An innovation hotbed
IMD Professor Georges Haour on the rush to invest in China
We’ve seen many foreign investments in the digital scene of China.
Perhaps the largest recent example is with Uber’s Chinese competitor, Didi Chuxing (Didi for short). This privately-held company, headquartered in Beijing, recently raised $7.3 billion in funding with one billion coming directly from Apple. A young business, Didi was created in 2015 from two offshoots, one from Alibaba and the other from Tencent. This was around the time when Uber entered the Chinese market, but Didi having an 87% market share in China, is the dominant player. Operating in about 400 Chinese cities, Didi has some 1.4 million registered drivers with an objective to reach 10 million in 2019.
Digital innovation is at the heart of China’s economic transformation through innovation-led growth. And rightfully so. This is one of the theses of my recent book “Created in China; how China is becoming a global innovator.”
While investment in Didi showcases this, it is far from being the only move in that direction. Walt Disney has long been on a path to take of piece of the digital cake in China. While they’ve struggled through an environment of regulated airwaves, they finally are making new strides by changing strategy. While you may think the $5.5 billion investment for Disney’s Shanghai theme park, which opened earlier this month, is abandoning Disney’s original desires of capturing market share in digital entertainment, you’d be wrong. China is the ultimate internet country. There are anywhere between 600 and 900 million internet users in China, depending on who you read. By planting an experience in China, Disney is banking on the social media and online buzz its park with create. And the theory goes, more respect for the real Disney experience means more respect for their digital intellectual property.
And Disney isn’t the only one planting roots to capture a piece of a growing digital market. Tesla Motors is soon rolling into China with $9 billion in investment to build a factory to meet local demands for their mobile savvy electronic vehicles.
French electric equipment and automation company Schneider Electric also recently announced it will invest in more small and medium-sized high-tech companies in China and has created a specialized investment fund to do so.
All of these companies and more are finding China to be a hotbed for innovation with a hungry digital consumer base that is jumping on products and services that align to their lifestyle. It’s well known that China is the largest market for mobile internet in the world. And one of the most advanced, especially in terms of security and transactions. An estimated 400 million are already using mobile devices for payment transactions.
But with all the digital potential and reality, we must also ask, is this a good thing? The brave new world of the digital revolution does seem to present some drawbacks. Look at what the wild horse of the internet has done to the US political scene. In many ways, the internet is a tool to manipulate people’s emotions, not to transmit a message. Are Hillary Clinton’s boring old emails more of a security threat or a manipulation to judge her character? While the answer is obvious, propaganda will continue when weak spots emerge. As Marshall McLuhan used to say in the 1970s, “the medium is the message.” When it comes to digital and the internet, there will be no ultimate ploy to “contain China” (an awful expression), but those who are willing to role with the punches are going to be the winners in investment and innovation.
IMD Professor Georges Haour is author of “Created in China; how China is becoming a global innovator” (Bloomsbury, London 2016).