Why MICRO is the new BIG in business
As described in my book China’s New Normal, by 2023 China’s manufacturing industry will truly evolve from ‘made in China’ to ‘created in China’. From ‘copycat’ to ‘smart leopard’ entrepreneurs. Leopards are the smallest of all big cats. Fast, hidden away, most adaptable, and as happy to scavenge a meal as hunt one. They hunt, kill, climb up trees, feed quickly and quietly, to avoid drawing attention to their presence. These traits reflect the new micro-style thinking of the young Chinese innovators: focused on the kill with micro-precision.
China is the most populated country in the world with its 1.4 billion people. More than 300 million Chinese belong to the middle class. If you could make 1 euro by selling a product to every Chinese, you’d become a billionaire. The market is humongous; the largest in the world. Their huge home market is what helps Chinese companies to become so big and make its founders so rich. That’s what a lot of people over here are thinking. But this couldn’t be further from the truth.
China is not America! China is different. In America, giants such as Apple, Amazon or Uber created a new business paradigm which consumers liked, and then they quickly became the de facto standard at home, and later the world. In China, in contrast, the fierce competition would not allow for any company to scale without first fighting off hundreds of extremely smart, efficient and well-funded copycats. For example, at the end of 2008 the group-buying site Groupon launched in Chicago. 18 months later, the Chinese Meituan mirrored the site and launched it in China. Within 12 months, 5,000 Chinese group-buying sites were born. By then, in America, only a handful group-buying sites were founded, with Groupon taking 53% and Living Social 20% of the U.S. market. It’s the cutthroat competition in China that created a scenery of gladiator entrepreneurs.
But the story that is less told is how this fierce environment forced the winners of the battle to learn to outsmart, outwork, outperform and out-innovate competitors. The Spartacus winners of this coliseum fight to the death have made themselves masters in bringing products faster to market, lowering costs further, executing at higher speed, raising more funding than needed and setting up wider barriers to keep out ruthless competitors. It’s not the fact that they copied that made them successful, but their resourcefulness to fight off the copycats one by one. In that context, Meituan thrived, to ultimately get elected in 2019 by Fast Company as the most innovative company in the world.
In San Francisco, every day feels like a party when another cool startup gets funded: cool offices, cool people, cool investors, even iced-cool cappuccino with cold foam. In China, startups feel more like being incarcerated in ‘the world’s most dangerous’ prison as every day another jailbird tries to break free: sweaty offices, godfather-style founder, a web of friends and foes, and lots of hot tea. It’s in that boiling hot business environment that Chinese startups learn to act fast and furious, but mostly think very, very small to survive.
So, what can we learn from this Chinese micro-style?
During the 20th century, there were fewer innovators worldwide and the slow process of innovation was tedious and expensive. Legislation protected the heavy investments, which were mostly made by Western companies. Today, the world is connected; companies need to change gears much more quickly; and development costs are significantly lower. Anyone can now aspire to become an innovator. Consumers now expect a new smartphone model every three months, whereas it still takes three years to complete a patent application. Speed has become the new protection for innovation and working at speed is something that the Chinese are accustomed to doing.
What’s more, Chinese developers are used to exchanging ideas and innovations more freely. This made China into a copycat center, but it’s equally important to acknowledge that their process of creation is much less linked to ‘ego’. Chinese designers accept that their designs will be copied and improved, before often being reshared, either directly or indirectly, with their initial creators. In this way, they form micro-collaboration networks of experts, who help each other to put together all the pieces of the puzzle. In other words, China’s past brazenly copy-cat practice, evolved into tribes of open innovation, where very small teams of developers with fully complementary expertise trust each other blindly and collaborate with each other to beat competitors at speed.
Two key factors encouraging the Chinese to collaborate are the intense level of competition on the Chinese market and the impatience of Chinese consumers. These consumers want quality products like we have in the West, but at much lower prices. This has made the Chinese producers masters of the art of reducing the cost of products, whilst simultaneously increasing quality. Most Chinese innovators don’t set the innovation bar too high; and go from innovation to the market and then back to innovation, in a spiral that gets bigger and ever faster. In the end, market success remains the best condition for the development of creativity and innovation, and not the other way around. Chinese companies do not turn innovation into a cool culture but need it as a survival tactic on their way to the top.
This is possible because of the country’s micro-innovation model, where fast incremental improvements are more important than the kind of disruptive innovations in which for example Google specializes. Western companies are more concerned with conceptual value creation, and less with cost price and speed. We take our time to do things thoroughly and properly, believing this is the best way to remain relevant. Westerners want to be ‘unique’; the Chinese want to be the ‘market leader’. It is possible to be unique without becoming relevant. But if you are a market leader, you are always relevant to someone.
The biggest difference between a start-up and a corporate company is the flexibility and speed of execution of the former. Chinese technology companies act as a kind of beehive of start-ups, with a wafer-thin middle management level. The reasoning behind this method is simple: every manager is expected to quickly produce a direct result for the company and create value for the consumer. The pressure on employees in leading Chinese private corporations is huge, comparable with working for a struggling start-up in the West.
We can compare it to some extent with Google’s cross-functional organization structure, but with the retention of a ‘big boss’ on top. For example, Tencent has more than 500 product groups, which are set up as separate divisions with their own resources. If a division is successful, it is allocated more money. In this way, WeChat has become Tencent’s biggest success, but it only accounts for 5 percent of the total Tencent workforce. In other words, there are half a million WeChat users for each WeChat worker: now that really is what I call ‘lean and mean’! Using this strategy, Tencent succeeded in 2010 in growing two semi-comparable products — QQ and WeChat — in parallel, so that they both passed the landmark of 1 billion monthly active users. In the West, these divisions would either have cannibalized each other or been forced to merge. In China, teams do not compete internally for more resources, but externally for more customers, in part by being able to offer the best products and services.
What we all want to know, of course, is whether or not the Chinese giants like Alibaba, Tencent, Lenovo, Huawei and Geely are going to conquer the world, and if so, when. After 30 years of existence, some of these brands are now ready to make the breakthrough in Europe and America. Even so, it is not from the big players that we should expect the real tsunami of innovation, but more so from the legions of younger tech companies such as the carsharing company Didi, the many Chinese Tesla’s like Geely and Nio, UBTech’s home-robots, iFlytek’s smart translators, CloudWalk’s 3-D face scans, etc. It may take five to ten years before the tsunami of Chinese unicorns finally breaks in full force on our shores, but it is already building up its potential energy out in the red ocean inside China.
These new high-tech companies are very different from their predecessors and from the other pure domestic focused companies. Many of the founders of this new wave of Chinese companies were trained in the West, have acquired valuable management experience at Alibaba, Baidu or Uber China, and are building up a team of experts around the world. They call themselves ‘global start-ups’ and are relying on Artificial Intelligence to sweep away their competitors worldwide. They will not do this with much fanfare, unlike Alibaba or Huawei, but with stealth and almost surgical precision, one market at a time. They are not so very different from the Silicon Valley whiz kids, but these unicorn companies have the added advantage of being able to apply the successful China innovation model of their predecessors: the development of micro-collaboration, micro-innovation and micro-enterprise.
Forget about China just being a huge market. The market in China is not big, its fast. Lightning fast. This is why entrepreneurs in China focus on speed and execution, not on scaling strategies. To be fast, you need to think small and nimble. Think like a leopard patiently ambushing its prey. Chinese entrepreneurs think micro-small, and when they see an opportunity, they accelerate all of a sudden. They multiply that tactic over lots of small teams to create an army of guerilla fighters to unleash on the market. That is how they become big after all.