Some further detail on innovation in China

At the end of my last post I mentioned that I wanted to give more detail on the innovation and business transformation that I saw on my recent visit to China. Among the business innovation that stood out:

Xiaomi- Founded in 2010 by Lei Jun, Hong Feng and five others, Xiaomi has been part of the Fortune 500 since 2018. The MI in the logo refers to ‘Mobile Internet’ and ‘Mission Impossible’- given the many sizable challenges that once seemed impossible to the founders, during the early days of the company, but were eventually overcome. Xiaomi are creating a connected ecosystem of white goods, home appliances as well as phones, tech and cars. They are designing this ecosystem to remain open to all to encourage other entrepreneurs to design products to work within the ecosystem. As of June 2024 there were 654.5 million smart appliances connected to the Xiaomi internet of things (excluding smartphones, laptops and tablets!), and in April this year, Xiaomi launched one of the most exciting new cars in the extremely competitive EV market- the SU7, a car that competes very well with the Porsche Taycan but at about $30,000 a vehicle.

Bebebus- founded in 2018 by a group of electrical engineers, is now leading in the R&D, manufacturing and retail of premium baby "mobility" products and a great example of new entrants innovating to break into and attack an existing market. It's product line includes strollers, car seats, cribs and other essentials for young children in the high-end maternal and infant market. Despite competition from established high-end imported brands, Bebebus products have rapidly achieved leading positions in the industry.

51Jobs- founded in 1999 and transforming the HR Services market in China ever since, 51Jobs listed on Nasdaq in 2004. It now offers a one stop HR solution with a top 5 position in online recruitment, HR outsourcing, training and assessment, campus recruitment and process outsourcing. 51jobs has over 300,000 unique employers, 200 million registered users and 16 million monthly active users. 51Job are witnessing the evolution of the Chinese employment market namely- there is much greater competition for experienced leadership and management roles and there is also much increased use of temporary and part-time roles.?

M Stand Coffee- A premium coffee chain that blends aesthetics with high-quality coffee experiences, M Stand is making waves in a fiercely competitive market dominated by Starbucks and Luckin Coffee. Founded in 2017 by Kimi Ge with their first coffee shop in Shanghai, the brand’s unique "one store, one design" philosophy and focus on experiential spaces have fueled rapid expansion, with over 500 stores and a 20% growth rate despite market challenges of weak consumer confidence.

These four companies are great examples of themes that I saw throughout the visit:?

• Speed- I often talk about the clock-speed of the world accelerating. This visit, once again, reinforced the speed that founders are building businesses and the high ambition to keep accelerating the business even once production has started. One of the traditional companies I spoke to is targeting a 3x decrease in time taken to retool and reconfigure their production lines. This target is approximately 7x quicker than the industry average.?
• Very demanding consumers and business to business customers- high expectations in terms of speed, low cost, and tailoring for their needs. There is a significant shift from material goods to 'experiences'- not only in terms of travel, entertainment and healthcare but also in terms of the "experience" around the consumer goods purchase-eg M Stand Coffee, Xiaomi (customers expect problems they are experiencing on line to be fixed in 10 minutes versus global average of 3 days). ?5 CEOs spoke about having significant social media presence (eg 3 posts a day) thereby enabling them to receive a huge amount of direct feedback.?
• Intense competition -this is in every sector of the economy- this is not unusual. There is a joke going around in China, after the Olympics, that as in Table Tennis, it is harder in some business sectors in China, to be a “domestic champion” than compete to be a “global champion”. There are currently about 100 EV companies in China and industry consolidation is expected. Elon Musk recently stated that “the Chinese car companies are extremely competitive” mentioning that “there’s a lot of people out there who think that the top 10 car companies are going to be Tesla followed by nine Chinese car companies. I think they might not be wrong”.?
• Design Thinking- many of the founder teams in the recent consumer-related start-ups include a lot of design graduates with experience working for top global luxury brands or straight from great design schools- eg 2 of the 7 founders from Xiaomi are graduates from the Art Center College of Design in Pasadena, California. Kimi Ge, one of the co-founders of M Stand spent several years at LVMH, L'Oreal, Tencent as well as with a leading fashion magazine while launching M Stand.?
• Design cost for a mass market- many start-ups go into the market planning to sell to tens of millions of consumers, thereby allowing them to build low-cost models from the outset (eg multiple Chinese brands that produce 100-inch TVs that sell for about $2,000, versus $10,000 from Japanese and South Korean competition).?
• Robotics- there has been a huge push on automation in manufacturing processes, driven by significant improvements in robotics and "intelligent robotics" where AI is being combined to broaden the skills of robots. China remains the world’s largest market for industrial robots with 430,000 sets produced in 2023- accounting for over half of all new robot installations in the world. A key area of focus here is looking for sufficient "robot data" to help robots improve their capabilities. Experts here believe that Silicon Valley is making major advances in "LLMs for robots" while China is focused more on the "intelligence around applications" given the huge installed manufacturing base. I got the sense that both sorts of intelligence are needed.?

These are again, just glimpses of the transformative innovation happening across various sectors and cities in China.?

In these challenging times, it’s clear that China’s business capacity for innovation, backed by significant private capital and a deep talent pool, is not only enduring but accelerating.