January 16, 2021

How Chinese Industry Giants are Leading the World by Creating Enormous Business Ecosystems

Spider Media

China business ecosystem research
China business ecosystem research
China business ecosystem research

SHANGHAI, China, Sept. 18, 2020 (GLOBE NEWSWIRE) — Global media agency, Spider Media recently released an in-depth insight into the world of Chinese ecosystems. Taking a look at how these ecosystems are formed, operate and develop, the team presented a comparative analysis of three very different industries and styles. The report specifically outlines how food logistics, big-tech and manufacturing oftentimes use similar ideas to organize themselves into highly-efficient ecosystems of interdependence.

As the undisputed global leaders in manufacturing, China has for years been perfecting the model of open innovation within large business ecosystems. Adding to much of the country’s economic rise over recent decades, these huge ecosystems are comprised of a great number of smaller component parts that allow for ultra-specialization at each individual point in the business cycle.  
Oftentimes spanning multiple verticals, these ecosystems are seen everywhere from digital services, to manufacturing and even the food industry.

Understanding cooperation as being more beneficial to growth than competition, Chinese companies of all sizes attribute their being within a business ecosystem as being a major competitive advantage. Being part of the team means potentially having access to shared resources, knowledge and insights, as well as being able to access new clients, markets and being reserved a place on exclusive platforms. In turn, these specialized component players are able to focus on incremental innovation and thus fend off outsiders in order to gain market share in their respective vertical whilst maintaining low cost and high product quality.

These ecosystems are formed in a number of ways, generally either naturally through inter-dependance on each other at various levels of the supply chain, or through investment and M&A. Governance of these ecosystems can also vary greatly depending on their areas of service and leadership styles, but majority seek to try and uphold a level of quality consistent with the overall brand image. For this reason, being associated with a certain ecosystem can add a lot of social capital to, especially younger companies, trying to establish themselves and their brand amongst an ocean of competitors. In China, business ecosystems are absolutely key to driving innovation on all fronts and are of fundamental importance to companies of all sizes. 

Digital Ecosystem – ATM (Alibaba, Tencent, Meituan Dianping)
Well known to any China-watcher, the massive ATM tech trio of Alibaba, Tencent and Meituan Dianping are the middle kingdom’s answer to FAAMG (Facebook, Amazon, Apple, Microsoft and Google); they are truly enormous and are all a feature of modern-day life for most Chinese people. It’s not by accident that their collective acronym is the same as a cash dispensing machine either, these tech giants are known for having incredibly deep pockets which they regularly use to invest in smaller companies, absorb competitors and support lengthy cash burns against each other in emerging industries. All three support a wide range of digital products and services that facilitate China’s online economy and innovative tech industry.

Tencent-backed Meituan Dianping’s membership in the top three club is highly contested after it knocked out search engine provider Baidu (formerly BAT) from the third spot in mid-2019 and has seen advances from news aggregator Toutiao and TikTok’s parent company ByteDance. This fierce competition is perpetuated by consistent investment by Tencent and Alibaba to advance the entire industry as a whole and boost digital innovation across the country.

As the two undisputed Internet industry leaders, Alibaba and Tencent both have very different styles for organising their ecosystems. Alibaba is known for being very hands-on with their investments, like in the case of their 2018 full acquisition of food delivery service ele.me in which they already owned a 43% share versus Tencent’s more hands-off approach symbolised by their  taking of a 20% stake in ele.me’s main rival, Meituan Dianping, before the 2018 IPO. The Alibaba ecosystem also appears more tangible, with technical and financial support from Alibabacloud and Ant Financial underpinning mega-app platform Alipay, which in turn exclusively supports a whole host of Alibaba applications and services such as Tmall, Taobao, ele.me, Hellobike, Hema supermarkets and more.

For many years, Tencent was seen to be flying under the radar of international attention. Preferring a hands-off strategy, Tencent invests even wider and more frequently than Alibaba and with stakes of over 100 billion yuan in more than 600 companies since 2011, Tencent prefers to take minority interests and co-invest with other VC’s to allow the companies to remain independent before claiming a profit upon public listing. In more recent years, however, both Alibaba and Tencent have taken their rivalry to the international stage with a number of highly publicised investments in up-and-coming South East Asian Internet companies including Grab, GoJek and Lazada. In both cases, the two giants look to bolster innovation by freeing up promising startups to focus on producing quality products rather than worrying about finances; both also share networking resources and technical support to help build the individual companies and in turn, expand the ecosystem.

Manufacturing Ecosystem – Vaporesso & Smoore International 
On speed, versatility or volume, the rest of the world cannot compete with Chinese manufacturing. This is the case for the new-age industry of e-cigarettes, where access to a large pool of world-class designers, technicians and researchers has resulted in a massive concentration of 90% of the world’s vaping devices coming from China. Specifically, production is centralized in Shenzhen, a city with over 600 e-cigarette manufacturers and understandably regarded as the absolute forefront of vape-tech design and innovation. For consumers, however, this supporting network is both invisible and inaccessible. In order to complete the cycle of research, to production, to selling to offline consumers, retail partners who understand local market conditions and regulations are also needed.

In mid-2020, well-known vaping device brand Vaporesso’s parent company, Smoore International Holdings(6969.HK), debuted internationally with a Hong Kong IPO of $29.4 billion, making it the first vaping company to list in Hong Kong and instantly minting China’s first two vaping industry billionaires. Utilizing the strength of the Shenzhen electronics manufacturing ecosystem, Smoore established themselves early on in the industry and became dedicated to being ultra-specialists in electronic atomization technology, leading the entire industry’s R&D efforts. Smoore’s research-focused approach is shown through the company’s employing of more people in R&D than sales and in being in possession of over 1000 technology patents. Cutting-edge innovations are then worked into marketable products by Smoore’s public facing brands including Vaporesso, FEELM Lab and CCELL to be distributed around the world.

Smoore’s sub-brand Vaporesso, having a team focused on R&D within the ecosystem allows them to concentrate on being specialists in production and branding. This constant flow of new technical innovations means that without having to commit resources to R&D, Vaporesso can still remain a market leader, recording the lowest rejection rate in the vaping industry and contributing to Smoore’s 16.5% global market share with a CAGR of 110%. In addition to support in development, Vaporesso also relies on local distributors around the world to help facilitate the sale of their products and ensure adherence with legislation. This reliance on local partners reduces the need for Vaporesso to commit to taking resources away from specializing on production and branding, leaving the final leg of the product sale cycle in the hands of other equally specialized partners within the same ecosystem. This attitude also means the brand is equipped to deal with new imposed regulations on the fast-growing industry such as America’s impending PMTA (Premarket Tobacco Product Application) which ahead of schedule Vaporesso has already submitted and received their acceptance letter and positive comments from FDA on its overall preparation. 

Food Supply Chain Ecosystem – Haidilao Hotpot
Known in China for its above-and-beyond service, Haidilao Hotpot blipped onto international radars with its near $1 billion Hong Kong IPO in 2018. The restaurant chain’s success, however, is due to more than just providing quality food and services to its customers. With over 300,000 Hotpot restaurants in the country, Haidilao sought to differentiate themselves by establishing a brand consistent across all restaurants in the country and internationally. In order do so, they reverse-engineered an ecosystem to allow oversight across the entire food and product cycle; creating a specially designed production and logistics system to feed into the restaurants. This control of every step in the cycle also allowed them to experiment with innovative technologies and business practices with reduced risk. 

Despite third party food supply and logistics services already being very mature in China, the Hotpot industry requires a higher standard of service as ingredients are generally delivered raw to customers’ tables and therefore need to be absolutely fresh. As the franchise grew from a single store in 1994, it became apparent that maintaining standards for products and services would be best managed by the company body, rather than individual store managers. The solution was to establish a dedicated food supply and logistics company that would oversee the restaurants’ supply needs. By doing so, Haidilao was also able to reduce kitchen staff numbers by preparing ingredients in a controlled warehouse environment and transporting directly to the restaurants, maintaining freshness and consistency, whilst allowing employees to focus more on providing quality customer service and experience.

Through systematic analysis and control at each step in the food production to consumption cycle, Haidilao Hotpot are able to dedicate resources to ultra-specialization. Instead of having to worry about what is happening behind the scenes, in-store managers are able to focus solely on providing customer service, resulting in PR-boosting headlines such as “Offering manicures with your Hotpot” and “HaiDiLao Hot Pot Chain Has Free Massages”. The kitchen then also becomes the responsibility of kitchen specialists and results in innovations like a joint venture with Panasonic in 2018 to launch “smart” restaurants by leveraging image recognition and robotics to create fully automated kitchens. The franchise is an example of how creating a dedicated ecosystem of many moving parts can allow for greater overall growth and development whilst maintaining a consistent brand image.

China’s huge size and population lends itself to extremely competitive business practices. As these practices have grown and evolved over time, ecosystems of ultra-specialization have appeared as the prevailing standard. Regardless of industry or product, the pattern of Chinese organizations to dissect each individual step in the business cycle and then optimize better and faster than their competition, has created enormous ecosystems of many interdependent moving parts with their own unique roles and purposes. For international observers looking in, there is still much more to learn about how these ecosystems arise, how they are maintained and how they will develop into the future.

Media Contact:
Company: Spider Media
Email: [email protected]
Website: https://www.spider-media.cn/ 

Attachment

Source Article