INSIGHTS | China’s shift to enterprise: a quiet evolution

At our Emerge conference last week, we featured discussions on AI, blockchain, digital marketing, and corporate innovation in China. Of all the discussions, it was the one on the 2B shift that surprised me the most because of the reaction to it and the amount of explanation I had to provide to attendees and partners.

Bottom line: Enterprise, which includes everything from bringing rural convenience stores online to upgrading China’s factories, isn’t sexy and doesn’t get the attention it deserves. Even with significant restructuring announced late last year by the BAT as well as government policies prioritizing industrial upgrades, not enough China tech watchers and participants are aware of what could be the biggest shift in China’s tech industry. Too often we focus on the consumer space and the Luckins of the world, but it’s changes on the backend that are transforming how business, across all verticals and industries, is being done.

A brief timeline:

• 2014: Alibaba launches Ling Shou Tong, an inventory management platform for convenience stores and parcel delivery
• Jan 2015: Alibaba launches a beta version of its enterprise messaging service DingTalk
• Oct 2016: Jack Ma coins the term “New Retail” in a speech at the 7th Alibaba Computing Conference
• Mar 2018: Meituan-Dianping, via Longzhu Capital, leads the RMB 205 million (about $30 million) Series B of FCMG B2B platform Zskuaixiao.com
• Sep 2018: Jack Ma, in another opening speech for Alibaba’s annual Computing Conference, coins the term “New Manufacturing”
• Oct 2018: Tencent announces restructuring to focus on industrial internet with the creation of a new business solely for cloud computing and smart industry
• Nov 2018: Alibaba announces restructuring that will upgrade their cloud business to be overseen by CTO Jeff Zhang. This restructuring also saw the integration of Tmall’s e-commerce platform, Tmall Supermarket, and Tmall’s import-export business into one business unit.
• Dec 2018: JD.com says they will restructure JD Mall, their revenue center, into three different departments: 2C platforms, business support services, and infrastructure control and risk management.
• Mar 2019: Alibaba acquires Teambition, a local enterprise collaboration app
• Apr 2019: Bytedance, the world’s most valuable private company, launches Lark (Feishu in Chinese), an enterprise messaging app aimed at both domestic and international markets
• May 2019: Chinese media reports that Baidu has dismantled its education business unit and begun offering cloud-based teaching management solutions to schools and tutoring agencies.

“The 2B shift is a win-win-win. The government wants to digitize their industry very quickly. At the moment, Chinese industry lags behind other countries. For the internet giants, this is best opportunity for growth. For Chinese SMEs, they don’t have the ability to be at the cutting edge. They are ready to use the platforms that already exist … The shift is really driven by the B2C internet.” —Francois Candelon, senior partner and managing director at Boston Consulting Group, at Emerge by TechNode on May 23, 2019

The power of the Chinese consumer: Unlike Silicon Valley, whose name comes from its roots in enterprise-focused hardware development, the Chinese tech industry is firmly rooted in providing better, cheaper, and faster for the country’s consumers. Chinese companies, especially SMEs, have relied on the demographic dividend for growth and did not pay much attention to employee productivity or efficiency. However, China has already passed the Lewis turning point (where wages for unskilled industrial labor exceed real agricultural wages); some estimate it happened as early as 2010. As companies, especially in manufacturing and retail, are finding it harder and harder to squeeze value out of employees, their need for technological solutions is growing. Let’s look at some of the areas where 2B has the biggest opportunities in China.

B2B2C: Smart mom-and-pops. First, it was online-to-offline (O2O), which filled in the gaps where “traditional” businesses couldn’t meet demand for both convenience and price. Now that O2O business models are proven and mature (i.e. many have died after a Cambrian explosion), China’s tech giants are helping shops that didn’t reap the immediate benefits. Services for convenience stores, traditional retailers, and restaurants are now the next area of growth for traditionally 2C tech giants. By going online, offline SMEs without their own technical infrastructure can better understand how their own business actually operates; they can take advantage of data analytics and payment systems, predict key demand profiles, and keep better track of their inventory and customers. Both Kuaishou and Pinduoduo, with their main demographic in poorer areas, offer technical infrastructure as well as a platform for rural small business to sell their goods.

C2B: With smart factories and rapid iteration, customer-to-business platforms allow manufacturers and brands to keep up to date on consumer preferences. Instead of investing in market research and complex factory lines, small batches of targeted—and even localized—products are now possible.

Industry 4.0: As I’ve outlined previously, Made in China 2025 is the plan to bring the country’s light and heavy industry into the modern age with cutting-edge technology, including robotics, IoT, AI, AR/VR, and even blockchain. For tech companies large and small, this represents massive opportunities for new business and growth. For example, almost all the tech giants are making their own robots and some of the most valuable AI startups are in robotics. Blockchain is another burgeoning technology that, while still immature, can be used in factories, supply chains, and even customer endpoints to increase efficiencies.

Not much room for productivity suites: In the US, productivity suites and extensible productivity platforms have enabled countless startups, tech and otherwise, to immediately reap efficiency benefits. By providing ways to assign and share tasks, cut out email, and collaborate on important documents, these apps can provide mountains of value right out of the box, often with free or affordable pricing tiers. China’s offices, however, haven’t been all that welcoming. Not only does WeChat allow for the unrestrained crossing of work-life boundaries, many Chinese managers and employees I’ve worked with do not intuitively get the point of these Western offerings. Teambition, founded in 2011 and one of the only independent productivity apps until its acquisition, tried to create a Trello-Slack-Asana mashup for the Chinese market, but it never really took off. Their last funding round before they were acquired was a Series B in 2016. Both Teambition and DingTalk aren’t pretty either. For all their ability to create compelling customer experiences, Alibaba obviously put their second- (or even third-) string designers on the UX of DingTalk. While its admin and HR functionality are powerful, employees hate it. It’s not easy on the eyes, its core function (messaging) isn’t that easy to use, and managers can easily see if people are “working.” The only company to nail messaging UX is Bytedance (sorry Tencent, WeChat for Work ain’t great). Clearly taking a page out of Silicon Valley’s success, Lark is a pleasure to use. However, I don’t expect as much traction domestically:

• It lacks some of the great admin and HR abilities that DingTalk has.
• Without pressure from higher-ups, many workers won’t feel the need to switch away from using WeChat for nearly everything.

Opportunities for startups: As with much of China’s development, some of the biggest opportunities are to be found in government priorities. Both consumption upgrade (to a lesser degree) and industrial upgrade (to a greater degree) policy priorities create a lot of blue ocean for young companies to play in. However, if they want to go up against the big companies, the key will be vertical specialization and domain expertise, as this is something difficult to replicate for competitors big and small. Black Lake, for example, provides software and management methodologies tailored to the needs of manufacturers. Because they are relatively small, they can not only better service their customers, but also iterate faster than their lumbering cousins.