Improving, not inventing: the secret of China's success

Mar 30 2010 by Bill Fischer Print This Article

Chinese businessmen and consumers are changing our world. They're affecting the way global business operates and the way value-chains work. In particular, they are notably influencing how fast business is done. China has become the fastest place on earth, and, as a result, it is pulling the world along as it moves into the future.

More than a decade ago, Peter Drucker, the management gurus' guru, predicted that we'd be looking to China for the next management revolution. And whereas Japan's management revolution was all about "lean", it is quite possible that China's revolution will be all about speed.

The secret of China's speed lies in several behaviors that allow Chinese entrepreneurs to excel at moving faster than their better-endowed, bigger branded, foreign competitors.

It all starts with a differing approach to market ambitions. Chinese enterprises can be faster because they are not trying to find a unique value proposition; rather they are trying to take someone else's unique value proposition and do it better.

Chinese enterprises are not trying to find a unique value proposition
So for China's entrepreneurs, "good enough" beats blockbuster creativity. China is still very much a developing country, and as such prizes acceptable performance at lower prices more than it values creativity or uniqueness.

This is an economy where Danfoss, one of the world's great pump makers, describes many of the markets that it competes in as "good enough". In such a market, being the first, or the best, is not necessarily the winning objective. More likely, being "good enough," or "as good as" is more important, particularly if you are also less expensive, as well.

As an example, there is nothing new, in a functional or technical sense, with Diao, the best-selling Chinese detergent, produced by the Nice Group, that has displaced P&G and Unilever as market-leader. Diao is simply "better value" in a market that prizes such achievement more than it does uniqueness.

China abounds with interesting entrepreneurs: Jack Ma of Alibaba and Taobao, Peggy YuYu of DangDang, and Zong Qinghou of Wahaha, are amongst the most successful of China's new breed of entrepreneurs, yet where their real competitive advantage is to be found is not in blockbuster creativity, as might be the case with Silicon Valley entrepreneurs, but in speed: faster to market, faster across markets, faster with portfolio expansion.

Alibaba, a B2B marketspace, and Taobao, a C2C response to eBay, are both the brainchildren of Jack Ma. Derived completely, and unashamedly, from the eBay model, these websites came to life after eBay had entered China, and have been enormously successful in reducing eBay to a second place position in the China market. The secret here was speed, adaptability to the Chinese situation, and a willingness to take risks.

The same is true for DangDang, which Peggy YuYu based explicitly upon Amazon. Combined with Chineseness, risk-taking and speed, she was able to out-match Amazon in China's huge market.

"Not inventing" is an easier approach to becoming faster than is the case for those firms who aspire to be "inventors". Late-mover advantage often trumps first-mover: not having to invent things means that Chinese competitors have time to learn, can observe what works and what doesn't, and don't have to take risks on whether new offerings will sell.

It's all about improving. Improvers can move faster than inventors. Improvers are not making the big bets. Improvers can allow inventors to do all of this for them. As a result, improvers can concentrate their resources on what matters in this market: making it better value than the original offerings.

This is what Cherry has done in automotives and what the shanzai phone manufactures are doing (there was almost no risk associated with developing the HiPhone Ė an unashamed iPhone clone - despite Apple's launch of the iPhone being a highly risky venture).

For thousands of years, risk-takers have not fared well in Chinese society. Blending-in and making-do have been much wiser career strategies. The stories above suggest, however, that there is considerable entrepreneurial risk taking place today in China. But it is not "blind risk." By improving rather than inventing, today's Chinese entrepreneur is betting on someone else's established success rather than a complete shot in the dark.

Jeff Bezos' dream of was a "big" risk! There were no precedents for him to rely upon and no assurance that this would even work. When Peggy YuYu launched DangDang, there were still abundant risks, but they were of a different magnitude. The world had accepted Amazon at that point in time; the concept worked. The big question for DangDang was: "would it work in China?" While not an insignificant question, especially given the infrastructure issues that had to be overcome, it was not nearly the same level of exposure that Bezos faced.

Even with more traditional industries, we can see this happen. Ray Zhao's impulsive decision to emulate the foreign dental flosser that his sister had bought, but to do it faster, better and cheaper than anyone else, has led to his ultimately becoming the largest producer of such devices in the world!

For foreign firms, China remains a potential eureka market, fraught with danger and surprises, just as it has been for hundreds of years. Increasingly, however, we are seeing foreign firms adopting approaches which adjust to the market and take advantage of its special characteristics.

Norwegian Det Norske Veritas speaks about the need for being in the market because of high clockspeed which will undoubtedly shape the future elsewhere. Executives at another Scandinavian firm speak of using China as a "learning laboratory" for developing new business models that might be useful in other markets, both emerging and developing.

This is good advice; if there is one place where more things are happening, faster, and on a potentially bigger scale, the well-prepared player will be in the action, learning what might work and what might not for application in many other markets. China, today, is where that action is.

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About The Author

Bill Fischer
Bill Fischer

Bill Fischer is Professor of Technology Management at IMD, the leading global business school based in Lausanne, Switzerland.