The Innovative Business Ecosystems of China’s Digital Giants

The world’s largest innovator of smart wearables, the global gaming champion, the leading online market place, pioneering artificial intelligent technology and the highest valued fintech company no longer come from Silicon Valley. Learn more from Business Ecosystems in China authors Wei Wei and Mark J. Greeven about how China is leading the pack.

November 6, 2017

by Business Ecosystems in China authors Wei Wei and Mark J. Greeven

The world’s largest innovator of smart wearables, the global gaming champion, the leading online market place, pioneering artificial intelligent technology and the highest valued fintech company no longer come from Silicon Valley. On the contrary, within one decade, innovative Chinese companies Alibaba and their peers Baidu, Tencent, Xiaomi and LeEco (in Chinese popularly termed ‘BATXL’), not only lead but also create and disrupt markets. With a combined market capitalization of close to 900 billion USD, incubating over 1,000 new ventures and an average annual growth of over 50%, they are showing their unprecedented growth and relentless ambition to the world.

Indeed, the impact of these five digital giants is no longer exclusively reserved for China. BATXL gained hundreds of millions of users in international markets, footholds in American, European and Asian markets, over 150 direct overseas investments and acquisitions and rapidly spreading pioneering payment, cloud and communication technology services. In particularly, Alibaba, Tencent and Xiaomi reported in 2015 that 10% of their total revenues – considering their huge revenues, this totals billions of USD – already came from abroad. While none of these companies existed two decades ago, today their playground is no longer China, but the rest of the world. Google, Microsoft, Apple, Amazon, and IBM have to look east.

What explains for their success starts with an understanding of where these companies come from. China is an extreme “VUCA” world: highly volatile, uncertain, complex and ambiguous. As a rapidly emerging economy, China is characterized by relentless dynamics: quickly changing customer needs, growth markets, intense local competition, continuous change of regulation, new ways of working and embrace of digital technologies. No longer can Chinese companies rely on cost advantages but are required to innovate their whole business. And this is indeed what BATXL have done by creating business ecosystems, rather than corporations.

Business ecosystems are boundaryless organizations of interdependent businesses with customer centric offerings across industries. Our research shows that Chinese business ecosystems are digital driven, featured with strong interdependence between the businesses and orchestration by a focal player, innovate across the boundaries of industries and countries and co evolve with the dynamic business environment. Our decade long research on BATXL’s business ecosystems is summarized in “Business ecosystems in China: Alibaba and competing Baidu, Tencent, Xiaomi and LeEco.”

Moreover, based on our proprietary database with the expansion and growth activities of BATXL, we identified four strategic approaches. Chinese business ecosystems developed and transformed from organic growth to rapid expansion by investment, incubation, innovation and internationalization. For example, BATXL invested in over 40 companies on average for the last 5 years. Thereby the companies have expanded in over 20 quickly growing sectors such as digital healthcare, fintech, location based services, smart hardware, artificial intelligence, connected and driverless cars. Moreover, hundreds of new CEOs have been groomed inside the business ecosystems. For instance, the founder of the world’s second largest unicorn Didi Chuxing – right after Uber – is former Alibaba salesman Cheng Wei, NASDAQ listed Xunlei (XNET) is founded by a former Baidu engineer and LeEco’s business ecosystem has cultivated four global unicorns. Interestingly, BATXL follows these strategies in parallel, not betting on one horse and are willing to manage flexible relations with their new businesses.

All in all, by leveraging a new way of organizing and exploiting the benefits of both strategic planning and entrepreneurial decision making, BATXL’s business ecosystems are leading, creating and disrupting markets, not only in China, but in the rest of the world as well.

Mark Greeven – Zhejiang University

Wei Wei – GSL

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