Innovation Chinese Style: Thriving on Uncertainty

On July 9, 2011, in Chinnovation, Education and Kids, by Tan Yinglan

Composite piece with a Chinese theme - derivat...

The following article is from Cathy Tao, an entrepreneur whom I admire a lot. She has founded the AirBnb crossed with New Oriental, TourBoarding, which is one Chinnovation that is uniquely China. The essence of the company is that you teach (typically English language) for free boarding. Enjoy her article below.

Growing Weeds to Win the Jackpot
Much has been written about the weed-like proliferation of Chinese copycats to successful Western, often American, technological inventions. Thus, Renren looks a lot like Facebook, Sina Weibo is a Chinese hybridized version of Twitter (with Facebook-style features), and Jiepang appears to be the Chinese rendition of Foursquare. I could cite countless examples, such as the few hundred Chinese bred clones of Groupon operating at the moment, but I wish to be innovative rather than boring.

For the Chinese, having a high-tech startup listed on the Nasdaq is akin to hitting the jackpot, a goal worthy of aspiring to and salivating for. What better way to hasten the journey than to, at lightning speed, whiff up a faithful or disguised replica of an American startup with billion-dollar valuation hounded by venture capitalists, also known as your ticket to the bank? “Aha,” the venture capitalist thinks, “I recognize this business model; I liked it before, so why not now, in order to reap from the world’s biggest market?” Common sense is something the Chinese possess in abundance, so this would be a no-brainer.

Chinese aren’t the only Copycats
But if you think that the Chinese are the only ones that imitate the digital business models of Western companies, think again. American companies are fairly ruthless at copying from each other all the time, often throwing out components that don’t work and improving upon existing models that are already well-established. Two highly visible examples would be Google overtaking Yahoo as the king of search engines, and the recent muted sale of social networking site MySpace after losing significant market share to Facebook. And whatever happened with AOL? It used to be the American home portal for entry into the online world.

The reality of the matter is that everyone for the sake of survival imitates, and everyone, also for the sake of survival, innovates. Maybe instead of the word “imitate” – I should use the word “emulate” in my business lexicon. It sounds more respectable.

Scruffy Mongrel with a Dubious Bloodline
As co-founder of, I consider what we do here to be an example of pure Chinese innovation, perhaps even “disruptively” so though I don’t like to use that word. It is hard to toot your own horn. However, my feeling is that foreign journalists, investors, business partners, and those that are just curious view us with suspicion or subdued aversion, as somewhat of a “scruffy mongrel with a dubious bloodline.” It is difficult for them to accept that something original with global ambition could come out of the world’s low-cost factory. Our members are our biggest cheerleaders who have firsthand knowledge of the value and potential of what we offer. Since we are a customer-centric enterprise, that is good news to us.

The American Difference
There is no special “DNA” that better equips one race or nationality with a Superman ability to create something new. Disparities in the pace, quality, and disruptive impact of innovation among countries, such as between the United States and China, exist because of their inherent institutions, cultural norms, and operating environments.

The United States has definitely led the world in producing many high-tech global brands that dominate their respective sectors, such as Microsoft, Google, Apple, and now Facebook. While I am not an academic, I have lived in the United States for many years and I attribute the US lead to three main advantages:
1. A mature and comprehensive legal and financial system that hugely rewards those who know how to use it to make money;
2. Educational institutions that attract the smartest people from around the world for both learning and research & development; and
3. The magic dust of Silicon Valley that offers a vibrant hub for people to test new ideas and raise the money they need for their risky new venture, from seed or angel investors to later-stage venture capitalists, to eventual access to the capital markets, plus a supportive network for aspiring entrepreneurs.

Wild Wild East
While China does not presently enjoy any of the above advantages, its entrepreneurs are poised well to thrive over the coming years because of their experience in adapting quickly to constant change, uncertainty, and the watchful eye of authority. At TourBoarding, every day we run the risk of being shut down by the authorities because of one potential violation or another, legitimate or not. This would be unthinkable for others who are non-Chinese, but the Chinese do business in this environment every single day. Those who operate wildly profitable businesses in China have learned to manage risk very well – you could think of them as the world’s supreme risk masters. Great risk begets greater opportunity.

A Peek Into The Future
Fortunately, Chinese innovation has just been given a helping hand as it is now a focal point of the central government’s 12th Five-Year Plan unveiled earlier this year. No longer will China be content to rest on its laurels as the world’s low-cost, manufacturing sweatshop. The Plan calls for China to transform its role to become the technological innovator to the world. Education and training of its massive labor pool will be provided to drive this transformation. In areas where domestic innovation is lacking, then China will import this technology, with the proviso that it will actively domesticate this technology through a program of “assimilate and re-invent.”

China has not suffered to the extent that other countries have during the global financial meltdown, thanks to a hefty government stimulus package. However, this induced prosperity is unsustainable and will soon come to an end, according to Jim Chanos, the American hedge fund manager and famed short seller, who predicts that the coming economic collapse of China is inevitable. Meanwhile, the United Nations reported that global prospects for coming out of the world’s recession and economic malaise are rather gloomy for the foreseeable future.

If the coming times are going to be lean and difficult as predicted, then Chinese entrepreneurs are much better prepared to deal with business obstacles than their American and western counterparts. Paradoxically, it may be dismal times ahead coupled with a supportive government that could provide the window of opportunity for Chinese innovation and home-grown nimble companies like TourBoarding to shine and spread their wings to America and beyond. For those willing to invest and take a gamble on them, a potentially obscene fortune awaits.

Cathy Tao
Co-Founder and Chair, International Development

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Let’s finger ROCK BAND.

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