China’s greatest success has been in industries that are very customer-focused such as household appliances (39 percent global revenue), Internet software (15 percent) and smart phones (10 percent). In these sectors, the majority of the growth is from local market sales – the size of China makes domestic leaders, global leaders.
Based on the enormous size of the Chinese consumer market, appliance makers like Haier and Internet companies like Tencent, Alibaba and Baidu have grown to be world leaders. However, the Chinese consumer market is also quickly moving. The disposable income of its consumers has risen by 10 percent every year for over a decade and now 85 million households have joined the consuming class. In the Chinese market, innovations are rapidly scaled up and commercialized. So, Chinese companies have learned how to adapt global products by tweaking designs and better addressing the consumer needs. A new generation of Chinese entrepreneurs have been solving consumer problems in a unique way – the Chinese way.
China has a highly fragmented retail industry and this harshly limits decent choices for consumers if they are outside of major cities. However, Chinese entrepreneurs saw this as an opportunity and build a world-leading e-commerce industry, Alibaba. It has grown to be the world’s largest online market place based on the value of the merchandise sold – $349 billion last year. Further innovations by Alibaba is Alipay, a payments system and Ali Finance which helps to finance small scale suppliers that don’t have a traditional banking system.
Rethink Business Models
Chinese entrepreneurs greatest flair has been inventing business models. To understand, I’ll let you know that in most parts of the world, 60 to 90 percent of revenue for online businesses comes from advertising. In China, this is not the case; their advertising industry is actually only about a quarter the size of the US industry. Chinese companies needed to create new business models to monetize the web traffic. One company, Tencent generates 90 percent of its revenue from online games, sales of virtual items on social platforms and e-commerce. The result? The average revenue per use is $16 compared to Facebook’s $10.
Cheaper, but Better
China is known for creating products for about half of what other countries charged, but only at about 80 percent of the quality. With the rise of a wealthy class in China, now they have to create cheaper, but better products to win their consumers. A Beijing-based market phone maker, Ziaomi has become one of the world’s most successful startups. Xiaomi phones usually cost half of what top products of global brands cost for the same and even better hardware features. How do they do it? Ziaomi has achieved this by embracing business model innovations like online only sales and risk sharing with supplier. Now, Xiaomi is the largest smart phone player in China and is preparing to enter foreign markets.