Why Alipay is more than just the Chinese equivalent of PayPal

I am happy to share with you today my latest article, co-written with my colleague Alan Chan. We are looking at Alibaba’s Alipay versus PayPal and take it into context of the Chinese ecosystem approach.

Preface

The recent events of PayPal and eBay splitting into two separate entities and the newly released version of Alibaba’s mobile payment app Alipay 9.0 inspired me to take a closer look at these two unequal rivals. However, comparing Alipay with PayPal directly doesn’t seem to do the former much justice. As with many of the leading Chinese digital players, Alipay is an integral part and closely connected within Alibaba’s ecosystem. In fact, Alipay has created its own Internet finance ecosystem. So instead of reviewing the strengths and weaknesses of those two players, we decided to first take a closer look at the role that ecosystems play in China’s business landscape.

The rise of Chinese business ecosystems

China is a highly complex, diverse and very dynamic business environment. Developments are often multidimensional, non-linear and even discontinuous, and they take place multiple times. Such conditions provide the breeding ground for a new generation of entrepreneurs who have formidable sensing capabilities to identify market opportunities, take risks and develop businesses, often with new and unconventional business models.

Fast-changing market conditions and rapidly evolving consumer behavior present challenges to established businesses with narrowly focused core competencies and limited capabilities. Many traditional companies find themselves unable to capture new opportunities or stay ahead of future disruptions.

Chinese entrepreneurs, such as Jack Ma, Lei Jun or Pony Ma have started to grow their core businesses into collaborative ecosystems, which often involve cross-industry partnerships, acquisitions and investments in companies that can provide complementary capabilities. Such ecosystems are flexible and scalable, allowing their orchestrators to leapfrog into other industries and build a more complete customer experience. Over time, companies can adjust the focus and exact direction of their business as they gain more insights and clarity.

The ecosystem play is particularly prevalent in China, with companies such as Alibaba, Tencent and Xiaomi being among the most innovative and successful. Many of these companies were only founded in the last 10-15 years – some even less, the lack of legacy allows them to innovate and take risks without the limitations of following established policies, rules or procedures. This makes these players even more dangerous for century-old, traditional companies.

Lei Jun, the founder of Xiaomi and Shunwei Capital is building an Internet of Things (IoT) ecosystem. Founded in 2010, Xiaomi forms the core of the ecosystem. It started as a low-cost smartphone maker but then grew into a smart device company with extensive software, hardware and services layers. The five-year old company is now valued at USD 45 billion. Together with Lei Jun’s venture capital firm Shunwei Capital, Xiaomi expanded its capabilities by acquiring, investing and partnering with more than 30 companies in multiple industries, ranging from manufacturers of wearable devices for health monitoring to smart home appliances, from online video content producers to online streaming sites, which are all centered around MIUI, Xiaomi’s own operating system.

A different form of ecosystem has been built by Haier, the leading Chinese white goods manufacturer. Haier has been revolutionary in transforming its traditional pyramid-shaped, top-down corporate structure into a platform-based, decentralized and flat organization by injecting corporate entrepreneurship into its ecosystem. Zhang Ruimin, the chairman of Haier group, led the transformation and encouraged his employees to set up their own “micro-enterprises” within the organization. As a result, employees contribute to the process of designing and shaping Haier’s ecosystem.

Both Xiaomi and Haier leverage their online platforms to crowd-source customer feedback and new product ideas. By incorporating customers into their ecosystems, it has helped both companies to facilitate and accelerate their idea generation and product development cycles, while at the same time increasing alignment with consumer needs.

Advantages of ecosystem play

The traditional western management theory of “core competency” introduced in the early 1980s has become quasi obsolete in today’s China. Building static competitive advantages and maintaining a narrowly defined core business limits Chinese companies to adapt to disruptive market changes and capture tomorrow’s opportunities. Constant evolution is essential for companies to survive and thrive in a dynamic market with blurred boundaries. Companies staying at their own core are merely backward-oriented and will struggle to leap forward.