Through the brilliant connections of my fellow GEC member, Madhu Kannan, my colleagues and I had the marvellous opportunity of meeting more than 30 companies in China. Usually, their founder/CEO. Of the many impressive companies, I will profile three here with some implications.
01. A visit to BYD, the automaker, brought to life the aggressive changes that China is making with respect to electric vehicles. Frankly, Chinese automakers have struggled against foreign competition. After 30 years of trying to build an auto industry, all they have gotten are copycat products. This has been a disappointment for the government, who has wanted the Chinese automobile industry to become world beaters in a manner similar to the Japanese and Koreans. Observing the cars on this trip, the quality has improved in recent years but it still lags world class. Finally, the Chinese seem to have found a lever to leapfrog competition. It is through electric vehicles. The government is giving huge subsidies to the automakers for electric vehicles – up to a million RMB per bus and 20,000 USD per car. This subsidy is not available to foreign makers such as Tesla. It is expected that the subsidy will be removed by 2020/2022. By then, electric vehicles should be commercially viable on a stand-alone basis. The money spent on this subsidy is recovered through the taxes levied on luxury cars and carbon emissions. Beyond the subsidy, electric vehicles are encouraged by not having any licensing fee, nor any day of driving restrictions placed on them. Furthermore, from next year, Beijing will issue only a limited number of licenses for traditional fuel vehicles. As a result, the first 10 months in this year saw greater sales of electric vehicles in China than all the previous years combined! Why is the government pushing so hard? The espoused reason is national security – to reduce the dependence on oil imports. But, perhaps the other driver is that the government is worried about the political ramifications if they do not solve the pollution problem in the cities, especially in Beijing. One wonders about the implications on demand for oil as this transformation happens.
02. A visit to Ping An, the leading insurer in China. Ping An has sales of approximately $110 billion, market cap of $130 billion, and profits of $12 billion. It employs an army of 1.3 million, of which 900,000, are the salesforce serving 80 million clients. As the founder proudly stated, 1 in a 1000 Chinese works for us! How do you get a 900,000 salesforce to be productive? They launched a $100 million sales training initiative which uses gamification extensively. This allows the salesforce to train themselves in their spare time and move up the proficiency levels as they become more knowledgeable. Yes, the Chinese protect their domestic companies, but out of this process they have built some great companies too. A new iconic HQ is now being constructed
03. Finally, a visit to DJI which is the world leader in commercial drones, with a reported 70% market share. A young kid set up this company after tinkering with drones during his university education. Two of his professors are on the board. What this company and the many other companies we visited in the digital space demonstrated was the huge entrepreneurial energy in China. Most of the companies are less than 20 years old, many less than 10. But they dream really big and with large R&D focus. For example, Huawei and its 13% R&D expenditure (almost $10 billion a year). When we visited their main R&D centre, it was a 1 kilometre long building. What I found had changed from my last visit to China 3 years ago, when I was researching the Brand Breakout book, was the English fluency among the executives. Vastly improved. They were also many women in leadership positions and all the top executives as well as entrepreneurs struck me as really smart people.
This does not mean China does not have challenges such as 6 years minimum inventory of residential property, a bad loan book, and a difficult transition from an infrastructure/manufacturing led growth to a consumption/service led growth. Yet, on the third day of the trip, I had an epiphany – that despite all the talk of slowdown, in China, I was seeing the future. On reflection, I realized that this was a transformation of my mind that had taken 6-7 years to happen. In 2009, the following passage appeared in my book India’s Global Powerhouses on page 17:
“These ambivalent feelings toward globalization are also seeping into popular Western culture. The 2008 French movie Summer Hours, directed by Olivier Assayas, is about a successful French couple working abroad. Assayas in an interview was nostalgic but realistic when he observed: “It is not their own logic that takes them away from home, it is the logic of the world today. If you are young and successful, you look towards India or China . . . The world is changing in Russia, China, India, the Middle East . . . it’s like an earthquake. They are absorbing all the energy. You don’t feel that sense of change in Europe.”
During the Beijing Olympics, the New York Times carried a story about the changing architecture of the city: “If Westerners feel dazed and confused upon exiting the plane at the new international airport terminal here, it’s understandable. It’s not just the grandeur of the space. It’s the inescapable feeling that you’re passing through a portal to another world, one whose fierce embrace of change has left Western nations in the dust.” The article went on to compare the sensation to the epiphany that Adolf Loos, the Austrian architect, experienced more than a century ago. On stepping off the boat in New York harbor, Loos realized that he had seen the future, and Europe was now culturally obsolete.
It’s the same feeling I got in China, on this, my fifth trip there.
Everyone sits in the prison of his own ideas; he must burst it open. – Albert Einstein