Seizing Opportunity in China's Burgeoning Economy

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Seizing Opportunity in China's Burgeoning Economy The new Chinese unicorns: Seizing opportunity in China’s burgeoning economy by Jianbin Gao and Yuqing Guo Foreword In recent years, a host of promising unicorn Support from the capital market has also been companies have emerged in China. These are local essential for the growth of unicorns. The China startups that are generating enormous wealth early Securities Regulatory Commission (CSRC) recently in their development. (The standard definition of a rolled out a regulation smoothing the path for unicorn is a privately held startup valued at more technology unicorns listed overseas to pursue than US$1bn.) Most of these enterprises are in the domestic market listings, and we expect to see vanguard of their industry, leading the way for the more super-unicorns on the A-share market soon. generation of new technologies, business activities Meanwhile, the investments made in startups by tech- and business models. Their rise is thus regarded as a savvy incumbents have further accelerated the pace bellwether of future economic growth. of disruption. Companies such as Tencent, Alibaba, Baidu and Finding talent is another key factor for enterprises JD.com, all less than 21 years old, have become trying to gain and sustain a competitive advantage. It ‘super-unicorns’: internationally recognised is especially key for the youngest Chinese unicorns. competitors, often valued at US$10bn or more. We Attracting top talent and building a corporate culture believe that many more of today’s unicorns will also are strategic priorities for them. They are learning how grow into global industry giants in the future. to recruit, manage and motivate workforces composed mainly of employees from the post-1990s generation. The rapid modernisation of China and the growth of its economy help explain the unicorn phenomenon. In this report, our inaugural study of Chinese unicorn During the past few years, the main engine of companies, we surveyed and interviewed the top economic growth has shifted from investment to executives of 101 rapidly growing high-valuation consumption. The rise of the mobile Internet has enterprises. They described the factors affecting their transformed China’s huge consumer market, and the fast-growth businesses and their own prescriptions generation born in the 1980s and 1990s has become for success. China’s unicorns have shaped, and will China’s most influential buying group, creating surges continue to shape, the startup world of technology in consumption that have brought new business and services. They have changed the way people eat, opportunities. With novel ways of thinking and shop and work, and their galloping growth has left shopping, China’s young consumers are looking for footprints of disruption and innovation, significantly more personalised, more convenient and smarter affecting or in many cases disrupting the way many products and services. sectors and businesses operate. Another factor contributing to the emergence To the executives whose opinions are featured in this of China’s unicorns is the pace of technological study, we would like to extend our thanks for taking innovation. Unlike businesses of the past, today’s time out of their tight schedules to share their thinking unicorns are competitive because of their mastery of and insights. Their responses provide valuable data and technology. And they expect to rely even guidance for the unicorns themselves, and for more more on innovations in data-based insight, artificial established companies that also seek growth. The intelligence (AI) and blockchain. Technological wave of economic momentum described in this report advances have made it possible, for example, will continue to both bolster and benefit from the for unicorns to accurately predict consumer development of China’s new economy. demand and preferences, and rapidly shift their –Raymund Chao, Chairman of PwC Asia-Pacific and businesses accordingly. Greater China 1 Unicorns in profile They are surrounded by a halo of capital, moving of US$1bn or more. In China, these are often family- rapidly within China and potentially beyond. They are owned businesses, growing so quickly and with such visible locally but not well understood, and almost unique value propositions that they, too, are very hard unknown to the world outside. Yet they could be to catch. As the Internet era has transformed business among the most influential global companies in the throughout the country, it has also witnessed the birth next 20 years. To take a close look at their business of unicorns at an accelerated rate. models and development path, PwC carried out a survey in 2018 of the chief executives of 101 young, Most of the Chinese unicorns and potential unicorns successful Chinese companies – companies that are that we surveyed are located in Beijing, Shanghai, either unicorns now or likely to become unicorns soon. Shenzhen and Hangzhou. These are cities with a high level of innovation, mature technologies, skilled talent, ExhibitThe word ‘unicorn’ 1 evokes stories of a rare creature that supportive policies and the presence of other leading can be seen by many but caught by only a few. Venture technological and innovative enterprises (see Exhibit Geographiccapitalist Aileen Lee locationscoined the term ofin 2013 unicorn to refer survey1). We found respondents unicorns in 13 sectors, with almost half to privately held startup businesses with valuations of the companies concentrated in four industries Exhibit 1 Geographic location of unicorn survey respondents Beijing 36% Nanjing 1% Suzhou 2% 25% Shanghai Wuhan 1% 7% Hangzhou Note: The remaining 1% Xiamen 11% of respondents were located elsewhere in China. 2% Guangzhou Shenzhen 12% 2% Source: PwC China Unicorn CEO Survey, 2018 Hong Kong Note: The remaining 11% of respondents were located elsewhere in China. Source: PwC China Unicorn CEO Survey,2 2018 significantly shaped by technology: enterprise Exhibit 2 services, media and entertainment, transportation Survey respondents by sector and automotive, and financial technology (fintech). Close behind in the sector rankings were e-commerce startups, online-to-offline (O2O) businesses enabling Enterprise services online purchasers to pick up products in person, and 12% medical and healthcare enterprises (see Exhibit 2). Media and entertainment (including sports and social media) 12% Unicorns in any country are characterised by rapid growth, and that of China’s unicorns is among the Transportation/automotive fastest. Of the companies that disclosed information 11% about their enterprise revenues, 83% said that they Fintech had increased by more than 50% in the last fiscal year. 11% Most of that group, 54% of the total, said revenues E-commerce had more than doubled. Nearly two-thirds claimed 9% valuations of more than US$1bn, and the other third were chosen for the survey because of their O2O impressive growth or other measures that suggested 9% they would soon hit that mark. Six percent claimed Medical and healthcare valuations of more than US$10bn. About half of the 8% total group said they employed more than 2,000 Hardware people (see Exhibit 3). 2% 5% Logistics 5% Education 5% Real estate and household 4% Others 4% Travel 3% Emerging technology 2% Source: PwC China Unicorn CEO Survey, 2018 3 Only the United States’ economy has as many Exhibit 3 unicorns as China’s does. But one big advantage that Basic growth metrics cited by unicorns in Chinese unicorns have over the US unicorns is their the survey near-exclusive access to a huge and vital domestic market. China has the second-largest consumer market in the world (after the US). It is growing faster Year-on-year increase in revenue and is less saturated than its US counterpart. It is 3% full of newly prosperous consumers with improving Revenue increase reported standards of living who are largely unavailable to 4% 10% 100% or more unicorns in other economies. According to China’s 51–100% National Bureau of Statistics, consumer expenditures 31–50% accounted for 58.8% of overall economic growth in 54% 11–30% the country in 2017. 10% or less 29% China’s consumers are also relatively technologically advanced. The country’s online retail sales ranked first in the world in 2017, reaching RMB7.2tn (US$1.1tn) – an increase of 32.2% from the year before. Online sales accounted for 15% of total retail sales of consumer goods in China. Valuation range 3% The leaders of unicorn companies are characterised 3% by energetic, entrepreneurial frames of mind. Three- 7% Valuation 6% quarters of the responding companies had been in More than US$50bn business for less than eight years, and one-fourth of US$10bn–US$50bn the respondents said their companies were less than 18% US$5bn–US$10bn 29% four years old. These leaders are seeking to achieve US$2bn–US$5bn success and fame, and quickly enter the ranks of US$1bn–US$2bn top companies amid ever-fiercer competition. At US$500m–US$1bn the same time, they come into these roles with Less than US$500m experience: nearly 70% of the founding members 34% of unicorns have two or more startups already under their belt. This is testament to their persistent dynamism, their willingness to learn from experience Number of employees (including failure) and their ability to grow more Employees reported courageous with every battle. on survey 24% 2,001 or above 501–2,000 49% 500 or below 27% Note: Percentages may not equal 100 due to rounding. Source: PwC China Unicorn CEO Survey, 2018 4 Financing for the future As Raymund Chao says in the foreword to this Somewhat fewer companies have plans for an report, support from China’s capital market has been initial public offering (IPO). Of the enterprises that essential for the growth of unicorns. Support stems disclosed information in the survey, a majority (65%) from two sources – Government policy and the had plans to list within two years.
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