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GK Master Class | Ben Harburg: China's Technology Going Global

January 17, 2022

As China's economy continues to develop, its burgeoning tech industry is increasingly looking at expanding overseas. Chinese brands such as Xiaomi and TikTok have firmly established themselves as leaders in the international markets, and many other companies are exploring paths to go global. What has driven this trend? How will the future digital landscape go forward?

On January 6th, The Guanghua-Kellogg Executive MBA program was delighted to invite Ben Harburg, the Managing Partner at venture capital firm MSA Capital, for a Master Class to share his unique insights on the topic "China's Technology Going Global".

Speaker




Ben Harburg

Managing Partner of MSA Capital 

Ben Harburg is the Managing Partner of MSA Capital, a global investment firm with $2 billion in assets under management. Prior to MSA, Harburg was a founding member of The Boston Consulting Group's Middle East system and built one of the largest commodities trading companies in Asia. Harburg serves on the Board of Directors of the National Committee on United States-China Relations. He is also a member of the Boards of Advisors of the Carnegie-Tsinghua Center for Global Policy and the Tufts University School of Arts & Sciences. He is a Term Member of the Council on Foreign Relations. Harburg was a Fulbright Scholar at Rhur University Bochum, where he was based in the Institute for Oriental and Islamic Studies.


The State of Play

In recent years, the world has seen unprecedented change in the field of technology, particularly in China. In Ben Harburg's view, 2020 and 2021 were especially important for the globalization of Chinese companies. TikTok rose to prominence, seeing off a challenge from Facebook's Lasso while SHEIN overtook Amazon as the most downloaded shopping app in the US.

The Covid-19 pandemic played an important role according to Harburg, which pushed Emerging Technology Markets (ETMs) to digitize in China's image due to global lockdown conditions, reminiscent of the impact of SARS on China's technology adoption. Ecommerce has exploded in size, particularly in the middle east, while E-wallets and mobile payments have also seen a rapid rise in adoption. Crucially, many of these developments mirror China's own digital transformation, and offer investors an insight into how mature markets will ultimately progress.

At the same time, the pace of value creation in the public and private emerging markets is accelerating with investment firms such as Harburg's MSA Capital able to deliver triple-digit annualized returns. This in turn has led to global investors rapidly increasing exposure to these emerging markets.


How China is Going Global

In light of the success of China's Technology on the world stage, Harburg outlined a number of strengths held by Chinese companies responsible for their success.

Preloading an Ecosystem

As the smartphones market has matured, China has become the dominant player in affordable smartphones especially in Emerging markets with brands such as Xiaomi, Oppo/Vivo, and Transsion. By providing physical “last inch” delivery devices, Chinese companies have greater access to new users. This has coincided with Chinese phone makers bundling their phones with their own app stores (and in the case of Huawai, an entirely different operating system) increasing the exposure of these users to Chinese' built applications and services.

Delivering Affordability

The business models of Chinese companies have proved conducive to growth in emerging markets. Many apps acquire customers by offering 'high frequency low margin' services such as food delivery and online payments before transitioning them to higher margin but lower frequency services. Chinese companies also benefit from extremely low supply chain costs and other efficiencies compared to their rivals and can source much more effectively from China.

Utilizing Best Practices

Chinese companies such as Tencent have been highly active in emerging markets by making investments  and then sharing best practices with their portfolio companies. "Chuhai" companies have also emerged, built in China but tailored specifically for their target markets such as the middle east.

A Social Experience

Chinese tech companies have refined the process of walking people online with social features such as live-streaming ecommerce and using user generated content (UGCs) to sell content. The population size of their target markets has also allowed companies to refine their models and algorithms effectively, providing strong mobile first entertainment experiences when they move to more mature and emerging markets.

The Pitfalls Ahead

Chinese firms face a number of challenges outside of China. In China, they are largely insulated from overseas competition, making the transition to a global company more challenging. Emerging markets also rarely have the same infrastructure conditions (such as addressing systems) that allow for hyper efficient low cost last mile delivery that aided the rise of ecommerce platforms like Pinduoduo. Mobile payments are also lacking, with some markets relying on cash on delivery, which gives rise to new challenges such as high return rates.

Chinese firms also face regulatory challenges and a more complex geopolitical environment. Having to adapt to each individual market, each with their own entrenched business interests is a key challenge ahead. These have also coincided with the rising stringency of local data storage requirements.

A Shared Future

Harburg concluded the Master Class by noting that many of the breakthroughs that have formed the foundation for modern technology and society were the result of co-innovation across borders. While the Wright brothers are credited with the invention of the airplane, this was an accomplishment built on the achievements of their contemporaries and predecessors in Europe. Just as Chinese companies have recently built off western innovations, western companies can and will replicate this process.

This idea of co-innovation is at the heart of the GK EMBA, and the program was established to blend the best of eastern and western business practices, enabling the next wave of progress. As our students continue to learn from experts and classmates from different backgrounds, we look forward to seeing how they innovate and bring about a brighter and shared future.