‘West can learn from Chinese digital successes’, say Cambridge authors

Western companies can learn how to break free from “the user growth treadmill on which many Western digital businesses are caught” by adopting Chinese business models, says Peter Williamson, professor of international management at Cambridge Judge Business School.

Prof Williamson has co-authored an article titled ‘Why it’s time to think about copying Chinese innovators’ in Ontario’s Ivey Business Journal.

“In the digital sphere, China has moved from copycat to innovator,” says the article, published with Zheng Liu, a post-doctoral research associate at the Intellectual Forum of Jesus College. “While much of the Western world focuses on things about China that threaten other nations, or at least appear to threaten them, we should not ignore the lessons that can be found in China’s remarkable evolution as a marketplace innovator.”

The duo have identified how – and why – scaling up in the West is more about urging consumers to adopt a product or service, where Chinese businesses adapt their strategy to provide a host of services, with the aim of ‘locking in’ the consumer.

“The danger with ‘mission-driven’ innovation is an excessive focus on technology and product functionality” that, being high risk, results in “many more failures than success stories like Apple”, the article says.

“China’s digital innovators have adopted a different approach, one that might be termed ‘user-driven’ innovation. Instead of transformative new technologies and world-changing visions, Chinese success stories usually start with insights into unmet customer needs or user frustrations. Sometimes they simply let users drive innovation rather than pushing the latest and greatest offering.”

Examples include the uptake of QR technology in mobile payments, which Alibaba’s Alipay and Tencent’s WeChat Pay integrated in 2011. This pushed more activity online, with the result that the mobile payments system in China is 11 times the size of that in the US by value, and comprises nearly 60 per cent of all non-cash retail transactions in China.

Chinese companies also focus on “creating new services that help users embrace a comprehensive digital lifestyle” that combines shopping, social networking and entertainment.

For example, leading food delivery platform Eleme (literally ‘Are you hungry?’ in Chinese) rebranded into a “digital life services” platform that offers not only food but also other services, ranging from pet care to car washing to home decoration.

Chinese firms have also harnessed users’ potential to develop innovative ideas themselves – eg Tencent users who requested and then received reminders about the schedules of computer-game tournaments.

“This rapid cycle of ‘launch–engage–innovate’ has now become core to Tencent’s innovation process,” the authors say.

Chinese innovators rejig their business models to focus not only on expanding the user base to grow advertising, but also to sell an “ever-increasing portfolio” of products and services.

“Since this approach focuses directly on developing products and services that consumers are willing to pay for, it is arguably less risky than relying on models that offer users a service for free in the hope of generating spill-over revenue and profit streams,” the article argues.

The article concludes: “When compared to Silicon Valley’s supply-side innovation, China’s approach to innovation can look mundane, especially when new technologies are not involved. But the results that have been achieved speak for themselves.

“By relying less on developing the next ‘killer app’ and breaking free of the user growth treadmill on which many Western digital businesses are caught, Chinese innovators have developed what could prove to be a more effective way to capture the holy grail: a business that generates a sustainable stream of profits by locking in otherwise fickle users and becoming an integral part of their daily lives.

“And that possibility, if for no other reason, makes copying the Chinese approach to innovation something to seriously consider.”