ie businesses, in China that there is scope for the, development, of a parallel ecommerce universe, in China and these dat, businesses, they essentially the three pillars of this parallel, universe so. Anything that's happening, in the West you could see a similar, development happening. In China as well like for example if you have YouTube in, the West you have you cou in China if you had Facebook in the West you have WeChat. In China and also previously, you would have Redmond com so that's, always a parallel, development that's happening so by do would be like Google. In China. Alibaba. Would be akin to amalgamation. Of both Amazon, and eBay and, $0.10, would be the Chinese version of Facebook essentially. These, companies have developed let's, say over last twenty, years or so and how has this development. Of this first wave of tech giants shaped opportunities, for the subsequent, generations, of startups well essentially they provide a template, and an example, for business development in, terms of the strategies, they've adopted the way they have navigated, China's regulatory. Environment, which is a very important factor if you want to succeed in e-commerce in China as well as the business models, that they have created for, example, a lot of what's happening surrounding, FinTech, with, all the emergence, of firms or in startups looking, to provide FinTech, services, all of those firms.
Would Actually use services, that is provided, for example by WeChat, by, Alibaba. To basically assess, the credibility or, the creditworthiness of, their customers, so they provide services in that way and not only that these big tree firms they tend, to be the hotbed, for the development of technical capabilities. And expertise, within the entire domain as well because, a lot of these startups, and new. Emerging, tech firms they actually hire former employees, of the p80 firms, and in that way knowledge is generated at. The, b8e firms and, subsequently. By hiring, employees from, these be IT firms knowledge. Diffuses, across the entire sector we've seen a rapid, growth in China's, ecommerce, with companies, like $0.10, are now actually I think since April, in the top, 10 companies by, market cap in the world are we seeing equal growth in the number of Chinese tech, startups, there are a great, number of startups, I would say hundreds. Of thousands, if not millions of, startups there are a lot of them but the fact is that many of them do, not and will, not succeed or the. Moment they achieve some measure of success they will be bought into by one of the b8e firms so. There's a great number but unfortunately. It's, very rare, that any one of them would actually achieve, any, measure of success that would be significant. Speaking. Of their success, is, it possible, for these new startups, to compete, against, the B 80 Giants without, being bought out or without being copied and indeed. How, innovative, are the startup companies oh these startups tend to be very innovative because, of the way the competitive, and regulatory environment in China is, structured, there are a lot of great areas. And generally. I believe the philosophy, of the Chinese government is that they do not step in to regulate until, a particular sector. Or particular mark, and offering, becomes, very. Very significant, one, example I have of this would be internet. Live-streaming, TV in China, it used to be that any. Provider. Of this service, would just do. A live stream of say CNN, or some other cable channel and, nobody. Would care until. The market, got too big and then all of sudden the Chinese government would step in to, regulate so. Chinese, startup companies, are very. Innovative because, they're given the scope to be innovative, but, essentially, like, I said earlier once, they achieve any measure of success they would tend to attract the attention, of the BA t-phones and when they do that they're in trouble a good outcome for them at that point would be that if they are acquired by the BA t-phone so there will be good coz then they are consumed, in a good way but if the. Ba t firm launches, a similar, offering so. If you think about the market cloud of these ba t firms, and the size of their user base which could be 500, million users or thereabouts these, innovative, startups, would be crowded out very very quickly so, in the sense the. Only, ecommerce. Or, online, businesses. That. Have, been quite successful in, the Chinese, e-commerce arena, over the last decade, or so would be those, that would already have some, established. Foundation. Companies. Especially that are going what in China they call o - o which. Is a term that you were not here in the West, it stands for offline, to online so. These are large offline. Companies seeking. To move into the online space examples. Of these would be JD. Comm, which is their version of Amazon, it, started out as a logistics, company and they have already all, the logistics, channels, in place the distribution channels, in place so they are able to sell, and maintain. Competitive, pricing, because the channels, have been very, well established another. Example would be swooning which, is a electronics, retailer. So they have a chain of hundreds. Of electronic, stores all across China and, because. Of them moved online to sell electronics, online, they already had a base they have distribution, channels, they were using their stores as distribution, points, that enabled them to succeed you must have clothes in order to establish yourself essentially. In the e-commerce space otherwise, you're, just waiting, to be bought out by the b80 folks this, be 80 firms have also been quite successful at, keeping companies, like eBay and indeed Amazon, out of China, what innovative, techniques have allowed them to do that let, me use the example of Alibaba, Alibaba. When they first. Emerged in, order to compete with some of the rest and offerings, that were already on the market at the time they, were just simply, relying, on their knowledge of the local market so simply put they were more attuned to the preferences of the Chinese, online consumers.
I Think the most clear-cut, example of, this is if you compare the interface. Of the, Alibaba. Chinese, website, which is 1 6 8 8 comm that's, the URL and. 1 6 8 8 if you say it in Chinese is, y'all, do Baba which it sounds like Alibaba. Now if you compare the interface, of dead websites who say the interface, of Amazon, you, see that's a huge, difference, so the Chinese market, maybe because of the nuances of the Chinese language they, love textual, links, they like links, in the form of words but if you look at the web sites of Western, Eby tailors everything, looks very professional everything. Is very organized. It's for pictures, and graphics, but, the Chinese netizens and, the Chinese online consumers, they don't like that they like textual, links why, do they like textual links I don't know right but they do and Alibaba, understand and that's, the sort of look and feel that they provide for their consumers, another, example, with Alibaba, is with the launch of Tao, ball which, is their version of eBay and right, now it's pretty much the dominant, c2c. Website, in China, now when Taba was first launched eBay. Was actually their first and they, had an offering called each net, and in Chinese is called eg1 and back when Taba was first launched each net actually had a 70%. Market. Share so. They were essentially. Dominant. In the market at the time but, what each net was doing at the time was they simply replicated, one eBay, was doing, West so whatever eBay was doing deported, it over to China that worked. For Wow but, Alibaba. Knew better and they knew what, the Chinese market preferred so they did very, very simple things and the. Simple things that they did just allow, them to take over the market take for example Chinese, consumers, when they buy things they love to bargain, if you're ever in shopping in China you walk into a store whatever, price you quoted right feel free to return. An offer of maybe half the price you quoted because they love to bargain that's just how the Chinese, market work obviously each net replicating. EBay didn't allow that but, something as simple as when Taobao was first launched they actually incorporated, an instant messenger with their service, and it allowed buyers, to, actually, reach out to sell us and say you know I really love your product but the price is too high could you give me a lower price and allow. Buyers and sellers to negotiate. In that way they love to bargain and that worked, something, else that was very important, at the time was eBay, when it first started when nobody knew what buying and selling online was, I'm sure you, know if you first bought something online you might be going is, it safe you know because I have to pay first. What. If I don't get my product there are a lot of these concerns, and in. China it's probably, even more of a concern because traditionally. The market has had a deeper, mistrust, of what's on the other side so what Ali Baba did was they actually launched, an escrow, service, even for small ticket items, so the money is put, with an escrow when you receive the product you. Would tell the escrow to release the money to the seller so that sort of just helped the Chinese consumers, to get over their fear of buying things online so, it's all of these very very simple. Yes. That's right that's right and it's this very very little things that really write that are so attuned to the preferences of the Chinese market that allowed how about to take over to the point where today, essentially, Taobao probably, dominates over 90%, of the market share each, net just non-existent, nobody. Goes to each net anymore unfortunately, these days it seems like with services like WeChat, there are so different and so much. More attuned, to the Chinese market that, these three dominant companies, are starting, to imitate. Or to borrow, more from the local mark rather than from large companies like Amazon, or Ebay the big three companies even though they're imitating and consuming, smaller startups, they, are still very innovative so they still invest extensively, in R&D, and the classic example instead, of reach at because. We've reach at it was essentially. Developed. Completely, by $0.10 and what, was interesting about, which head at the time was it started off as a parallel, offering, before we chat there was an entire, social, network, called QQ, the, story of WeChat is almost, as. Incredible. As if, Facebook was, to launch something called Facebook, 2.0, that had nothing to do with the original Facebook. So, we shed was one of those things and the thing about WeChat, was it started off being a whatsapp, clone really, you know whatever was proliferating. Everyone. Was using whatsapp outside, of China, they, wanted to come up with something that was like what's up but they added an additional, feature again. Because of the, preferences. And needs of the Chinese market and that additional, feature is what they called a walkie talkie feature.
Which, Allows people to record, voice messages, and just send it that came out in reach at first that was very. Very popular in China because, if you were typing, Chinese. Characters. With a smartphone for example, and if you're typing and pinyin, it's very very cumbersome, right you would type a lot of characters, just to form a word and their walkie-talkie. Feature allows, you to just record it and send it a lot easier, whenever I communicate, with my Chinese collaborators, they. Love to use that and then I will always type a response in words back in return because I don't have the habit of using it but they do and it, has become so much a part of what they do so, yes they do still innovate, but, at the same time another thing that we know that the BA t firm does is the actively, monitor, the market, as well for, new. Things. Baidu. For, example they have a, parallel. Wikipedia. Type, offering, which they call Baidu, by curve which is you know by two encyclopedia. Essentially, so they look at what the West is doing and sometimes these, ideas, are first, created. Or developed by, smaller startups, but they would just look at what these startups are doing again take it do the exact, same thing a by virtue. They're in men's user base, the moment they launch an offering, that's like whatever, startup, is doing to essentially crowd that startup out everyone, will start using the I do version, or the Alibaba, version of that offering instead so in that sense right they have two ways of innovating. But it's never naively. Imitating, what the West is doing if a good idea comes on into the West they usually take, it like whatsapp and they try to make it better so how can little. Tech companies, then compete, in this space what does that ecosystem look, like well, with, the success of the b80 phone, interesting. Development, is that resources become available everyone. Aspires, to, be the next b80 an e-commerce, success is seen as something that is, implausible. But. It's still there right there success stories out there that a lot of entrepreneurs can, aspire to speaking.
To A lot of entrepreneurs based, on the studies that I've conducted in China they do it because, the. Technology is available the. Infrastructure. All of that has been developed. Because of the success of the b8e firms like for example the success of Alibaba, has essentially. Created, so much development, across the country logistics. Companies, are now shipping to, rural, communities that, previously. Would have difficulty. Getting their products to market or even accessing. Mainstream, products, from a store but all the infrastructure, has been developed, so all of that becomes, something that startups, can now tap into. And leverage. To, develop, their own business, sure, it is difficult, to gain, the measure of success that, the b8e firms have achieved, but for a lot of especially young, people who tend to be the demographic, group that would form the majority of the entrepreneurs, it is not difficult to, actually come, up with an innovative idea and make. A living off that, idea, and if, they achieve success, and, that's, sort of just icing, on the cake and a lot of them would actually be hoping. That maybe, part, of their exit strategy is to be bought out by the v80 firms also what are some of the emerging, names in Chinese entrepreneurship. That you would be looking at I would say look, at the Chinese, tech, unicorns. That we are seeing so, some of the unicorns. In the Chinese, tax base would include company, like show me and the, founder of SHINee would be someone called legend there's, also DeeDee choosing, which, is their version of, uber, but with taxis and the, founder, of TD, juicing would be someone called Chung way now, the thing, about these entrepreneurs. Is that a lot of them they are merging names and they are now founders. Of billion, dollar businesses, as well all of those names that I've mentioned their, businesses are billion, dollar businesses, but of course you might ask the question what any of them actually. Reached the level of Jaguar. The founder, of Alibaba, or Mark, Martin who is the founder of, 10 cent or Baiju it's very difficult simply, because the first, generation, of e-commerce. Pioneers. This. Your own if, you're looking for the next Jaguar, what are you gonna do about the existing, Jaguar it's, a bit like what's happening in the West Bill, Gates was, the. Father of pcs, for, the longest time now if you wanted to look for the next Bill Gates who is the next Bill Gates you might say oh yeah the Google guys there Larry Page and Sergey Brin they. Are Mark Zuckerberg from Facebook it's Jeff Bezos from. Amazon, but if you think about the next generation, after Bill Gates they happened, after the next step shift, advancement. In technology has. Occurred even. In this next generation this, next crop of the kings of the internet they're based on a different technology and each of them have carved niches, for themselves so Mark, Zuckerberg is social media Jeff Bezos is, ecommerce, Larry. Page and Sergey Brin the, search, engine did internet, portal, people currently, with the be 80 funds, they, already well-defined.
Niches, And it's, very difficult for any one of these to actually step up and become the next, check mark I would say the next check Marwood emerge when the next wave of technology, emerges, that would basically invalidate. The old way of doing things and what that is nobody. Can predict and that it's not likely to happen at least in the foreseeable future maybe with, the, advent of artificial, intelligence and, robots, maybe that could be an opportunity, but just, looking at the current names, the current entrepreneurs, and what they're doing it's very very unlikely that it was a plant, Jaguar, any time soon so the Western tech giant, companies, like Apple. Or Amazon, or. Facebook. Alphabet, have, they lost their chance of moving into and succeeding, in the Chinese market at, the moment I will say yes, or rather I, would say that they never had a chance to begin with because, simply. Puts the, Chinese government, will likely never. Allow them to succeed or they may require them to do things that, they may not be willing to do which could, be what, happened to Google Google was operating, in China for a while and then they pulled out probably. Because the Chinese government wanted. Them to do things that they were not willing to do so, it's incredibly, difficult and, there's always going to be some extent of protectionism, going, on and if you look at what's happening with the b8e funds the success, is actually a source, of much national, pride when, Alibaba, was listed on the New York Stock Exchange it, was nationwide. News people, were saying yes we have made it Chinese e-commerce firms, have made it in the international, arena in that sense the local, market, may always, be more, receptive. Of local. Offerings, as opposed, to arrest, and offering and that's this perception that anything, the west can do we can do it better so why not support our own local, offerings, so in that sense it's immensely, challenging I, would say that the only way that Western. Tech firms can enter the Chinese market is true partnerships, and the classic example of this is uber they have recently formed. A partnership with Dede to, sort, of merge their offering, with you, know that of Dede they, tried to go at it alone and you know competition, was really really tough and perhaps. They realized, that the Chinese market, would always be a little bit more attuned or more, inclined, to, support one of their own so because of that I think partnership, would be at least the only feasible. Way to go in the, short to medium term and that's not likely to change thank, you so much for talking to us today you're welcome it's been a great pleasure thank you for having me. You've, been listening to Sydney business insights the, University of Sydney business school podcast about, the future of business you. Can subscribe to our podcast on iTunes, SoundCloud or, wherever you get your podcast and you can visit us at SBI, Sydney. Edu, au and hear our entire podcast archives, read articles, and watch video content, that explore, the future of business.