In the era of Globalization 2.0, amid various challenges, how can Chinese enterprises break through? How should the next generation of entrepreneurs and young people in China face such challenges?
Recently, during the opening speech of the NetEase’s ‘Future Open Class’, Wei Zhou, CCV CAPITAL’s founding manager partner, delivered a keynote address on the topic ‘Strategies for Chinese Enterprises to Breakthrough in the New Situation.’ He shared his thoughts and insights on how Chinese companies are moving into the Globalization 2.0.
Wei Zhou said, “The big theme of the way for Chinese enterprises to break out is [Decentralized Globalization], which revolves around the two vertical directions it can break through: Go Green and Go Smart“.
He believes that [Decentralized Globalization] is an optimal strategy to adapt to the new situation. We need to make full use of China’s resources, talents, supply chain, and technologies, while fully integrating local markets, cultures, and regulations to form a distributed collaboration model and share the advantages of one platform. We believe this is a very valuable model for going global. When a country has competitive advantages in most parts of the value chain, many great companies will emerge. And China has the conditions for this in terms of both “Go Smart” and “Go Green“.
In terms of “Go Smart“, China has accumulated core advantages in application scenarios, product power, global markets, manufacturing supply chains, and competitive environments over the past few decades, and these advantages can help Chinese companies achieve integration and innovation of complex products. For “Go Green“, China has the most leading edge in the revolutionary wave of green technology, and this advantage can not only be played out domestically, but also be our ticket to the global supply chain and market. We also believes that smart technology and green technology are the biggest opportunities for Chinese companies and entrepreneurs in the next decade or two.
The following is an excerpt from the speech:
Today, the topic I want to share is “How Chinese Enterprises Breakout in the New Situation”. The main talk is about the thinking and story of globalization into the 2.0 era.
In fact, in the past few years, we can obviously feel that at home and abroad, we are facing a lot of inflection points, many things in the accumulation to a certain extent, it will have a quantitative to qualitative change process. China in the past there are a lot of Internet opportunities, there are simple industrial products, or light industrial products export opportunities, these opportunities in the past two or three decades after a long period of development and accumulation to a certain extent, and finally appeared in a situation? We do have a lot of advantages. But now the international situation and the form of competition have also undergone many changes. We used to think that everything would be smooth in the future, but I actually said in 2017 that China is now actually at such an inflection point similar to Japan in 1970.
What does that mean? At that inflection point, Japan’s entire national product manufacturing and high-tech brands, before 1970, mainly served the Japanese market, but from this inflection point after the boom, to the world, very quickly won a large number of markets. The vast majority of Japanese brands that are familiar to us today went global at that moment.
So, we think that China actually reached this inflection point five years ago, or even six years ago, and we could have seen a lot of Chinese brands “Go Global” very quickly, and be able to win a lot of global markets like Japan. But because of various changes in the international political situation, we have faced many challenges. Globalization has now become an anti-globalization situation. How can Chinese companies break through under such challenges? How can the next generation of Chinese entrepreneurs and young people face this challenge? This is a very important topic that we need to consider now.
In this situation, we have done a lot of research, that in the new situation of Chinese enterprises in the breakthrough way, summarized in two directions, a theme. What are the two directions? The first direction we call “Go Smart“, the second direction we call “Go Green“. One theme is “Go Global”.
First of all, we firmly believe that the major theme of the next era should be the smart of everything. This is because we are now facing a large number of challenges, whether it is aging, industrial upgrading in traditional industries, and labor safety and health at work, and so on. With these factors, many of our past labor-intensive industries, some of the more dangerous or harsh environment of the production place, must be replaced by intelligent, fully automated equipment. From another point of view, we now have a simple manufacturing industry, in fact, in the continuing transfer to some Southeast Asia and other labor-intensive production base to go, we can not keep doing simple manufacturing in China, must be upgraded to further intelligent products era.
In this environment, industrial upgrading can not only rely on training employees, but more importantly, we have to make use of the scientific and technological strength that China has accumulated over the past two decades to realize industrial upgrading from the perspective of intelligence. So, what advantages have we accumulated from China’s rapid development over the past 20 to 30 years?
First, we have accumulated a lot of supply chain advantages in a large number of advanced manufacturing verticals.
Second, we have accumulated a large amount of very comprehensive data and application scenarios in the field of artificial intelligence, especially in commercial application scenarios.
Third, over the past decade, autonomous driving technology has made great strides in China, and we are now even at the forefront of the world in many aspects.
These three technologies, in our eyes, are the three core technologies of the future smart of everything, autonomous driving, artificial intelligence and robotics, and the combination of these three should produce the next generation of the technology platform of the smart of everything, and we will see a variety of forms of smart products.
For example, if you go to an airport, to a hospital, a hotel, a restaurant, you will see a large number of fully automated smart devices, including robots to provide a variety of services. We think a landmark event, if you can see robots in a hospital environment that can help the disabled and the elderly to take a shower, go back to bed, go to the bathroom without human help, that would be a landmark event for what we think is a major breakthrough in the smart of everything.
China has accumulated core strengths in a large number of areas over the past two or three decades, and these core strengths include application scenarios, product power, global market understanding, advanced manufacturing data and supply chain, including sufficient competition in this country, which actually gives us some very leading advantages over other countries, and these strengths together will realize the ultimate integration of a complex product. So, we insist that China’s strengths should not be in some localized manufacturing, should not be in some low-end products, but should be integrated with all of our leading technologies to achieve a complex final product.
What we should be doing is going out to the world with complex technology products that they don’t have the means to realize, technology products that integrate multiple technologies. And these technology products themselves, they have no way to realize, because some countries may only have a part of this kind of advanced capabilities, there is no way to integrate all the ecology, to realize the final embodiment of a final complex product.
So the new generation of Chinese entrepreneurs, Chinese entrepreneurs, young people, this is something we should consider. Ten years ago, fifteen years ago, we thought about the Internet, the mobile Internet and these themes. Today, we believe that “Go Smart“, smart technology, is the next decade, 20 years, Chinese enterprises, Chinese entrepreneurial young people, should jump into one of the biggest entrepreneurial opportunities.
The second most important direction in the next decade, in my opinion, should be green technology, this concept is called dual-carbon or carbon neutral today.
Fifteen or twenty years ago, my previous fund, KPCB, was one of the first global funds to fully promote environmental technology investment, and we spent a lot of time on the first generation of green technology research and investment. At that time, the problem was that technology was not mature enough, and people’s concern for the environment had not yet reached a certain level of maturity, and many products needed government subsidies before they could be sold.
Let me cite a simple example. Back then, when we looked at solar panels, the conversion efficiency might be less than 10%, but today, it is very common to have a conversion efficiency of more than 25%, and in laboratories, it has already reached more than 35%. In this case, the cost of many products is also falling dramatically, including the conversion rate of the battery, or its application efficiency is also improving, so that all the green technology has entered a mature inflection point moment.
And China has accumulated a lot of advantages in green technology over the past years, probably the most obvious leading edge in the world. Especially in many verticals, China has a lot of advantages, as well as the global concern for the environment, it has come to the best time to invest.
With the recent extreme cold weather in Beijing, we can clearly and directly feel the changes in the environment, so we think it’s the best time to focus on and invest in green technology. And China is at the forefront of the whole green tech revolution, and this advantage should not only be used in China, but it is a very clear ticket to enter the global supply chain and global market.
Although, now we are facing a lot of international geopolitical challenges and there are a lot of restrictions on Chinese products, when we look at a lot of startups, we also see that they have a lot of very smart ways to achieve that, and still be able to take their products to the world in such geopolitical environments. Not only in the direction of technology, but we now also see that many Chinese companies have come to the forefront of the world in terms of product design, product concepts, and so on.
Looking horizontally, Chinese companies have not only begun to export on a large scale, but have also gone overseas, setting up local enterprises, forming joint ventures there, or realizing global layout in other ways. In terms of the development direction of green technology, whether it is carbon capture and carbon trading under the theme of carbon neutrality, or even some Fintech in this trading process, or the next step of electric vehicles, batteries, wind energy, solar energy, hydrogen energy and so on, all of them are on a fast track of development, and we believe that this is very promising. In today’s anti-globalization environment, there’s actually no way to stop our pace in the direction of green technology.
Therefore, as a whole, I would say that these two vertical directions; “Go Smart” and “Go Green“. In fact, I have also analyzed what advantages China has accumulated in the past 20 or 30 years of rapid development. When we know what advantages have been accumulated, we should not be presumptuous, we have what others do not have, then we should make the most of our advantages. These advantages have given us an irresistible power to “Go Global”, and I feel very confident in the next decade.
In terms of the industry, we believe that “Go Smart” and “Go Green” are the major directions that all Chinese enterprises can focus on to make breakthroughs in the next decade. So, how do we break through? In the era of anti-globalization, how to further globalization?
Why is it a very appropriate time for Chinese enterprises and individuals to “Go Global” under the new situation.
First, over the past two to three decades, Chinese enterprises and entrepreneurs have gone through fierce competition at home, and our new generation of young people, in the process of study and research, have docked with the most advanced global productivity, and have already had a spillover effect of entrepreneurs, technology and even talent.
Secondly, we call it a word that everyone likes to use nowadays, called the time capsule effect. Chinese companies in the fierce competition, in fact, in many aspects, our self-evolutionary speed has been the world’s fastest. For example, some of the green energy storage products, China’s home energy storage products, at least in terms of ease of use, have been very high leading, and our product iteration is also the fastest. Including the electric vehicle industry, China is also evolving very quickly now. So, in many ways, we now have the ability to replicate some of China’s new innovations in technology, business models, application scenarios, and so on, around the world.
Third, the production capacity and advanced technology of our enterprises have reached a level sufficient to compete in the global market. Over the past four decades, the first stage of Chinese enterprises going global was basically simple production brought about by cheap labor costs, which was a very hard time. From 2000 to 2010, China went global with products, manufacturing and supply chains, and still no globalized brands. In the third step, from 2010 to 2020, China’s mobile internet surged, which I would call the aftermath of the last mobile internet era, which shook China and then shook the world.
Simply put, what China is doing now is still advantageous when taken abroad. However, today, if we want to enter a new direction, that is, “Go Smart” and “Go Green” that I have just mentioned, we can no longer look at today’s already successful Chinese enterprises, and then go to do it in that way.
Today, the Chinese companies that are growing extremely fast abroad started to accumulate their advantages ten years ago, and today, if we want to accumulate newer advantages for the next ten years, we have to go in the two directions I just mentioned. In this environment, we see that there are a lot of untapped blue ocean markets around the world, and although we believe that some countries may still be relatively poor, there is still a lot of demand and spending power. China has some of the most mature and ambitious entrepreneurs in the world, and we have the kind of wolf culture that allows companies to grow and expand rapidly. At the same time, we have the technology, the talent, the resources, the supply chain advantages that we’ve just described that we’ve accumulated over the years, and that all combine to allow us to do what our entrepreneurs can do today, which is to overflow.
What does that mean? Chinese companies are actually very competitive at home, like the dark forest in the three bodies, in fact, when you “Go Global”, you will find that there are a large number of markets where local entrepreneurs are not capable of competing with you. In this case, Chinese entrepreneurs have an advantage.
Second, technology overflow, China now has a lot of technology to go overseas.
Third, business model overflow, starting from 30 to 40 years ago until 2020, we still call it the era of globalization 1.0. In that era, companies around the world went global in the same pattern, developing products and brands in one country, eventually setting up sales centers in other countries, perhaps establishing some simple assembly and production centers, and then spreading sales globally, which was a centralized globalization. But today, we believe that in the era of reverse globalization, we must be very smart and use our wisdom to move towards globalization, which we call Globalization 2.0, and one of the focuses of 2.0, we believe, is called decentralization, or Distributed Globalization 2.0.
What does it mean? In today’s environment, we believe that for Chinese companies to globalize, for Chinese entrepreneurs to globalize, firstly, we can’t repeat what we did in the past, which was to grow big in China and then sell globally, a path that now has a lot of obstacles. Now, probably from the time your business starts to have the initial ability, you have to build localized teams in your future global target markets, at least from the local point of view is very localized business, even the name is different from you, can have independent financing, independent equity structure, and ultimately be recognized as a local business.
An enterprise, you can take all the advantages you have accumulated before, as much as possible, as a platform, an ecology, with the world may be 5, 10, or even 30, different regions of the independent enterprises to generate resource sharing. But each of these regional enterprises is very localized, decentralized, and achieves the combination of more local resources. In this way, I think it is possible to help Chinese companies today to circumvent the obstacles to China in the context of reverse globalization.
In addition, Chinese entrepreneurs don’t necessarily have to start a business in China before going out. We have seen many excellent entrepreneurs around the world, Chinese entrepreneurs, who actually started their businesses directly in the local area. For example, we invested in a payment company in Africa, after refining in China, and then went directly to Africa to create a business, in a vastly different region, using the Chinese model, Chinese experience, to create a local payment business.
In Mexico, we have also seen similar enterprises, and in the past two days we have also seen that green technology enterprises, which have been quietly doing business for many years, have also gradually surfaced. They’ve been quietly building distribution channels locally, building product manufacturing, or providing a service that utilizes the Chinese supply chain, but it’s a local business. Yesterday, I met with a company in Mexico, 99% of the employees are Mexican, but the founder, he is a Chinese entrepreneur, and make full use of the advantages of China, in the local realization of entrepreneurship. Such a company gave us a lot of inspiration.
Ultimately, what do we think the future distributed globalization situation means for Chinese companies? It means that you have to fully connect with China in terms of resources, talent, supply chain, and technology, but we can fully integrate with the local community to form a distributed pattern and share the advantages of a platform, which is, in today’s environment, undoubtedly a very valuable model for going global.
Our conclusion is that when a country has competitive advantages in most parts of the value chain, many great companies will emerge in that country. And in the direction of intelligence, we think this is undoubtedly going to happen.
At the same time, the industry chain and value chain of green technology, we have the same numerous leading advantages. The same conclusion, when a country has a competitive advantage in most of the links in the value chain, the country will emerge very many great companies.
So, these two undoubtedly give us very much confidence, and with the current globalization strategy, we believe that China’s future is still very bright, and Chinese entrepreneurs and individuals, can realize a lot of value in the process.
