What we can learn from Chinese phoenix companies

In my unending quest for fantastic phoenix stories, I knew I had to include the insights from my friend and business Partner Pascal Coppens who has always been my main source of information for all things Chinese. China’s paradoxical nature and fast turnaround from copycat nation to innovative frontrunner has always deeply fascinated me, and talking to Pascal I discovered that their phoenixes are even more radical in nature than in the West.

Pascal Coppens Keynote Speaker Background Horiz

First of all, since most Chinese companies were state owned before 1979, a lot of the current private organizations are younger than 20 years and many are even less than 10 years. But the Chinese market is such a mind-blowingly fast and competitive market that even these ‘young’ companies have to reinvent themselves on a permanent basis if they wish to survive. Being a phoenix is just how the market works over there. Of course there are older companies like Ping An – a long-time insurer turning to healthcare - which are more classical phoenix stories but these are more exceptions that the rule.

BYD: from battery producer to car manufacturer

I loved Pascal's fascinating tale about private company BYD which evolved from one of the biggest battery producers into a car manufacturer. They did not just want to build the most performant, energy-efficient and clean batteries in the world. They looked beyond the ‘product’ of a battery and saw a ‘service’: some sort of a mobile power plant. So since they launched themselves in the EV car industry, they also started making home batteries, batteries for storage of solar energy and more. Their batteries now offer the capacity of 30 times Tihange in Belgium.

Fun fact: when they decided to tackle the car business, one of their first investors was Warren Buffet. They were actually able to convince him by telling him that they wanted to become the number one in the electrical vehicle (EV) industry. When you read the last example of this piece of CRRC, you'll actually see a pattern emerge: BYD as leader in the EV industry, CRRC as leader in the train industry… Chinese companies always dream big, which is one of the reasons why they grow so fast and are so fiercely competitive. The BYD brand name means ‘Build Your Dreams’, so that's quite telling.

Only 8 years ago, Elon Musk, heartily laughed at a journalist who asked him what he thought of the BYD cars and now they have become the number two EV producer in the world, just after Tesla. They are also the global number one in electrical busses. They have factories all around the world. In merely 18 months’ time, they were able to manufacture a monorail product from scratch, which is now highly successful in Africa.

It’s about not just staying essential, but remaining relevant.

Their story is a perfect example of the current non-linear ‘think beyond your industry’ trend. BYD did not just stick to making batteries. They realized that batteries are now everywhere, and that this meant that they could basically enter any industry they wanted: automotive, homes and anything to do with transportation and storage. That’s also why they partner with the sharing industry (DiDi), leasing companies, energy companies, state grids, local governments and even Huawei (for 5G), to come up with innovative models. And the biggest example to date is a vehicle to grid concept, where the EV becomes a storage unit during peaks and gives back in lows. This cross-industry method is their way of avoiding to become dumb pipes at some point, as so many telecom companies have experienced over the years. It’s about not just staying essential, but remaining relevant. About staying a ‘smart’ pipe.

Xiaomi: from copycat to open & customer driven innovation

Another fascinating Chinese phoenix story is the one from consumer electronics and smartphone company Xiaomi. Pascal explained that they actually started out in 2011 as a cheap Apple clone: though they were obviously Android based (and not iOS based), the phones looked exactly the same and they bore the same types of functionalities. No one really believed in them at the time but they evolved to become China’s largest smartphone company (since 2014) and the world's fourth-largest smartphone manufacturer (since 2018).

Don’t make the mistake of thinking that their affordable price is the (only) secret of their success, though. One of the most important drivers of their success - continuously evolving in mini-phoenix flashes - is their incredible relationship with customers. According to Pascal, they excel at involving the customer into their innovation endeavors, continuously updating their functionalities on the basis of input from consumer groups. Their approach is very similar to Hai’er in that aspect. It’s the exact opposite of Steve Jobs who refused to look back and wanted to define the market, but it turned out to be a very powerful and effective tactic.

The real genius of Xiaomi founder Lei Jun, says Pascal, is that he made his products unavoidable, through a software mindset in a hardware world.

The result – as was and is the case with Hai’er – is that their products became much smarter: not just offering more intelligent functionalities, but greater connectivity. In that regard they are similar to Apple, which excels at ecosystems building as well. But the Big difference is that the hardware holding this ecosystem together has been purposedly kept very affordable by Xiaomi, almost at production cost. The idea behind that being that the more products they sell, the bigger their ecosystem, and the more profit they will make. That strategy of scale (and fantastic customer experience) is also why - completely reinventing how Apple does it - they are all about open data: basically allowing any type of smart hardware to connect to their smartphones, thereby creating a clever “locked in” situation. If all the IoT devices in your home can be orchestrated through your Xiaomi phone, you’ll think twice about changing to a brand that is a lot less open, of course.

The real genius of Xiaomi founder Lei Jun, says Pascal, is that he made his products unavoidable, through a software mindset in a hardware world. It’s the same approach of internet giants like Amazon and Facebook: they didn't make a lot (or any) money in the beginning, but they got people really hooked on their products, because they were so good and that translated into an exponential growth. Apple is very different, though they also get the ecosystems thinking right: they make a lot of money for every phone that they sell.

CRRC: from state-owned to global market leader

Surprisingly, even state-owned companies in China transformed into phoenixes, as Pascal explained. In the years 2000, it decided to reform all the state-owned enterprises because they had become too big and too slow, living a “lazy” life, feeding on government subsidies. Many were sold off, privatized or split into manageable pieces and forced to become more innovative and market driven. That very same thing happened to the China National Railway Locomotive & Rolling Stock Industry Corporation, which was split up in 2002 into the CNR Group and CSR Group. In 2014, both re-merged into CRRC.

Today, CRRC is almost 150 years old, manages 180,000 employees, ranks at 266 on the Fortune Global 500 List, and it has built more trains than any organization in any country in the world. But at the beginning of this century, they were tragically lagging behind the west when it came to technology innovation.

They knew that improving the train system could only be done with new tracks, new stations and new trains.

When the company was split in two in 2002 to spur innovation, their approach was just as effective as it was peculiar, and risky: instead of buying faster and more efficient trains from Alstom Bombardier, Siemens or Kawasaki - which would have seemed the easiest and most logical solution - they took the long road and decided to build their own high-speed trains from scratch. That’s a pretty insane step for a ‘lazy’ state-owned company. But China, as you probably know, is well-known for long-term thinking. And so, CRRC started to acquire a lot of existing western train technology and then innovated on top of that in order to build the efficient train network of its dreams. As a result, it managed to become the global leader in high-speed trains worldwide between 2000 and 2015.

So why did they do it that way? Well, they knew that a near tabula rasa was needed and that improving the train system without bumping into bottlenecks could only be done with new train tracks, new train stations and new trains.

If you think that their accomplishment is no big deal, then you clearly haven’t travelled in a Chinese train yet. I have, and it’s one of the most comfortable, fast, punctual, reasonably priced and customer centric forms of public transportation in the world. Comparing that to the European train system would be like trying to find similarities between a Fabergé egg and an overripe avocado.

But not only did the CRRC completely reinvent the Chinese train system, they also decided to go global with their know-how, which sounds pretty counter-intuitive for a former state-owned enterprise. The irony is, that – contrary to the European makers who did sell them the technology separately – they only sell the locomotives, proud that everything inside the Chinese high-speed trains is now of their own intellectual property. This really upsets the European players. But that’s an entirely different story.

What’s so impressive about the CRRC is that their strategy to go global is part of their plan to become the world leader in the train industry by providing the best price versus cost of the market. It’s really smart when you think about it: it’s an incredibly small industry with relatively few buyers and sellers and so - if you invest enough time and money in it - the chances of becoming the global leader in such a small pond is easier than, let’s say, in the smartphone or car industry.

Phoenix tricks from Chinese companies

Concluding my conversation with Pascal, I asked him about what he thought were the most useful tricks and characteristics from Chinese phoenixes. According to him, a part of their success had to do with their very specific context. Chinese companies are basically pushed into acting like a phoenix if they want to survive.

First of all, they compete in a highly volatile market, regularly finding themselves in some sort of government induced crisis. And the reason why is that over the past 20 years, Chinese regulations have constantly changed. Just think of the recent situation of Didi being pulled off the app store because of a new regulation about data protection, triggered by the complex geopolitical context: they found themselves without a way of finding new customers. This disaster left them with no other choice than to reinvent the way that they find new customers. They might succeed. They might not. But this is a very common situation for Chinese companies, who just learn to become really agile and resourceful in such a context. Their choice is simple: rise from the ashes or die.

And, second, the market evolves so fast and there is so much (new) competition, that they have to continuously look over their shoulders and reinvent themselves to stay relevant. A few years ago, finance companies did not have to compete with Meituan, e-commerce companies did not have to compete with TikTok, healthcare companies did not have to compete with Ping An, Alihealth, Tencent, JD, Baidu or China Life.

If you don’t evolve, if you don’t explore new markets, you’ll become obsolete fast in China. So everybody's constantly shifting, following a strategy of linking as many consumers possible to their platform: once they are, you can sell them anything, jumping from industry to industry. It’s about finding an audience, finding customers first, and then making products for them, rather than making a product and then finding customers (as mostly happens in the west).

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