Business Ecosystems in China

Alibaba and Competing Baidu, Tencent, Xiaomi and LeEco

Mark J. Greeven, Wei Wei

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781351805766
• Topic: Business
• Subtopic: Business General
• Index: Business

We cannot afford to miss the remarkable rise of Chinese business ecosystems. Alibaba and their peers Baidu, Tencent, Xiaomi, and LeEco showcase unprecedented growth and success in China and are expanding their impact globally. With a combined market capitalization of close to 600 billion USD, incubating over 1,000 new ventures and an average annual growth of over 50%, they have become a force to reckon with for the likes of Google, Microsoft, Apple, Amazon, and IBM. 'Business ecosystem' is a frequently used concept to describe the unique competitive advantages of the American technology giants. This book explores not only the application of a business ecosystem approach in the Chinese context but also deals with the key strategic question: How did these five Chinese business ecosystems grow so rapidly and successfully?

The book takes the growth and transformation of Alibaba's business ecosystem as a focus case in comparison with Baidu, Tencent, Xiaomi, and LeEco. These business ecosystems developed in less than 20 years and transformed from organic growth to rapid expansion by investment and acquisition, entrepreneurship and incubation of new ventures, continuous innovation, and internationalization. This book brings insights and practical lessons on leading, creating, and disrupting markets for corporate executives and professionals in global business, a comparative case study for researchers and students of management, and food for thought on Chinese ways of doing business.

PART I

Business ecosystems in China

1

RISE OF BUSINESS ECOSYSTEMS IN CHINA

1.1 Introduction

At the end of the 1990s in China, three young men saw the rise of the Internet and started crafting business ideas. While one man was based in Beijing and was part of a bustling technology scene, the two other men were in the newly emerging Hangzhou (East coast) and Shenzhen (South coast). They independently built three Internet platforms in a time when most Chinese people had not heard of the Internet, and did not own computers, or credit cards for that matter. Within less than two decades these three platforms grew into China’s largest business ecosystems encompassing online and offline businesses with a combined estimated market capitalization of over 500 billion USD by the end of 2016. These three men are Ma Yun, Li Yanhong and Ma Huateng and they respectively established Alibaba, Baidu and Tencent.

Ma Yun’s business has its roots in trading and ecommerce, mostly focusing on facilitating small and medium enterprises in global market places. Li Yanhong’s core business is search technology and is often dubbed the ‘Google of China’. Ma Huateng’s business has its roots in instant messaging and online communication. Nevertheless, all three platforms have been diversifying in the last five years into Internet finance, digital healthcare, culture and entertainment, enterprise services and location based services, among others. Moreover, they have incubated a combined total of over 1,000 new ventures. Transforming from three independent platforms to three competing business ecosystems, these three pioneers are now commonly known as BAT.

Then, in 2004 a small online video platform was established by a young man named Jia Yueting. It would be impossible for him to imagine that only ten years later he will openly and publicly challenge the mighty BAT and have an estimated market capitalization of 50 billion USD by the beginning of 2017. His video platform transformed into one the most innovative business ecosystems in China: LeEco. The business ecosystem includes businesses ranging from entertainment production, smart TVs and smartphones to driverless cars; his ecosystem includes already four unicorns, i.e. a company with over 1 billion USD valuation before IPO. Although BAT is equally successful in their diversified investments, the new kid on the block posed a serious challenge.

However, as with everything in China, the story took a sudden turn when in 2010 several Chinese technology veterans established Xiaomi. With the speed of light and an unheard of business model that revolutionized online social marketing and built an instant fan base while lacking hardware R&D, production facilities and offline sales channels, Lei Jun and his co-founders were able to launch a smartphone that conquered the hearts of many young Chinese. It took only two years to surpass the Chinese market share of Apple and enter the national smartphone top five. After initial success, Lei Jun announced their five year plan and started building a Xiaomi family of hardware products, including TVs, air purifiers, smart wearables and rice cookers. They not only challenged local traditional manufacturers and BAT but also established multinationals as an underdog in their familiar markets.

What do these entrepreneurs and their success stories have in common? They strategically used business ecosystems for their rapid growth, transformation and success in China. This book is about the business ecosystems of Baidu, Alibaba, Tencent, Xiaomi and LeEco (BATXL).

1.2 What this book is about

This book is about how leading Chinese companies adopt a business ecosystem approach to not only lead but also create and disrupt the market. The unique competitive advantage of American companies like Google, Microsoft and Apple is often attributed to the business ecosystem approach to organizing their businesses (e.g. Moore, 1996; Adner, 2006; Iansiti and Levien, 2004). Recently the popular (Chinese) press explained the success of Chinese pioneers such as Alibaba and Xiaomi in a similar way. For instance, a search on Chinese search engine Baidu on the keyword ‘business ecosystem’ (in Chinese: ‘shangyeshengtai’) gave 2.1 million results in Chinese in January 2017. The purpose of our book is to adopt and explore the business ecosystem concept in the Chinese context by providing a definitive and systematic account of Alibaba’s growth and transformation as a business ecosystem in comparison with other leading Chinese business ecosystems: Baidu, Tencent, Xiaomi and LeEco. The book is written for business professionals, executives, academics and students seeking deep insight into the success of Alibaba’s business ecosystem in comparative context; academics and students seeking a deeper understanding of comparative business ecosystems in the Chinese context; business professionals and executives seeking insights in the leading business ecosystems in China; and researchers of strategy, business ecosystem and innovation in general.

A business ecosystem refers to particular arrangements between organizations that combine their own products and service offerings into a relatively coherent and customer centric offering (Adner, 2006). Moore (1996), one of the early thinkers on business ecosystems, took business ecosystems as new patterns of competition, rather than as a specific strategy. Moore sees a business ecosystem as an “economic community supported by a foundation of interacting organizations and individuals – the organisms of the business world” (Moore, 1996: 26). Iansiti and Levien (2004) conceptualize business ecosystems as networks of firms that collectively provide competitive advantages. They perceive ecosystems as loose networks of suppliers, distributors, outsourcing firms, makers of related products or services, technology providers and hosts of other organizations that affect and are affected by the creation and delivery of a company’s own offerings. Iansiti and Levien take a stakeholder perspective, including in particular non-business stakeholders such as media and regulators. Weill and Woerner (2015) note that companies establish an ecosystem by creating relationships with other providers that offer complementary but sometimes also competing services.

In our book we refer to business ecosystems as new organizational forms where the businesses are interdependent through a variety of equity relationships combining product and service offerings into a customer centric offering. While the boundaries of a business ecosystem are fluent and dynamic, we take equity relationships as a criteria to be included in the business ecosystem. Therefore, we can distinguish business ecosystems from companies (full ownership and diversified businesses organized in business units), holdings (organizations connected by equity based relationship but no specific mutual interdependencies or necessary synergies beyond financial arrangements), and business networks (loosely connected groups of companies), as illustrated in Table 1.1.

While previous contributions by Moore (1996), Adner (2006, 2013), Iansiti and Levien (2004) and Weill and Woerner (2015) provide a solid academic and professional basis for the exploration of business ecosystems, they, first of all, are mostly limited to the US market context and entirely miss the rise of Chinese business ecosystems. China’s business context has been particularly conducive to new organizational forms that explore and exploit the dynamics in the market: the rise of entrepreneurialism, digital disruption, middle class boom and regulatory uncertainty. These conditions will be explored in Section 1.5. Second, while previous studies address some strategic questions, they fail to systematically explore important strategic questions such as how does an ecosystem grow? What is the role of investment and acquisition in ecosystem development? To what extent does an ecosystem facilitate innovation? What are the challenges for strategy making? Does an ecosystem provide specific opportunities for entrepreneurship and incubation of new ventures? And to what extent can ecosystems as business models be internationalized? We adopt a framework of strategic growth to investigate such questions for leading Chinese business ecosystems. In particular we will focus on four growth approaches: innovation, investment, incubation and internationalization. Third, instead of discussing business context and companies as two independent units of analysis, we emphasize that business ecosystems are both part of and interdependent with the business context. Last, most of the previous publications are descriptive and insightful but fail to put insights into comparative perspective. We will take the growth and transformation of Alibaba’s business ecosystem as a focus case to explore the above topics. We will compare the business ecosystem of Alibaba with other leading Chinese business ecosystems Baidu, Tencent, Xiaomi and LeEco to explore differences and similarities in order to gain a better understanding of the strategic aspects of business ecosystems in general and in the Chinese context in particular. In Figure 1.1 we visualize our contributions.

TABLE 1.1 Comparing business ecosystems to other organizational forms

	Business Ecosystem	Company	Holding	Business Network
Ownership structure	Equity sharing	Single ownership	Equity sharing	No equity sharing
Industry involved	Related and diverse	Single or limited	Unrelated and diverse	Single or limited
Decision-making mechanism	Orchestrated and interdependent	Centralized	Decentralized and independent	Limited coordination

1.3 BATXL: Alibaba, Baidu, Tencent, Xiaomi and LeEco

The book is organized around a large case study of Alibaba’s ecosystem (part 2) and comparison with other leading Chinese ecosystems: Baidu, Tencent, Xiaomi and LeEco (part 3). Table 1.2 summarizes the key facts of BATXL.

FIGURE 1.1 Contributions of this book

Source: authors’ own figure.

TABLE 1.2 Case studies in this book: BATXL

Source: website and annual reports from BATXL

Many accounts of BATXL have been published in the last couple of years. We suggest readers interested in the more personalized or journalistic stories of the various companies and founders read the following books. Erisman (2015) is an insightful yet more journalistic account of Alibaba, providing insights based on the author’s employment as head of international marketing until 2008. It provides an account on Alibaba’s role as harbinger of new global business. Clark (2016) provides a more personal story of Ma Yun. It is filled with anecdotes and personal reminiscences but mostly emphasizes the positive aspects and Alibaba’s local context. Lee and Song (2016) contains more than 200 quotes and aims to provide a direct look into the mind of Ma Yun. Many of these quotes are translated directly from the Chinese press and interviews. While the above books certainly document the development of Alibaba and describe Ma Yun’s achievements, these accounts are of more journalistic nature with limited academic basis. Moreover, the books neither provide a comparative perspective nor explore strategic questions in Alibaba’s ecosystem.

Baidu and founder Li Yanhong have been reported or described in over 50 Chinese book publications. Tencent and founder Ma Huateng have received signifi...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• List of figures
• List of tables
• Preface
• PART I Business ecosystems in China
• PART II Alibaba case
• PART III Beyond Alibaba: the leading Chinese ecosystems of Baidu, Tencent, Xiaomi, and LeEco
• Index