Asia #StartupLifeAPR 5, 2016 @ 05:32 AM 20,736 The Little Black Book of Billionaire Secrets

The Rise of Entrepreneurship in China

Over the past two decades, entrepreneurship in China has grown at an
exponential rate. It is bringing forth disruptive changes not only to China but
increasingly also to the rest of the world.

In 2000, total revenues earned by Chinese state-owned industrial enterprises

and those in the non-state-owned sector Chinese private enterprises were
roughly the same at about 4 trillion yuan each. By 2013, while total revenues at
state-owned companies had risen just over six fold, revenues in the non-state
sector had risen by more than 18 times. Profits in the same period showed an
even more remarkable difference, with state-owned companies showing a
sevenfold increase but profits at non-state-owned ones increasing nearly 23
times.

China’s entrepreneurial spirit runs deeper than just in business. It manifests

itself in the government and in the desires of ordinary people. Premier Li
Keqiang called for “mass entrepreneurship and innovation” and made it the
leading agenda of China’s national economic strategy. In his work report
speech at this year’s National People’s Congress, Premier Li mentioned the
word “innovation” 59 times and “entrepreneurship” 22 times. Other popular
phrases such as “Internet Plus”, “sharing economy”, “big data” and “Internet
of Things” also appeared in the report multiple times.

In July 2015, my book China’s Disruptors was published and in last

December, a Chinese version was also released. The conception of this book
started over a couple of decades ago, when China’s private-owned enterprises
and the culture of entrepreneurship were still in its infancy; though many
people were already operating their own businesses. At that time, many
business people in China were opportunistic, trying their luck to bank on the
opportunities that China’s rapid economic development brought about. Many
of them did not have much knowledge or experience in running companies,
certainly not on a sustainable basis. Over the years, I have come across many
different entrepreneurs. Despite coming from a diverse range of backgrounds,
industries and demographics, they seemed to share some underlying common
characteristics: tremendous ambitions and forward-looking optimism coupled
with an almost insatiable curiosity. Many sought my expertise to gain a deeper
understanding of business strategy and management, and to broaden their
knowledge of “international best management practices.” This was also
around the time of the rapid growth of China's Internet industry, and many
entrepreneurial minds saw the opportunity to incorporate internet technology
into their businesses.
Yet during this same period, the rest of the world (especially the mainstream
western media), perceived China in a different light. China was portrayed as a
predominantly state-owned economy driven by large-scale enterprises, some
of which held (near-) monopoly advantages in industries that were (largely)
closed to non-state companies. In their view, at the core of China’s economy
was the controlling one-party leadership fueling unfair (or sometimes even
non-existent) competition. Some called this phenomenon “State Capitalism”
which carried somewhat negative connotations. For sure, the state economy
played, and continues to play, a critical role in the Chinese economy. But the
western media had for a long time almost completely ignored the other side of
the Chinese economy, the growing private sector and rising group of
entrepreneurs.

The first wave of reforms and opening up of China’s economy under Deng
Xiaoping spurred the vanguard generation of entrepreneurs in the 1980s.
These entrepreneurs typically had little to no access to knowledge of modern
business management. Some even lacked post-secondary education. At the
time, they were pioneers who were remarkably bold to start their own
businesses. In the early 90s, a number of government officials inspired by
Deng’s “ Southern SO -0.11% Visit” left their government roles and ventured
into businesses. This was a rather speculative move that required great
courage. If they failed, the “iron rice bowl” they had abandoned would not
welcome them back with open arms. At this time, these people were
considered foolish by many for leaving these highly desired positions of
stability and prosperity. The majority of this “Gang of 1992” were quite
successful in their entrepreneurial pursuits and some of them eventually
became industry leaders.

Internet entrepreneurs started to emerge in the mid to late 1990.

Contemporary giants Alibaba , Tencent and Baiduwere formed shortly
thereafter. The bursting of the first internet bubble took out a fair number of
Chinese internet companies, but soon thereafter, the growth of internet
industry resumed and gained momentum. The number of entrepreneurs grew
again throughout the 2000s. Leaders from Xiaomi, JD.com and Qihoo 360 are
all prime examples of China’s internet entrepreneurs that arose during this
period. Apart from the internet and mobile technology sectors, many
entrepreneurs started appearing in other industries: energy, healthcare,
financial services, consumer, retail among others, where businesses were
increasingly intertwined with the rapid growth of science and technology.

Today in China, we see numerous young people who were born in the 1980’s
and 1990’s with entrepreneurial aspirations. They come from not only the
metropolis like Beijing, Shenzhen or Shanghai, but also from second-tier or
even smaller cities. Undoubtedly, a fair number, or perhaps the majority of
them will not succeed or at least not on their first attempt, but a few may.
China is large and even a small percentage of a large base is still a significant
number. Unlike their predecessors, these youngsters are not afraid of failure.
For them, "trial and error" is an inevitable part of the process. The outcome,
whether positive or not, adds to their experience and opens up even more
opportunities in the future.

To be sure, many business people in China are still trying to take short cuts and may not
abide by rules and ethics. However, we do see an increasingly growing number of
entrepreneurs who are genuinely trying to grow their business and be successful in legitimate
ways. We are living in an era where entrepreneurship is spreading fast, entrepreneurs are
getting younger, and growth is often exponential. This new generation of China’s
entrepreneurs illustrates the vitality, creativity and increased productivity that are the core
driving forces propelling China's next stage of development.

China is now the world’s second largest producer of “unicorns,” i.e., non-listed companies
valued at over US$1Bn. The most representative ones are Xiaomi, Didi Chuxing, China
Internet Plus (recent merger of Meituan and Dianping) and DJI. In addition, Baidu, Alibaba,
Tencent and Xiaomi are on the world’s 50 smartest companies list presented by
MIT Technology Review in 2015. Furthermore, by the count of China’s Ministry of Science
and Technology, there are 115 university science parks and over 1,600 technology business
incubators in the country providing mentorship, legal advice and office space to dreamers and
aspiring entrepreneurs.

A majority of these Chinese innovators excel in business model innovation. As they move on
to acquire new capabilities by building ecosystems through strategic partnerships and
mergers and acquisitions, we expect to see more China-rooted technology innovators on the
global stage. At the heart of China’s disruptors are the entrepreneurs with a shared dream for
success, a pursuit of objectives brimming with creativity and a relentless drive to realize their
goals. These goals will ultimately rewrite the rules of business for China and increasingly for
the rest of the world.

A unique phenomenon is taking place in China today. While its political system is inherited
from a top-down planned economy hierarchy, its leading entrepreneurial companies,
especially the younger, more dynamic ones found in the Internet industry, adopt much of
their mindset, culture and organizational principles from Silicon Valley. In fact, many are
closer to Silicon Valley than they are to Beijing. For these companies, China’s political and
economic structure is mixed with Silicon Valley culture, each influencing the other and
creating something new. This osmosis is changing China in a way that we have not seen
before and would lead China into a new era.

Edward Tse is founder & CEO, Gao Feng Advisory Company, a global strategy and
management consulting firm with roots in China. A pioneer in China’s management
consulting profession, he led the Greater China operations for two major international
management consulting firms for 20 years and is widely known as China’s leading global
business strategist. He is author of The China Strategy (2010) and China’s Disruptors
(2015).