People talk about Silicon Valley's winner-take-all environment. This is magnified in China, where success and consolidation scale in proportion to its worker/innovator population, and in tandem with the velocity of iteration. Meituan-Dianping's merger made it the 5th most valuable unicorn in the world, and created a super-app that's much more than the “Groupon of China.”

There are more details around the Darwinian pressure of China's tech innovation, but one thing to remember is that its massive and densely interconnected population also means that sample sizes are bigger, and success is (or has to be) much bigger. A few million MAU is nothing in a total addressable market of a billion.

In her post on mindsets for thinking about innovation and China, Connie Chan shares some perspective on this:

“To put it bluntly, a company that has reached 1 million registered users in China hasn’t really “cracked” China; for instance, if Tencent had a product with just five million monthly active users in China, it might consider shutting the app down!...

In mobile, China Mobile apparently has (as of the end of last year) nearly as many 4G mobile subscribers as the entire U.S. population. Not to mention nearly three times as many total customers as there are people in the U.S.

China is thus an ideal place for startups to find all sorts of insights on user behaviors at scale.”

It's worth noting that China Mobile is just one of three major carriers in China.

China lives by the 80/20 rule

When James Palmer wrote about China's “chabuduo” culture, it was to point out the problems with 'good enough:'

“The prevailing attitude is chabuduo, or ‘close enough’. It’s a phrase you’ll hear with grating regularity, one that speaks to a job 70 per cent done, a plan sketched out but never completed, a gauge unchecked or a socket put in the wrong size.

Chabuduo implies that to put any more time or effort into a piece of work would be the act of a fool.”

But the flip side of “chabuduo” is how it enables people to get things done faster, even if it's (potentially) at the expense of quality.

A nose to the grindstone work ethic, lots of hands, and a culture of throwing it against the wall is what enables Chinese companies to build a train station from scratch in 9 hours, or to copy, build and sell a structurally simple piece of consumer hardware faster than its original creator can launch a Kickstarter campaign, and it applies to more than just simple hardware products or manual labor construction projects.

Across a three year research project, MIT researchers documented China's accelerated innovation, partly attributable to the lower cost and bigger supply of Chinese engineers, but in even larger part due to an “industrialization of innovation” that divides up the discrete steps of the innovation process and throws a team of (inexpensive) talent at each step, kind of like an assembly line.

“When Tencent launched the first version of the QQ reminder application, it was geared toward appointments, birthdays and anniversaries. Users quickly pointed out that the product had a missing feature: reminders for when their favorite sporting events were about to begin. More surprising to Tencent’s developers, however, was the flood of input they got from gaming enthusiasts who wanted reminders about the schedules of computer-game tournaments.

Within weeks, the Tencent team released a new version that incorporated both functions. This rapid cycle of launch-test-improve has now become core to Tencent’s innovation process.”

Chinese companies are doing this in non-Internet sectors, too.

“Mindray Medical International Ltd., a company based in Shenzhen that is China’s largest maker of medical equipment, for example, released the initial version of its BeneHeart R3 electrocardiograph machine into the market following 18 months of product development.

Mindray routinely launches new products every six months, in stark contrast to the typical two-year launch cycles of some of its foreign competitors.”

Regulatory bedfellows

In the US, regulations and legacy systems that used to serve us so well (ie, the banking system) can end up holding us back when it comes to disruptive innovation, and there's traditionally been a relatively strict divide between government and the private sector.

Google only hired its first lobbyist in 2006, years after it was already public and big enough to be a heavy hitter (Twitter's first lobbyist came in 2012, and Facebook's was some time around 2011). 'Consulting' government so late in the game contributed to a relatively adversarial relationship, which in turn has an impact on the access, and velocity, that companies are able to get.

By contrast, Chinese entrepreneurs were tight with the government from day one, which has led to a more collaborative environment (one that goes both ways though -- the government also forces large Chinese tech companies, like Alibaba and Baidu, to share user data and work on projects in their interest). This means the Chinese government is often actively clearing regulatory obstacles that would slow down innovation because it views tech as a national policy interest.

Conclusion

To understand China's innovation, we have to look at all the factors — socio-cultural, technical, IP, political. It's not about faster copycats, or just about 9-9-6, or a mobile-first ecosystem. China's companies won't be confined to their massive domestic market forever, either. Even if you aren't actively going after the China market, Chinese companies could be coming after yours.

China is and will continue to be exporting a lot more than manufactured goods. As consumers of Chinese-created tech, and as entrepreneurs, investors and market watchers, where that goes will be relevant for all of us.

Further Reading on This Topic

Mindsets for Thinking about Innovation In — and Competition from — China by Connie Chan

How a Chinese Food Unicorn Nails Acquisition, Monetization, and Defensibility by Xianhang Zhang

Fast and furious: Chinese unicorns to overtake American counterparts by Linda Lew

Chabuduo — What Chinese Corner Cutting Reveals about Modernity by James Palmer

