European companies are running behind in defining a good strategy in catching up with China, writes Mark Greeven, professor at the Zhejiang University, in the LSE Business Review. “The reality is that Chinese companies have no choice but to innovate and upgrade in global value chains.”
The reality is that Chinese companies have no choice but to innovate and upgrade in global value chains. Their domestic competitive landscape is highly competitive and innovation advantages are necessary. Entry into Europe by many of China’s largest tech companies is a necessity, as they are looking for market experience, leveraging new technology and exposing themselves to international business.
We have not even seen the real beginning of the international journey of Chinese digital giants. More is to come, as it is imperative to China’s business world.
It is also worth noting that while Chinese companies no longer have a cost advantage, they do have a technology advantage. Chinese companies are globally number one in fintech; number two in virtual reality, autonomous driving, wearables, robotics, drones, and 3D printing; and number three in big data and artificial intelligence (McKinsey, 2017). Chinese research in deep learning for artificial intelligence applications has seen the largest growth rate, closing in on the US, while European companies are hardly increasing AI research and development. AI has been supported by recent national government policies in China. Already, there is a Chinese white paper on developing technology standards for AI. Combined with markets, capital and ambitious entrepreneurs, Chinese companies have a strong technology advantage to leverage in Europe.
For European executives it is vital to understand what is happening and react as fast as possible, either to grasp an opportunity or to be ready to face an emerging threat. First, they should know and analyze in detail the latest solutions, value propositions and business models of the Chinese digital players, identifying the most innovative and disruptive elements. In several cases they can be taken as innovation benchmarks.
As they are very unpredictable, it is crucial to map the different ecosystems to derive insights on whether and how Chinese players will penetrate a particular market space. Designing interconnections among the companies inside ecosystems helps understand the overall business models and next strategic moves. This is critical to define the best strategies to connect, partner or compete against them.
More in the LSE Business Review.
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