We use cookies to personalise the website and offer you the greatest added value. They are, among other purposes, used to analyse visitor usage in order to improve the website for you. By using this website, you agree to their use. Further information can be found in our data privacy statement.



Digitalisation in China

PrintMailRate-it

published on July 25, 2018 

 

Interview with Dr. Thilo Ketterer

 

If the topic of digitalisation in Germany is written on the agenda, it can be expected that you will not just get a plain definition for the term. The repeatedly mentioned keywords are “disruptive technologies”, “innovative business models” or “autonomization”, which in turn is often summarized under the term “Industry 4.0”. But today we want to talk about China.

 

Please give us a brief insight into what is meant by the term digitalisation in China. 

While Germany spent years philosophizing and discussing about dysfunctional airports and stations, China has been establishing a groundbreaking innovation center in the South at record speed. This is just one of many examples illustrating how digitalisation is pushed in China. With the so-called Greater Bay Area, the Chinese government is about to establish a giant innovation hub amidst the already strongly progressive Pearl River delta – an association of 11 cities with more than 60 million inhabitants. The Hongkong-Zhuhai-Macau bridge, connecting both islands to the mainland and scheduled to be opened in 2018, gives proof of the impressive progress of the project. Having to overcome legal differences caused by the different traffic regulations involved (left-hand traffic in Hongkong and right-hand traffic in China), this bridge gives an example of how fast ideas may be realized. The cornerstone for the bridge spanning 55 kilometers has only been laid less than 10 years ago, in 2009. Upon completion, the Greater Bay Area will consist of different clusters, while each of the connected cities will be developed into a competence center focusing on a specific subject, like i.e. artificial intelligence. The Chinese Silicon Valley – Shenzhen – is located right in the heart of the Guangdong province. Shenzhen is a showcase model for SmartCity technologies and E-mobility, characterized by a most innovation friendly climate that even captures traditional sectors like the textile industry.  In the slipstream of spearheading innovation drivers like Tencent or Huawei, the region did not only successfully attract quite a variety of start-ups, but also many well-established Forbes 500 companies. 
 

Major investments in digitization projects are effected elsewhere too. In Peking i.e., which among others is considered to be a perfect location for start-up companies, a research and development center for artificial intelligence (AI) is currently being realized. One of China´s declared objectives: Being the global leader in AI technology by 2025. Another innovation hub is to be established in the Northern province of Hebei – the Xiongan New Area. In order to achieve the strategic objectives, universities, schools, start-ups as well as established companies are granted comprehensive support. The automation of business processes is considered to be a further important driving force. The hunger for robotics, the related technology and for putting them to use continues to be strong, and will not decrease until the government objective “Made in China 2025” – China´s answer to “Industrie 4.0” -has been achieved. There is almost no end to this list – be it Internet of Things, E mobility, SmartLiving, SmartCities and so forth.

 

Digitalisation is a cross-industry and cross-company topic. How do you assess the current situation in China - Has society already internalized the topic, do companies understand the change or is it more likely to try and endure the topic? Which sectors are already on the road to success, which are lagging behind, maybe even traditionally?

There are probably only very few countries populated by people who accept and adapt digitalisation as unconditionally as the Chinese. This phenomenon may partly be explained by the fact that due to the long lasting isolation, China is currently experiencing a period of backlog demand. Smartphones, i.e., have already taken their place in the center of society. Though there still is a perceptible gap between the part of the population living in the well-developed infrastructure of Chinese cities, and those living in rather rural areas, a total of more than 700 million people in China do access the internet via smartphone. This development may be observed through all social classes, and life without smartphone seems to have become unfeasible. Having revolutionized the cashless payment in China, the technical giants Tencent and Alibaba are definitely spearheading the scene. Not just the global players, even the street hawker around the corner is equipped with Alipay and WeChatPay apps. Paying an apple by app? No problem in China. Whatever comes without QR code and cannot be paid by app will not be purchased by the consumers.
  

These apps are not exclusively used for B2B or C2C though. Whoever neglects to operate his own web presence or online shop on WeChat, is most likely to miss out on his chances in the Chinese market. This applies, not least, to German companies being present in China. The tight internet censorship, the cyber security law, the thwarting of foreign websites with servers located outside China may easily cause companies to lag behind and lose touch with the market. Joining forces with a local partner may help to overcome these obstacles.  

 
Where do you see the best chances for German and European companies to position themselves in the market with disruptive business models in China?

Quality, quality and once again quality – German business still benefits from its traditional high standards, and “Made in Germany” still enjoys an excellent reputation in the Middle Kingdom. We clearly realize, that German and European companies need to establish flexible structures in order to be able to adapt their business processes to the changing market requirements. Furthermore, tax and legal regulations keep changing as well, demanding sufficient flexibility in these fields, too.
 

Important to know: In the People´s Republic, “trial and error” is a common practice. Products, apps and services are introduced and tested – whatever does not meet the expectations gets further developed and is then put to the test again. Germans tend to show a much more restrained behavior. In order to successfully operate disruptive business models in China, entrepreneurs need to adopt the above mentioned flexibility. In China, German perfectionism could even be counterproductive.
 
We should of course keep in mind, that disruptive business models which are successfully working in China will not necessarily work as well in Germany and vice versa.
 

Which challenges and opportunities do you see for companies that are already active locally, to master this rather difficult mammoth task?

The current legislation does not really make things easier for German companies on the spot.
Whoever is not yet doing research in China, should definitely make an effort to benefit from the comprehensive subsidies the Chinese government is willing to grant for research and development projects. Alternatively, companies may benefit from tax incentives if they are operating in the high tech sector. We still see a lot of potential to be explored by revising business structures in order to comply with the required criteria. Companies should definitely constantly keep monitoring the current requirements and adjust their workflow wherever necessary in order to benefit from funds or incentives.

 
Further potential for optimization is to be seen in the field of protection of intellectual property. Lately, the cybersecurity law caught the attention of foreign and local companies alike. The law caused quite some insecurity with regard to the correct handling of sensitive data and business secrets. We recommend a close examination and consultation through our local experts to ensure full compliance with the current legislation.
  
Despite the existing legal uncertainties, China offers various opportunities to participate in the most complexe national digitalisation process. We definitely see attractive potential – especially on third tier level– in the fields of SmartCity technologies, E-mobility, smart environmental technologies as well as in some niche markets. No matter which sector, it is crucial to elaborate a matching market entry strategy and to keep the individual locational factors in mind. Besides the three main business centers aroung Beijing, Shanghai and the Pearl River delta, the government does also offer comprehensive subsidies for business operations in the Western part of the People´s Republic – e.g. the Sichuan province with the metropolises Chengdu and Chongqing.

 

What points must be given special attention in the transformation in China (for example: cybersecurity, data protection, change management, cloud computing, ERP systems, (tax) compliance systems, digital payroll, value change, blockchain technologies, etc.)? Do you see local cultural, social or economic advantages that speak in favor of an easier transformation?

With regard to the cultural and social environment, the People´s Republic hosts a population which is extremely affirmative of new technologies. As mentioned above, the psychological barrier to use new digital services is far lower than e.g. in Germany. As to the legal framework, numerous adjustments have been made in recent years, like e.g. the cyber security law, the data protection law or the regulations regarding E commerce businesses. As to the latter, China is the most important market in the world performing record-breaking turnovers in online trade. Desktop-PCs being more and more driven back by mobile devices, online trade turned into a quick and easy 24/7 location-independent, time-independent purchase of goods and products. A high propensity to consume combined with an equally high quality demand offer attractive opportunities to German entrepreneurs – ideally taking advantage of the flourishing (Chinese) online market places.
 

China is right in the middle of its transition into a digital society – mobile payment, online tax declaration, just quickly shopping your favorite bag on the subway and ordering your foodstuff on your daily commute – having all you need delivered right to your door when you return home. Booking a rental bike around the corner, pay with your smartphone and just deposit it 5 blocks away -  daily life in China. The QR code did not get established in Germany, while it has become indispensable in China. We are even close to stating that the QR code has become the key to the customer.
 

We need to take a slightly differentiated look at the blockchain technology. Though China is definitely one of the driving forces with regard to this technology, the government is currently elaborating an appropriate strategy for the handling of bitcoins and Co. We will have to thoroughly monitor the further developments in 2018.

 From the article series

Contact

Contact Person Picture

Dr. Thilo Ketterer

Partner

+49 911 9193 3062

Send inquiry

 How we can help

Deutschland Weltweit Search Menu