A few days ago I posted a first round of questions-and-answers with Duncan Clark, a longtime analyst of and participant in China’s high-tech economy, and author of the new book Alibaba: the House that Jack Ma Built. Duncan is also a friend of my wife’s and mine, from the years we lived in China.
He’s back for a second round of followups. I’m posting these mainly because I think the answers are interesting and illuminating in their own right. I encourage you to read very carefully what Duncan Clark is saying about the strengths and weaknesses of the Chinese innovation model. But I also think they’re useful in giving a sample of the logic and approach he uses in his book. Here we go:
Question 1: In our first round, you pointed out that the familiar description, “Company X is the Chinese version of Company Y in America,” implicitly devalues Company X. If we say “Baidu is the Chinese version of Google,” we inescapably suggest that it’s a knock-off of someone else’s “real” innovation, which has to limp along in a more constrained environment, etc.
I mainly agree with your observation. So to take it seriously, let’s look at Jack Ma’s Alibaba as an original creation, and not as “the Chinese version of Amazon” or whatever half-accurate description you often see in the Western press.
Suppose Westerners read your book, studied what Jack Ma has done, and wanted to come up with “an American version of Alibaba.” Or suppose the Jack Ma story were taught at Stanford or Harvard Business Schools, with your book as the text.
What would an “American [or European] version of Alibaba” look like?
What lessons would Westerners draw from the management successes of Jack Ma? If some young dreamer in Sydney or Pittsburgh or Paris studied the Jack Ma story, the way dreamers in Hangzhou and Mumbai have studied Bill Gates and Steve Jobs, what lessons could she take and apply to her non-Chinese business environment?
Answer 1: It’s funny you ask this question. I just realized that it is one I have been musing on, but never asked myself explicitly. What would a western Alibaba look like? Who could be a western Jack Ma?
We would have to imagine a company and a founder who emerged from the most unlikely of origins.
At Peking University in 2014 Jack delivered to students one of his favorite: “I don’t have a rich or powerful father, not even a powerful uncle”.
Jack got to where he is today through his wits, determination and remarkable charisma. A “Western Jack” would have to possess these all of these qualities, someone consumed by a raw hunger to succeed. I picture an immigrant, perhaps even a refugee, and a Jane at that, not a Jack. The world of architecture and beyond is mourning the tragic loss of Zaha Hadid – the Iraqi-born, London-based architect. She smashed all the gender, race and professional barriers that would have otherwise rendered her life story a fantasy.
Beyond this, though, our Western Alibaba would have to tap a rich seam of untapped potential, somehow overlooked to date. As retail markets in the West are generally highly efficient, and mature – making e-commerce in the West a “dessert”, not the “main course” that Jack Ma likes to describe it in China – I think the opportunity is likely to emerge from an unforeseen technological shift, much as Google and Facebook appeared seemingly overnight to become the most dominant players on the Internet.
Their business models will differ. But the next generation of disruptive entrepreneurs will find inspiration, I would venture, from the story of Alibaba and Jack Ma. He, along with Steve Jobs, Mark Zuckerberg and the Google guys, will ensure that Silicon Valley’s cloth of gold will also be woven with a silken thread from the East.
Question 2: In one of your first-round answers, you note an obvious tension. On one side is the fast-moving, flexible, open-to-anything spirit of Jack Ma and Alibaba in specific, and the hundreds of millions of younger, educated, urban Chinese in general. On the other side is the increasingly heavy-handed social, political, and ideological control of the Communist leadership under Xi Jinping.
As we’ve previously discussed, comfort with contradiction is an essential part of maintaining your sanity in China. And this is not just “contradiction” in some fancy philosophical sense: it’s recognizing that a law or business practice might prevail in one city, and its opposite in the next place you go.
But even on the Chinese scale, the contradiction represented in Alibaba’s continued rise and opening-up, at a time of official China’s noticeable cracking-down and tightening-up, seems unusually sharp. How do you think it will be resolved?
Will the Chinese government recognize that for the country’s long-term welfare, it simply has to let rising entrepreneurs do what they want? (Because otherwise they’ll start founding their companies in California or New South Wales or British Columbia?) Will Jack Ma and his successors realize that for their companies’ long-term welfare, they simply have to conform to the Communist party’s controls? Or will all involved continue to limp along, in a theoretically “unsustainable” state of contradiction that somehow endures?
I know it’s impossible to predict these things, but what signs will you be looking for of the likely outcome?
Answer: For China’s entrepreneurs to thrive in the coming years, they will need to engage in a competition of ideas as much as they fight with each other on the existing playing fields. The winners can’t be simply the players who spend the most money to buy customers, as the cresting of the ruinously expensive in some cases ‘O2O’ (Online to Offline) subsidy splurge of the past few years demonstrates. The true innovators will have to find new sources of inspiration wherever they can, in China or abroad.
But in three crucial talent pools in China today – its entrepreneurs, academics and journalists – it is striking how arbitrary policies and government actions are taxing the country’s innovative capacity and zeal. The Great Firewall is being constantly expanded and strengthened, weakening the bonds of knowledge between China and the West. (To research and write my book on Alibaba I had to do so mostly from overseas: to write the story of the Internet in China don’t expect to do so using the Internet in China).
Entrepreneurs today face the specter of government investigations or detention, academics have to watch their backs for fear of not toeing the Party line, and the morale amongst journalists – even in areas such as the reporting of business – is plumbing new depths.
On one level tech entrepreneurs would appear to be doing just fine. They can still on access to vast pools of venture capital. If the IPO market (at home and abroad) remains closed or more tricky to access than before, there is always the prospect of selling out their enterprises to the BAT (Baidu, Alibaba and Tencent) instead.
Yet on the other the explosion of state-backed venture capital in China – now estimated to exceed one third of a trillion dollars – is a flashing red light on China’s innovation dashboard. At Stanford in 2013, I heard Jack Ma sum it up: “A lot of entrepreneurs don’t make it in the end, not because they don’t have money, but because they have too much money. When you try to solve problems with money, that is when your real problems start”
Question 3:You’ve been in the U.S. for the past few days discussing your book. Has anything surprised, impressed, or depressed you about the reaction so far?
On my trip – confined to the East Coast so far, although I’m writing and sending you these questions now on my flight from Washington DC to San Francisco – I’ve been generally impressed at the level of interest in and knowledge of the Internet scene in China, and of course since its blockbuster 2014 IPO of Alibaba itself.
Yet an area that remains a blank spot in much of the West is how important the hinterland beyond Shanghai, and the boom city of Shenzhen, deserve much more of our attention. Yes provinces like Zhejiang or towns like Wenzhou and Yiwu are hard to pronounce. But there we can witness up close the sinews of China’s economic muscle, the resilience that may yet allow China to overcome overcapacity, shed the stuffiness of the state and escape the middle income trap.
As an aviator yourself Jim I’m sure you’ll agree that the new routes opening up to some of these places – such as the new United flight from Hangzhou to San Francisco, or the Hainan Airlines flight from Changsha to Los Angeles (“Chan-geles” as they like to brand these things) – give us in the West more opportunities to travel to China, hopefully to make up our own minds about the future direction of the country and our relations with it – although more likely I think is that it will introduce a wider range of accents, shopping habits and potentially property bubbles into our communities.
Ignorance is no longer a defensible strategy whether you welcome or fear China’s rise. You need to know what you’re talking about, and that includes politicians who would claim to lead our countries into the next decade.
Neither is denial – in New York I (and others present I think) were depressed to encounter one well-connected “technology supremacist” who dismissed aggressively anyone who ventured that China is producing innovative products or services, dismissed simply as ersatz copies, reaffirming to himself at least that the West is (still) best. Denial is not just a river in Africa, it flows through the minds of some in the United States too.
But overall I remain optimistic about the capacity of China’s entrepreneurs to help the country move up the value chain. We must all hope that the dividends these deliver to China’s people are sufficient to tamp down the embers of nationalism and militarism that a government struggling to restructure a flailing state-led economy is otherwise tempted to fan.
We are witnessing nothing less than a south-vs-north battle, one which will determine China’s fate and its relations with the world. Let’s give Jack Ma the last word, from that same 2013 speech (in Chinese, here with subtitles) at Stanford University [JF note: to see Jack Ma speaking at Stanford in English, go here.]
“In China, the government doesn’t trust the people, and the people don’t trust the government. The media don’t trust the people, and the people don’t trust the media. Nobody is happy. The poor are not happy, neither are the rich. Why? Because we are living in a time of constant change”
Thanks to Duncan Clark for taking this exchange so seriously. If you have questions you’d like to relay to him, please send them via email@example.com