COPENHAGEN BUSINESS SCHOOL
A COMPARATIVE STUDY ON CHINESE COMPANIES’ PATHS TO BUSINESS ECOSYSTEMS
—Cases of Alibaba, Tencent, Geely and Haier
MSc in International Business Jingyou Zhang SUPERVISED BY DE115385 Peter Ping Li 16. Sep. 2019
Abstract
Purpose - The aim of this research is to explore and compare the development paths of Chinese companies to business ecosystem model, using four cases of both internet companies and traditional manufacturers, namely Alibaba, Tencent, Geely and Haier.
Approach - This thesis used both chronological sequences and four-approach method, viz. investment, incubation, innovation and internationalization, to present four cases’ second-hand information collected from both online and offline sources. After checking within-case models, Group A could form a cross-case synthesis: companies in internet business sector, however Group B did not reach a consensus. Finally, case-comparison method was used to compare Group A (internet companies) and the other two cases in manufacturing sector.
Findings – Internet companies and Geely & Haier have different development paths to ecosystem business model. The internet firms are more advanced in BE than manufacturers and spend less time in moving to next stage. For internet companies, incubation and innovation are the most important, while investment and internalization are the key contributors for Geely and Haier.
Acknowledgements
Firstly, many thanks go to my supervisor, Peter, who always supports me. In the beginning, he helped me to find this interesting topic to dig inside. He is a pioneering scholar in this research filed. He sent me some useful reading materials and paid time and efforts to reading through parts of my work. He gave me so much professional guidance and detailed advices, which all benefitted to improve the quality of my thesis. I offer my sincerest gratitude to Peter.
Secondly, I dedicate this thesis to my dearest parents Ruixia and Junmin, who always understand and care about me. They were quite considering and gave me a lot of comfort and support when I felt worried and nervous. They always stand by my side. I were afraid that I could not finish my assignment, if without their company. I really appreciate that what they have done for me.
Contents 1. Introduction ...... 8
2. Research background ...... 9
2.1. A rising but special Market: China ...... 9
2.2. Four driving forces of BE’s emergence in China ...... 10
2.2.1. Entrepreneurship and venture investment ...... 10
2.2.2. Internet penetration and digital empowerment ...... 12
2.2.3. Expansion of urban middle class ...... 13
2.2.4. Dynamic but regulated environment ...... 15
3. Literature review ...... 16
3.1. An emerging terminology: business ecosystem ...... 16
3.1.1. What is business ecosystem? ...... 17
3.1.3. The paths to business ecosystem ...... 19
3.2. The explosion of Chinese internet industry ...... 21
3.2.1. Governmental support ...... 21
3.2.2. The booming internet sectors ...... 23
3.3. The transformation of Chinese manufacturing industries ...... 24
3.3.1. “Made in China 2025” ...... 24
3.3.2. The shifting manufacturing sectors ...... 25
4. Methodology ...... 26
4.1. Theoretical background of case study ...... 27
4.1.1. The boost of case study ...... 27
4.1.2. Strengths and weaknesses of case study ...... 28
4.1.3. Strategies to have quality research ...... 28
4.2. Research framework ...... 29
1 4.2.1. Case selection ...... 30
4.2.2. Data collection and analysis ...... 33
5. China’s New Digital Ecosystems of Alibaba & Tencent ...... 34
5.1. Case study of Alibaba ...... 35
5.1.1. Alibaba Group’s overview...... 35
5.1.2. Alibaba’s twenty-year journey to build an ecommerce ecosystem ..... 36
5.1.3. Alibaba’s four-approach analysis ...... 42
5.2. Case study of Tencent...... 46
5.2.1. Tencent Holding’s overview ...... 47
5.2.2. Tencent Holding’s roadmap to a digital ecosystem ...... 48
5.2.3. Tencent’s four-approach analysis ...... 52
5.3. Interim comparison ...... 56
5.3.1. Four steps to a business ecosystem ...... 56
5.3.2. Four approaches to a business ecosystem ...... 58
5.3.3. Cross-case synthesis for internet companies ...... 61
6. Chinese manufactures’ new trend to business ecosystem ...... 62
6.1. Case study of Geely ...... 62
6.1.1. Zhejiang Geely Holding Group’s overview ...... 63
6.1.2. Geely’s three steps into a mobility ecosystem...... 63
6.1.3. Geely’s four-approach analysis ...... 67
6.2. Case study of Haier...... 71
6.2.1. Haier Smart Home’s overview ...... 71
6.2.2. Haier’s roadmap to an open and interconnected ecosystem ...... 72
6.2.3. Haier’s four-approach analysis ...... 78
6.3. Interim comparison ...... 81
6.3.1. Geely’s & Hair’s steps to business ecosystems ...... 81
2 6.3.2. Four approaches to a business ecosystem ...... 83
6.3.3. Geely’s and Haier’s similarities and differences ...... 86
7. Comparative case analysis ...... 87
8. Conclusion ...... 88
8.1. Key findings ...... 88
8.2. Limitations ...... 89
8.3. Future research ...... 89
9. Bibliography ...... 90
3
Figures
2.1 Netizens and internet penetration in China 13 3.1 An evolving process of business model 20 3.2 Business ecosystem’s life cycle 20 4.1 Four approaches to BE 32 4.2 Structure of data analysis 33 5.1 Alibaba’s core ecosystem 38 5.2 Alibaba’s extended ecosystem 40 5.3 Alibaba’s complex ecosystem 42 5.4 Tencent’s new-born ecosystem 49 5.5 Tencent’s evolving ecosystem 51 5.6 Tencent’s diversified ecosystem 52 5.7 Alibaba’s four steps to an ecommerce ecosystem 57 5.8 Tencent’s four steps to a digital ecosystem 58 6.1 Geely’s dual-core Auto ecosystem 65 6.2 ZGH’s hierarchical structure 67 6.3 Haier’s three phases of economic shifts 73 6.4 Haier’s open and interconnected ecosystem 77 6.5 Geely’s three steps into a mobility ecosystem 82 6.6 Haier’s four steps into an open and interconnected ecosystem 83
4
Tables
3.1 Selected recent authors of BE 18 4.1 Case studies in this thesis 31 5.1 Alibaba’s four-approach summary 59 5.2 Tencent’s four-approach summary 60 6.1 Geely’s four-approach summary 84 6.2 Haier’s four-approach summary 85
5
Abbreviations
aka also known as AI Artificial Intelligence B2C Business-to-Consumer BAT Baidu, Alibaba, and Tencent BE business ecosystem C2C Consumer-to-Consumer CAC Cyberspace Administration of China CCP China Communist Party CFIS China Federation of Internet Societies CEVT China Euro Vehicle Technology Centre CRGT China Railway Gecent Technology Co. DBE digital business ecosystem FDI foreign direct investment fin-Tech financial technology G1 Generation 1 G2 Generation 2 GDP gross domestic production GE General Electric GCV Geely New Energy Commercial Vehicle Group GEM Global Entrepreneurship Monitor IPO initial public offering JV joint venture KKR Kohlberg Kravis Roberts & Co. L.P. LBS local based service M&A merger and acquisition MIC Made in China MNE multinational enterprise PC personal computer R&D research and development SME small and medium sized enterprise
6 SOE state-owned enterprises TEA total early-age entrepreneurial activity WTO World Trade Organization ZGH Zhejiang Geely Holding Group ZZJYT zi zhu jing ying ti
7 1. Introduction
In this era of information and big data, disruptive technologies contribute to some new emerging start-up, however my lead to the failure of giant companies (Christensen, 2000). Some companies pursued for new solutions to survive in this market. In detail, corporations thought differently from the perspectives of value creation, customer experiences, as well as industry boundaries. Then concept of business ecosystem (BE) came down to the ground, and got more and more attention. Comparing to tradition business model, ecosystem business model has flexibility, stability, adaptability, sustainability (李平&杨政银，2018). To gain first mover advantage and more in the long run, some leading companies have already started shifting their business models from the traditional product or industry-based business model to an emerging ecosystem business model (Accenture Strategy, 2018). A health BE is where players are symbiosis and in a well-balanced and win-win situation.
Recently, ecosystem business model has become a very popular topic. To succeed, some corporations are evolving traditional business models to ecosystem business models, combining or reallocating their resources of hardware and software business, putting artificial intelligence (AI), big data and analytics, and other high-technologies to daily manufacturing (Accenture Strategy, 2018). And now Chinese firms are leading this trend from platform to ecosystem across the whole world. BE is a new architectural framework in high-tech market (R. M. Yawson, 2009). Some new booming internet companies are born to be platform, connecting suppliers and users. Some manufacturers also seize the opportunities of new business model to accommodate and compete in the fast-changing business environment.
In fact, the network firms have more advantages in shifting to ecosystem than traditional companies. What can be interesting, new booming internet companies and traditional manufacturers may have different evolution processes or development paths to BEs. Additionally, there is not much research conducted in this area. In China, not only the academics care about this topic, but also the companies themselves spend time
8 and money seeking for the future business models. To some extent, this thesis may fill the gap between theories and practical development.
The following report intends to e explore and compare the development paths of Chinese companies to BE model, using four cases of both internet companies and traditional manufacturers, namely Alibaba, Tencent, Geely and Haier. The report starts with a detailed description of this special Market: China, and four drivers for BE’s emergence in China. The second section will cover literature review of BE, Chinese internet industry and manufacturing sector. The fourth part will include case study’s theoretical background and research framework. The analysis will start to present chronological sequences and four approaches of two internet companies and then followed by an interim comparison. Then the report will continue to show the information of traditional manufacturers with the same structure. Afterwards case- comparison method was used to compare two cases in internet sector and the other two cases in manufacturing industry. The report will conclude by giving key finds, future research and limitations, based on the analysis.
2. Research background
This section includes two part, a short background description for Chinese market and four driving forces of BE’s emergence in China, namely entrepreneurship and venture capital, internet penetration and digital empowerment, the expansion of urban middle class, dynamic but regulated environment.
2.1. A rising but special Market: China
As Global Entrepreneurship Monitor (GEM) survey reported, from 2002 to 2018, china has a tremendous economic growth, due to government supervision and intervention, policy of opening the market and removing the barriers. The Chinese economy represents a stable expansion at over 6 percent year-on-year gross domestic production (GDP) growth rate. In the last two decades, China’s start-ups have accelerated their quality, though still lag behind most of the developed countries. Additionally, there are
9 some strengths of the entrepreneurial framework conditions, including physical infrastructure, Internal market dynamics, and cultural and social norms; while Commercial and legal environment, research and development (R&D) transfer and education and training of entrepreneurs still have room to grow (GEM report, 2019, See Appendix A).
In terms of the Global Competitiveness Index, China took the 28th place out of 140 countries and territories in 2018. In other words, China are relatively more productive and have more possibilities of long-term prosperity (World Economic Forum, 2018; Statista, 2019c). The Global Competitiveness Index 4.0 includes four components, 12 pillars. The fourth component called innovation ecosystem had an upright sloping trend, ranking 28th. In detail, pillar 11 (business dynamism) ranked 43rd, while pillar12 (innovation capability) ranked 24th (World Economic Forum, 2018, See Appendix B).
2.2. Four driving forces of BE’s emergence in China
China is a super active and lucrative market for start-ups, especially in technology. The ecosystem of innovation is a new architectural framework in high-tech market (Yawson, 2009). Nowadays, many emerging internet industries, as well as traditional manufacturers, are facing key industrial challenges of uncertainty and interoperability, which stressed the importance to build BEs (Rong & Shi, 2015). The game of competition between firms has changed, since the rise of high technology, information and globalization (Hoskisson et al., 1999). This substantially affected the nature and landscape of competition. It is also indicated that there is a big potential chance to question the established business models and search for new solutions. According to Greeven and Wei’s recent study on BE, basically, there are four driving forces of BE’s emerge in China.
2.2.1. Entrepreneurship and venture investment
In China, the private sector is one of the most significant players of today’s economy. Thanks to the ninth Five Year Plan (1996–2000), private sector has become a vital contributor of national output, namely almost 70% of GDP. In the last twenty years, the
10 number of small and medium sized enterprises (SMEs) grew with an average annual speed of 7% (China Statistical Yearbook, 2016). In the end of 2018, SMEs accounted for 97.6% of the total industrial enterprises (China Statistical Yearbook, 2018). In GEM 2018/2019 global report, the total early-age entrepreneurial activity (TEA) of China is 10.4, more dominated by innovative TEA than other countries in East and South Asia, such as Japan, Thailand, Republic of Korea. The number of new start-ups is gradually increasing, particularly the high technology industry in China. In addition, entrepreneurs are not only important actors in advancing economies, but also can contribute to the decreasing rate of unemployment and people’s wellbeing. China’s job creation expectations for TEA ranked 23 out 48 counties, which is relatively low, and mainly from innovative companies (GEM report, 2019).
Furthermore, Chinese government have made policies and strategies to support emerging business and encourage entrepreneurialism. In July 2015, after Premier Li Keqiang signing the paper, the State Council issued the “Internet Plus” policy as a national strategy to promote the expansion of the Internet from the e-commerce field to the other traditional fields, enhance their ability of innovation, upgrade the industrial development level. The ‘Mass Entrepreneurship and Innovation’ policy was officially launched in 2018 to face the challenges from Innovation 2.0 era, to simulate the spirt of entrepreneurialism (Greeven & Wei, 2018). In addition, the government invested entrepreneurship and leadership education at some universities, and supported the start- up incubators. In 2018, the number of incubators grew up to 11,808, including 4,849 for technology firms. Their total revenues were 64.6 billion RMB. Private capital is their main source (CISTDS, 2019).
Private investment, including angel investment, venture capital and private equity, represents a tremendous upsurge since the beginning of this century. More and more investors pay attention to the early-stage companies, in particular innovative business (Greeven & Wei, 2018). Based on the research results released PwC China, the amount of private equity and venture capital reached the peak in 2016, up to 72.5 billion US dollars (USD). This growth was mainly because of the participation of large-capitalist investors, who dominate many large-scale transactions. The merger and acquisition (M&A) led by Chinese private equity and venture capital took up to 73% of the global
11 M&A transactions. Chinese investors have become a force to be reckoned (PwC China, 2017). China’s investing environment is booming and prosperous. However, comparing with highly developed markets like the USA, China’s venture capital environment is still premature and relatively inefficient. And China’s venture capital market still lacks professional investors and competent investing organizations, who mostly followed the analysis of market trends and market capital to invest instead of relying on their knowledge and experiences to analyze the future value of a company (Greeven & Wei, 2018). As mentioned before, GEM supported that education and training backgrounds of Chinese entrepreneurs still need to improve.
2.2.2. Internet penetration and digital empowerment
It has an extensive influence on Chinese public’s use of internet that mobile phones, personal computers (PC) and other electronic devices are broadly used. In 2018, there are 3.9 billion internet users all over the world, meanwhile Chinese netizens accounted for more than 20 percent. The number of internet users in China surged from some 298 million in 2008 to 828 million in 2018, 98% of who connect the internet through mobile devices. On the other hand, because of the largest population base, China’s internet penetration rate is relatively lower than in other Asian countries, such as South Korea and Japan. December 2018, approximately 59.6 percent of the Chinese population had access to the internet, with a unique feature of large regional discrepancy (Statista, 2019, see Figure 2.1).
12 Figure 2.1 Netizens and internet penetration in China
Source: Statista, 2019.
Technology utilization is a new trend for the popularity and development of advanced technologies. High technology is applied into the innovation of business and society, therefore leading to consumerization and reorganization. In current information society, technologies act as influential participants in producing better networking, communication and increasing the competence (Sun et al., 2018). Based on a finding from Christensen (2000), disruptive technologies may lead to the failure of giant companies. Due to the internal and external pressure, some companies started to seek for new solutions to accommodate new business landscape. For example, the emerge and rapid growth of sharing economy firms have profoundly challenged existing relationships between society and economy, knowledge systems and physical infrastructures in China. Furthermore, China is a super active and lucrative market, especially for technology at forefront. For instance, China has the most advanced technologies at big-data and smartphone-scanner technologies. Chinese firms are assumed to take up to 44 percent of market share in facial-recognition technology all over the world by 2023 (Wang, 2018).
2.2.3. Expansion of urban middle class
China is an emerging market and developing country (International Monetary Fund, 2019). China is growing from a relatively hulking, poor country to be a dynamic and
13 diversified marketplace. Based on the revised classifications of World Bank (2013), China (GNI per capita using Atlas methods: $9,470) is supposed to sit in upper-middle income group ($4,086 to $12,615) (GEM report, 2019; World Economic Forum, 2016). The shifts of China's economy have provoked huge consumption potential. Consumers are going to spend more on services when China becomes more consumption-driven. Now, China is one of the largest consumption-upgrading courtiers across the world. Consumption is supposed to account for more than 80 percent of GDP growth in 2019, when the proportion was 76.2 percent in 2018 (Xinhua, 2019). China private consumption expenditure peaked at 5,266 USD billion in 2018 since 27.9 USD billion in 1957 (CEIC, 2019). In 2012, the group of upper-middle class made up just 14 percent of urban households, meanwhile 54 per cent sat in the mass middle category. It is estimated that, by 2022, the upper middle class will account for 54 percent of urban households and 56 percent of urban private consumption (Mckinsey, 2013). There will be an explosively increase of the middle class in China, boom of personal disposable expenditures over the next years. So, in the next few years, the upper middle class is going to be a powerful contributor to consumer spending. The increasing size of the urban middle class offers new market opportunities for Chinese domestic companies, as well as multinational enterprises (MNE) (Greeven & Wei, 2018).
China’s middle class is separated by different age groups: Generation 1 (G1), consumers who were born before 1960, plus who grew up during the Cultural Revolution (1966 – 1976); Generation 2 (G2), who were born after the mid-1970s, the first generation of the one-child policy (Daxue Consulting, 2019). G1 are conservative spenders, like to save money and concentrate on building economic security for health care, because they lived through years of shortage and hardship. In the contrast, G2 are typically people in their early 20s and 30s, born in a period when china’s economy was booming. Today, they are the main consumption force, who like to try new stuffs, care more about quality and brands, are accustomed to online shopping instead of offline shopping. The total spending of G2 occupied 15 percent of total urban consumption in 2012. It is predicted that the proportion will volume of will more than double to 35 percent ten years later (Daxue Consulting, 2019; Barton et al., 2013). Moreover, since the Reform and Opening-up in 1978 and Deng Xiaoping’s visit to the southern China, widening gaps between the rich and poor, urban and rural,
14 southeast and northeast regions have been established. Reliving the induced social and economic tension has become a problem eager to solve (The World Bank, 2019)
2.2.4. Dynamic but regulated environment
Thanks to the economic reform since 1978, China has shifted from a strictly planned socialist country to a more open and market-oriented economy. The current economic pattern has a unique characteristic of a symbiosis of state-owned enterprises (SOE) and private, market-based corporations. The stable economic growth is primarily attributed to the large business, most of who are SOE (Greeven & Wei, 2018). In the latest GEM global report, China received a high score at 6.67 on internal market dynamics, ranking 5 out of 54 nations. Market dynamics nurture entrepreneurial actives, however too much dynamics lead to uncertainty. It indicates that 41.7% of the investigated entrepreneurs seeing opportunities in China would be discouraged from starting a business, because of fear of failure (GEM, 2019, p73).
In term of China’s governance indicators, voice and accountability is uncommonly low, while government effectiveness is quite high. Political stability and absence of violence, as well as regulatory quality increases substantially. Rule of law and control of corruption keep improving (World Bank, 2018a; World Bank, 2019b). In the most recent World Bank’s Ease of Doing Business report, China ranked 46 out of 190 nations, based on 10 topics, much lower than other Asian developed countries, like Singapore (2/190) and Korea of Republic (5/190). In China, it is easy to start a business, enforce contracts, get electricity and register property. It is the hardest to address the issues related to construction permits and taxes. There is still a lot of room to improve for Chinese government to protect minority investors, trade across borders and get credit (World Bank, 2018b).
As the fast-growing China’s economy, some challenges, such as inequality, pollution and inefficiency have merged. Nowadays, economic policies are trying to tackle these difficulties (GEM, 2019). For example, China’s 13th Five-Year Plan (2016-2020) aims to establish a “moderately prosperous society” by 2020, doubling GDP in 2010. It
15 mainly focuses on encouraging the development of service industries, taking steps to alleviate environmental and social imbalances, setting goals of sustainability, improving the prevalence and quality of education and health insurance (World Bank, 2019a). Furthermore, China’s regulatory environment can pose both positive pushes and negative challenges. As mentioned before, in the last five years, the government promote innovation and entrepreneurship. From 2013 to 2015, the official issued at least 22 documents. On the other hand, China’s business environment is also influenced by sudden bursts of powerful and strict regulation. Therefore, the companies to be flexible, responsive and adaptable (Greeven & Wei, 2018).
3. Literature review
3.1. An emerging terminology: business ecosystem
In this fast-changing business world, the complexity and diversity of modern industrial systems have largely influenced current business models. It is no longer enough to only consider about subcontracting, outsourcing or even supply chains. Thanks to internationalization, many of the core players involved in offering products or services to market may reside in several companies, different industries and as well as many countries. If we would like to understand how the modern industrial systems work and how they might develop, it is vital to capture the complicated and the dynamic nature of BE (Greeven & Wei, 2018). It is reported by the popular Chinese press that the success of Chinese giant firms such as Alibaba and Xiaomi were explained in a similar way (Rong & Shi., 2015). For example, the search of keyword “business ecosystem” (in Chinese: “商业生态”) on a biggest Chinese search engine, namely Baidu, showd 16.4 million results in August 2019 (Baidu, 2019).
16 3.1.1. What is business ecosystem?
In the last few decades, the term ecosystem has migrated from the research field of natural sciences to that of management and business. BE is a great ecological metaphor to understand business environment, which helps to allocate the latent resources, find appropriate positions and build effective value-creation networks (Rong & Shi, 2015). Ecosystem is a network or industry cluster, where cross-industry players work together to define, build, execute market-expanding and market-creating solutions, and they also contribute or provide a capability (Lyman et al., 2018). BE is a community making up of distinctive levels of interdependent institutions that trigger co-evolution between partners and their opportunity space (Rong & Shi, 2015).
The concept of “business ecosystem” was first proposed by James Moore (1993), one of the pioneer researchers in this field. He initially tried to use this concept to discover and explain the relationship between companies and it business environment. In his book “the death of competition”, he updated and improved this term: “economic community supported by a foundation of interacting organizations and individuals – the organisms of the business world” (Moore, 1996, p26). BE has a life cycle of four phases: birth, expansion, authorities and renewal, which also highlighted the importance of co-evolution, encouraged cross-industry activities and blurred the boundaries across industries.
BE then was developed by several other researchers from different perspectives, using various approaches. Iansiti & Levien consider BE as a network formed by a number of loosely interconnected and interdependent organizations for their mutual high performance and survival (Iansiti & Levien, 2002, 2004a, 2004b; Iansiti & Richards, 2006). They take a stakeholder perspective, including suppliers, makers, distributors, outsourcing firms, in particular non-business stakeholders such as media and regulators. One of Adner’s articles released by Harvard Business Review believed that BE can also regarded as arranged alliances among institutions to associate their single-provided products and services into a comparatively consistent and customized offering (Adner, 2006). BE also refers as an institutional and managerial structure, consisting of its core players, such as manufacturers, supplier and customers (Chang & Uden 2008). In
17 addition, Weill & Woerner (2015) noticed that firms build an ecosystem even with their competitors.
To sum up, the concept of BE is consisting of two main schools of thought: “ecosystem- as-affiliation” and “ecosystem-as-structure” (Ander, 2017; Sun et al., 2018, See Table 3.1). Additionally, there are two views to address the concept: 1) “a static view of the configuration” and 2) “a dynamic view of interaction mechanisms among stakeholders” (Shang & Shi, 2013; Shi & Shi, 2017; Ma et al., 2018, See Table 1). From the static view, BE is composed of two elements, including a value network (core business) and resource pool (stakeholders with complementary resources); form the dynamic view, BE also includes co-evolution and feedback processes between the value network and the resource pool (Wareham et al., 2014; Liu & Rong, 2015; Rong et al., 2015).
Table 3.1 Selected recent authors of BE
Authors School of thoughts Streams Adner BE-as-structure A dynamic view Iansiti & Levien BE-as-affiliation A static view James Moore BE-as-affiliation A static view Rong & Shi BE-as-structure A dynamic view
3.1.2. An extension of BE: digital business ecosystem Digital business ecosystem (DBE) is an extension of “business ecosystem”, where digital technology acts a vital role. DBE consists of two main components: digital ecosystem and BE (Stanley & Briscoe, 2010). Digital ecosystem recognizes a virtual internet environment where digital organizations provide, disperse and connect online services (Nachira et al., 2007). In a latest study, the authors define DBE as “a socio- technical environment of individuals, organizations and digital technologies with collaborative and competitive relationships to co-create value through shared digital platforms” (Senyo et al., 2019, p53). Furthermore, collaborative relationships include organized collaborations, which are long-term strategic networks, and ad-hoc collaborations, which are short-term and task-specific alliances (Graça & Camarinha-
18 Matos, 2017). In DBEs, co-created value is supposed to be greater than values generated by a single player, which greatly inspires to form DBE (Adner, 2006).
There are four unique features of DBE: “platform, symbiosis, co-evolution and self- organization” (Senyo et al., 2018). Platform provides tools, innovations and services for DBE actors to achieve better performance, enhance their ability to innovate and collaborate (Selander et al., 2013). DBE platform is composed of computer hardware, software systems and networks. Symbiosis regards as interdependence between DBE’s partners, processes and technologies (Senyo et al., 2017). Symbiosis can contribute to the mentioned synergistic effects that co-creates greater value. Normally, DBEs are dynamic. Co-evolution is DBE’s ability to collectively transform with their partners (Moore, 1996; Senyo et al., 2018). Self-organizing is the ability to learn from business environment and to be agile and responsive (Peltoniemi, 2006).
3.1.3. The paths to business ecosystem
Normally, there are three steps in an evolving process of business model: 1) Single-site factory-based system. A product/service company sells their products or services alone to maximize their profits and revenues. The company only cares about a single stakeholder. 2) Value-chain platform. A firm establish and manage a platform for two- sided or multi-sided markets, where suppliers and consumers can exchange value. The platform needs to balance the interests of many stakeholders. 3) Ecosystem. The ecosystem consists of a collection of value-chains across multiple industries. The player in ecosystem is diverse, distinctive yet interdependent. The primary actors are responsible to integrate new functionality and build a fair and dynamic environment for all the other partners (Lyman et al., 2018; Ref et al., 2017; Bosch, 2018; See Figure 3.1). Some internet firms are born to be platform, connecting suppliers and users. In general, the network industries have more advantages in shifting to ecosystem than traditional companies.
19 Figure 3.1 An evolving process of business model
Peoduct Manufacturer value-chain Business /Service Platform Ecosystem Provider
Dr. Moore (1996) identifies four stages in BE’S evolutionary path, namely pioneering, expansion, authority and renewal. Pioneering is when elemental paradigms are figured out. The firms start to search for suitable and feasible BEs to better responds to consumers’ needs and create values. During resource-intense expansion phase, firms broaden their scale and scope to establish critical mass and dominate the market. They generally work with reliable suppliers and partners, and seek for important sales channels. Authority is a period of stability, when there are established business framework and fierce competition for market share and profits. The initial objective is to maintain the predominant place in this community while leading innovation and co- evolution. The process of renewal is inevitable, because the cycle of opportunity- hungry competition never stops. It requires firms to continuously improve their performance to drives BE’S long-term viability, such as bring new innovative ideas into existing networks (See Figure 3.2).
Figure 3.2 Business ecosystem’s life cycle
Pioneering
Renewal Expansion
Authority
20 In addition, Dynamic capabilities facilitate the firm's ability to take advantages of ecosystems to adapt to this fast-changing business environment (Teece, 2007; Teece et al., 1997; Eisenhardt & Martin, 2000). According to the way to sustain competitive advantages, Teece (2007) classified dynamic capabilities into three categories: a) to sense and face opportunities and threats; b) to catch new market potentials; c) to leverage competitiveness via integrating and restructuring intangible and tangible resources. The author follows the model of Rong & Shi (2015) and distinguish four growth approaches to BE: “innovation, investment, incubation and internationalization” (p6). To answer the strategic questions, this thesis will also use this theoretical framework to do the comparative case study.
3.2. The explosion of Chinese internet industry
Since the end of last century, global internet market is dominated by the technology firms originating from the United States. US-based companies are assumed to be the most competitive in the fields of search engines (Google), social networks (Facebook), and ecommerce (Amazon). Recently, fast-growing Chinese corporations attempt to change the business landscape, and already took the second place. As mentioned before, the number of netizens in China has represented an explosive growth over the past few years, reached an estimated 828 million people in December 2018, more than double the entire population in the United States. The large majority of them access the internet via their mobile phones and/or pads, which provides a boom of digital economy (Cook, 2018). In addition, China also encourages the domestic internet corporations, like Alibaba, Tencent, Baidu, and Huawei to enter foreign markets to have global influences (Cook, 2018; Bieliński, 2018).
3.2.1. Governmental support
Chinese government is the visible hand, as China Internet Report said that the success in China’s internet business environment is largely dependent upon government authority (Abacus News, 2018; Financial Times, 2018). The government issued many policies to support the development of local internet companies. They now refer technology industry as an engine to secure China’s economic health and growth. The
21 governmental strategy of “Cyber superpower” (in Chinese: “ 网络强国”) is to “accelerate indigenous innovation of core technologies in the information field,” “obtain breakthroughs,” and “narrow the gap with developed countries” in high-tech fields, such as AI, cloud computing, and 5G mobile networks (Cook, 2018). Moreover, Xi Jinping has announced a series of new concepts, new ideas, and new approaches, aiming to build China into a superpower in cyberspace and have more impact on global cyber market (Kania et al., 2017). President Xi delivered several speeches on his strategic internet thinking: On December 8, 2015, “Working to Build a Strong Internet Power, the Fruits Benefitting the People” (Bandurski, 2015; cpcnews, 2015); In October 2016, “a greater voice from China in setting the rules of the Internet, as well as greater efforts to build China into an Internet power” (Bieliński, 2018).
The China Communist Party (CCP) gradually realize the importance of cybersecurity and informatization development. In the 18th CCP Congress, Party Central and the President considered building a better internet management leadership system as one of the 60 reform tasks and started to form a new organization called Central Cybersecurity and Informatization Leading Small Group (Kania et al., 2017). Cyberspace Administration of China (CAC), China’s top internet regulator, has figured out some measures to achieve CCP’s ambitious goals, including establishing a self- dependent technological environment for immature internet companies, safeguarding cyberspace, acquiring core and advanced technologies (Bieliński, 2018; Kania et al., 2017). And in June 2017, a new Cybersecurity Law came into force, then online censorship and surveillance have expanded dramatically (Cook, 2018). In 2018, China's internet-related organizations, made up of 23 national corporations and 277 local firms, formed China Federation of Internet Societies (CFIS), directed by CAC. Tencent’s chairman Ma Huateng, Alibaba’s founder Ma Yun, and Baidu’s chairman Li Yanhong were delegated to be CFIS’s vice presidents. One of most important mission of CFIS is to continually study General Secretary Xi’s idea of being “cyber superpower” (Bandurski, 2018; Zhang, 2018; Cook, 2018).
22 3.2.2. The booming internet sectors
The Chinese internet market is huge, diverse, and different from the markets elsewhere (Herold & De Seta, 2015). The internet market in China not only develops rapidly under the national support policies but also offers motives of going global, both economically and culturally (Jia, 2018). Thanks to the economies of scale and network effects gained from local market. Normally, they first grew explosively in China, then the revenues gained from the local market facilitated them to be globalization (Bieliński, 2018). Chinese firms ae eager to enter global market. For example, Baidu, Alibaba, and Tencent have invested or acquired many MNEs in, from the area of blockchain and sharing economy to that of autonomous cars (Abacus News, 2018). Since the beginning of this century, Chinese giant internet companies have gradually gone public in the US and Hong Kong, which means they depend on and need to compete in the global capital market (Jia, 2018).
The fast-growing number of internet users has provided many benefits for the merger of online business, such as mobile shopping and mobile payment. The e-economy is one of the most promising and powerful industries in China, larger than some traditional industries such as real estate, education and logistics. China's e-commerce trade volume has reached 4.58 trillion USD in 2018 (China Daily, 2019). The penetration rate of online shopping is over 70 percent. And it is now the world’s largest business-to- consumer (B2C) and consumer-to-consumer (C2C) ecommerce market. This consequently has influenced that the online payment and logistic services are the most advanced worldwide. Ant Financial and Tencent, the country’s dominant mobile payments providers, equip more mature and prevalent e-payment infrastructures in China than elsewhere. There is no doubt that instant messaging, internet search and online shopping are the most prominent online activities (Financial Times, 2018). There are many strong players in the ecommerce market, such as Tencent, Baidu, Taobao.com, JD.com, VIP.com (CECRC, 2016). Thanks to the Belt and Road Initiative, the volume of cross-border e-commerce activities have increased by 50% in 2018 (Yicai, 2019).
23 3.3. The transformation of Chinese manufacturing industries
China is the largest manufacturer all over the world, also known as “the world’s factory”. Over the past years, it has been an attractive haven for manufacturing, contributed by the low labor costs, skilled workforce and convenient physical infrastructures. The value of manufacturing sector has increased dramatically over the last two decades, peaked at USD 4.0 trillion in 2018 (World Bank, 2019). Over the past 30 years, the scale of manufacturing has expanded 18 times, and China stayed in the first place in gross value of industrial output (Mckinesy China, 2014). This sector employs approximately 30 percent of local workforces in China (Asialink Business, 2019). In China, most of heavy industries, such as steel, minerals, are supposed to be SOEs. At the same time, an increasing number of firms in less capital-intensive and more labor-intensive light industry are private companies or private-state joint venture (JV) (Twitchett et al., 2019).
3.3.1. “Made in China 2025”
Chinese traditional manufacturing sector plays nonnegligible and irreplaceable function in today’s business. Manufacturers occupied 94% of the total merchandise export value in 2017, at 212,5 billion USD (Statista 2019c). But the reputation of Chinese products from varies all over the world. In other worlds, China’s “country of production” (Jaffe & Nebenzahl, 2006) effect has different influences on consumers from some countries. Chinese products receive a favorable reputation in Brazil, Pakistan and Colombia; on the contrary, in most Asian countries and in Australia, Chinese products have underprivileged brand images. As the Made-In-Country index represented, “Made in China” (MIC) is ranked 49th worldwide, with a score of 28/100 (Statista, 2017). In detail, there are 10 product attributes, most of which are below average, particularly authenticity, high quality, high security standards. On the other hand, China’s image regarding advanced technology is excellent and the indicator of good value for money ranks 1st (See Appendix C).
24 Recently, the sectors of traditional industries are declining moderately. CCP wants to inspire domestic consumption of high technology services to sustain and upgrade economic growth, instead of heavily depending on export-driven manufacturing (Financial Times, 2018). Therefore, in 2015, the Ministry of Industry and Information Technology issued a “Made in China 2025” plan, inspired by Germany’s “Industry 4.0” initiative, highlighting 10 priority fields, such as robotics, high-performance medical equipment, and information technology (Erdenebileg & Hu, 2017; Cyrill, 2018). MIC 2025 pursues to not only be a low-end “manufacturing superpower” but also turn into an innovation-driven producer in domestic segment, as well as in global market. This policy requires transition and reformation on the existing physical infrastructure and labor market and encourages technological innovation and R&D. The pursuit for advances in intelligent manufacturing is regarded as a significant measure to enhance future competitiveness (Kania, 2019).
3.3.2. The shifting manufacturing sectors
What is more, some manufacturers also seize the opportunities to accommodate and compete in the fast-changing business environment by integration and transformation of digital technologies. Due to the process of globalization, the traditional manufacturers have been heavily challenged. To deal with the dynamic changes, industrial uncertainty, and disruptive technologies, some Chinese manufacturers have been evolutionarily transformed from the traditional, single-site factory-based firms into value-chain platforms or collaborative networks (Shi & Gregory, 2001; Ref et al., 2017). There is a new trend of combining or reallocating their resources of hardware and software business, putting AI, big data and analytics, and other high-technologies to daily operations.
As China has grew into an industrial powerhouse over the past two decades, China is going through the most profound social and economic revolution at a remarkable pace (Barton, 2013). China’s local competitiveness and manufacturing profile are changing, with East developed regions improving their value-chains and moving labor-intensive manufacturing industries inland. Business pay more attention to serving the growing domestic consumer base, rather than exporting low-cost manufactured items (Asialink
25 Business, 2019). China has searched for “self-sufficiency” in predominant technologies across a series of prioritized sectors (Kania, 2019). In China, most of heavy industries, such as steel, minerals, still remain to be SOEs. At the same time, an increasing number of firms in less capital-intensive and more labor-intensive light industry are private companies or private-state JVs (White et al., 2019).
Industry 4.0, including cyber-physical systems, the Internet of things (IoT) and cloud computing, is the current trend of automation and digitalization in manufacturing sectors (Herrmann et al., 2016). As manufacturers apply technologies, they experience a transformation from inflexible to agile and responsive supply chain, and their operations become more efficient and productive (McKinsey Global Institute, 2014). It is predicted that digital transformation initiatives would hugely reshape the business landscape in manufacturing sectors in the next decade. There is a huge need for many technologies to support the digital transformation, particularly for 5G, AI, big data analytics, blockchain, cloud and edge computing, and robotics (PR Newswire, 2019). Both big data and AI has been applied a couple of years ago and in almost every industry (Rabah, 2018).
4. Methodology
The author finally decided to use a qualitative research method: multi-case study. Comparing with quantitative approaches, qualitative research designs are better to describe, interpret, contextualize, and attain in-depth insights into specific concepts or unknown, extreme phenomena (McCombes, 2019). Case study is a frequently-used qualitative research method to understand the dynamics within single settings, and to investigate the complexed and dynamic social topics, including organizational decision-making, economic development and innovative projects (Eisenhardt, 1989;
Eisenhardt, & Graebner, 2007). It generally applies different techniques to collect data from various sources to explore and analyze these complicated issues, and to understand how real business world operates (UK Essays, 2018).
26 4.1. Theoretical background of case study
Case study continues to evolve and has room to improve, due to lacking well-defined strategies and techniques. There used to be some typical stereotypes about case study: 1) used for exploratory purposes; 2) applied only when this is the last practical and possible solution; 3) hard to confirm its final conclusion. However, it was believed that case study could be adopted during explanatory and descriptive processes as well (Yin, 1981a). Therefore, Yin (1984) classified case studies into three types: exploratory, descriptive and explanatory. In addition, Stake (1995) identified three groups, the intrinsic, the instrumental and the collective.
4.1.1. The boost of case study
Each strategy is best suited under a different series of circumstances, and case study is the most appropriated empirical analysis techniques to take when the lines between the investigated contemporary phenomenon and its real-life context are not clearly visible (Yin, 1981b). Case study research is absolutely catching more and more attention from academia, but still at an embryonic stage. According to the lately released results from Google Books’ Nigram Viewer (2013), there is an upward trend for the frequency of the “case study research” ’s appearances in publications during1980-2008, while the numbers of “survey research, experimental designs, random assignment” either remained stable or gradually decreased. Comparing to the other three main research methods, the use of case study was at a quite low level (Yin, 2018, p.xv). Additionally, the most well-known book in this research field, “Case study research and applications: Design and methods”, has been cited for 175,383 times (Google Scholar, 2019, See Appendix D), and ranked No.2 in “10 most cited methodology books in social sciences” (Green., 2016).
27 4.1.2. Strengths and weaknesses of case study
There is no doubt that case study has so many advantages. First, in most occasions, the investigation of data happens within its context, situation. Second, it is allowed to use both quantitative and qualitative methods to analyze variations resulted from intrinsic, instrumental and collective approaches. Third, case study suits to answer “how” and “why” questions, in other words, not only to explore or describe the real social phenomenon, but also to explain the complexities of contemporary cases which cannot be handled through experimental design or survey research (Yin, 1981a). In particular, Case study research is able to examine data at the micro level, provides holistic and deep insights into the detailed topics, and is a resort when a big sample population is hard to obtain.
However, some difficulties tend to undermine case study’s ability to generalize results (Tellis, 1997). First, it is criticized for lacking of rigor and robustness. Researchers do not have a well-developed strategies measures, and standards, and sometimes, they bring ambiguous and tendentious results. Second, case study normally examines one or a small number of subjects, offering very little basis for statistical generalization. Reliability and generality are supposed to be unconvincing when using only a limited sampling. Third, case study, as an exploratory tool, takes much time and efforts to process loads of documentation and data, especially when using ethnographic or longitudinal approaches (Yin, 1984; Zainal, 2007).
4.1.3. Strategies to have quality research
In spite of these mentioned criticisms, analysts continue to use case study mainly in the research fields of social sciences, and they try to find some solutions to make up for these shortcomings. The criteria of a quality research are validity and reliability.
Setting up the design of case studies is vital and crucial. Generally, it is categorized into single-case and multi-case designs. Researchers can use either a single-case or multiple- case design relying on the topic and its context (Zainal, 2007). Moreover, multiple-case design is the advisable method to use when a phenomenon is assumed to take place in
28 many circumstances. The testing procedures can be replicated and the final conclusions, drawn from a group of cases, can be confirmed. This benefits to increasing externality validity and raising the level of confidence in robustness of this design (Yin, 1981a; Yin, 2018).
To enhance its quality, case study research should use multiple sources of evidence to increase construct validity. Yin (2018) proposed six sources: “documentation, archival records, interviews, direct observations, participant observation and physical artifacts” (p98). The different sources are complementary, and a case study are highly suggested to use as many information channels as possible. It is a good way to find some former fruits of theoretical propositions to guide the following procedures of data collection and analysis. During the data collection phase, developing case study protocol and building a case study database are feasible measures to make the research more reliable. A pilot fieldwork or small-sized data collection would be helpful to propose the exact research questions and hypotheses and prepare a research framework (Zainal, 2007).
4.2. Research framework
This comparative/multi-case study is an exploratory case study, setting to investigate Chinese companies’ development of an emerging business model: BE. This is also a collective case study, which provides detailed description of every single cases and then presents the information within the cases (within-case analysis) and comparative analysis across cases (cross-case analysis) (Harling, 2012).
The author decided to use case study based on the following reasons. First, the development of BE is complicated and must be studied in its own situation. Since case study is phenomenon-driven, instead of theory-driven (Eisenhardt, & Graebner, 2007). Case study research is a desirable method for exploration in this study. Second, case study is the most accessible method for this topic. Because it is hard to complete an experimental or survey research, due to the inaccessibility of companies’ top manage teams. It may take too much time and efforts to develop a database to do quantitative analysis. And each company has their own situations, and gaps across boundaries. Third, since single case research is often believed to be unconvincing to generate a conclusion,
29 it would be better if the author could use double cases for each sector, where the replication logic might strengthen the confirmation of the results and boost external validity.
4.2.1. Case selection
To be explicit, the author placed internet sector and manufacturing sector inside the range of her study. In this digital information age, connecting with internet is an inevitable trend and fundamental feature. There are some tech giants, who have got through explosive growth over the last few years. Meanwhile, traditional manufacturers, generating a large proportion of GDP, are trying to embrace the high technology, such as AI, big data analytics, cloud computing.
Distinctive from random sampling, case study research is based upon theoretical sampling (Eisenhardt, 1989). In other words, cases are chosen for theoretical aims, i.e., generating new theories or extending existing theories (Gersick, 1988; Harris & Sutton, 1986), rather statistical reasons (Glaser & Strauss, 1967). To control the limits for generalizing the findings, it is a good way to choose representative cases to reflect the key features of subjects, as well as to achieve useful variation on the dimensions of theoretical interest (Box-Steffensmeier et al., 2010). Case study has its own unique criteria in selecting appropriate case sample. For instance, Seawright & Gerring (2008) identified seven selection options: typical, diverse, extreme, deviant, influential, most- similar, and most-different.
The author chose cases based on the company’s influence. Therefore, she selected Alibaba, Tencent, Geely, and Haier as her study cases (See Table 3.1). Alibaba and Tencent are China’s internet pioneers, meanwhile Geely and Haier are the giant and predominant players in industrials.
30 TABLE 4.1 Case studies in this thesis
Alibaba Tencent Geely Haier
Business Sector Internet Services Internet Services & Automobiles Household Electric
& Ecommerce Communications Appliances
Core Founder Ma Yun Ma Huateng Li Shufu Zhang Ruimin
HQ Location Hangzhou Shenzhen Hangzhou Qingdao
Year of Est 1999 1998 1986 1984
Employee 101,985 54,309 47,500 87,447
Revenues (LTW, 56.1 48.3 16.4 27.7 billion USD)
Market Cap 447.6 396.1 13.7 14.3
(08/2019, billion
USD)
Sources: website and annual reports
This thesis took the growth and transformation of Alibaba’s and Tencent’s BE as cases of internet industry, in comparison with Geely and Haier as traditional manufacturing players. Over recent years, these four corporations attempted to build ecosystems and grew explosively through four approaches, using the related strategies: “investment and acquisition, entrepreneurship and incubation of new ventures, continuous innovation, and internationalization” (Rong, & Shi, 2015, pi, See Figure 4.1).
31 Figure 4.1 Four approaches to BE
Source: Rong, & Shi, 2015
Alibaba is China’s largest operator of online wholesaler and retailers and e-payment platforms, also engages in cloud computing, digital media and entertainment, innovation initiatives (Alibaba Group, 2019). Tencent is a leading internet-based technological and cultural enterprise with two prime business operations, “social platforms” and “digital content”, also an industry leader and global pioneer of innovation and digitalization (Tencent, 2019). Geely has become the third largest carmaker in China, only behind Volks-wagen and General Motors. The company cares about innovation and R&D, as well as sustainability, especially low-emission, renewable energy and hybrid engine technology (Fortune, 2019). Haier is one of world’s best manufacturer of electronics and electrical equipment, also conducts R&D, sales of household appliance and channel services business (Haier, 2019a). Haier has gradually transformed from a traditional manufacturing enterprise into a co-evolution ecosystem, released the first internet of things (IoT) ecosystem brand, Haier Smart Home, in the world (Haier, 2018a).
32 4.2.2. Data collection and analysis
Multi-case study and case comparison would be adopted within this topic, using several sources of evidence. All of case companies are listed, which means that their information is transparent. Except Tencent Holdings, Alibaba Group Holdings (No.182), Geely Automobile Holdings (No. 30) and Haier Smart Home (No. 448) are all on the lists of Fortune Global 500 companies. These four companies are catching more and more attention from the media and academia. Therefore, it is easy to get access to their information, both online and offline.
To ensure construct validity, their data was collected from multiple sources, namely documentation, archival records. The data includes: 1) online information, from company’s official webpages, Sina microblog and WeChat; 2) illustrative materials, such as published books, academic journals, annual reports and case studies; 3) public speeches delivered by CEO or founders, interviews for them; and 4) official records, including polices and reports released by the government, above all, secondary information.
The studies companies were divided into two groups: internet firms and traditional business, namely Group A: Alibaba and Tencent, Group B: Haier and Geely. First, four companies were separately studied and analyzed to find structures and modes of their planned development paths to ecosystem model and then conducted comparative studies within groups, finally compared the cases between Group A and Group B, to clarify their similarities and differences (See Figure 4.2).
Figure 4.2 Structure of data analysis
33 Above all, the writer proposed the following two hypotheses: Q1a: Do Alibaba & Tencent have similar development paths to business ecosystem model? Q1b: Do Geely & Haier also have similar situation? Q2: Are the development paths of Group A and Group B different?
Yin (2003) defined that data analysis “consists of examining, categorizing, tabulating, testing, or otherwise recombining both quantitative and qualitative evidence to address the initial propositions of a study” (p.109). In this study, data analysis consisted of two procedures: within cases and cross cases. As for within-case analysis, an in-depth longitudinal test of a single is used. Chronological sequences, presenting the case study evidence in chronological order, was an important measure when doing explanatory case research. It was a systematic way and frequently used to observe, collect, analyze data, and show the results over a long period of time. It was recommended to draft the case study backward, because recent events were more attractive. After checking within-case patterns, it tended to determine whether two cases in each group can reach consensus, forming a cross-case synthesis, at a higher conceptual level (Yin, 2018). In other words, the patterns of single case were similar to some extent, then it was possible to develop the a cross-case synthesis. A comprehensive table would be clear to lay out every single case’s information. Finally, case-comparison method was to compare the entire explanation from one case with the other cases (Yin, 1981a). This study mainly concentrated on the comparison between groups, a higher conceptual plane.
5. China’s New Digital Ecosystems of Alibaba & Tencent
China is more advanced in digitalization and informatization than many other countries, and more active in building BE, where users and their generated data, and businesses are all interconnected (Wang et al., 2017). China has the largest user base of digital technologies across the world, and acts as No.3 venture investor, who boosts around one-third of the world’s unicorns, valuating beyond one billion dollars (Asia Society, 2107). In other words, China supports and encourages new ventures worldwide, also
34 has an increasing global impact on shaping the landscape of global digital business (Wang et al., 2017).
Over the past two decades, China has stood in the forefront of global technological progress, contributed by the astonishing growth of the a few top Chinese high-tech conglomerates. Chinese tech trinity— Baidu, Alibaba, and Tencent, short for BAT, have established multifaceted and cross-industry digital ecosystems, which involved in almost every sectors of the digital business, including online retailing, digital content, social media, sharing economy, wearable devices, gaming, finance technology (fin- Tech) (Abacus News, 2018). BAT have further strengthened their national strategic positions through investing and acquiring some new digital business units. In total, they funded 30% of China’s best promising start-ups, such as Didi and Meituan (Henriques, 2019). This work would only focus on the analysis of Alibaba and Tencent. These two recently-established MNEs received great success in both their home market and global market, and thus became strong competitors to their rivals in Western countries.
5.1. Case study of Alibaba
Alibaba Group, based in Hangzhou, now involves particularly in e-commerce, online retailing, internet-related technologies in over 200 countries. Alibaba broke the record of world’s biggest initial public offering (IPO) in September 2014 (Zeng, 2018). Today, the company ranks global top 10 by market value. Alibaba is the largest e-commerce company around the world and its volume of sales has doubled that of eBay and Amazon together (Force to Know, 2018; Vedder, 2016; Musariri, 2018).
5.1.1. Alibaba Group’s overview
Originating from an e-commerce platform, Alibaba’s initial mission was to make it easier to do business everywhere, but particularly to make Chinese market more open and introduce Chinese products into other countries. It aims not only to be a virtual shopping mall, but also build a walled ecosystem where internet-based businesses are interdependent and friction-free (Edmonds, 2018b). Moreover, Alibaba used to be the first service provider of free market information and data to all its users across the world.
35 Then suppliers of goods could quickly respond to their consumers’ requests and feedbacks (Vedder, 2016). Currently, Alibaba has two retailing platforms: Taobao, largest player in domestic B2B market; and Tmall, largest player in Chinese B2C sector. Their business models also received great success, after entering some Asian countries (Edmonds, 2018b). Alibaba’s recent international interest is to access more western countries.
Alibaba Group is consisted of many subsidiaries (Vedder, 2016). First, AliPay, its mobile payment platform, supports both online shopping services and store purchases. AliPay, overtook PayPal in 2013, has become world’s top leader in the sector of global mobile payment. Alipay also offers third-party services or partnership, where users can also book rooms or tickets, and call for a ride (Edmonds, 2018b). Therefore, the boundary between online and offline has basically vanished. The penetration of caseless payment system has already changed almost every aspects of people’s daily life in China, especially the young generation. For example, you can use Alipay to check out after ordering a meal or a flying ticket. Moreover, Alibaba is also the large shareholders of some firms, Ant Financial (private investment), Ele.me (food delivery), Sina Weibo (social network) and Youku-Todou (video-sharing) (Edmonds, 2019b; Todd, 2019a). Alibaba also gained their first-move advantage in southeast Asia by investing or acquiring local companies. For instance, Alibaba is one of the biggest stakeholders of Singapore-based Lazada, largest online shopping platform in southeast Asia. (Edmonds, 2018a).
5.1.2. Alibaba’s twenty-year journey to build an ecommerce ecosystem
Alibaba has grown into one of the world’s largest Internet companies within twenty years (Todd, 2019b). During this period, Alibaba has got through four steps into a stable DBE, form an original e-commerce platform to the pioneering, expansion, and authority of BE. The extended chronology of Alibaba’s events was placed in Appendix E.
1) A platform of E-commerce In 1999, Ma Yun, with the other 17 founders, established Alibaba Group in Hangzhou. Alibaba was born to be an e-commerce platform for small enterprises to compete more
36 effectively (Todd, 2019b). The original website, Alibaba.com International, was a global wholesale marketplace for agents, wholesalers, SMEs, retailers and manufacturers from more than 200 countries (Greeven & Wei, 2018). Alibaba also released a domestic retailing platform, Alibaba China, now knowns as 1688.com. Under the wave of internet and technology, the company grew rapidly, especially after receiving SoftBank’s US$20 million investment. Moreover, in the end of 2001, more than 1 million people registered on Alibaba.com. A year later, Alibaba Group was able to break even and started making profits (Alibaba, 2019)
Alibaba provided a value-added service, prime membership package, which placed the stores and products in a highlighted area. In addition, Alibaba, collaborated with Asian Company Profiles (ACP), a well-known third-party credit agency, built a database of TrustPass profiles. TrustPass is a certificate to show that their business is real, reliable and legally registered, authenticated and verified by ACP (Greeven & Wei, 2018; Alibaba, 2009). Alibaba rapidly became a leading brand in digital business sector, thanks to its exclusive focus on SMEs, effective strategies to mentalizing the mass user base, plus several early international expansions to Asian centuries, like India and Japan (Greeven & Wei, 2018).
2) The emergence of ecosystem Alibaba remained in operation even during the severe SARS epidemic in 2003. During this period, Taobao.com, an online shopping website, was established in Hangzhou. Taobao provided a large variety of goods, including daily necessities, electronic, clothes, and household products (Delage, 2018). In fact, the initial idea of building Taobao referred as a defensive move, when eBay entered into Chinese market and also so many similar domestic rivals in this sector (Greeven et al., 2012). There is no doubt that Taobao gained great success, benefited from the following factors: free-of-charge listing service for sellers to expand larger consumer base; its own unique and Chinese- cultural strengths; some innovative tools to enhance and upgrade consumer experience, such as Aliwangwang, an imbedded instant message chat functionality for buyers and sellers, Alipay, a third-party mobile payment platform released in 2004; a rigorous shop assessment and review system (Greeven et al., 2012). In 2008, Alibaba built “Taobao City”, a high-tech park, and their first R&D Institute in Hangzhou. Soon later, Taobao
37 became the largest C2C digital business platform worldwide, surpassing eBay (Alibaba, 2019).
To meet consumers’ more complicated demands, Taobao seized the opportunity to segment online shopping sector, and then established Taobao Mall in 2008, now known as Tmall, to provide high-quality and branded products, and connect the third-party brands and retailers as well. In 2011, Tmall separated from Taobao, as an independent and supplementary B2C marketplace for Taobao (Alibaba, 2019; Todd, 2019). To sum up, Alibaba established holistic e-commerce platforms, including B2B, B2C and C2C business models, which connected millions of consumers and suppliers in the core of Alibaba’s BE (Greeven & Wei, 2018, See Figure 5.1).
Figure 5.1 Alibaba’s core ecosystem
Alibaba International 1688.com
Taobao Tmall
Source: Greeven & Wei, 2018
3) The expansion of ecosystem
Since 2004, Alibaba has experienced it first large-scale transformation, including three periods, namely “extending SME client services, extending consumer services, consolidating and upgrading” (Greeven & Wei, 2018, p21, See Figure 5.2).
To better fulfill their SME clients’ needs, Alibaba established an online payment system, Alipay; integrated digital marketing services, Alimama; developed cloud computing technology and support infrastructure, Alibaba Cloud (Alibaba Group, 2015). Alipay is the first and dominant third-party mobile payment app in China, collaborating with more than 170 financial institutions worldwide. Alipay provides an escrow service, and can be used for direct transfer, paying bills after bundling with a bank account. In other
38 words, it takes the payment directly from the buyer and will not transfer the money until the process of purchase is completed and the buyers are satisfied (Summers, 2018; Greeven et al., 2012). Alimama, built in 2008, is an online advertising company, with nearly half a million ads publishers, who offers affordable digital marketing services for SMEs. Alibaba Cloud, China’s largest cloud service provider, refers as a platform to mainly focus on cloud computing and big data analysis (Greeven & Wei, 2018; Alibaba, 2019).
Since 2010, consumers have become more and more sophisticated and hard to satisfy. Therefore, Alibaba has moderately extended its consumer services through setting up new subsidiaries. First, to help Chinese manufactures sell their products to foreign countries, Alibaba established a global online retailing marketplace, AliExpress in 2010. Second, in the same year, Taobao introduced a flash and grouping sales platform, Juhuasuan, which became independent in 2011 and with a gross merchandise volume of more than 3 billion in 2012. Third, Alibaba released a search engine particularly for online shopping, eTao, which provided information about goods, retailers and sales across many Alibaba Group platforms. Moreover, to fill the gaps between online and offline, Alibaba also attempted to build its first offline mall: Taobao Mall iFengChao Furniture Showroom in Beijing (Greeven & Wei, 2018).
During the third period of consolidation and upgrade, Alibaba released Ant Financial in 2014, a comprehensive financial service provider, exclusive for individuals and SMEs. It has many imbedded functionalities, such as Huabei, a digital loan platform only for individuals; Ant Fortune, Zhaocaibao and Yu’ebao, which together provide private and small-scale wealth management services; Zhima Credit, an online credit system and generating credit information. Alibaba founded Cainiao, a powerful instrument to speed up Alibaba’s digitalization through build a smart and efficient logistic network, cooperated with several shipping companies. Currently, Cainiao has built a sub-ecosystem, including express delivery, warehousing, distribution centers, cross-country delivery and post services for rural areas (Chou, 2019). Alibaba has paid more time and efforts to penetrate less-developed and rural areas, and most of their newly-gained consumers are from smaller cites (Fang et al., 2019). Alibaba Group
39 announced their plan in 2014, to build operations centers and service centers in rural areas, with an enormous budget at RMB10 billion (Alibaba, 2019).
In general, Alibaba has experienced an expansion period, when Alibaba engaged more related business fields (See Figure 5.2). In this extended ecosystem, sellers on Alibaba's e-commerce platform were possible to use cloud and financial services, and digital marketing as well. In terms of the buyers, who purchased on its core shopping platform, Taobao or Tmall, would use Alipay and the Cainiao, maybe also private investment services (Fang et al., 2019).
Figure 5.2 Alibaba’s extended ecosystem
Alimama Juhuasuan eTao
Alibaba Ant Financial International 1688.com Cainiao Taobao Tmall
Alipay Alibaba Cloud AliExpress
Source: Greeven & Wei, 2018
4) The authority of ecosystem
The Group begun to restructure and transform from the year of 2013, when Alibaba has expanded from single ecommerce-related areas to wholly internet-related business, engaging in diverse fields through investing and acquiring less mature companies. The goals of investment strategy at this stage were to test or meet future needs, to change Chinese consumers’ lifestyle and make Internet become part of their daily life, rather than solely facilitate the current ecommerce business. Alibaba also attempted to erase the barriers between online and offline businesses, and connect the traditional and digital sellers through investing Suning, largest household electrical appliances retailor, and Intime retail, one of the most famous department store chain brands in China.
40 Alibaba poured an enormous amount of investment in almost every sector of internet business, mainly in social media, digitalization, culture and entertainment industry. In social networking industry, Alibaba Group launched its first mobile social media platform in 2013, Laiwang, now known as DianDianChong, and a group chat messager, DingTalk. Alibaba Group also acquired an 18 percent stake in Sina’s microblogging business unit, Weibo and a buyout group member of Momo (Newsdoug, 2016), a Chinese dating app. As for digital business, Alibaba Group invested a digital mapping company, AutoNavi. Alibaba Group completed the acquisition and integration of UCWeb, a domestic mobile browser. Under one of its subsidiaries, Ali Telecom, Alibaba started to act as a service provider of mobile virtual network operators in China. Moreover, Alibaba formally established Alibaba Digital Media & Entertainment Group, Alibaba Music Group. Alibaba Group became the majority shareholder ChinaVision, a movie and television program producer, which then restructured to be Alibaba Pictures Group. Alibaba definitively merged with Youku-Tudou, a local video streaming service provider. The Group built its own ecosystem of TV-related assets, via launching a Smart TV OS and set-top box (Russell; Ho, 2013). Alibaba Sports Group was established jointly with Sina Corporation and Yunfeng Capital. The functionality of Taobao Travel separated to be an independent platform Alitrip, currently known as Fliggy.
In addition, Alibaba entered global market rapidly, primarily through M&As, but also alliances, partnerships. Alibaba.com entered the US market by acquiring Vendio and Auctiva, which offered e-commerce solutions for American small businesses. During the restructure period, Alibaba accomplished an initial repurchase of shares from Yahoo!. Alibaba Group owned and controlled Lazada, a leading online shopping unicorn in Southeast Asia. Tmall Global was established to attract international sellers to provide products directly to Chinese consumers. Recently, Alibaba Group wholly acquired Daraz Group, a leading e-commerce company in several Asian countries, like Pakistan, Bangladesh and Nepal. In summary, Alibaba has developed into a complex and dynamic BE (See Figure 5.3)
41 Figure 5.3 Alibaba’s complex ecosystem
Source: Greeven & Wei, 2018
5.1.3. Alibaba’s four-approach analysis
Driven by the desire of gaining competences in such highly intensive environment, Alibaba speeded up to obtain larger market share and global power, through four strategies, namely, investment, entrepreneurship, innovation and globalization.
1) Expansion through investments
From 1999 to 2013, Alibaba represented an explosive growth, thanks to the penetration of internet, the rising Chinese middle class, the supportive governmental policies, especially the growing number of venture capital. Alibaba was in a period of planned investment, mainly focusing on expansion of their e-business, including mobile payment, logistics network and related ecommerce support services. Alibaba sought help from many external partners. For example, Alibaba collaborated with CITIC Bank, jointly released a fast-electronic payment function for Alipay. Obviously, Alibaba also invested into other firms, particularly in complementary ecommerce services. In 2009, Alibaba begun to acquire HiChina, a famous service provider of internet infrastructure. The Group acquired One-Touch, a one-stop service provider for Chinese exporters.
42 Alibaba initiated its first overseas acquisition of Vendio, a US-based software service provider for online retailers in 2010.
However, the organic growth of ecommerce was no longer enough to meet the market demands and its ambitions. Therefore, Alibaba went into phase 2 since the year of 2013, emergent investment period, when Alibaba transformed from an online shopping platform into diversified DBE. There was a huge increase in not only the number of investments, but also the amount of funding per investment. In other words, almost 150 new game players entered the BE within four years. During this period, to spread risks and be diversified, Alibaba invested mainly opportunity-driven sectors, emerging industries, and tried to cover most of the strategic markets, including financial services for SMEs and individuals, social media, digital healthcare services, culture and entertainment industries. Also, there was a wide range of investments, from new start- ups, unicorns to large and even listed companies. It is clear to see that most of its investments locates in the third layer of Alibaba’s ecosystem (See Figure 5.3).
Thanks to its strong financial capability, the large business cash flow and outstanding financial performance, Alibaba became an attractive co-investor for many funds and organizations. Acquisitions took a significant place, with nearly 18% of the total investment deal. The investments consisted of corporate investment fund, as well as corporate venture funds, such as Cainiao, Ali Sports Group. Most of the funds were put into entrepreneurial Internet-related enterprises in mainland, China. Alibaba’s overseas investment grew exponentially after 2013, in accord with its ambition to become international. Until 2018, 23% of Alibaba’s investments located in foreign markets, meanwhile 45% of that were in the US, its first foreign target market.
2) Incubation and entrepreneurial shifts
BE are widely regarded as a dynamic system, consisting of companies, products or services, and technologies (Greeven & Wei, 2018). Alibaba spared no efforts in keeping BE full of energy and entrepreneurial. Alibaba Group encouraged the entrepreneurial activities through funds and incubation programs. In 2014, Alibaba released its “Baichuan Plan”, which provided 2000 selected mobile developers with all the accessible resources, and also the best start-up with a prize of 5 million RMB. In 2015,
43 Alibaba Group officially launched the Alibaba Entrepreneurs Funds for Hong Kong and Taiwan. Then the Hong Kong Entrepreneurs Fund, Cyberport and HKSTP organized the largest start-up competition, JUMPSTARTER 2017 (Alibaba Group, 2019).
In general, there are four kinds of ecosystem entrepreneurial transformations that Alibaba used: a) Cross-industry innovation. For example, Alibaba Group announced their plan to enter cloud sector on Alibaba Group's 10th anniversary celebration. Now, Alibaba Cloud has become a dominant and indisputable leader in Asia Pacific market, surpassing the market share of Amazon and Microsoft combined (Lin, 2019); b) Spin- out. Koubei was used to be an eLeasing platform, offering real estate information. Then it experienced tough integration and restructure. In 2015, Alibaba Group and Ant Financial restarted Koubei, as a JV, to seize opportunities of local based service (LBS) market; c) Experimentation. Taobao and Huashu Media Network co-founded Huashu Taobao, a state-owned JV of cable TV operator. Lacking of commercial sprit and flexibility, the venture was finally merged back into Taobao. d) Incubation of new start- ups. Alibaba has been the most active generator of internet entrepreneurs. Until 2016, more than 450 former employees started their own business after leaving Alibaba (IT 桔子, 2016). And most of the new start-ups were still in ecommerce sectors, like financial services, social media (杨倩, 2011).
3) Continuous R&D
Alibaba always focuses on innovations: not only R&D of products, from initiating first online retailing platform in China, to dominating the mobile payment and cloud science; but also, the ways to structure business process, such as building an interdependent and dynamic ecosystem. In general, Alibaba has six motives for continuous innovation, both external and internal: opportunity in new potential markets, dynamic and complex environment, brutal competition, institutional barriers between industries, synergy with other companies, making best use of current resources. For example, Alibaba made a great success in opening the gate of financial technology (fin-Tech), which was an emerging industry that aimed to improve the adaption and use of tradition financial services by digitalization. Although financial sector in China was highly supervised and restricted, there was a huge demand from SMEs and individuals. After Alipay gained
44 the first-mover advantage, other internet companies quickly participated in this game, such as, Tencent, JD.com. Moreover, Alibaba expanded their financial services in other sectors, such as pee-to-peer loans, internet insurance, online wealth management. Ant Financial has grew into a sub-ecosystem by continuous cross-industry innovation.
To upgrade the software and hardware systems, Alibaba announced a five-year plan in 2008 that Taobao would build a high-tech park in Hangzhou, “Taobao City”, with a budget of RMB 50 billion, where its first R&D Institute and own Internet data centers would locate. Alibaba constructed an innovation center or incubator in Suzhou, primarily for internet entrepreneurs, cloud computing and big data ventures. To facilitate its global expansion, Alibaba Cloud built four new data centers in the Middle East (Dubai), Europe (Frankfurt), Australia (Sydney) and Japan (Tokyo). Alibaba Group also set up an innovative global research institute, Alibaba DAMO Academy.
Moreover, Alibaba often pursed to collaborate with universities, high-tech organizations to access the latest scientific findings. Alibaba Group and Nanyang Technological University, Singapore (NTU) launched an overseas joint research institute. Alibaba partnered with Tsinghua University to jointly build a research lab, primarily focusing on the interaction between human and computer science. Plus, the Group released HKAI Lab, cooperating with SenseTime and Hong Kong Science and Technology Parks Corporation. Recently, Alibaba agreed to establish Luohan Academy, an open research platform with top researchers and scientists, such as Nobel Laureates.
4) Gaining global reputation
The Government encouraged Chinses outward foreign direct investment (FDI) and formally released a “going out” policy (Sauvant & Chen, 2014, p141). After years of rapid growth in domestic market, Chinese companies were eager for global expansion (Sugawara, 2014). They had different motivations (Child and Rodrigues, 2005), ranging from resource seeking to market and technology seeking. Furthermore, Alibaba had the following drivers: vision of building a global commerce ecosystem; reaching a large consumer base and scale effect; access to capital and advanced technology (Greeven & Wei, 2018).
45 Alibaba has four types of strategies in internalization: a) Cross-border ecommerce. Alibaba was born to be a global enterprise, and the original website Alibaba.com was established with the aim of entering global wholesale market. In the next few years, Alibaba established two new branches, AliExpress and Tmall Global, to eliminate obstacles between domestic and foreign markets.; b) Establishing overseas branches. Alibaba.com entered American ecommerce market by acquiring Vendio and Auctiva, and in 2014 it relaunched a new boutique ecommerce website 11Main in the US; c) Service internationalization. Alibaba Cloud primarily entered Asia-Pacific market, built its international headquarters in Singapore, and established overseas data centers in Malaysia and Indonesia. Alibaba Cloud gradually expanded to European countries, first into UK market; d) Overseas M&As. Alibaba.com acquired Vendio, Auctiva, and Yahoo! in the US, which is Alibaba’s largest foreign target market; Lazada, and Daraz Group in Aisa, where Alibaba has geographical proximity.
Alibaba also cooperated with the national authorities. Alibaba Group and Thailand officially signed a strategic agreement to develop Thailand’s digital economy. The founder, Ma Yun, delivered a concept of Electronic World Trade Platform (eWTP) on G20 summit. Alibaba Group decided to establish overseas eWTP hubs in Malaysia and Rwanda. Recently, Alibaba Group and the Official Authorities of Belgium signed a Memorandum of Understanding to accelerate the growth of inclusive trade, under the eWTP initiative. Furthermore, to foster future global leaders, Alibaba Group initiated the Alibaba Global Leadership Academy (AGLA) program. The Group officially released Tmall World Initiative, to link Chinses market and 100 foreign markets worldwide.
5.2. Case study of Tencent
Tencent was founded by Ma Huateng and a few of his friends in Shenzhen, with only limited start-up capital. In 2014, the company went public via IPO on the Hong Kong Stock Exchange. Since then, it has grown to become the sixth largest internet companies worldwide, when its market value is now about 396.1 billion USD (Yahoo Finance, 2019), and its revenue is now even higher than some Western giants, like Facebook (Todd, 2019a).
46 5.2.1. Tencent Holding’s overview
Tencent is a tech conglomerate, consisting of many subsidiaries, which provide a variety of services to its customers, including social media, entertainment, online games and e-commerce on both personal computer and mobile platforms (Vedder, 2016). It controls the most popular and biggest social media channels and instant messaging apps in China, including QQ, with around 700 million active users (DMR, 2019), and WeChat, with almost 1.08 billion monthly users (Iqbal, 2019). Like Alibaba, Tencent also has a blocked ecosystem with a long list of apps and services related to WeChat, from cashless payment system to cloud storage services. WeChat’s imbedded tool of mobile payment is the core of integration-oriented strategy, which links offline purchase and online payment. This integrated, all-in-one super app, with bundled features offers a new lifestyle (Edmonds, 2018b).
In China, Tencent is an internet titan and an irrefutable top dog. Tencent already received a great success in providing media streaming services (videos & music), instant messaging services and online games. It also tried to expand the business empire by investing JD.com, China’s No.2 e-commerce platform; DiDi, largest ride-hailing service provider, Meituan, top one food delivery app; Mobike, leading mobile bike- sharing platform. There is no doubt that Tencent has global superpower as well. Approximately 30 per cent to 40 per cent of its investments are outside China. Tencent chose southeast Asia as its first destination, invested in Go-Jek, an Indonesian ride- hailing service provider. To enter the US market, Tencent also put US$150m investment into Reddit, a San Francisco-based online message platform (Lucas, 2019).
Tencent built an interconnected digital operation system for the entire economy. Thanks to the large user base form WeChat, Tencent is able to establish a seamless process, from raising consumer awareness, interest and desire, finally to action (AIDA model) (Hassan et al., 2015). Currently, it is a hard question or challenge for most of internet companies to monetize their large user base. Some Internet firms basically provide loads of free contents to attract more users, and make their revenue from advertisement or in-app purchase to remove advertisement (Babich, 2016). Unlike many internet
47 companies, Tencent uses a hybrid revenue model, two sources of revenue: advertising and subscription. Tencent monetizes its massive user base by offering a fully free version and make their revenue from advertising. Additionally, Tencent charges a monthly subscription fee for value-added services, premium contents and functionalities, known as prime or plus (Vedder, 2016).
5.2.2. Tencent Holding’s roadmap to a digital ecosystem
Tencent was established as an online instant messenger, after two decades, it has become Asia's most valuable company (China Daily, 2018a). At the same time, it gradually developed into a quite comprehensive DBE. There was an extended version for chronology of events in Appendix F.
1) The origin of Tencent
In the very beginning, Ma Huateng and his four classmates built an internet pager system, funded by venture capitalists. Though the product was successful, they failed to run the business. Soon later, inspired by ICQ, the first digital service provider of instant messaging, Ma changed their idea to build a Chinese instant messenger, called OICQ, or Open ICQ. The competition of this new sector became brutal, after Sina Pager and PICQ came out. However, because of its user-friendly design and simplicity, OICQ gained more than five million registered users in the first year. In 2000, Tencent renamed it into QQ, one of the most popular social media platforms in China. In the first three years, Tencent didn’t make profit until Naspers, a media company based in South Africa, purchased a 46.5% share of Tencent (McDougall, 2018).
2) The birth of Tencent’s ecosystem
Tencent stepped into many sectors. Tencent expanded their messaging service with some close-relevant business sectors and also video gaming industry. Tencent release QQ Mail in 2002, and relaunched six years later, which was upgraded to send large attachments at a quite high speed (Martin, 2014). In 2003, Tencent established QQ’s web portal, QQ.com. By 2004, Tencent grew into the largest instant messaging service provider in China, with 74% of domestic market sharing (Broadcast China, 2017).
48 Tencent Holdings Limited (0700.HK) was listed on the main board of Hong Kong Stock Exchange in June, 2004.
The company refueled after IPO. In 2005, Tencent launched an imbedded and integrated functionality: Qzone, offering social networking/blogging service. Qzone grew into one of the most popular social networking platforms in China, with more than 645 million active users. Tencent launched Soso.com, its own search engine; QQ Player, a free-to-download media player; QQ Music, one of the three Chinese freemium music streaming service providers in China; Tencent Weibo, a micro blogging service provider; Tencent Video, a video streaming platform; Tencent Traveler, top three most- visited internet browser in China. In April 2009, Tencent, together with TCL, launched iTQQ, a smart interactive TV service provider. Until 2010, The number of QQ’s peak current users was over 100 million,
In 2003, Tencent started to involve in online games, by establishing a division, Tencent Games. Since 2004, Tencent release its first online game QQ Tang. Then Tencent Games launched a series of new video games, including Dungeon Fighter Online, QQ Fantasy, Xunxian, QQ Dancer, QQ Speed, QQ Pet. These games were all linked with its social network platform QQ and became an important part of Tencent’s emerging ecosystem. Tencent Games started to monetize their consumer base by selling virtual items, like virtual weapons, skins, figures, which later became Tencent’s largest revenue stream (Greeven & Wei, 2018)
Figure 5.4 Tencent’s new-born ecosystem
Soso.com Tencent Games QQ Player QQ Mail QQ.com
QQ Tencent Video QQ Video Tencent Weibo
QQ Music Tencent Qzone iTQQ Traveler
49 3) An evolving of ecosystem
Tencent’s main business focused on social media and networking. Tencent has two key players in the center of BE, namely QQ, as a service provider of instant message; WeChat, as a mobile messaging platform (See Figure 5.5).
From 2009, Tencent begun to move their products to mobile platforms, due to both external and internal pressures. For instance, the internet newcomer, Xiaomi released a mobile instant messenger called MiChat. Tencent finally decided to develop new products, rather than shifting or adjusting their existing online instant messaging chat service QQ. More than one team worked on the R&D of the new mobile platforms. Tencent released another core product, WeChat, which perfectly met the demands in such a mobile and informative era. Thanks to Tencent’s experience and resources, until 2019, WeChat received one billion daily active users and became the fifth most-used app worldwide (Iqbal, 2019).
To fulfill users’ diversified demands, Tencent released and integrated many new in-app functions: Moments (social networking), also known as (aka) Friend Circle, and official account platform in 2012, WeChat Pay in 2013, E-Wallet in 2014, WeChat search engine, Hongbaos, mobile top-up (Jason, 2109). In addition, WeChat also cooperated with other internet enterprises to provide various LBS, such as purchasing movie tickets, taxi hailing, food delivery in 2014 (Chan, 2015). Moreover, an enterprise version of WeChat was established in 2016, which was supposed as a social productivity tool (Meng, 2016).
During this period, Tencent Games also represented a huge growth. In 2013, QQ and WeChat both launched their imbibed game centers within the app. In 2015, Tencent released Honor of Kings, a multi-player online battle arena game, only in China and gained great success. Two years later, Honor of Kings became the most popular and profitable game worldwide. Its international version, Arena of Valor was available, and it was also the most downloaded app all over the world (PopularTimes, 2019). Tencent became the largest video game company all over the world (Gilbert, 2019), with largest volume of revenues (Potoroaca, 2019)
50 Figure 5.5 Tencent’s evolving ecosystem
Honor of Tencent Kings Hongbaos Games Moments QQ Player QQ Mail QQ.com
Tencent Video QQ WeChat QQ Video Tencent Weibo
QQ Music Tencent iTQQ WeChat Traveler Qzone Pay Soso.com
Source: Greeven & Wei, 2018
4) The diversification of Tencent’s ecosystem
Tencent has paid a lot of time and efforts in building an entertainment empire. In 2012, Tencent Comic, one of China's largest online animation platforms, was established. In 2017, Tencent launched Tencent Pictures, focusing on film distribution and production. Meanwhile, Tencent built a firm, Tencent Penguin Pictures, to produce mainly online dramas and minor-invested feature films. Over the last decade, Tencent Games has expanded its global market share exponentially. Tencent begun to enter the sector of multi-player online games through a different tactic, investing in or acquiring major game developers worldwide. For example, it fully controlled Call of Duty Online, Ring of Elysium, and Riot Games, partly owned Fortnite and PlayerUnknown's Battlegrounds. Tencent acquired a minority stake in Epic Games, franchised games developer of Unreal, Gears of War and Infinity Blade. Tencent purchase a 28 percent stake in South Korea's CJ Games, with around US$500 million.
Since 2011, Tencent has shifted from a closed into an open strategy, then engaged most of internet business sectors. For example, Tencent signed a 15.68% stake share purchase agreement with Kingsoft corporation. Tencent purchased a minority stake in one of Sohu’s subsidiary, Chinese search engine Sogou.com. Tencent poured HKD 1.5 billion into China South City Holdings Ltd, a firm in logistics and warehousing, to
51 develop and upgrade its value chain of electronic and logistics businesses. Tencent purchase a 7% stake in China LotSynergy Holdings Ltd, and wholly owned its subsidiary Hongze Lake Investment Ltd. Tencent also invested US$145 million and held a 10 percent stake in Koudai-Gouwu, a Chinese mobile shopping portal.
Figure 5.6 Tencent’s diversified ecosystem
Source: Greeven & Wei, 2018
5.2.3. Tencent’s four-approach analysis
Tencent has experienced a substantial growth into BE over the last few years, ranging from upgrading its own product R&D to expanding into many other business sectors, particularly in these five industries: e-commerce, digital healthcare, culture and entertainment, fin-Tech and LBS. The development strategies can be divided into investment, incubation, innovation and internalization.
1) An active investor
Investment made the principal contributions to Tencent ’s diversification. Tencent has injected a large amount of investments into new start-up companies and also advanced technologies. In total, more than 200 companies across diverse sectors and phases
52 participated in Tencent’s ecosystem. A notable and successful example could be its investment in JD.com, Alibaba’s strongest competitor in e-commerce. In 2014, Tencent bought a 15 percent stake in JD.com Inc and paid cash and transferred its e-commerce units, including Paipai, QQ Wanggou and a stake in Yixun to JD.com, which benefited to build a more competitive alliance. Two months later, Tencent put additional investment and then increased up to a 17.43% stake in JD.com. Tencent also identified large market opportunities in some emerging industries, such as LBS. Tencent held an approximately 25% of share in 58.com, China's largest classified online advertisements platform, serving for local business (Crunchbase, 2019). Plus Didi, Dianping, Meituan etc. Tencent has invested in 25 firms and unicorns in domestic LBS sector (Greeven & Wei, 2018)
Tencent was interested in earlier phase investments, as well as acquisitions. For example, Tencent’s largest invested sector was gaming, with around one fifth of total pay-out. There were many acquired game companies listed in the third layer of ecosystem. In addition, Tencent was the one of the biggest investors in overseas investment, with 28% of its investments outside China. In total, Tencent has invested in around 80 foreign companies, and America is their first target market, with more than 67% of its foreign investments. For example, Tencent purchased a 12% stake in Snap Inc in the open market. Tencent Music Entertainment and Spotify built strategic alliance, swapped 10% stake and invested in each other's music businesses. Tencent also attempted to strengthen its online to offline (O2O) business. Tencent poured a US$5.2 billion investment in Wanda Commercial, a famous commercial property investor and operator in China. Tencent and Carrefour established a partnership and reached strategic co-operation agreement to improve their retail and service experience.
2) Incubation and entrepreneurial activities
Incubation of new ventures has become a significant part of Tencent’s strategies. Tencent provided direct support through funding and resources, as well as indirect support such as incubation plans, start-up competitions and entrepreneurship education.
Tencent Open Platform was established, which provided developers with a shortcut to the world’s richest social network, including 800 million QQ users and 600 million
53 Qzone users. Tencent Open Platform also offered full resource support, rich services and opportunities, to incubate SMEs and foster emerging technologies and business projects (QQ, 2016). WeStart has nurtured more than 15,000 Startup Projects, through two acceleration programs, namely Open Media International Creators Program, and AI Open Platform (WeStart, 2018). Tencent’s incubation centers provided free and comfortable working space for entrepreneurs in different phases and sectors. There were more than 20 incubators all over China, like Hong Kong (Yuen, 2018), Chongqing (Xinhua, 2015).
Tencent initiated Innovation Entrepreneurship Bases in 2013 and built Tencent Clubs with some top universities to foster educated entrepreneurs. Tencent release an incubation strategy called “Double Hundred Plan” in January 2015 (Greeven & Wei, 2018), which provided 100 startups with data traffic, user analytics and even free marketing services in the following 3 year (Custer, 2014). Tencent helped foster a variety of stat-up enterprises, such as Xiaohongshu, aka RED, a social media and e- commerce combined platform (Sentence, 2018); Zhihu, a question-and-answer social network platform (SAIF Partners, 2017); Dr.Tang, a smart blood glucose monitor incubated by Tencent’s digital healthcare sector (Greeven & Wei, 2018).
3) Strong innovator
Tencent always placed R&D in a strategically important position. In 2007, to develop core technologies, Tencent constructed China's first internet enterprise-funded research institute, which had three campuses in Beijing, Shanghai and Shenzhen (Tencent, 2007). In 2011, Tencent Center for Internet & Society was established, which cooperated with third-party organizations to conduct scientific researches in internet and social public fields (Hsiuling, 2013). Tencent also encouraged innovative capabilities of its employees. Recently, Tencent announced a series of polices to change the existing employee ranking system in an effort to promote young talents and infuse new blood (Lee, 2019). Moreover, its core founder Ma Huateng is also a genius, who proposed an innovative concept in 2015, "Internet Plus", which then developed into a national strategy.
54 Product innovation is one of the most important approaches. Tencent launched Tencent Gaming Platform (TGP) box, a video gaming console, which imported to many Tencent games. Tencent announced a plan to launch its virtual reality headset in 2017. Tencent focused on technology innovation, as well. Tencent decided to establish the world's first eSports town, partnered with the Wuhu City Council. Tencent established its own AI self-driving program and recruited a large number of industry players in automotive sector. In 2018, Tencent opened its first unmanned shop in Shanghai.
Tencent used to have a closed strategy of innovation. It most notable products, QQ (web core) and WeChat (mobile core), were developed solely by Tencent itself. In addition, its complementary service products, such as QQ Mail, Qzone, QQ Wallet, WeChat Pay, and a series of QQ games, were developed by Tencent alone, as well. However, Tencent shifted to an open strategy. Tencent started to co-innovate with other leading companies. For example, Tencent and L'Oréal built joint business partnership to explore innovative digital marketing strategies. Tencent and Juwai.com established a JV, QQ Haiwai, involving into international real estate listings and information.
4) Going international
Tencent was ambitious to enter global markets through four paths, namely overseas investments, import and export of gaming industries, global expansion of WeChat, the internationalization of culture and entertainment industries (Sohu, 2015). As mentioned before, to upgrade its ecosystem and support overseas expansion of services, Tencent became an active international investor. In particular, Tencent, acquired a number of major game developers, such as Roit Games, CJ Games. Tencent exported its games as well. Honor of Kings’s international version, Arena of Valor was available in 2017, and it has become one of the most popular games all over the world. Tencent released WeGame worldwide, an upgraded version of TGP, which created an open ecosystem for gaming. The globalization of WeChat cannot be ignored. There were 1.132 billion monthly active users worldwide (DMR, 2019), including more than 100 million international users (Iqbal, 2019). What is more, WeChat Pay was available in a large number of countries, such as Singapore, Malaysia, the US (Wu, 2108), targeting outbound Chinese tourists (Chen & Deng, 2018).
55
Lastly, Tencent focused on the international cooperation in culture and entertainment industries. In 2014, Tencent signed strategic agreements with several world-class music producing companies, including Sony, Warner Music Group and YG Entertainment, to get their exclusive copyrights in China. Tencent bought HBO’s exclusive rights for distribution in China. Tencent signed an exclusive agreement with Universal Music Group, to get the rights of streaming music in China. What is more, Tencent also announced their partnership with Tapas Media, a digital publisher based in San Francisco to expand Tencent Comics to foreign markets. Tencent and Lego planned to develop online games and potentially a social network for children.
5.3. Interim comparison
The ecosystems of Alibaba and Tencent are both regarded as walled gardens, where they track and analyze all the information of customer behaviors (Edmonds, 2018b). Due to the fierce competitions, they tried to build comprehensive ecosystem with super apps, where fulfill consumers’ diversified and complicate needs. Both of them are involved in most of the digital business sectors, particularly in five sectors: e-commerce, digital healthcare, culture and entertainment, fin-Tech and LBS. Both of them always contributes to shrinking the gap between online and offline business. Although their main business sectors are different, they are still rivals. For instance, Alipay has faced fierce competition from WeChat Pay. In China’s biggest cities, 92 percent of citizens choose mobile wallet app as their primary payment method (Millward, 2017), Alipay and WeChat Pay together take 90 per cent of market share (npr, 2017).
5.3.1. Four steps to a business ecosystem
Both Alibaba & Tencent took four steps to build dynamic and complicated BEs, however, their development paths are a little bit different, since Alibaba was originally an ecommerce platform, while Tencent started as a messaging service provider and skipped the platform stage (See Figure 5.7 & 5.8).
56 Figure 5.7 Alibaba’s four steps to an ecommerce ecosystem
•Ecommerce platform: exclusive for global SMEs •Alibaba.com, a global wholesale marketplace Young Platfrom •Alibaba China, a demstic retaling platform
•Core ecosytem: holistic e-commerce platforms •B2B, Alibaba.com Emerging •B2C, Tmall, high-quality and branded products Ecosytem •C2C, Taobao, a large variety of goods
•First large-scale transformation: single ecommerce-related business fields •Extending SME client services, Alipay, Alimama, Alibaba Cloud Extented •Extending consumer services , AliExpress, Juhuasuan, eTao, offline mall Ecosystem •Consolidating and upgrading, Ant Financial, Cainiao, less-developed and rural areas
•Second large-scale transformation : wholly internet-related business fields • Invested in almost every sector of internet business Comlex Ecosytem •Entered global market rapidly via M&As, alliances, partnerships
Alibaba was born to be a global e-commerce platform exclusively for SMEs in domestic and also foreign markets. Then it started the journey of building BE: 1) emergent of core ecosystem. Alibaba had world-leading online retailing platforms, including Taobao and Tmall; 2) expansion of the ecommerce ecosystem. Alibaba extended SME client services and consumer services, then consolidated and upgraded its complementary service sectors; 3) currently, diversification of complex DBE. Alibaba tried to expand its business empire through involving wholly internet-related business sectors.
57 Figure 5.8 Tencent’s four steps to a digital ecosystem
•Internet service provider: funded by venture capital •Internet pager system: good product, but lost the business Serivce Provider •Chinese instant messenger: QQ
•A young but complex ecosystem: stepped into many sectors, centralizing QQ •Expanded close-relevant sectors: QQ Mail, QQ.com, Qzone, QQ Player etc. New-born Ecosytem •Video gaming industry: Tencent Games, QQ Tang, QQ Fantasy, QQ Dancer etc.
•Extension of ecosystem: close-relevant sectors and & video games industry •Mobile platform, WeChat, its new in-app functions Envolving Ecosystem •Expansion of Tencent game industry, mbibed game centers, Honor of Kings
•Walled ecosystem: technology, networking and entertainment empire •Entertainment indutry, comics, films, darmas,multi-player online games Diversified •Open strategy, invested in most of internet business sectors Ecosytem •Tencent Games, expotential growth, invested in multi-player online game market
The growth model of Tencent is similar to that of Alibaba. However, Tencent was originally an internet service provider of instant messaging, and skipped the stage of digital platform. During the period of emerging ecosystem, Tencent gradually released many relevant products and services in the center of QQ. Dual-core ecosystem was established, since 2011 when WeChat was launched and quickly became the other core. With the aim of building technology, networking and entertainment empire, Tencent switched into open strategy and invested in most of internet business sectors.
5.3.2. Four approaches to a business ecosystem
To sum up, the author organized Table 4.1 and Table 4.2 to represent Alibaba’s & Tencent’s four different approaches to BE. Their transformations benefit to adapt into the changing business context. Thanks to their strong dynamic capabilities, Alibaba & Tencent co-evolve with the contexts and sometimes reshape the business landscape, for example, Alibaba & Tencent take the leading place in the following five industries: e- commerce, digital healthcare, culture and entertainment, fin-Tech and LBS. Since both of them built relatively blocked ecosystems, where their cores of ecosystem ware developed internally, the growth and development were mainly driven by a hybrid
58 strategy portfolio, investment, incubation and entrepreneurship, innovation and internationalization.
Table 5.1 Alibaba’s four-approach summary
Investment ² Phase 1: planned investment, expanded e-business; Phase 2: emergent investment, shifted into diversified DBE; attractive co- investor, 8% acquisitions, 23% of overseas investments.
Incubation ² Four types of entrepreneurial transformations: cross-industry innovation, spin-out, experimentation, incubation of new start- ups; encouraged the entrepreneurial activities through funds and incubation programs.
Innovation ² Six motives for continuous innovation, both external and internal, using fin-Tech as an example; five-year plan to build “Taobao City”; Alibaba Clod built four overseas data centers; collaborated with universities, high-tech organizations.
Internation ² Motives: vision, access to capital and technology, reach consumer alization base and scale effect; four types of global strategies: cross-border ecommerce, establishing overseas branches, service internationalization, overseas M&As; cooperated with the country’s authorities; AGLA program.
First, Alibaba has two phases of investment. In planed investment stage, it mainly expands market share of e-commerce and invests in complementary sectors; in the second stage, Alibaba shifts a different strategy by diversifying its services and products. In addition, because of its large cash flow and strong financial performance, Alibaba is an attractive co-investor, and also puts a large amount of money in overseas market. Second, Alibaba is an active player in incubation activities with and across ecosystem, and has four types of entrepreneurial transformations. Alibaba also spend money and efforts to encourage the entrepreneurial activities through funds and incubation programs. Third, Alibaba always regards innovation as their first driving
59 force and invests heavily in R&D, seek to cooperate with universities and research institutes. Fourth, to reach consumer base and scale effect, and access to capital and technology, Alibaba is passionate about going global through four strategies.
Table 5.2 Tencent’s four-approach summary
Investment ² Large investment in new companies and advanced technologies; identified large market opportunities in LBS; interested in earlier phase investments and acquisitions; strengthen its O2O business.
Incubation ² Direct support via funding and resource, such as Tencent Open Platform, Tencent WeStart; indirect support, such as Innovation Entrepreneurship Bases, “Double Hundred Plan”; fostered many stat-up enterprises, such as Xiaohongshu, Zhihu, Dr. Tang.
Innovation ² Established Tencent Research Institute and Tencent Center for Internet & Society; encouraged innovative capabilities of its employees; focused on both product and technology innovation; shifted form a closed strategy on innovation into co-innovation.
Internation ² Entered global markets in four paths, namely overseas alization investments, import and export of gaming industries, global expansion of WeChat, the internationalization of culture and entertainment industries.
Tencent firstly pour an enormous amount of money in new start-ups and emerging high technologies, whose investment portfolio is roughly twice as big as its Alibaba (Lucas, 2019). Second, Tencent spares no efforts to remaining their company as creative and energetic as possible. Tencent also builds Tencent Open Platform and Tencent WeStart to foster future talents and strongly support incubation projects. Third, Tencent always refers themselves as a technology company and innovation is their lifeline. It focuses on both product and technology innovation, and recently switches form a closed strategy into co-innovation. Tencent is a strong innovator, proved by many successful products, like WeChat, and a whole range of online games. Lastly, Tencent has a
60 powerful instrument to enter global market, WeChat. Tencent has been active in exporting their gaming business. In addition, Tencent is a strong international investor, in other words, more than 30 percent of investment locates outside China.
5.3.3. Cross-case synthesis for internet companies
Therefore, Q1a is roughly been proved, that is: Alibaba & Tencent have similar development paths to ecosystem business model.
For the leading and influential internet companies, they developed from either service provider or business platform, then into the early age of third stage, authority. After getting through a resource-intense expansion phase, when they gained a large market share and established critical mass, now these giant companies have competitive advantages. During this period of stability, most of them are still searching for solutions to maintain the predominant place, due to the fierce competition and over-supplied market. They evolve with both internal and external motives, including mission and vision and threats form newcomers. In internet business sectors, the business context and landscape are so dynamic and complicated, and the players have to be agile and responsive to the fast-changing environment. The time they spend in every stage should not be too long.
As for the four approaches related dynamic capability, internet companies regard innovation as their first priorities, since independent innovation can help them to grasp a new market and even become a monopoly and is the only way to reach science and technology peak. Investment is a strategy to be diversified and spread risks. For the successful companies, investment is a fast and effective measure to expand their business. Global expansion is a necessary step for large companies, since the resources are quite limited in their domestic markets. Currently, overseas investment is quite popular for Chinese internet companies, which benefits to access advanced technology and knowledge and also to raise public awareness all over the world. To keep the company entrepreneurial and full of energy, incubation activities contribute to the future development. One more thing, internet companies need to stay in the forefront,
61 in case of disruptive technologies suddenly reshape the world when the companies have no backup plans.
6. Chinese manufactures’ new trend to business ecosystem
Most of huge manufacturers are striving for more potential target markets, through rapid industrialization and economic reforms, at a high-speed growth. Chinese manufacturing companies are gradually gaining large market shares and becoming competitive in the global market, especially in the US and some Asian countries. Low- cost advantage used to be the key of entering international markets. An enormous and diversified labor pool and a large number of inward FDI both contributed to low-cost manufacturing and industrial exports to other countries.
Moreover, there are other beneficial factors, such as economies of scale, government support, and integration of supply chain. The economic success of China used to rely especially on using the strategy, economies of scale. As mentioned before, the officials planned to diversify and reshape Chinese economy through developing more knowledge- and technology-intensive business. Since China joined the World Trade Organization (WTO) in 2001, Chinese volume of exports and outward FDI have grown explosively. Large greenfield investments have injected in Central Asia, Southeast Asia to gain geographical proximity. Chinese companies also merged and acquired some firms in Europe and North America, to access to intangible assets, knowledge and technology (Vedder, 2016).
6.1. Case study of Geely
Geely is a relatively young company since 1986, but the most popular domestic vehicles brand in China (Vedder, 2016), the world's top auto maker (Srivari, 2016). In 2004, Geely Auto had its IPO on the Hong Kong Stock Exchange. It started to be fairly known by the western countries after acquiring Swedish carmaker, Volvo from Ford in 2010 (People's Daily Online, 2019). Now, Geely Auto has an advanced global supply chain
62 and a considerable network of sales offices, including 950 domestic dealers and around 500 sales and services points outside China (Geely Auto, 2019a).
6.1.1. Zhejiang Geely Holding Group’s overview
Geely aims to be a leading mobility technology by building a green mobile BE, where its target consumers are able to “Enjoy Mobility” (ZGH, 2019a). The car brands are growing explosively, explicitly, its whole sales volume has doubled in 2018 than that in 2014. Additionally, Geely is expected to become one of top ten carmakers worldwide by 2020. Zhejiang Geely Holding Group (ZGH), the parent company of Geely, has a complete car-making system, including the processes of car design, innovation, R&D, mass production, sales, and after-sale service. Recently, Geely has paid lots of attention to innovation and R&D. It is proved that about one sixth of is employees work in theses research fields. ZGH tends to transform from the current “global automotive group” into a “global mobility technology group” (ZGH, 2019a).
ZGH incorporates many world-famous car sub-brands, such as Geely Auto, Lynk & Co, Volvo Cars, Polestar, PROTON, Lotus. This is able to target most of consumer segments and cover many product spectrums. The group also takes the largest shares of stock of Volvo AB and Daimler AG. The group consist of five core divisions: Geely Auto Group, Volvo Car Group, Geely Technology Group, Geely New Energy Commercial Vehicle Group (GCV), and Mitime Group (ZGH, 2019b). Geely is not only an active player in automobile industry, but also other sectors related to mobility, including smart car technologies, autonomous drive, connectivity, ride-hailing platform. It also engages in new emerging business, like fin-Tech, mobile car-share, and in education and entertainment industries (ZGH, 2019a).
6.1.2. Geely’s three steps into a mobility ecosystem
Alibaba has expanded their business from sole car manufacturing to mobility-related sectors, such as smart car technologies, autonomous drive, ride-hailing platform. Currently, Geely has developed into a leading pioneer in global mobility technology
63 via establishing a green digital mobility ecosystem (ZGH, 2019a). There was a detailed chronology of Geely’s events in Appendix G.
1) The beginning of Geely In 1986, Mr. Li Shufu founded Geely in Taizhou, which first massively produced refrigerator parts. Six years later, Geely started to become a motorcycle manufacturer and seller, and made the first scooter in China. In 1996, Geely Group was established, and incorporated all its businesses into a group. Thanks to its successful experience in manufacturing motorcycles, Geely begun to involve in automotive industry and a subsidiary, Geely Auto was founded in 1997. Only one year later, the production and assembly of first Geely Auto vehicle (Haoqing) was completed. Though Haoqing received success in domestic market, as a young private carmaker, Geely needed to compete with many large SOEs (Wan, 2014) and foreign brands, like Volkswagen. In addition, the automobile industry was strictly regulated (Xu, 2014), since the authorities did not officially allow private enterprises to enter this sector. Things changed after 2001, when China joined the WTO. Geely got an official Permit of car making and Geely Auto became the first Chinese privately-owned auto manufacturer. In 2002, Geely Auto quickly grew into one of China's Top Ten car manufacturers (Geely Auto, 2019b).
2) Dual-core automobile ecosystem In Fact, Geely faced a variety of threats at home during this period. Geely experienced a fierce competition with car manufacturers, especially famous multinational brands, like Volkswagen and GM. It was believed that “country of origin” effect was quite influential for Chinese consumers (Batra et al., 2000; Steenkamp et al., 2003). Thus, it put much pressure on domestic auto brands, of course, including Geely. Geely started to search for new market potentials in global market. In 2003, there was a huge structure transition. In other words, ZGH was established, and Geely became one of its divisions. Since then, Geely started exporting cars to foreign countries. To raise public awareness of the brand, Geely Auto (0175 HK) became the first Chinese automaker to be listed on the Hong Kong Stock Exchange in 2005. This was a start point of fast development and internationalization. Geely Auto then exported numerous cars to foreign markets,
64 mainly developing regions, such as the Middle East, Africa, Eastern Europe, and South and Central America (Histomobile 2014).
The authority encouraged Chinese leading companies to enter global market. Taizhou municipal government has been a strong supporter for Geely’s internationalization. To help Geely get the official permit for car production, Taizhou government spared no efforts to convince the central government. Besides the permit, the local government also offered Geely with many administrative privileges, a variety of preferential policies, direct subsidies, fee exemptions, and 3000 mu of land etc. Moreover, Geely’s development has become a significantly important part of city plan (Zhang, Z. & Zhang, J., 2014). During the economic crisis in 2008, Geely also received a huge amount of money from government to let Geely seize the opportunity of entering global markets (China Car Times, 2013).
To quickly access to advanced technologies and resources, Geely strived to build international strategic alliances and acquisitions (China Car Times, 2013). For example, in 2010, Geely wholly acquired Volvo Car Corporation from Ford. This is a milestone, which means Geely became first Chinese MNE in automotive sector. Geely reached advanced new technologies, acquired knowledge to access European markets, plus gained global fame (Ifeng 2014). In 2016, Geely and Volvo jointly established a new global automotive brand, Lynk & Co, which is born digital and provides various connected technologies. In addition, Geely used to target the middle and low-end automobile market. To reach increasing market share, particularly high-end market, which was principally dominated by joint venture brands in China (Wenku, 2014), the Group acquired Lotus in 2017, a world-famous sports car brand.
Figure 6.1 Geely’s dual-core Auto ecosystem
Lotus Geely Volvo Volvo AB
PROTON Lynk & Co
65 3) A pioneer in green mobility ecosystem
Geely was believed to be socially responsible and referred as a leader and innovator in the research field of environmental protection technologies. New-energy vehicle was a new emerging business sector. To sustain stable growth, Geely worked so hard on R&D of new technology and environmentally-friendly products. In 2015, Geely issued the Blue Geely Initiative, which sated that renewable energy vehicles would take 90% of its total sales volume by 2020 (Geely Auto, 2019b).
Geely invested heavily on renewable energy car models, contributed not only by internal drivers, but also external pushes. Due to the air pollution in China, CCP limited car licenses for fossil-fueled vehicles in some metropolitan areas, such as Beijing,
Shanghai (Wang et al., 2019). This brought big market potentials for new-energy vehicles. In addition, care makers also face considerable pressure from the Government, who made a strict regulation on fuel consumption and emissions. On the contrary, government strongly supported the innovation of new energy cars (Kimble, & Wang, 2013). In 2016, Geely established a new division, GCV, including two brands, Farizon Auto and LEVC, primarily producing new energy-focused vehicles. Then Geely launched two more electric vehicle sub-brands, Geometry and Polestar (Driving Electric, 2019). Lastly, Geely and Daimler built a half-half JV to develop smart autos, using renewable and sustainable energy.
Furthermore, the Group engaged in various business sectors, mainly automobile-related and high-tech areas. In 2015, it launched CAOCAO, the first Chinese new-energy orientated ride-hailing platform. In 2017, Geely acquired Terrafugia’s operations and assets, a US-based flying car company. Geely completed the acquisition of an 8.2% stake in Volvo AB, a leading Swedish commercial automotive and engineering company. Geely Holding Group, Tencent, and China Railways established China Railway Gecent Technology Co. (CRGT) to build an integrated one-stop platform for high-speed rail passengers. Geely acquired a majority stake in Saxo Bank, a global leading fin-Tech service provider in international trade and investment. Geely also established a division, Mitime Group, mainly focusing on education, sports and tourism industries.
66 Figure 6.2 ZGH’s hierarchical structure
Zhejiang Geely Holding Group
Geely Technology Geely Auto Group Volvo Car Group GCV Mitime Group Group
Geely Auto Volvo CAOCAO Farizon Auto Education
Geometry Polestar CRGT LEVC Sports
LYNK&CO Terrafugia Tourisim
PROTON Qianjiang Motor Health
Lotus ECARX
Geely Daimler
Source: ZGH, 2019b
6.1.3. Geely’s four-approach analysis
Currently, Geely has grown considerably into a world-leading car manufacturer and designer, which also was considered as a strong competitor in world market, especially in the next few years. Geely built a green automobile ecosystem through flexible investment policies, entrepreneurship, continuous innovation and global strategies.
1) Investment
Geely quickly became the largest domestic car brand. To solve the three bottleneck problems, which all Chinese car manufacturers faced, namely gearboxes, engines, and safety, Geely was eager to acquire knowledge from global automobile companies. The majority of overseas investment started from 2008, when many car makers struggled in
67 economic crisis and tried to find a way to survive. Geely, as mentioned above, gained an enormous amount of capitals from Chinese government. It searched for target partners to invest in or cooperate (China Car Times, 2013). The most notable and successful acquisition case was Volvo. Geely gained overall competitive advantages in both domestic and foreign markets. Meanwhile, Volvo was much better than ever, after the “marriage” (Bloomberg, 2018).
In general, most of Geely’s investment went into automobile sector. In 2006, Geely became the largest shareholder of Manganese Bronze with 19.97% stake. Then it established a JV in Shanghai to produce classic London taxi model. Furthermore, in 2013, Geely wholly acquired Manganese Bronze, took control of its subsidiary, London Taxi International and the JV in Shanghai. In 2017, Geely purchased PROTON’s 49.9% stake, and became the majority shareholder of Lotus. In 2018, the founder and chairman, Li Shufu bought in 9.7% stake in Daimler AG, and then he became the biggest single shareholder of Daimler. Geely built a strategic cooperation with Daimler over the long run, and they planned to construct a premium ride-hailing JV in China. What is more, Geely has further expanded its overseas operation and assets, through acquiring truck maker Volvo AB, aircraft developer Terrafugia, sports clothing manufacturer Joma (GFHK, 2018).
To diversify and reduce dependencies, Geely also involved in some new auto-related technology sectors, such as renewable energy, smart car technologies, autonomous drive, connectivity, mobility services. To spread risks, Geely infused a large amount of money into digital technology innovation. For example, it recently became a majority shareholder in Saxo Bank, a top firm in fin-Tech sector. To receive global media exposure and an aggressively beneficial impact, Geely also chose sports sponsorships. In 2014, Geely sponsored and officially partnered with Chinese Olympic Swimming Team. Geely Auto announced that it would be an official partner and sponsor of the 19th Asian Games in Hangzhou, Geely’s home city (Geely Global Media Center, 2019).
2) Incubation The whole group referred as an incubator for young innovative brands, including CAOCAO, LYNK&CO, Geometry, which provided them with global resources and
68 powerful supports (ZGH, 2019b). To continuously develop high technologies, new products and services in more efficient ways, Geely not only invested massively in research infrastructures, but also focused on talent cultivation. In 2005, Geely Group founded Sanya University (SU) to cultivate talents with not only innovative and practical spirits, but also adapted to modern development (SU, 2019). Moreover, Geely built educational organizations to encourage and inspire their own employees (Segers, 2016).
Geely was also a quite active actor in incubation activities. In 2016, with the spirit of "Innovation, Entrepreneurship and Value," SU and Sanya local government jointly constructed an incubator for college students, which provided professional guidance and resources for student entrepreneurship projects (Geely Auto, 2017, p59). In 2017, Geely Auto signed a strategic agreement with China Alliance of Auto Innovation Incubators, which also formed an alliance with other manufacturers and auto parts companies. This incubator was to build a connection between seven large companies and new auto startups, from training to fund raising (China Daily, 2017). In 2018, China Euro Vehicle Technology Centre (CEVT), one of Geely’s R&D centers, organized an innovation incubator session in Barcelona, (CEVT, 2108).
3) Innovation
Geely referred as a good example of how Chinese domestic brands developed and expanded. Geely was the first privately-owned enterprise in domestic automobile market, who manufactured affordable and safe cars for China and some developing countries. In 2007, Geely Auto released the "Ningbo Declaration", aka Ningpo Agreement, which represented it enter into 2.0 era. They paid attention to not only good value for price, but also technology and high quality. Then Geely experienced a substantial transformation from low price to good quality, from cheap labor force to high technology, from sales expansion to product innovation (Segers, 2016). Currently, ZGH had the core technologies in the design, development, production, sales, and service of vehicles, powertrains, and key components (ZGH, 2019a). Geely was a pioneer in the research of renewable energy car technologies, with a newly-established division, GCV.
69 Most of Chinese domestic car brands did not have independent property rights, which was an obstacle of good quality and future development, and even might lead to failure. Unlike other local carmakers, Geely always believed that independent technology innovation was the company’s first and strongest driving force and invested heavily in R&D (Segers, 2016). It had a company culture that Geely believed everyone was an innovator and encouraged its employees to be creative (Sina 2010). Moreover, ZGH hired almost 20,000 employees in R&D and design, at a proportion of around one sixth (ZGH, 2019a).
Geely also built several research centers. In February 2013, Geely Auto and Volvo Cars established CEVT in Sweden, where was to design modular architecture products and export Volvo’s technological knowledge (China Daily, 2014). In 2015, ZGH built a new R&D center and factory in Coventry, hometown of the iconic London Black Cab. Geely injected a £250 million investment in product innovation and production line upgrade (Mullen, 2015). Geely operated co-innovation with SOEs in China. CRGT, mentioned before, was a JV with China Railways and Tencent. Geely also started to cooperate China Aerospace Science and Industry Corporation (CASIC) in R&D of supersonic trains (ZGH, 2019c).
4) Internalization The founder Li aimed to be an MNE, since its entry into automobile market (Shirouzu, 2016). As previously mentioned, to accomplish this ambition, Geely has attempted various mentioned-above strategies. It exported vehicles to foreign countries, especially to where had a strategic relationship with China, and became China’s largest vehicle exporter since 2013 (China Daily, 2013). Geely acquired various companies in foreign countries, such as UK, Sweden, and USA. It cooperated with leading companies via JVs, like Daimler. There was more than 40 production and assembly plants, 9 R&D centers, and 9 design centers across North America, Europe, China, and South East Asia (ZGH, 2019d). To increase global interest and brand recognition, Geely intended to expose in media. For example, Geely introduced a TV series, called the Drive of Life (in Chinese: 岁月风云), which was edited based on the stories of a car company- owning family (Sina Auto, 2007). Geely also actively participated in world-class sports sponsorship.
70
Geely gradually shifted its mission from “Making Refined Cars for Everyone” to “become the most competitive and respected Chinese auto brand in the world” (Geely Auto, 2019c). During this process, Geely has got through three phases to fulfill its long- term goals: First stage (2007–2009), Geely released Ningpo agreement in 2007 to build a “well-known” brand, to raise Geely’s brand recognition and public awareness; Second stage (2010–2012), Geely entered a period of slower, more consolidated growth to be an “influential” brand, to increase not only global market share, but also global reputation; Third stage (2013–2015): Geely was in a new stage of global development, striving to become a “competitive” brand and gain strong global competitiveness (Segers, 2016, p45; Daxue Consulting, 2014; Sina 2010). Good quality and innovation became Geely’s new priorities, while price had less influence on purchase decisions (Wenku, 2014).
6.2. Case study of Haier
Haier Smart Home, formerly known as Qingdao Haier, is a China-based MNE, mainly involved in the R&D, manufacture and sales of household electrical appliances, logistic services and channel services business (Haier, 2019a). In November 1993, Qingdao Haier issued IPO on Shanghai Stock Exchange. The money raised from IPO helped Haier get through its real estate crisis (Yi & Ye, 2003). Moreover, Haier is the first Chinese company to issue D-shares in Frankfurt, through a project on the China Europe International Exchange (China Daily, 2018b; People’s Daily, 2018). Haier is one of world’s leading white goods manufacturer, with over 10% of global market share (Market Insider, 2018).
6.2.1. Haier Smart Home’s overview
To be more specific, Haier is the top 1 sellers of large household appliances, refrigerators, freezers, interconnected air-conditioners, washing machines in global market, is also one of the largest services providers of large-scale logistics in China, establishes a systematical and holistic distribution network on household appliances all over China. This company built U+ smart home platform, to offer a new solution for
71 its consumers, and Shunguang platform to provider the logistics and channel services business. Therefore, Haier has established an IoT ecosystem by connecting three key players in its ecosystem: U+ smart home platform, interconnected factory, and Shunguang platform (Reuters, 2019; Haier, 2019a).
Haier Group is Qingdao Haier’s biggest shareholder, with 41.06 per cent of shares. Haier has a Hong Kong-listed subsidiary, Haier Electronics, and many sub-brands, to meet the consumers’ various demands across the world (Haier, 2018b). In fact, Haier refers as one of the earliest companies to export commodities to foreign markets in China. In the early 1990s, first Indonesia, then they quickly entered into other Asian countries, mainly through JVs. At the same time, Haier expanded to Western countries, including America, UK, Italy, France (Palepu et al., 2005). Recently, the company strived for expanding its target market through M&As, such as the acquisitions of Fisher & Paykel, General Electric (GE) and Candy SpA (Euromonitor, 2019). Parallel to Haier's global expansion, it also purses to gain competence through technological innovation and an IoT strategy (Haier,2019a)
6.2.2. Haier’s roadmap to an open and interconnected ecosystem
It only took 30 years for Haier to become the world’s largest manufacturer of white good, with a global market share at 10.2 percent, form a small and nearly bankrupt factory (Feng, 2016). Haier got through three economic transformations and five 7-year stages of strategic development (Haier, 2015, See Figure 6.3). There was a detailed timeline for Haier in Appendix H.
72 Figure 6.3 Haier’s three phases of economic shifts
Source: Haier, 2019a
1) Product economy In the end of 1984, Haier's predecessor, Qingdao Refrigerator General Factory, was built by Zhang Ruimin, together with his management team. Considering the fierce racing in refrigerator market and Haier’s situation, Zhang figured out Haier’s initial brand-building strategy and acted as a late starter but with higher standard. In the same year, Haier was blame for the quality problems of refrigerator. He broke these 76 unqualified products with “Haier Hammer”, which was collected by China National Museum as National Cultural Relics in 2009 (Pan, 2015, p35). How Zhang solved this issue astonished the public and gained brand reputation. This was a milestone and a warning bell of quality in Haier’s history. Soon later, thanks to high standard of quality, Haier quickly gained success in Beijing, Shanghai, and Shenyang (Haier, 2017). Five years later, to catch up with the new trends, the Factory was restructured and Qingdao Refrigerator Co., Ltd. Was founded (Haier, 2019b).
Haier gradually arouse the brand awareness and attracted public attention though numerous international prizes and honors. In 1987, Haier won an international bid, held by World Health Organization. One year later, in the National Refrigerators Appraisal, Haier won the gold medal again, which was the first time for a Chinese company to win the prize. Haier has grown into a leading company in domestic refrigerator market since then. In 1990, Haier received both Business Management Golden Horse Prize and National Quality Management Prize. Haier got U.S. UL Certification (Haier, 2017).
All these global reputations would play important roles in future global expansion.
73
2) Service economy During this transformation, there were two strategy, diversification (1991-1998) and internationalization (1998-2005). In the second seven-year stage, Haier mainly concentrated on diversifying a series of products to fulfill various demands. Haier begun to involve in green business sector. Its first environmental-friendly product, Super Freon-free Refrigerator was produced and brought to join World Earth Day Expo in the US. Since stepping into color TV industry in 1997, Haier then extended its business into another two industries, namely black household appliances and information household appliances. What is more, to facilitate enough development space and assets for its multi-line operation and economy of scale, Haier merged 19 enterprises, including Red Star Household Appliances Company, Shunde Washing Machine Factory of Guangdong Province, Laiyang Electric Iron Factory.
Haier has further stepped into preparation for its entry to global market. Haier passed ISO9001 in 1992, an international quality certification (ISO, 2015). In addition, the limited Company was listed on Shanghai Stock Exchange in 1993, with a new name: Qingdao Haier Refrigerator Co., Ltd. Under the support policies of Reform and Opening up, Haier purchased 800 mu of land at a quite low price, to construct Haier Industrial Park. In 1995, Haier Group relocated their campus into the newly-built Haier Industrial Park, which was also part of Haier’s diversification strategy. Haier speeded up its pace into global market and gained a broader consumer base. Haier won the internationally highest honor Five Star Diamond Award and CEO Zhang Ruimin was awarded Five Star Personal Lifetime Achievement Award as well in 1996. In February of 1997, Haier participated the World Household Appliances Expo in Cologne, and gained great success in Germany.
In the third seven-year stage: internationalization, the company finally initiated its plans to enter foreign countries. Haier chose America as its most important foreign target market. In 1999, the company first established a production base in South Carolina, which rolled off the first made-in-US Haier refrigerator one year later. Since then, Haier built six more overseas factories. In addition, there were more overseas distributors would like to build partnerships with Haier Europe, Haier Middle-east, Haier U.S etc.
74 Haier was regarded as one of the earliest domestic enterprises to know the significance of logistics management. Haier integrated with the world top 10 logistics service providers. For example, Haier and one of largest US-based retailors TARGET jointly achieved a record of selling 7,000 Haier air-conditioners within 7 hours in New York. In 2002, Haier purchased the Greenwich Bank Building, which was then used as the Haier U.S. Headquarter, which benefited to build brand image in US market. In addition, Haier sought for cooperation with leading international household appliances producers. For instance, Haier and Sanyo, a Japanese rebuilt a competition and cooperation relationship. Haier also signed an agreement with a German company, OBI to establish a JV.
During this stage, Haier really received loads of media exposure, as well as its CEO Zhang Ruimin. Many official media organizations, including CCTV, People's Daily, and Guang Ming Daily posted Haier’s story and successful experience, which led a trend to learn from Haier in China. Moreover, Zhang was selected as “World Top 30 Respectable Entrepreneurs”, “China’s Most Respectable Public Companies and Entrepreneurs”, and the first Asian entrepreneur speaker in International Institute for Management Development (Haier, 2017). Lastly, Haier had a good relationship with the Government. Several important leaders in CCP, such as Wen Jiabao, Li Changchun went to visit Haier Group. Being the only listed domestic household appliances enterprise, Haier was officially designated as a national pioneer researcher on advanced technologies by the Ministry of Science and Technology and China Standards Commission.
3) Experience economy During the global brand-building stage, Haier followed a "Three-Step" Strategy of "stepping out, stepping into, and stepping up" (Haier, 2017). Haier signed strategic agreements with many partners worldwide. Such as, Haier and Sanyo established a JV in Osaka; Haier and Intel built an Innovative Products Research Center together; Haier also cooperated with Cisco since 2007; Hewlett-Packard Company provided high- quality products and service for Haier from 2010; Haier applied advanced green technologies into its products, under the support from FramTech; Haier and Shenbei
75 jointly built Haier (Shenyang) Industry Part and Optoelectronics & IT Cluster; Haier also built strategic partnerships with Carlyle Asia fund and Lixil Group (Haier, 2017).
During the process of Haier’s globalization, localization played a significantly important role through providing personalized and customized solutions. In 2009, to benefit from a reduced tariff level and the cost of delivery, Haier completed the acquisition of an Indian refrigerator plant. Then Haier produced the Haier Fat Refrigerator, good at fast ice-making, exclusively in India. As for US market, Haier launched large-room refrigerators with 3 or even 4 doors. Haier sold sell its A+ energy- conservation refrigerators in the UK, cooperating with second largest retail channel. In addition, culture integration was so important for such a big MNE. In Italy, Haier built coffee corner, which provided an open space for employees from different backgrounds to share their ideas. In Thailand, Haier respected local customs, and offered two colors for their uniforms, blue and yellow (color of luck).
In addition, Zhang attempted to seize the golden opportunity of "Home Appliances Go into Rural Areas" both in and outside China (Haier, 2017). In 2007, Haier won an official bid to send 36 types of Haier-branded products to the rural areas in China. Haier built a plant in Nigeria, signed a LED street lamp project agreement with Cuba, established Pakistan Haier-Ruba Economic Zone with Ruba Group of Pakistan, constructed a production base and industrial supply chain in Venezuela. To gain more public awareness, Haier strengthened the close relationship with the authorities. Haier was the exclusive global white-goods sponsor for the Beijing 2008 Olympic Games. Haier also jointly constructed Haier Green Town National Games Village. Haier became the official partner of Shandong Pavilion of Shanghai Expo.
Since 2013, Haier has focused on the innovative business strategy of BE model to adapt to this internet age. Haier transformed form a closed “platform-based enterprise” into an open ecosystem, where all kinds of resources were connected (Corporate Rebels, 2018, See Figure 6.4). Haier released U+ Smart Life solution, including seven smart ecosystems of cleaning, water, air, food, health, safety and entertainment, supported by new internet-connected appliances. Qingdao Haier's first interconnected factory began to operate in 2013. Haier integrated its related business in supply chain management,
76 logistics and warehousing, and delivery and installation services, then established Shunguang Platform. In addition, Qingdao Haier first launched COSMOPlat in 2015, which is an industrial internet platform to facilitate mass customization and intelligent manufacturing.
Partnership with world leading company still remained as an important measure. Joint with Alibaba, Haier planned to build a comprehensive ecosystem for the delivery and installation of home appliances and B2B sector. Haier signed cooperation agreements with China Sinopec and China Railway Corporation, giant SOEs. Besides, global acquisitions played vital roles in access to know-how and technologies. Haier partly acquired GE’s household appliances unit, at a 41% stake. Haier signed a contract to buy all the shares of Fisher & Paykel, a major appliance manufacturer in New Zealand. Qingdao Haier wholly acquired Candy, a home appliances maker company in Italy. Haier became a minority shareholder of Mitsubishi Electric. Haier Group successfully incorporated Dais Product (Market Insider, 2018). Lastly, Qingdao Haier acquired overseas white household appliances assets from Haier Group, including 26 operating companies and two holding companies.
Figure 6.4 Haier’s open and interconnected ecosystem
Source: Haier, 2019
77 6.2.3. Haier’s four-approach analysis
Currently, Haier Smart Home provided a variety of leading brands for consumer from more than 100 countries. Haier Smart Home has successfully accomplished its short- and long-term goals via above-mentioned four approaches in recent few years (Haier, 2019a).
1) Acquisition and diversified investment Haier’s three sub-brands: Fisher & Paykel, AQUA, GE Appliances were acquired and then relaunched. In 2015, Qingdao Haier signed a trust agreement with Haier Group, which stated that Qingdao Haier were empowered to use and manage the assets held by Fisher & Paykel Appliances Holdings Limited. Three years later, Haier purchased all the shares of Fisher & Paykel, wholly owned and controlled this brand. Haier decided to acquire Sanyo Electric's white goods businesses in Japan and Southeast Asia. Then Haier restructure the business by establishing Haier Asia International and launching a new brand, AQUA. In 2016, the acquisition of General Electric's appliances business was completed, at a price of $5.6 billion and became Haier’s new subsidiary. Haier wholly acquired Candy this year, a home appliances maker company in Italy. In addition, Haier merged and acquired many appliances manufacturers in local market, especially in the early stage, product economy.
Besides upgrading white goods platform, Haier also engaged in the logistics, financial, real estate and entertainment market. Haier introduced internal transformation, building interconnected factories, and also external revolution, constructing U+ open platform of smart life. Haier built four open platforms in the business sector of the IoT and logistics service. To make best use of Haier’s resources, Haier established a finical platform, consisting of companies providing both online and offline services, microcredit, including third-party payment, equity investment. In terms of real estate, Haier House has developed five different product lines of property; youzhu.com is an online platform for one-stop decoration solution. Haier also released peripheral products of Haier Brothers, including mobile games animation films (Haier, 2015b).
78 2) Incubation activates and Entrepreneurship Haier always put a lot of efforts in encouraging incubation and entrepreneurial activates. In its very early age, Haier established Haier Development Zone Industrial Park, Haier Information Park, Haier U.S. Industrial Park, and Haier University. In 2010, sponsored by UIBE, Haier and IMA, Management Accounting Research Center was established. Haichuanghui Entrepreneur Incubation Center was jointly constructed by Tsingtao National High-tech Industrial Development Zone and Haier Group in 2015. Recently, this platform been regarded as one of national high-tech business incubators, with professional management, service and support from the Government. In 2017, RRS Logistics was established, as an open logistics entrepreneurship platform for sharing and co-creation in this era of the IoT. What is more, Haier was also active in organizing and participating in business conferences and forums, such as Haier Global Forum.
What is important, its CEO, Zhang Ruimin was born to be a genius entrepreneur. Haier would not gain such great success, without the contribution from him and he made today’s Haier. He was one of world’s top 50 management thinkers, a world-renowned enterpriser. He figured out the many innovative strategies over the past years, including “RenDanHeYi win-win model”, Haier’s unique culture of activating “stunned fish” providing customized user experience (Haier, 2017). Thanks to his achievements and management philosophies, he received a lot of awards, including World’s 50 Greatest Leaders by Fortune, Most Respected Business Leaders by Financial Times (Haier, 2015c).
3) R&D and innovation Haier invested heavily in innovation. For example, there are 14 design centers, 28 cooperative R&D institutes and over 300 designers form 12 countries for Casarte all over the world (Haier, 2015d). haier built Haier Central Research Institute and Haier Digital Home Appliances Lab. In 2009, Haier established a new Digital-Home National Engineering Laboratory in Qingdao, home city of Haier. One year later, Haier Group became the first pilot innovation enterprise in china, certificated by Ministry of Science and Technology.
79 Haier had strong capabilities in not only product R&D but also technology innovation. Haier released Patriot-I in 2001, Chinese first commercialized MPEG- Ⅱ SLSI decoding chip. Haier released Haier Computer, Casarte front-loading washing machine, and its first Tail-less TV. Haier has developed many awarded and honored products, like RedDot Award. The New Electronic Water Heater Standard absorbed Haier’s electricity-resistant wall design, which was the first enterprise’s patent-based national standard in China. Haier reached A+ Energy Consumption Standard and built China’s first logistics demonstration base. Haier used to research and develop independently in the early stages. Haier recently tended to co-innovate with many well technologies companies. However, Haier always believed that independent innovation is their lifeline.
Haier was also a pioneer in exploring new business model. In 2010, Haier shifted from standard to customer-configured structure by dividing Haier’s 60,000 employees into consumer-focused and self-operating 2,000 units, known as zi zhu jing ying ti (ZZJYT) (in Chinese: 自主经营体) (Gupta, 2015). Haier was the first brand to build IoT through the strategies of “individual-order combination”, transited from “sell products” to “sell services” (Haier, 2017).
4) Internationalization & globalization Haier Smart Home has become a well-known global enterprise and, in the year of 2017, Haier generated 42.3% of its total revenue outside China. Haier set the long-term goal of being a world-leading company when Zhang founded this company. and then Hair prepared for its entry to global market for a long time. Since 2001, Haier’s merged a Meneghetti-owned refrigerator factory in Italy, to further reach Europe market. They made a unique strategy for overseas branches, Three-in-One mode, which meant the processes of design, production, and marketing were all done in local market. As mentioned, Haier built overseas industrial parks, R&D centers, production and marketing networks, global supply chains to integrate global resources.
Haier was not listed only on Shanghai Exchange Stock, but also issued an IPO in the D-share market, which helped Haier to raise capital from global investors particularly in Europe. In 2013, Kohlberg Kravis Roberts & Co. L.P. (KKR), a leading global
80 investment firm, set up a win-win business partner relationship with Haier, by signing a definitive agreement with KKR purchased a 10 % stake in Qingdao Haier. In addition, Haier built strategic partnership with so many famous companies from foreign countries. Haier has done many overseas M&As over the last decade. As a result, Haier’s seven main brands has been already globalized.
6.3. Interim comparison
The ecosystems of Geely & Haier are both supposed as open system, where they share their resources and data with their partners. For both of them, diversification is a way to decrease their dependence on their core business and search for new sources of growth and revenue, as well as spread risks. To reach a broad target consumer base in different demographic segments, a multi-brand strategy is used by almost every MNE in automobile sector, so do Geely & Haier. Each of them expands a diversified portfolio of auto and household appliances brands, representatively, worldwide to serve both Chinese domestic and export markets. Nearly all the marketing and promotion activities for these sub-brands also emphasized the mother brand, at the same time. This was definitely a feasible measure to consolidate the company’s resources and reinforce competitiveness.
6.3.1. Geely’s & Hair’s steps to business ecosystems
In general, the development paths of Geely and Haier to build open BEs were quite different (See Figure 6.5 & 6.6).
81 Figure 6.5 Geely’s three steps into a mobility ecosystem
•China's first privately-owned car manufacturer •Refrigerator partsà motorcycleà automotive Carmaker
•Glbalisition: pursuing new markets and further expansion •Government encouraged Geely to enter global market Automobile •Geely built international alliances and acquisitions, Volvo, Lotus Ecosytem
•Extension of ecosystem: close-relevant sectors and & high-tech industries •Internal drivers, social responsiblity, R&D Green •External pushes, governemnt regualtions Ecosystem •Extended to many business sectors, mainly automobile-related and high-tech areas
In the beginning, Geely took the advantages form its low-price, labor-intensive, sales- oriented strategies and became a leading car manufacturer in China. Then Geely got through a substantial transformation, focusing on good quality, and innovation of high technology and new product. Geely took two more steps to build a green mobility ecosystem: it pursued new markets and expanded to international markets to build a dual-core automobile ecosystem; Geely shifted their business to new-energy vehicles, and extended to automobile-related sector and also high-tech industries to build a green ecosystem.
82 Figure 6.6 Haier’s four steps into an open and interconnected ecosystem
•Product econnomy: brand-building •High standard of quality: Haier Harmmer Fridge maker •Brand awareness: numerous international prizes and honors
•Service economy: diversification and internationalization •A portfolio of products; preparing to enter global market Service •Started entering foreign countries; loads of media exposure Provider
•Fourth 7-year stage: globalization •Cooperation; localization; "Home Appliances Go into Rural Areas" Multi •Platform-based enterprise: five Haier industries, such as white goods platform Platforms
•Fifth 7-year stage: networking •Innovative business model strategy, Partnership Open •Smart Home: U+ smart life platform, interconnected factory, Shunguang platform Ecosystem
Haier experienced five 7-year strategic transformation, form brand building to current networking strategy. During this period, Haier developed form a refrigerator maker into an open and interconnected ecosystem. First, to provide various services, Haier expanded a portfolio of products and entered global market. Then Haier segmented their business into five sectors and built multi-platform business model. Since entering the era of IoT, Haier became a pioneering explorer in this innovative business model and provided solutions for smart home and smart life.
6.3.2. Four approaches to a business ecosystem
The author summarized Geely’s & Haier’s four different approaches to BE and then output Table 5.1 and Table 5.2 to illustrate the information. As China the companies develop, they have experienced huge shifts, from low price to good quality, from cheap labor force to high technology, from market expansion to product innovation. Both of Geely and Hair has not only withstood the financial crisis in 2008, but also gained larger market share. China manufacturers’ objective is to catch up with other advanced economies and even to surpass them to take a dominant position in these industries worldwide (Kania, 2019). Generally, investment and acquisition are a frequently-used approach for companies to grow and diversify. BE is highly benefited from
83 entrepreneurial activities, both within, across and outside of the ecosystem. To improve their ability of R&D, the companies used to acquire knowledge, technology and best practices from foreign firms. Moreover, the Government largely encourage their outbound investments and their global expansion.
Table 6.1 Geely’s four-approach summary
Investment ² Overseas investment since 2008; most of investment went into automobile sector; involved in some new auto-related technology sectors; sports sponsorships.
Incubation ² The Group as an incubator; built educational organizations for talent cultivation; an active actor in incubation actives; cooperation with domestic and overseas incubators.
Innovation ² Released the "Ningbo Declaration" in 2007; industrial transformation; invested heavily in R&D; built several research centers; co-innovation with SOEs.
Internation ² Exporting; acquiring and overseas investments; building JVs with alization foreign companies; increasing media exposure; three phases to fulfill its long-term goals.
First, Geely regards financial crisis as an opportunity and has started many overseas investments since 2008. To become top automobile maker and gain a large market share, most of its investment goes into automobile sector. Recently, Geely engages in some new auto-related technology sectors, such as autonomous driving cars, connectivity, renewable energy vehicles. Second, the Group is referred as a giant incubator for young innovative brands. Geely has also founded SU for talent cultivation and encourages its own employees to be creative. Third, Geely has experienced a huge industrial transformation into product and technology innovation, after "Ningbo Declaration" released in 2017. Moreover, Geely has invested heavily in innovation and hired more than 2,000 employees in R&D department. Lastly, Geely initiated some strategic
84 investments worldwide, including acquiring of renowned companies like Volvo, building JVs with foreign companies, building overseas production and assembly plants, R&D centers, and design centers.
Table 6.2 Haier’s four-approach summary
Investment ² Acquired three sub-brands and relaunched; M&As of local appliances manufacturers; upgraded white goods platform, engaged in logistics, financial, real estate, entertainment market.
Incubation ² Always encouraging incubation and entrepreneurial activates; its CEO, Zhang Ruimin was born to be a genius entrepreneur.
Innovation ² Invested heavily in innovation; had strong capabilities in not only product R&D but also technology innovation; a pioneer in exploring new business model.
Internation ² Three-in-One mode; overseas investments; cooperating with alization foreign companies; media exposure; issued an IPO in the D-share market; signed an agreement with KKR.
First, Haier’s three sub-brands: Fisher & Paykel, AQUA, GE Appliances were acquired and then relaunched. In the early stage, Haier merged and acquired many appliance manufacturers in China. Besides upgrading white goods platform, Haier involved in logistics, financial, real estate and entertainment sectors as well. Second, Haier always encourages incubation and entrepreneurial activates through establishing industrial parks and incubation centers. Haier was also active in organizing and participating in business conferences and forums. What is notable, its CEO Zhang Ruimin was born to be a genius entrepreneur and contributed loads of innovative management philosophies. Third, Haier has injected an enormous amount of investments into R&D, since Haier believes that independent innovation is the lifeline for an enterprise. What is more, Haier has strong innovation capabilities not only in new products and technologies, but also in exploring new business model and strategies. Fourth, Haier figure out a unique strategy for localization, Three-in-One mode. Haier also invests outside China, such as
85 building overseas industrial parks, R&D centers, production and marketing networks, global supply chains and design centers.
6.3.3. Geely’s and Haier’s similarities and differences
Therefore, the assumption of Q1b are more or less wrong, that is Geely & Haier do not have similar development paths to ecosystem business model.
These two representative and powerful manufacturers have quite different development paths. Geely developed from a car maker into the second stage of ecosystem, expansion, and skipped platform phase; Haier took four steps into the first stage of BE, pioneering, from a product manufacturer, then service provider, multi-platform enterprise. It takes Geely a relatively long time to shift from a manufacture to an emerging ecosystem. Recently, when extending to the renewable-energy vehicle market and other automobile related marketa, Geely has gradually become a green mobility ecosystem. It took such a long time for Haier before stepping into BE. Haier’s original business is refrigerator, then expands its business sector to white goods and provides logistic & channel services. Later on, the company segments its industries into five platforms, as a platform-based enterprise. Currently, under the wave of “Made in China 2.5” and IoT, Haier has figured out elemental paradigms and started to search for suitable and feasible solution to better responds to consumers’ sophisticated needs.
In terms of four approaches, manufacturing has shifted from depending on low cost advantage into high technology and R&D. Both Geely & Haier invest heavily in technology and innovation and also have strong capabilities as well. Driven by the need for increasing overall market power, both of them first invests into complementary sector for their original business, and then expand to a variety of industries and take significant positions in emerging sectors. Both of them are not that active in incubation and entrepreneurship, especially Geely. When it comes to internationalization, both of them are world famous enterprises. Geely has a large sales network and a comprehensive global supply chain. And after three phases, Geely has gradually become a force to be reckoned in global automobile industry. Haier has rich experiences in globalization, since Haier is one of the earliest exporters since last
86 century. To fulfill its long-term goals, Haier takes a Three-in-One mode (designing, producing & marketing) to localize in foreign market.
7. Comparative case analysis
The author has to admit that the case companies for traditional manufacturers have different development paths of Haier, therefore they cannot build a cross-case synthesis. This situation is not as expected. The reliability of this cross-case analysis is kind of arguable, especially under the situation of dual research questions problem. However, the research still needs go on.
Comparing the synthesized case, Chinese internet companies, with both Geely and Haier, their development paths are very different. The internet firms are more advanced in BE than manufacturers and take less time in every step. Internet companies has advantages in integrating and restructuring their business, while manufacturing industries are labor-intensive and asset-heavy and inflexible to transform. Internet companies stay in the third stage: authority, while Geely is in the expanded stage and Haier is in the emerging stage. The internet companies founded in 1990s; Haier & Geely founded in the 1980s. There is no doubt, Haier is the slowest player in the exploration of this research field. Haier used to be Chinese role company, and CCP also endorsed for it. Under this era of big data and IoT, digitalization is a new trend, otherwise will fall behind. Internet firms build blocked ecosystems, who want to take the leadership and power of the whole industry; while Geely & Haier establish open and interconnected ecosystems, who want to cooperate and share their information.
As for the four-approach method, incubation and entrepreneurship is to sense and face opportunities and threats; innovation is to catch new market potentials; investment and internalization are to leverage competitiveness via integrating and restructuring intangible and tangible resources. For internet companies, incubation and innovation are the most important, while investment and internalization are the key contributors for Geely and Haier. As the whole world digitalizes, the internet enterprises gain great success over the last decades and have enough funding and also want to enter other
87 markets, therefore, internet companies also use the strategies of investment and internalization to gain especially intangible resources, like knowledge and technology. Under the wave of IoT, manufacturers have also shifted their strategies into technology and innovation, however, incubation remains unattractive.
To sum up, the assumption of Q2 are correct, that is internet companies and Geely & Haier have different he development paths to ecosystem business model.
8. Conclusion
This Chapter includes three parts, namely key findings, limitation and future research.
8.1. Key findings
First, Alibaba & Tencent have similar development paths to digital ecosystem. For these two internet giants, they developed from either instant messaging service provider or e-commerce platform into the early age of authority. Innovation was regarded as their first priorities. Investment is a common method to be diversified and spread risks. Global expansion and overseas investment are necessary steps for them. To sense opportunities and face threats, incubation activities contribute to their future development.
Second, Geely & Haier do not have similar development paths to ecosystem business model. Geely skipped platform phase and directly developed from an auto manufacturer into the stage of expansion; Haier took four steps, from white goods manufacturer, then service provider, multi-platform enterprise, to pioneering ecosystem. Both Geely & Haier, leading MNEs, invest heavily in technology and innovation.
Third, internet companies and Geely & Haier have different development paths to ecosystem business model. The internet firms are more advanced in BE than manufacturers and spend less time in moving to next stage. Internet firms build closed ecosystems; while Geely & Haier establish open and interconnected ecosystems. For
88 internet companies, incubation and innovation are two significant approaches, while investment and internalization contribute largely to for Geely and Haier. To gain intangible and tangible resources, Internet companies has stated using the strategies of investment and internalization. Manufacturers have also transformed their strategies into technology and innovation, however, incubation remains unpopular.
8.2. Limitations
This thesis of course has limitations. First, although the author conducted a multi-case study, two internet companies and two manufacturing enterprises, the results of case study are still hard to generate to other firms, not even to say the whole industry. Second, secondary information from both online and offline are resourceful, but the author alone cannot cover every details of case companies. In addition, the author did not collect first-hand data, because it is hard to reach their management team. Third, the transformation and development paths are dynamic and complicated, and companies may change or adjust their strategic plans during this period of research. Fourth, the author used a method of four approaches, investment, incubation, innovation and internalization. These four approaches overlapped sometimes, for example building overseas R&D centers is an approach of investment, innovation and internationalization. Then the analysis may be repeated and not that clear as well.
8.3. Future research
It therefore brings some fields that need to be investigated more in depth. First, the amount of data analyzed was quite limited in this thesis. More researches should be conducted in order to get more holistic and convincing findings from the four cases presented above. If possible, this research should also be expanded to some other Chinese companies to cover more business sectors. Second, try to reach case companies’ management team to get the first-hand information, such as interviews or questionnaires. Third, find a more detailed and systematical method to segment the approaches to building BEs.
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111 Appendix
Appendix A ...... II
Appendix B ...... III
Appendix C ...... IV
Appendix D ...... V
Appendix E ...... VI
Appendix F ...... XIII
Appendix G ...... XIX
Appendix H ...... XXII
I
Appendix A
Diagram I: Expert ratings of China’s entrepreneurial framework conditions
Source: GEM Report, 2018
II
Appendix B
Diagram II: Global Competitiveness Index 4.0, China
Source: World Economic Forum, 2018
III
Appendix C
Diagram III: Product attributes for Made-In-China Index
Source: Statista Country Report: China, 2019
IV
Appendix D
Diagram IV: Search results from Google’s Nigram Viewer
Source: Google Books, 2013
V
Appendix E
Table I: Alibaba’s history and millstones
Time Events 1999 a) Ma Yun, with the other 17 founders, established Alibaba Group in Hangzhou. The original website Alibaba.com aimed to enter global wholesale market. b) Alibaba also released a Chinses retailing platform, now knowns as known as 1688.com. c) Alibaba first raised 5 million USD.
2000 a) Alibaba Group received SoftBank’s investment, worth US$20 million. b) Alibaba Group organized West Lake Summit for the first time, a meeting to share the leaders’ experience on Internet business.
2001 a) Alibaba Group first delineated their vision and mission. b) More than 1 million people registered on Alibaba.com. 2002 Alibaba Group was able to break even and started making profits. 2003 a) Alibaba remained in operation even during the SARS epidemic. b) Taobao.com, an online shopping website was established in Hangzhou.
2004 a) Alibaba Group invited many internet entrepreneurs to attended its first Entrepreneur Summit, and awarded the top 10 Entrepreneurs of the Year. b) Taobao launched an imbibed tool of instant messaging for buyers and sellers, Aliwangwang. c) Alipay, a third-party mobile payment platform, is established. 2005 a) Alibaba Group strategically partnered with Yahoo!. b) Alibaba Group started controlling the operations of China Yahoo!.
2006 Alibaba built Taobao University program, which provided their buyers and sellers with e-commerce training and education. 2007 a) Alibaba.com issued its IPO on Hong Kong Stock Exchange.
VI
b) Alimama, a leading digital marketing platform in China, was established.
2008 a) Taobao Mall, now known as Tmall, to connect the third-party brands and retailers, as a supplementary marketplace for Taobao. b) Alibaba built “Taobao City”, a high-tech park, and their first R&D Institute in Hangzhou.
2009 a) Alibaba released Alibaba Cloud on Alibaba Group's 10th anniversary celebration. b) Alibaba.com begun to acquire HiChina, a famous service provider of internet infrastructure in China.
2010 a) Alibaba.com changed the name for into 1688.com in China. b) Taobao introduced a flash sales platform, Juhuasuan. c) AliExpress is established, to help Chinese manufactures sell their products to foreign countries. d) Alibaba Group announced that it would donate 0.3% of annual revenue to support the environmental protection worldwide. e) The Group launched Alibaba Partnership to ensure its sustainable and stable growth. f) Alibaba.com entered American market by acquiring Vendio and Auctiva, which offered e-commerce solutions for U.S. small businesses. g) The mobile app version of Taobao was launched. h) Alibaba.com acquired One-Touch, a one-stop service provider of for Chinese exporters. i) Taobao and Huashu Media Network co-founded Huashu Taobao, a joint venture of cable TV operator.
2011 a) Both Tmall and Juhuasuan separated from Taobao, as independent B2C platforms. b) Alibaba established a shopping search engine eTao.
VII
c) Alibaba Group established the Alibaba Foundation, with a large amount of fund, mainly focused on social issues.
2012 During the companies' restructure period, Alibaba accomplished an initial repurchase of shares from Yahoo!. 2013 a) Taobao celebrated its 10th anniversary in Hangzhou. b) Alibaba Group established Cainiao Network, cooperated with a number of logistics companies in China. c) Alibaba Group entered smart TV sector, launched a smart TV OS and set-top box, to build its own ecosystem of TV-related assets. d) Alibaba Group relocated its campus. e) Alibaba Group launched its first mobile social media platform, Laiwang, now known as DianDianChong. f) Alibaba Group acquired an 18 percent stake in Sina’s microblogging service provider, Weibo.
2014 a) Tmall extended a new branch, Tmall Global, to attract international sellers to provide products directly to Chinese consumers. b) Alibaba Group finished the acquisition and integration of UCWeb, a domestic mobile browser firm. c) Under the Ali Telecom, Alibaba started a new business as a service provider of mobile virtual network operators (MVNO) in China. d) Alibaba Group became the majority shareholder ChinaVision, a movie and television program producer, which then restructured to be Alibaba Pictures Group. e) Alibaba and Intime built a joint venture to run an online to offline (O2O) business in China. f) Alibaba Group invested a digital mapping company, AutoNavi. g) Alibaba Group went public on the New York Stock Exchange. h) Alibaba Group announced their plan to build operations centers and service centers in rural areas, with an enormous budget at RMB10 billion.
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i) Ant Financial Services Group, a subsidiary of Alibaba and the operator of Alipay, is officially established. j) The functionality, Taobao Travel separated to be an independent platform Alitrip, currently known as Fliggy. k) Alibaba announced a strategy called ‘Baichuan Plan’.
2015 a) Alibaba Group and Ant Financial Services Group started their restructure and integration between these two companies. b) To fulfill the needs of group-messaging, Alibaba Group established DingTalk. c) Alibaba arranged its inaugural Global Conference on Women and Entrepreneurship in Hangzhou. d) Alibaba Group and Ant Financial Services Group planned start a joint venture together, Koubei, to seize opportunities within local services market. e) Alibaba Music Group was formally established. f) Alibaba Cloud promised to they would protect their consumers’ privacy all over the world. g) Alibaba Group and Suning formed a strategic alliance to build synergies on their related business, such as e-commerce, logistics and O2O Initiatives. h) Alibaba Cloud decided to build its international headquarters in Singapore. i) Alibaba Group, Sina Corporation and Yunfeng Capital jointly established Alibaba Sports Group. j) Alibaba Group definitively merged with Youku-Tudou, a local video service provider. k) Alibaba Group officially launched the Alibaba Entrepreneurs Funds for Hong Kong and Taiwan. l) Alibaba Group finally acquired South China Morning Post, a Hong Kong-based English newspaper founded in 1903.
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2016 a) Alibaba Group arranged their first Ali Chinese New Year Shopping Festival. b) Alibaba Group took the largest market share in online retailing, with a gross merchandise volume at over RMB3 trillion, and then became the largest retail economy worldwide. c) Alibaba Group started own and control Lazada, a leading online shopping unicorn in Southeast Asia. d) Alibaba Group joined a group to buy out Momo, a Chinese dating app. e) To foster future global leaders, Alibaba Group initiated the Alibaba Global Leadership Academy (AGLA) program. f) Alibaba Group, corporately developed and launched OS'Car with SAIC Motor. This is the first YunOS-enabled, massively produced smart car. g) Alibaba Foundation organized the first Xin Philanthropy Conference. h) Alibaba Group arranged the opening ceremony of Taobao Maker Festival, which represented the innovative ideas and designs of Taobao retailers. i) The founder, Ma Yun, delivered a concept of Electronic World Trade Platform (eWTP) on G20 summit and gained the support from Director General of WTO, Roberto Azevêdo. j) Alibaba formally established Alibaba Digital Media & Entertainment Group. k) Alibaba constructed an innovation center in Suzhou. l) To facilitate its global expansion, Alibaba Cloud built four new data centers in the Middle East (Dubai), Europe (Frankfurt), Australia (Sydney) and Japan (Tokyo).
2017 a) Alibaba Group became an important global partner with the International Olympic Committee until 2028. b) Under eWTP initiative, Alibaba Group decided to establish its first e- hub outside China, with the Malaysia Digital Economy Corporation. c) The Hong Kong Entrepreneurs Fund, Cyberport and HKSTP organized the largest start-up competition, JUMPSTARTER 2017.
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d) Alibaba Group officially released Tmall World Initiative, to link Chinses market and 100 foreign markets worldwide. e) Alibaba Group arranged the inaugural Gateway conference in the U.S. f) Alibaba Group initiated the second-round purchase of Lazada Group’s Stake, up to approximately 83%. g) Alibaba Group released Hema supermarket, using a successful “New Retail” business model. h) Alibaba Group upgraded loyalty system for both Taobao and Tmall active users and established a joint venture with Marriott International to enter the sector of travel and tourism. i) Alibaba Group became the majority stakeholder of Cainiao Network. j) Alibaba Group set up an innovative global research institute, Alibaba DAMO Academy. k) Alibaba Cloud established an overseas data center in Malaysia. l) The building of Alibaba’s first overseas eWTP hub was completed. m) Alibaba Group founded Alibaba Poverty Relief Fund, at RMB10 billion.
2018 a) Alibaba Group decided to acquire 33% of Ant Financial ‘s equity interest in. b) At Olympic Winter Games PyeongChang 2018, Alibaba Group presented its technology showcase – “The Olympic Games on the Cloud”. c) Alibaba Group and Nanyang Technological University, Singapore (NTU) launched an overseas joint research institute. d) Alibaba Cloud’s data center started operating in Indonesia. e) Alibaba Group added US$2 billion more investment in Lazada Group. f) Alibaba Group partnered with Tsinghua University to jointly build a research lab, primarily focusing on the interaction between human and computer science. g) Alibaba Group and Thailand officially signed a strategic agreement to develop Thailand’s digital economy.
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h) Alibaba Group wholly acquired Daraz Group, a leading e-commerce company in several Asian countries, like Pakistan, Bangladesh and Nepal. i) Alibaba Group released HKAI Lab, cooperating with SenseTime and Hong Kong Science and Technology Parks Corporation. j) Alibaba agreed to establish Luohan Academy, an open research platform with top researchers and scientists, such as Nobel Laureates. k) Alibaba Group launched “88 VIP”, a new kind of membership package available for Alibaba’s whole ecosystem, to offer exclusive benefits to monthly active users. l) Alibaba Cloud entered into UK market, gradually expanded to European regions. m) Alibaba Group and the Government of Rwanda signed Memoranda of Understanding to establish an eWTP hub. n) Alibaba Group officially promised that it would help import various goods, worth US$200 billion, from over 120 countries during the next five years. o) Alibaba Group and the Official Authorities of Belgium signed a Memorandum of Understanding to accelerate the growth of inclusive trade, under the eWTP initiative.
2019 a) Alibaba Group launched “A100” program, which helped SMEs accomplish digital transformation, by providing holistic one-stop solutions. b) Alibaba Cloud issued an initiative, “Tech for Change”, whose aim was to tackle challenges, related to global social and humanitarian, through technologies. c) Alibaba Economy Technology Philanthropic Committee is established, mainly focusing on technology-driven philanthropy.
Source: Alibaba Group, 2019
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Appendix F
Table II: Tencent’s history and roadmap
Time Events 1998 Tencent Inc. Incorporated was established by Ma Huateng, with other founders: Zhang Zhidong, Xu Chenye, Chen Yidan and Zeng Liqing,
funded by venture capitalists. 1999 In February, Tencent released its messenger product OICQ, soon later, renamed it into QQ, one of its most popular social media platforms in
China. 2001 In the first three years, Tencent didn’t make profit until Naspers, a media company based in South Africa, purchased a 46.5% share of Tencent. 2003 a) Tencent started to involve in online games, by establishing a division, Tencent Games. b) Tencent established QQ’s web portal, www.QQ.com.
2004 Tencent Holdings Limited (0700.HK) was listed on the main board of Hong Kong Stock Exchange in June. 2005 Tencent launched an imbedded and integrated functionality: Qzone, offering social networking/blogging service. 2006 In March, Tencent launched its own search engine Soso.com. 2007 Tencent established Tencent Foundation, which was the first time for a Chinese internet company to build such charitable organization. 2008 a) Tencent officially became one of the 43 constituents of Hong Kong’s Hang Seng Index in June.
b) Zhang Xiaolong and his team released the upgraded version of QQ mail. c) Tencent launched a free-to-download media player, QQ Player. d) Tencent launched one of the three Chinese freemium music streaming service providers in China, QQ Music. e) Tencent Traveler, a web browser based on Trident, ranked top three most-visited internet browser in China.
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f) Tencent put an enormous amount of investment into Riot Games, developer of League of Legends, with 22.34% of the equity interest. 2009 a) In April, Tencent, together with TCL, launched iTQQ, a smart interactive TV service provider.
b) Tencent’s annual revenue reached RMB 10 billion for the first time. 2010 a) The number of QQ’s peak current users was over 100 million b) Tencent released two notable products: Tencent Weibo, a micro
blogging service provider; Tencent Video, a video streaming platform. 2011 a) Tencent released their core product, WeChat in January. b) Tencent held a 92.78% equity interest in Riot Games, after further
investing 230 million more USD. c) Tencent shifted into an open platform strategy. d) Tencent signed a strategic share purchase agreement with Kingsoft corporation, which Tencent acquired a 15.68% stake with around HK$892 million. e) Tencent begun to enter the sector of multi-player online games through acquisitions. For example, it fully controlled Call of Duty Online and Ring of Elysium, partly owned Fortnite and PlayerUnknown's Battlegrounds.
2012 a) Tencent acquired a minority stake in Epic Games, franchised games developer of Unreal, Gears of War and Infinity Blade. b) Tencent Comic, one of China's largest online animation platforms, was established.
2013 a) The total number of registered users of QQ and WeChat grew to over 300 million.
b) QQ and WeChat both launched their imbibed game centers within the app. c) Tencent’s broke its records of market capitalization, beyond US$ 100 billion. d) Tencent continually increased its stake to 18% in one of Kingsoft Corporation’s subsidiary, Kingsoft Network Technology.
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e) Tencent announced that it would purchase a minority stake in one of Sohu’s subsidiary, Chinese search engine Sogou.com, at a price of US $448 million. f) Tencent was passive shareholder after purchasing shares of Activision Blizzard from Vivendi.
2014 a) The peak current users of QQ reached 200 million. b) Qzone grew into one of the most popular social networking platforms
in China, with more than 645 million active users. c) In 2014, Tencent signed strategic agreements with several world-class music producing companies, including Sony, Warner Music Group and YG Entertainment, to get the exclusive copyrights in China. d) Tencent poured HKD 1.5 billion into China South City Holdings Ltd, a firm in logistics and warehouse, to develop and upgrade its value chain of electronic and logistics businesses. e) Tencent acquired a 20-percent stake in Dianping, a travel advice and coupon and group-buy app. f) Tencent bought a 15 percent stake in JD.com Inc, second largest e- commerce retailer, by paying cash and transferring its e-commerce units, including Paipai, QQ Wanggou and a stake in Yixun to JD.com, which benefited to build a more competitive alliance. Two months later, Tencent put additional investment and then increased up to a 17.43% stake in JD.com. g) Tencent purchase a 28 percent stake in South Korea's CJ Games, with around US$500 million. h) Tencent purchase a 7% stake in China LotSynergy Holdings Ltd, a lottery technology company, and wholly owned its subsidiary Hongze Lake Investment Ltd. i) Tencent decided to purchase a 19.9 percent stake in 58.com, an integrated Chinese e-commerce platform, for $736 million. j) Tencent also invested US$145 million and held a 10 percent stake in Koudai-Gouwu, a Chinese mobile shopping portal. k) Tencent bought HBO’s exclusive rights for distribution in China.
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l) Tencent became one of the main investors of Didi, a Chinese taxi- hailing service-providing platform.
2015 a) More than 200 million users started the new in-app functionality of mobile payment and bundled their bank accounts.
b) The core founder Ma Huateng proposed an innovative concept, "Internet Plus", which then developed into a national strategy. c) Tencent Holdings acquired the rest equity of Riot Games, and wholly controlled the company. d) Tencent launched Tencent Pictures, focusing on film distribution and production. Meanwhile, Tencent built a firm, Tencent Penguin Pictures, to produce mainly online dramas and minor-invested feature films, Tencent Penguin Pictures. e) Tencent increased its share-holding of 58.com to approximately 25%. f) Tencent released Honor of Kings, a multi-player online battle arena game, only in China.
2016 a) Tencent launched Tencent Gaming Platform (TGP) box, a video gaming console, which imported to many Tencent games. b) Tencent and Juwai.com, an international real estate website in China, established QQ Haiwai, which is a joint venture involved into international real estate listings and information. 2017 a) Tencent signed an exclusive agreement with Universal Music Group, to get the rights of streaming its music in China. b) Tencent built a strategic partnership with Alibaba Group, of sharing the rights of music-streaming, to protect licensed streaming services. c) Honor of Kings became the most popular and profitable game worldwide. Its international version, Arena of Valor was available, and it was also the most downloaded app all over the world. d) Tencent built a strong partnership with PUBG corporation, and formally received China-exclusive rights to operate Playerunknown's Battlegrounds. e) Tencent set up its own credit score system, Tencent Credit.
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f) Tencent, cooperated with China's Central Bank, planned to build a central payment clearing platform for online payments. g) Tencent released WeGame all over the world, an upgraded version of TGP, which created an open ecosystem for gaming. h) Tencent announced it was preparing to launch its virtual reality headset that year. i) Tencent ranked 8th on the list of Brand Z's Top 100 Most Valuable Global Brands. j) Tencent decided to establish the world's first eSports town, partnered with the Wuhu City Council. k) Tencent released a mini-program feature on WeChat, which allows smartphone users to use apps on WeChat without downloading. l) Tencent signed a 9% share-purchase agreement with Frontier Developments, the creator of the Elite. m) Tencent was the first Asian company to break the record of US$500 billion market valuation and became top 5 list of the world's biggest firms. n) Tencent established its own AI self-driving program and recruited a large number of industry players in automotive sector. o) Tencent and L'Oréal built joint business partnership to explore innovative digital marketing strategies. p) Tencent announced their partnership with Tapas Media, a digital publisher based in San Francisco to expand Tencent Comics to foreign markets. q) Tencent purchased a 12% stake in Snap Inc in the open market. r) Tencent Music Entertainment and Spotify built strategic alliance, swapped 10% stake and invested in each other's music businesses. 2018 a) Tencent and Lego planned to develop online games and potentially a social network for children. b) Tencent opened its first unmanned shop in Shanghai. c) Tencent pourred a US$5.2 billion investment in Wanda Commercial.
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d) Tencent and Carrefour established an alliance and reached strategic co- operation agreement to improve their retail and service experience. e) Tencent acquired a 5% stake in Ubisoft from Vivendi. f) Tencent became a majority stakeholder of Grinding Gear Games, the developers of the game Path of Exile. g) Tencent cooperated with Luckin Coffee, a promising Chinese coffee chain brand. 2019 Tencent worked with CCP’s publicity department and People's Daily to develop "patriotic games."
Source: Tencent, 2017; Popular Timelines, 2019
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Appendix G
Table III: Geely’s thirty-three-year journey
Time Events 1986 Mr. Li Shufu founded Geely in Taizhou, first mainly to massive produce refrigerator parts. 1994 Geely started to become a motorcycles manufacturer and seller. 1996 Geely Group was established, which incorporated all its businesses into a group. 1997 Geely begun to involve in automotive industry and a subsidiary: Geely Auto was founded. 1998 The production and assembly of first Geely Auto vehicle (Haoqing) was completed. 2001 Geely got an official Permit of car making and Geely Auto became the first Chinese private-owned auto manufacturer. 2002 Geely Auto quickly grew into China's Top Ten car manufacturers. 2003 a) There was a structure transition into ZGH, and Geely was one of divisions. b) Geely started exporting cars to foreign countries. 2005 Geely Auto (0175 HK) was the first automaker to be listed on the Hong Kong Stock Exchange in China. 2006 Geely became the largest shareholder of Manganese Bronze with 19.97% stake. Then it established a Joint Venture in Shanghai to produce London taxi. 2007 Geely Auto released the "Ningbo Declaration", which represented it enter into 2.0 era. They paid attention to not only good value for price, but also technology and high quality. 2010 ZGH wholly acquired Volvo Car Corporation from Ford. This is a milestone. In other words, Geely became first Chinese MNE in automotive sector. 2012 ZGH was the first time to be listed as one of Global Fortune 500 companies. XIX
2013 a) Geely wholly acquired Manganese Bronze, took control of its subsidiary, London Taxi International and the joint venture in Shanghai b) Geely Auto and Volvo Cars jointly established China Euro Vehicle Technology Centre (CEVT) in Sweden. 2014 a) Geely Auto declared new position strategies and brand mission, mainly focusing on “Making Refined Cars for Everyone”. b) Geely Auto released their 3rd generation vehicle, Bo Rui sedan. c) Geely sponsored and officially partnered with Chinese Olympic Swimming Team. 2015 a) Geely fully entered 3.0 “Refined Cars Era”, with a renovated product line to for their award-winning and best-selling cars. b) ZGH built a new R&D center in Coventry, UK. c) Geely issued Blue Geely Initiative, which sated that renewable energy vehicles would take 90% of its total sales volume by 2020. d) It launched CAOCAO, the first Chinese new-energy orientated ride- hailing platform. 2016 a) Geely established a new division, Geely Commercial Vehicle, including two brands, Yuan Cheng Auto and London EV Company, primarily producing new energy focused vehicles. b) Geely and Volvo jointly established a new global automotive brand, LYNK & CO, which is born digital and provides various connected technologies. 2017 Geely speeded up its steps to global expansion. a) In Malaysia, Geely purchased PROTON’s 49.9% stake, and became the majority shareholder of Lotus. b) In America, Geely acquired Terrafugia’s operations and assets, a flying car company. c) Geely completed the acquisition of an 8.2% stake in Volvo AB, a leading Swedish commercial automotive and engineering company. d) To facilitate technological synergies, more joint ventures emerged, like LYNK & CO joint venture, Geely-Volvo formed a technology.
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e) LYNK & CO’s released its first model, the 01. 2018 a) The founder and chairman, Li Shufu bought in 9.7% stake in Daimler AG, and then he became the biggest single shareholder of Daimler b) Geely and Daimler revealed their plans to build a ride-hailing joint venture in China. c) Geely Holding Group, Tencent, and China Railways formed China Railway Gecent Technology Co. d) Geely, Tencent, and China Railway strategically formed a joint venture to build a an integrated one-stop platform for high-speed rail passengers. e) Geely started to cooperate China Aerospace Science and Industry Corporation (CASIC) in R&D of supersonic trains. f) Geely acquired a majority stake in Saxo Bank, a global leading fin- Tech service provider in international trade and investment. g) The annual sales of ZGH’s three automotive subsidiaries peaked at 2.15 million, breaking its history record. 2019 a) Geely and Daimler built a half-half joint venture to develop smart, premium-electric autos, using renewable and sustainable energy. b) Geely Auto announced that it would be an official partner and sponsor of the 19th Asian Games in Hangzhou, Geely’s home city.
Source: ZGH, 2019c; Geely Auto, 2019b
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Appendix H
Table IV: Haier’s Company History
Time Events 1984 Haier's predecessor, Qingdao Refrigerator General Factory, was built. 1985 a) Zhang Ruimin figured out Haier’s initial brand-building strategy and acted as a late starter but with higher standard. b) Haier was blame for the quality problems of refrigerator. Zhang Ruimin broke these 76 unqualified products with Haier Hammer. 1987 Haier won an international bid, held by World Health Organization. 1988 In the National Refrigerators Appraisal, Haier won the gold medal again, which was the first time for a Chinese company to win the prize. 1989 The Factory was restructured and Qingdao Refrigerator Co., Ltd. Was founded. 1990 1990, Haier received both Business Management Golden Horse Prize and National Quality Management Prize. Haier got U.S. UL Certification. 1992 Haier passed ISO9001. 1993 The limited Company was listed on Shanghai Stock Exchange, with a new name: “Qingdao Haier Refrigerator Co., Ltd.”. 1994 Its first environmental-friendly product, Super Freon-free Refrigerator was produced and brought to join World Earth Day Expo in the US. 1995 Haier Group relocated their campus into the newly-built Haier Industrial Park, which was also part of Haier’s diversification strategy. 1996 Haier won the internationally highest honor Five Star Diamond Award and CEO Zhang Ruimin was awarded Five Star Personal Lifetime Achievement Award. 1997 a) Hair Group stepped into color TV industry. b) In February of 1997, Haier participated the World Household Appliances Expo in Cologne, and gained great success in Germany. 1999 The company first established a production base in South Carolina, 2000 In March, the first U.S.-made Haier refrigerator rolled off production line.
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2001 a) The Company started to known as “Qingdao Haier Co., Ltd.”, after acquiring 99.95% of Haier Group’s air-conditioner business. b) Haier released Patriot-I in 2001, Chinese first commercialized MPEG- ⅡSLSI decoding chip. c) Haier’s merged a Meneghetti-owned refrigerator factory in Italy, to further reach Europe market. 2002 Haier purchased the Greenwich Bank Building, which was then used as the Haier U.S. Headquarter, which benefited to build brand image in US market. 2003 Haier built a neon billboard in the central shopping district of Ginza, Tokyo, which was the first time for a Chinese enterprise to put such kind of billboard in Japan. 2004 Haier placed No.95 on the list of World's 100 Most Influential Brands released by World Brand Lab, the only Chinese domestic brand. 2007 a) Haier started to cooperate with Cisco. b) Haier won an official bid to send 36 types of Haier-branded products to the rural areas in China 2008 Haier acquired 20.1% interest in Haier Electronics. 2009 a) Haier Hammer was collected by China National Museum as National Cultural Relics. b) To benefit from a reduced tariff level and the cost of delivery, Haier completed the acquisition of an Indian refrigerator plant. 2010 a) One of Haier Group's subsidiaries was in transition and consolidation into the logistics business. b) Qingdao Haier took a governing interest in Haier Electronics. c) Hewlett-Packard Company provided high-quality products and service for Haier from 2010. d) Sponsored by UIBE, Haier and IMA, Management Accounting Research Center was established. e) In 2010, Haier shifted from standard to customer-configured structure by dividing Haier’s 60,000 employees into consumer-focused and self- operating 2,000 units, known as ZZJYT.
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2011 a) Haier became the top one mass manufacturer of household appliances, refrigerators and washing machines, with a global market share of 8.3%, 15.9% and 11.7% respectively. b) Haier made a decision to acquire Sanyo Electric's white goods business in Japan and Southeast Asian white goods businesses. 2013 a) Since 2013, Haier has focused on the innovative business model strategy, business ecosystem to adapt to this internet age. b) Qingdao Haier's first interconnected factory began to operate. c) Kohlberg Kravis Roberts & Co. L.P. ("KKR"), a leading global investment firm, set up a win-win business partner relationship with Haier, by signing a definitive agreement which KKR purchased a 10 % stake in Qingdao Haier. d) Joint with Alibaba, Haier planned to build a comprehensive ecosystem for the delivery and installation of home appliances and B2B sector. e) Haier released to build a new JV with Fagor, a leading appliance manufacturer in Europe. 2015 a) Qingdao Haier signed a trust agreement with Haier Group, which stated that Qingdao Haier were empowered to use and manage the assets held by Fisher & Paykel Appliances Holdings Limited. b) Qingdao Haier expanded its global market by acquiring Haier Group's overseas white goods business and their assets, including 26 operating companies and two holding companies. c) Qingdao Haier first launched COSMOPlat, which is an industrial internet platform to facilitate mass customization and intelligent manufacturing. d) Haier became a minority shareholder of Mitsubishi Electric. e) Haier America decided to establish a R&D Center in Evansville, Indiana. f) Haichuanghui Entrepreneur Incubation Center was jointly constructed by Tsingtao National High-tech Industrial Development Zone and Haier Group. 2016 The acquisition of General Electric's appliances business was completed.
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2017 a) RRS Logistics was established, as an open logistics entrepreneurship platform for sharing and co-creation in this era of the IoT. b) Haier generated 42.3% of its total revenue outside China 2018 a) It signed a contract to buy all the shares of Fisher & Paykel, a holding company of Haier Group. b) Haier Group successfully incorporated Dais Product. 2019 a) Qingdao Haier wholly acquired Candy, a home appliances maker company in Italy. b) Qingdao Haier formally switched the brand’s name into “Haier Smart Home”. Source: Haier, 2019b; 2017
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