The beauty of business ecosystems

Chinese companies rely very much on their ecosystems to innovate. Can Western companies follow suit?

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July 5, 2022
Economy

In 2017, Jack Ma was asked at the World Economic Forum what the difference was between the business model of Amazon and the model of Alibaba. Jack responded:

“Amazon is more like an empire, everything they should control by themselves. Alibaba’s philosophy is that we want to be an ecosystem. We want to empower others to sell, others to service. Making sure that other people are more powerful than us. We want them to use our technology, innovations, partners, 10 million sellers, so they can compete with Microsoft or IBM. We think that using our internet technology, we can make every company become Amazon.”

Due to the scale of the Chinese market, the high customer expectations, and the cut-throat competition between suppliers, Chinese companies have learned to survive and grow their business in China by building or joining an ecosystem. As such, many Chinese businesses cultivate a ‘let-go’ leadership mindset. Letting go of only in-house development. Relinquishing ego and hubris. Giving up on overprotective product ownership. Chinese leaders care much more about sales than strategy; care more about personal relationships than the value of their brand; care more about the customers than about products; care more about data than about positioning.

Inside-out or outside-in?

Simply said, Chinese business leaders view the main value of the brand from everything they achieved outside of the company: the customers, the network, the supply chains, the partners, the users, the government relations, the sales, … Whereas in the West, most companies view the main value of the brand more from what we created inside the company: the products, the service, the brand, the technology, the innovation, the strategy, the efficiency, the talent, … As such, Western companies seek to build solid strategies with the best people to take mostly internally developed innovative products and services to the market. This is an inside-out approach. Chinese companies, in contrast, seek to build better relationships with customers and partners to understand and co-create the relevant products and services for the company to sell to the market. This is an outside-in approach.

Western brands nowadays also seek to build ecosystems as they see the benefits to increase flexibility in times of uncertainty, to acquire more data and sales leads from the ecosystem, and to create a more entrepreneurial talent pool within the organization. The challenge for them is to switch from an inside-out brand culture into an outside-in customer first mindset.

As Western brands want to be more customer-centric today, are they willing to ‘let-go’ of the more ‘inside-out’ designed values, culture and habits?

It requires three mind shifts:

  1. Empower customer and partners. Make others rich first.
  2. Share data and ideas at speed. Drop the ego.
  3. Build a community based on trust. Make everyone a life-long participant

1. Make others rich first

In China, customers tend to be much more pragmatic: if you don’t give them an appealing discount or find some other way to reward them, they will hesitate for much longer before making a purchasing decision. For that reason, Chinese companies think much more about how they can find ways to reward customers and partners. At Alibaba, the customer focus has always been on small self-employed businesses and individuals who want to sell things online. In 2004 Jack Ma already allowed the C2C Taobao listings free of charge (which was not the case with eBay), resulting in a platform with a huge variety of products and a robust and loyal customer base. At Tencent, WeChat enables any brand to promote products and services online and offline within the WeChat ecosystem at low cost. The strategy of these super app ecosystems was to “lock” in as many users as possible by offering easy-to-access, affordable and always available real-life third-party services and products. Thousands of Chinese manufacturers have perfected lowering the cost of components and production, even when demand for product quality went up. China became the factory of the world as they rewarded customers and partners around the world to spend less or earn more.

2. Drop the ego

Innovators in the West, typically search for a ‘blue ocean’. It means the creation of a new markets by offering something unique, being the first, or generating previously unknown value. This western business mindset is directly linked to a creation, uniqueness, and ‘ego’. Chinese innovators are aiming more for results, growth, and ‘scale’. You could say ‘quality’ versus ‘quantity’ mindset.

Put simply, Westerners want to be ‘unique’, the Chinese want to be ‘important’.

This said, it is easy to be ‘unique’ without being ‘relevant’ in the market; but once you are ‘important’, you are always ‘relevant’ to certain customers. If we focus on the ‘ego’, our ‘quality’ might at times not even matter to clients. If however we focus on ‘scale’, clients will force us to offer ever better ‘quality’.

When the founder Ren Zhenfei was blocked from selling Huawei’s 5G into many Western markets, he told reporters that he is open to sell the firm’s 5G technology – including the patents, code, blueprints, production know-how – to Western competitors for a one-off fee. He was not afraid as Huawei only wants to outperform its competitors with better customer service, not merely technology. This is probably also the reason why in Huawei’s early days they had little shame to copy from the West. Westerners see this as most unfair, as we view China through our own lens of our more protective innovation culture, that puts intellectual property as a main value within the company. What we fail to see is how Huawei’s immense success with 5G is not built on stealing, but on openness, collaboration and sharing. This open ecosystem thinking is the main reason why Huawei survived and even grows further when all odds are stacked against them. They seek new clients, not more market share. They prefer to cooperate than to compete. They value open shared partnerships to serve clients better. Building a solid ecosystem of partners to provide better service and products to clients is the best insurance policy for future survival in times of uncertainty.

3. Make everyone a life-long participant

Chinese companies rely very much on their ecosystems to innovate. The Apple of China is called Xiaomi. Xiaomi added much of its smartphone functionality based on contributions and ideas from a community of fans and developers. Today, Xiaomi is one of world’s topsmartphone vendors. But they also sell a vast portfolio of over 2,000 products from 85 different brands – ranging from smart home appliances to luxury massage chairs - all connected to Xiaomi’s IoT ecosystem.

Another Chinese manufacturer Haier even became the no.1 brand in the world for household appliances primarily through their engagement model. Haier’s customer-centric model makes every customer a lifelong participant in its digital ecosystem platform. They stimulate all product users to share any new insights to implement the smallest of improvements. This adaptive micro-innovation model, combined with a highly advanced IoT platform makes it possible for Haier to allow customization on a large scale. In a market of functional products such as refrigerators, Haier has managed to delight customers worldwide and win the trust of millions who used to care little about which brand they bought. Both Xiaomi and Haier succeeded primarily because of the trust they place in the community they built.

WRITTEN BY
Pascal Coppens
Pascal Coppens
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July 5, 2022
Economy