How business ecosystems have transformed China

Photo credits: Tao Café, Hangzhou, China. Photo: Alibaba Group

How business ecosystems have transformed China

20 Nov 2018

Author: Marcos Gouvêa de Souza, Director & Founder, Grupo GS& Gouvêa de Souza – Ebeltoft Group Brazil

Much has been said, written and discussed about the rapid transformations in China, currently the world's biggest economy by PPP (Purchasing Power Parity), and the exponential growth of the digital economy in the country.

Much less has been discussed about how business ecosystems have been the catalyst of this transformation.

And even less about how these ecosystems can be used in the development of all other businesses globally due to their innovative approach to creating companies and partner networks with a greater focus on agility, empowerment, and, especially, results measured by financial valuation (market values) and their exponential growth in recent years.

The acronym BATX, which consists of the combination of activities of the Baidu, Alibaba, Tencent and Xiaomi ecosystems, represents a deep, truly disruptive and innovative business organization proposal, aligned with the volatility inherent to the market that is currently being transformed by the omnidigitalization.

To contextualize

There are noticeable differences when we compare the different business organization models – business ecosystems, companies, holdings, and business networks – with respect to their control structure, action areas, and decision processes.

In the chinese business ecosystems – business organization models applied by the most important and transformant of business conglomerates in China – the control structure is set by the division of assets among shareholders, the sectors of activity are related, but also diverse, and the decision-making processes are orchestrated, although interdependent.

When compared to the traditional and most common organization models, especially in the Western Economy, this business ecosystem model explains in good part the speed with which it can capture the emerging opportunities from the exponential changes that occur in the market and turn opportunities into reality by a virtuous combination of factors.

It allows companies like Alibaba, established in 1999, focused on e-commerce, and turned into an impressive business ecosystem, to have a current market value of US$ 410 billion – a market value that is higher than that of Walmart (US$ 278 billion), the world's largest retailer.

Or Tencent, who started operating in 1998 as an instant messaging platform, and has now become a comprehensive global business ecosystem with WeChat as one of its most relevant platforms. Tencent is also becoming one of the greatest global players in the gaming market.

Or even Xiaomi, established in 2010 as a smartphone supplier, who has become one of the largest companies in electronics and has overcome Apple in China with their direct sales model from industry to consumers.

The incredible evolution of the use of the internet in China has led to more than a fifth of the world's digital population being Chinese. By 2000 China “only” had 22 million internet users. Today that number has grown to 800 million of which 90 % is mobile. This was both the cause and the consequence of the hasty business ecosystem transformation, as it both enabled transformation and used it as leverage to exponential growth.

E-commerce accounts for 24 % of the total retail sale in China, with about 40 % being within fast-moving consumer goods. In comparison, the online FMCG sales constitues 18 % of e-commerce in South Korea, 11 % in the United States, and an estimated 4,5 % in Brazil.

Another proof of the impact of this growth and speedy transformation is that, in 2018, the IPOs related to chinese technology in the United States reached US$ 14.7 billion – in comparison the IPOs related to American technology reached a value of US$ 7 billion.

Another important aspect to consider is the percentage of which the digital economy amounts to in the total GDP in different coutries, where China take second place with 6.9 % after South Korea with 8 %. The United States comes in fifth with 5.4 %, and Brazil tenth with 2.4 %, according to a study by BCG.

Reflections

All the numbers and indicators that point to the recent transformations in China are really impressive and serve to inspire us all.

But what has been even more inspiring than the mere knowledge of this digital reality is the identification of information about the business ecosystems that have shaped these changes and continue to fuel the strong expansion of China's domestic economy and its irreversible, not to say disrupting, global expansion, which is becoming increasingly present in all over the world.