There is the world, then there is China.
China is not often seen as a player in the field of innovation. Manufacturing plants with cheap labor is the stereotype when we think about the country.
The truth? The number of people with Internet access is now more than 500 million, and gigantic companies have grown from the huge marketplace. Notable names are often seen on the news acquiring their foreign counterpart.
Competition in China is white-hot. No matter what you want to do, there are at least 30 competitors already crowding the market. One will not survive and prosper without real innovation.
In this article I’ll take you through the background that makes the country unique, and examine some patterns of innovations employed by Chinese Internet companies.
The Otaku Generation
For thousands of years, China had influenced Japan. In the past two or three decades, we have seen this trend reversed. With similar culture and taste, Japanese products and lifestyle choices swept through China. Among them is the “Otaku” phenomenon.
An otaku is a person (usually young male) who prefers staying at home and enjoying the digital life. They eat, drink and watch anime movies at their desks, with posters and pillows of their favorite manga characters around them. They love, hate, and sometimes virtually “live” with their binary or spiritual friends, create and consume Internet memes on a daily basis. Basically, they live more in the “second-dimension”.
Chinese people favor otaku culture for good reason. Keeping a distance, politeness, modesty, are in the blood of Chinese and people in many eastern Asian countries. When this collides with Internet, where you can talk without eye contact, reborn as an avatar - introverts are soon transformed to Don Juan, and have since established their own domains and cult.
The demand for buying goods at home and having them delivered was sky high. It is Chinese culture, again, to deposit most of their income in the bank instead of spending it all, so there are literally hundreds of millions of people with a lot of money to get rid of. There was Eachnet mimicking eBay, and then Taobao, Joyo, Dangdang, and countless other followers of e-Commerce. Young otaku kindled the trend of buying things online, then followed technologists, then fathers and mothers, and finally almost everybody.
Revival of an Old Industry
When a country has more than 10 super-big major e-tailers, and more than 50 vertical e-tailers, one old industry revives. Postal services was run only by state-owned China Post, painfully slow, pricey, but has the ultimate service coverage. It wasn’t until 1993, in the county of Tonglu, a bunch of young entrepreneurs started to help companies deliver customs clearance documents, thus begins the era of private courier service. There were difficulties, and literally fights between China Post and private couriers, with storehouses of the latter being stormed by police force for “illegal business".
History cannot be stopped. More than 30 private couriers sprouted to meet the ever-growing demand of the online shoppers. Among them was the high-end SF Express. They provide next-day delivery to cover all major cities in China, and express delivery to smaller cities. They even run their own air fleet, SF Airlines, with 14 Boeing cargo planes. The price for delivering a parcel from Shenzhen to Beijing, with a crow-fly distance of roughly 2,300km, is merely 22 yuan (~3.5 US dollars). Remember, this is the premium service. If you could sacrifice a little bit time-to-deliver and do not mind the delivery guys not wearing a cool uniform, then the price may be cut half or even less.
This is a win-win situation. A variety of online shops are now open to the public. Drugs, home appliances, toys, drinks… it is very hard to find anything that is not available online, and you know you can get them in a very short time.
Some magical numbers for you: 57 billion yuan (~9.18 billion USD) spent, on a single day, on a single website (Tmall.com), thanks to the newly created “11.11 Online Shopping Fest” (a shopping festival that originated five years ago when Alibaba offered promotions on its many ecommerce sites on China's unofficial ‘Single’s Day’ holiday).
Ubiquity of the Internet
Otaku culture, online shopping, thriving private courier companies, what’s next? The addiction to Internet grows.
Smartphones, apps, and Wi-Fi network come to rescue. Chinese people with smartphones want to have Internet access everywhere. So they can play with the phones at the dining table, avoid awkward conversations which they are not used to having, and not to mention, they can now browse shops and buy things all the time.
A restaurant without Wi-Fi is deemed to be a bad restaurant, and deserves only one-star on Dianping (Chinese Yelp counterpart). Typically the first thing a customer will say after sitting at the dining table is: “what is your Wi-Fi password?” Internet first, taste buds second.
This happens to not only restaurants, but also shopping malls, airports, hotels, bars, barbers, and so on. Most of the time Internet is free. Free Wi-Fi everywhere is the new norm.
Four Patterns of Innovation
With 1.4 billion people already expecting Internet access in restaurants and shopping malls, it won’t be too long before every other company must follow. Consumers want to do everything online, and they want it fast. The result is extreme pragmatism - or “Lean", if you prefer a more Internet-ish term.
Chinese companies do not start by setting a goal for disruption. Instead, they typically fall into one of these four patterns of innovation:
I’ll go through them one by one.
iPhone was established as an integrator.
When Jobs introduced the iPhone, he claimed it to be “an iPod, a phone and an Internet communicator”. Rumor says the original idea of making a phone hit him when he heard someone say “when I leave the house, the one thing I will have to bring is my phone, not my iPod”. Basically it integrates the most important features of the gadgets you need at your side all the time, and with the invention of apps, the iPhone became a platform for all your needs.
There are things you have to bring when leaving your home, there are also apps you have to install on your phone. WeChat is the latest flagship product from the Chinese Internet giant Tencent. It is basically a WhatsApp, with the capability to sending pictures, video, voice and much more. Years ago when China was gradually shifting to 3G (now 4G), people found this app a perfect replacement for SMS, and today it has become a must-have.
The story does not end there. Tencent made WeChat a platform by incorporating a variety of third party services. There is now (you may guess) an online shop, an e-wallet, mobile payment, air/train ticket booking, lottery, and a Uber-like service called Didi Taxi, not to mention a whole host of games. It’s virtually an operating system itself.
Integration does not come easy though. It requires an up-and-running ecosystem. Take Wechat as an example, players of its ecosystem include:
It also needs good soil. China has the advantage of being a developing country - yes, advantage - in which people are expecting change all the time, and have lower concerns for privacy. This makes a lot of things possible.
Insights: people don’t use tools as an end, but a means to an end. If they can access features at one place, with ease, then a platform can be formed, thus allowing more innovation and quality control.
A joke that will make New Yorker laugh possibly won’t have the same effect on a Londoner. Not only jokes, other things also need - and should - be tailored to the local market.
With the wide spread of American culture and goods, we are seeing the notion of globalization. However connected, the world is big, and in different regions people have different needs.
In China for example, phone fraud and spamming is common. That is how Xiaomi, while copying every aspect of Apple, integrated caller location and caller ID into their phones.
When someone calls you, you will instantly see the location of the phone number, and if you are connected to Wi-Fi, in a couple of seconds you will also see whether this number is marked as “Fraud” or “Spam” by other people. In developed countries, this feature may seem trivial, but in China, it does save you a lot of time. The same thing happens to short messages, so they provided an SMS spam filter, which will filter spam messages for you.
Xiaomi’s localization continues. They also integrated with Dianping to access a whole database of numbers, so if your restaurant calls you, in a few seconds the strange eight digits phone number will transform into the photo and name of the restaurant. Third party databases are ever growing. Now you can even see the photo and name of the SF Express delivery guy when he calls. This provides a lot of convenience.
There are numerous features that will be really useful (and probably only useful) to Chinese residents. Remember the ubiquity of Wi-Fi? Most of them are password protected and for customers only. Xiaomi provides a tool that collects password from thousands of shops, so when you are near a shop, with one click, you can enjoy free Wi-Fi, without the need to ask the waiter.
These are only a few to mention. There is lots of localization by Xiaomi, with the help of their own modified version of Android called MIUI.
At the beginning, Xiaomi was seen as a copycat of Apple, from their founder to every product they make. Nowadays, they have gained a huge customer base, and are starting to make TV, over-the-tops, smart routers, and more. They have also formed partnership with Midea, a home appliance giant in China, to develop smart home appliances. It is quickly growing out of the image of a “cheap phone maker”, and beginning to be an “affordable innovation company”.
Insights: localization does matter. For multinational companies with a unified global strategy, localization is the Achilles’ heel. By making a highly localized product, small companies can win the hearts of their own customers.
We have talked about how Internet is changing the way young people live and communicate. Its biggest problem is that technology is discouraging human interaction. We have Siri, we have Cortana, we have a fully-functional operating system and pocket-size devices that can virtually do everything for us. There’s no need to ask for directions, because we have the Map app; no need to ask a friend about choices of restaurants, because we have Yelp. It is a de-humanizing process that is slowly making people more comfortable on their own instead of being social.
The bright side is, people still want to communicate and be more human. So apps designed with more empathy to human factors will more and more gain people’s favor.
For example, JD.com is one of the biggest online shopping malls in China. They are currently doing a spike of a feature for buyers to reward the delivery guy with gifts. You don’t need to spend money on gifts, just use some loyalty points that you may gain every time you buy things from JD.com. Along with the gifts you can give feedback and appreciation for the hard work of your delivery guy. Now they are not just merely “delivery guys”, but real people, with real faces and personalities.
Does this have any business benefits? Maybe not in a short time, but in the long run, when everything is the same and everybody is performing equally well, the one that is more human will ultimately connect with the customers and employees better, and win.
The mission to bring back the human factor to technology will keep going, and Chinese companies are really getting better at it.
Insights: in the age of the Internet, traditional marketing fails. The solution is to start with users, connect with them, and bring back the missing piece of human factor to our product. This not only wins users, but also transforms them into precision-marketing volunteers.
The Boundary Pushers
Agility is the keyword of our era. Internet is at the very front of agility, with new product iterations in as little as two weeks. Companies come and go, creating new industry sectors and at the same time quickly demolishing others.
The problem is, our government is yet to match the speed of technology and business innovations. This creates conflict, like the one between the private courier company and China Post.
In China this happens much more often because the society has advanced in huge steps over the last century. We are still absorbing and understanding the meaning of industrialization, and now the Internet age has arrived without notice. If companies limit themselves in the frame provided by the legalizers and regulators, then no innovation can happen. That is why they tried very hard to push the boundaries.
Take Alipay as an example. Virtual cash is generally not allowed by government, so using the app to pay for goods offline was not allowed. However, Alibaba, the company behind Alipay, managed to convince the government in certain areas allow them to partner with convenience stores, and provide offline payment that is very similar to Apple Pay. Just click your Alipay as you let the cashier scan your payment code, and you are good to go. Quick and easy.
I believe this is why many Chinese people were not moved by the Apple Pay demonstration, because similar things are already happening in China. The only limitation does not come from the payment service company, or the ecosystem, but from government regulations.
This kind of autonomy and making special pilot programs of innovations is now common among different regional governments. Didi Taxi provides different taxi services and app features based on the location of the user. For example, in Chengdu you can add tips when you book a taxi, to make it more attractive to drivers; but in Shenzhen you cannot do that, because local government would see that as violation of the fair play policy. Private taxi is not allowed by law, but now regional governments are loosening this by allowing Didi Taxi use what is called a “four-way contract”, teaming up with local car renting services to provide private taxis, thus bypassing the regulation.
Luckily, the government is accelerating progress in the hope to match the speed of the innovation. New economy pilot zones are now being planned, and the whole government system is going electronic. This will allow even more room for innovation.
Insights: a good ecosystem includes an open-minded government. Chinese companies are trying hard to innovate within a frame, and instead of making complete disruptions, they are aiming to push the boundaries little by little. Innovators should not limit themselves in the current situation.
Although I was trying to summarize different kinds of innovation patterns, the truth is: there are no patterns. Chinese companies are pragmatic and very adaptive. They fight in a very volatile and quickly developing market, where no formula or pattern can fit. They are looking with all their sensibilities to seek opportunities.
Yeman shengzhan, or, grow brutally, is common sense to modern-day Chinese businessmen. They are like nomads or explorers, who obey no rules, following no patterns, and are always highly energized. They do not set out on a mission to reinvent something, but instead, they follow, they imitate, reform and refine with small steps.
Some would argue that “imitation” is the opposite of “innovation”, but is it so? The mouse was not invented by Apple, nor was the well known GUI; they stole them from Xerox. Android imitated iOS from the very beginning, and now iOS takes a lot of features from Android. There are countless examples of innovation that started as imitation.
Good artists copy, great artists steal. When you copy, you and your competitor will have the same thing. When you steal it from your competitor, now you are the new owner of the idea, and your competitor loses its originality. I believe the “brutal growth” remark resonates with the "silicon valley pirates” philosophy - just do whatever works.
This is how China approaches innovation. We are expecting Chinese Internet companies to spread their wings to other parts of the world soon. Watch this space.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.