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Fortune – Why Silicon Valley Can’t Get Complacent About China

  • December 2017

What a difference three years can make. In 2014, when I worked as an American expatriate in China’s technology industry, the country was widely viewed as a copycat nation, only capable of duplicating Western products. But today, Chinese tech companies have become innovation leaders in some key areas in technology, with truly global ambitions—and Silicon Valley is either too internally focused or complacent to realize it.

Start with the fact that “Made in China” inventions are now being exported around the globe. Few people in the West realize that, the video social network app that’s wildly popular among American and European teenagers, comes from Shanghai, where two Chinese entrepreneurs specifically targeted American teenagers. The young startup was acquired last month for around $1 billion.

In mobile ecosystems and mobile payments, China is well ahead of the U.S., in part because the country leapfrogged landlines and went straight to mobile phone adoption. The first major Chinese tech innovation was Tencent’s WeChat “super app,” which combines social media, mobile payments, and mobile shopping, and allows you to even order food delivery and hail and pay for a taxi. Today WeChat has nearly one billion monthly active users and WeChat Pay has over 600 million active users, which dwarfs Apple Pay’s nearly 90 million. Scarcely any Chinese person under the age of 40 goes a day without using WeChat, and they often leave home with only their smartphone, since there’s no need to carry a wallet.

While WeChat is well-known in America, China’s innovations in retail and artificial intelligence (AI) are less so. Two years before Amazon announced its acquisition of Whole Foods in June 2017, Alibaba had already gotten into the brick-and-mortar retail game by acquiring Intime Retail, a major department store chain in China, and had already opened its first physical retail store. Alibaba is moving toward “new retail”—which founder Jack Ma describes as the integration of online, offline, logistics, and data across a single value chain—by quickly amassing alliances with retail companies across the spectrum.

In big box retail, Alibaba recently announced a $2.9 billion investment in China’s second-largest hypermarket, Sun Art Retail; in the medium-sized sector, Alibaba has invested in the Sanjiang supermarket chain; and in small retail, Alibaba is aligning with Lianhua’s Quik convenience stores. Alibaba is already collecting and analyzing shopping data to experiment with new retail concepts far more advanced than those in the West.

Also unappreciated is China’s growing strength in AI. The Chinese government recently announced its intention to catch up to the U.S. by 2020, surpass it by 2025, and dominate the industries of AI by 2030, with the help of its homegrown tech giants Baidu, Alibaba, and Tencent. Baidu is a pioneer in the AI field, with over 60 different AI services known as “Baidu Brain.” Baidu is aggressively pushing its AI agenda through partnerships and acquisitions, including one with Nvidia to bring AI to cloud computing, self-driving vehicles, and home voice assistants. Alibaba plans to invest $15 billion in AI-related technologies over the next three years and has launched AI cloud services for health care and manufacturing. The Chinese government is developing AI capabilities for both commercial and military objectives, and the implications on the global balance of power are significant.

Chinese tech giants are now outright acquiring or taking majority shares in overseas companies, such as Ctrip’s (China’s leading online travel agency and number two market leader in the world, second only to Priceline) acquisition of the UK’s leading travel search site Skyscanner, Tencent’s 93% investment in U.S.-based gaming company Riot Games and 84% investment in Finland-based gaming company Supercell, and Alibaba’s 83% stake in Southeast Asia’s online shopping site Lazada. Other noteworthy overseas investments since January 2016 include Tencent’s $1.8 billion stake in Tesla and $1.4 billion investment in Indian e-commerce marketplace Flipkart, and Alibaba’s $1 billion investment in Lyft.

One implication of this newfound strength is the growing war for Mandarin-speaking tech talent. Baidu recently launched its first recruiting efforts at top American universities, including Stanford University and the Massachusetts Institute of Technology, and built an AI laboratory in Silicon Valley. Didi Chuxing (the Chinese ride-sharing unicorn that defeated Uber in China) also has an AI lab in Silicon Valley, while Tencent has established one in Seattle. At Egon Zehnder, we have learned in much of our work with many of the leading Chinese tech giants and startup unicorns what type of talent is likely to thrive in China, which prioritizes the more nuanced “soft” skills of adaptability, flexibility, and potential rather than simply the “hard” skills of language fluency and past work experiences.

Silicon Valley could benefit from learning more about the companies and innovations coming out of China. It’s been just three years since China shifted from copycat to innovation leader. Just imagine what the next three will bring.

Full Story: Commentary: Why Silicon Valley Can’t Get Complacent About China in Fortune (6 December 2017).

Minh-Ha Nguyen, Egon Zehnder, New York

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