Business Transformation: US vs. China
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Earlier this week, I gave a lecture on Purpose-Driven Business Transformation to the Global Executive Program at School of Economic Management, Qinghua University. The class was for a group of global business executives who are interested in learning more about the China business environment and how to do business in China.
Business transformation includes the "why", "how" and "what".
In the class, we discussed the macro trends which are driving business transformations including disruptive technology innovation, business model innovation, and societal driven transformation. We also explored the different dynamics of business transformations in China vs US including the role of government in business.
With Chinese GPD per capita has virtually doubled every six years for the last three decades (about 35X for China vs. 2.7X for US), business transformation in China is often driven by the fast changing external business environment including new economic policy, new regulations and more importantly new consumer behaviors. It is reported that small and medium companies in China have a life span of only about 2.5 years.
In other word, many business innovations in China are driven by demand due to the fast changing pace of business environment. There is always a sense of urgency to anticipate and plan for what is in the horizon. For example, during the pandemic, companies including KFC quickly rolled out 5G autonomous vehicles in Shanghai which allow customers to purchase their favorite meals without any human interactions. I just read an article on MIT Technology Review this week how feed delivery by drone in busy metropolitan city of Shenzhen is very much part of daily life. When innovations are driven by demand, you already have a market and adoption tends to be much fast. Obviously, the fact China has a 1.4 billion people helps. The focus of the government has been to invest in infrastructure to facilitate those innovation by private enterprises. China has installed more than one million 5G base stations, while the U.S. has built only 100,000. China has built around 26,000 miles of dedicated high-speed railways since 2008 and plans to top 43,000 miles by 2035. Meanwhile,?the United States has just 375 route-miles of track cleared for operation at more than 100 mph.
In contrast, many of the innovations in the US are technology driven (obviously it is not intended to be a sweeping statement). As a result, the speed of market adoption tend to be much slower. A good example is the vast difference in the adoption rate of cashless payments (Apple Pay, Google pay in the US vs. WeChat, Alipay in China). Almost all transactions in China are digital that you rarely need to carry any cash or credit cards regardless of how remote you are in the country partly due to the wide availability of 5G coverage. While e-commence created giants such as Amazon in the US, e-commence in China allowed millions of farmers and entrepreneurs to benefit from the access to direct e-commerce to market their goods.
Psychologically, I rarely hear Chinese business leaders talk about change management or the "why" because change is very much natural and expected. They tend to focus on "how" and "what". More business decisions are based on judgements and intuitions. Obviously the short lifespan for small and medium enterprises implies many probably made less than optimal decisions.
On the other hand, the track record of business transformation in the western business world is also fairly poor. Western companies tend to spend extensive time and effort to study justify the "why" before the "how" and"what". However, the results are not necessarily encouraging. According to a Mckinsey study, about 75% business transformation initiatives fail to deliver the intended results.
In the class, I used three case studies to compare and contrast the decision making for business transformation:
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Finally, I discussed the purpose of business and role of government in the context of energy transition.
While US business law provides a legal framework to promote economic growth by providing businesses with the legal framework they operate and flourish. In a way, they promote economic development indirectly by creating the business environment for business to freely compete and grow. China does a lot of more direct “promote” businesses through “industrial policy”, especially at the provincial and local government level. Even the legal and regulatory framework are often ambiguous to give the government flexibility to make decisions, rather than a legal framework for the legal system to independently operate. Government in the US is more like a referee while government in China is more like a coach.
What is interesting is that US now is adopting more and more of similar practice for encouraging the growth of specific industries with adoption of government industrial policy. It remains to be seen how effective those policies will be in the long term. By and large, the United States does not have an innovation problem in terms of creativity and technology innovation. The bottleneck often is the lack of infrastructure and economic incentive for the commercialization of those innovations in a shorter term driven business world.
Fundamentally, every legitamate business is the same inside. There are only three levers for profitability: margin, asset turnover, and financial leverage. For any business transformation to deliver the intended business results, leaders have to always has the clarity in terms of the implications on three business levers (aka: Earn, Turn, Leverage) to align with the fundamental purpose of the business.
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Innovation Ecosystem in China (02/13/2021)
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CEO at Caribbean Corporate Governance Institute
3 个月It is incredible that China has reached the stage where change is accepted by everyone as normal. It is what should be for all societies because of the frenetic pace of change. However, resistance to change is so normal for most of us. Moreso, one would think that traditional societies like China would be even more resistant. How they they reach there? And what would it take for us in the West to reach the point where it is normalised and accepted as such?
Vice President Imaging Systems
1 年I personally hope American businesses shun China and its communist methods. Forced sterilization of Uigars, slave labor of Muslims and forced labor of children. Limiting families to one child. Your theft of IP is legendary. No we want nothing to do with your form of government nor business.
Next Trend Realty LLC./wwwHar.com/Chester-Swanson/agent_cbswan
1 年Thanks for Sharing.