Europe needs more competition from China Pascal Coppens - August 15, 2018

China Matt Hardy 495905 Unsplash Min

Ocean storms are formed above the sea. When they hit land, they dissolve sooner or later. They can be powerful and dangerous. They are disastrous if they don’t hit land soon enough. The longer a storm gains power and size above the sea, the harder it hits. Hurricane, typhoon or cyclone season is a huge worry for large parts of our planet.

We are ever more upset about China playing it unfair; about Chinese companies buying our high-tech companies; about China potentially influencing our way of life. We see a Chinese storm. I caution that in order to maintain our way of life, Chinese competitors can’t come to Europe fast enough. We are so occupied with our national interests, debating China’s true intensions, opening China’s market for our firms, that we don’t notice the real threat.

As China seems to play the long, patient and strategic game with Europe, a Chinese super typhoon is now building up potential energy to hit us hard later on. 

Here are 4 typhoons the ‘new China’ is building up.

1. China’s investment in Southeast Asia

These past few years Chinese tech companies started pouring cash into Southeast Asia and India. Alibaba, Tencent, JD, Xiaomi, Didi, Meituan and others are investing heavily into South Asian markets. Companies like Paytm, Ola, Flipkart, Tokopedia, Sea, Lazada, Snapdeal, Hike, Grab, Zomato, and Go-Jek have all together been receiving many billions of investments from China. Mostly unicorns that became overnight successes similar to China’s model leapfrogging beyond the West in areas such as mobile payment, gaming, ecommerce and sharing economy. Instead of trying to conquer these markets, as our multinationals typically do, Chinese giants invest cash and technology in these local winners. They are hereby boosting their market size with potentially 655 million Southeast Asians and 1,354 million Indians. Now imagine Alibaba, Tencent and Didi with each 2 billion Asian consumers in a decade or so from now? 

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2. China empowering the world’s poor

For decades, the rich West has been aiding the poor in Afrika, Asia or Middle East. Even with our intentions genuine, most of these countries stayed poor, including those with resources. Our governments and multinationals did not make the difference they hoped for. Within a more connected world today, the poor now seek to help themselves and find support from China. I am not referring to the one-belt-one-road (OBOR) and other Chinese investments that could increase China’s influence in those regions. I am talking about a different kind of infrastructure which provides the poor with the right building blocks. China provides them inexpensive phones to connect, free apps to create, open source hardware to build, affordable experts to master skills, cost-effective factories to make, and many new business models to adopt. In Guangzhou one finds such a thriving African community of new-breed entrepreneurs. They are poised to drive the ‘Made in China’ of tomorrow. This low-end globalization, enabled by China, is driven by today’s poor solving real-world problems as opposed to Western nice-to-have problems. If we believe migration is currently a challenge for Europe, wait until they come with smarts originating from China, ready to compete with the wannabe millennial entrepreneurs. Europe might be running out of real problems to stay ahead.

3. China’s global consumers impact

Over the past 10 years, China has more than tripled its middle class, surpassing that of the United States. China’s global tourism also tripled from 47.7million in 2008 to 145 million last year, spending a total of 400 billion USD. By 2030, the Chinese middle class will represent 35% of its population, similar to the size of the EU population. By then, we can expect 400 million Chinese to travel abroad. One in four tourists in Europe will be Chinese by 2030. As only 7% of Chinese enjoy an international passport, cross-border e-commerce is now booming. When Jack Ma sets up a logistic hub in Belgium, the idea is not to sell Chinese products into Europe, but for Chinese to buy our European products online. Cross-border represents 7% of all e-commerce in China, adding to more than 15 billion USD yearly sales and growing twice as fast as China’s total e-commerce. By 2030, Chinese consumers will become the largest online buyers globally and China will reach 50% of all global e-commerce. In the future, the consumer products we manufacture in the West, will be designed for Chinese consumers first and our creatives will learn to appreciate Chinese tastes and way of life.

4. China’s different business paradigms 

In China, competition is much fiercer than other places in the world. It all starts with a competitive environment at school and is an integral part of the Chinese business DNA. They seek out red ocean markets with a lot of customers and money to be made. Their entrepreneurs develop a different type of innovation mode to navigate these huge red markets. They think BIG, but maneuver in SMALL steps. They form small collaboration teams, who share ideas, designs and skills in a semi-open innovation model. It often makes me think of the Ocean’s Eleven movie, where the team plots in secret how to crack the casino safe. Every member is a critical element of that team. To succeed, they have to be lightning fast and take many small steps. In business, cost is put under a microscope, and small improvements prevail over roadmaps and strategy. To build the greatest products, some create internal competition within their company. The team that wins, can form a new department with that product line. Chinese tech organizations resemble an embryo that grows by splitting its cells instead of adding layers of middle management. They take many small bets, and then reproduce what works. Their successes get copied by other Chinese companies as they constantly seek out for best practices. Could this fast stepping-stone competitive learning model fit the needs of our consumers better than the Western more analytic and strategic consultancy model?

Chinese companies are now building up power outside Europe that could one day hit us hard. China’s business paradigms differ, their new consumers are spoiled by China, their friends made bold entrepreneurs and their markets ever bigger. Let’s worry less about China, and instead attract Chinese companies into Europe to really challenge us, so we can experience and learn how to deal with China. We need more medium sized storms like Huawei or Alibaba to be well prepared for that Chinese super typhoon coming our way. Europe needs more competition from China to better understand our mutual strengths and weaknesses.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Sun Tzu (Art of War)

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