There are no so-called traditional industries, nor emerging ones; what matters is whether you can keep up with the pace of change and continuously reinvent yourself.
Ten years may not seem very long, but standing in May 2018 and looking back at May 2008, you will find that many changes were unimaginable ten years ago. For example, ten years ago there were no smartphones, and Steve Jobs was still alive. Who was the world's largest mobile phone company then? Nokia. Today it has gone bankrupt. At its final press conference, the global CEO said, "We went bankrupt. It seems we didn't do anything wrong, but today we are bankrupt." Ten years ago, there was no WeChat, no Weibo, no Tmall, no Xiaomi, no bike-sharing, no Toutiao, no Didi, no Meituan-Dianping. Ten years ago, JD.com's sales were 1 billion RMB; last year they were 100 billion, a 100-fold increase in ten years. None of these existed ten years ago.
In the past decade, China has seen many data changes
Economic aggregate grew 2.5 times
RMB money supply grew 3.25 times
Foreign exchange reserves grew 1.5 times
Car sales grew 3 times
E-commerce's share of total retail sales grew 13 times
Fortune 500 Chinese companies increased from 33 to 115
High-speed rail mileage grew 183 times
Urbanization rate increased by 12 percentage points
Beijing's billionaires surpassed New York's
Shenzhen housing prices rose 4.7 times
Alibaba and Tencent alternately became Asia's most valuable companies
...... Some of these changes are linear, some are nonlinear. But in the past 10 or 20 years, no company has had smooth sailing with the country. In the past decade, great companies that have survived to today, like Alibaba and Tencent, did so because of continuous self-breakthrough and transformation. The golden decade of Chinese manufacturing was from 1998 to 2008. In 2008, China's foreign trade dropped 24%, and in 2009 it dropped another 16%, then stabilized. So when Alibaba's B2B division went public, it was exactly the turning point when Chinese manufacturing went from its golden decade to decline. Even if you were a god, you couldn't reverse the trend of change. In the past decade, without Tmall, Ant Financial, Yu'e Bao, Cainiao Network, or even the new retail that Ma Yun proposed, would Alibaba have come this far? Every company goes through a process of dying and coming back to life. There are no so-called traditional industries, nor emerging ones; what matters is whether you can keep up with the pace of change and continuously reinvent yourself. Teacher Ma has come this far; apart from his appearance, everything else has changed. So if he wants to build a 102-year company, he doesn't know how many times he'll have to flip the pancake or commit suicide. He couldn't use his 1999 strategy to reach 2008, nor his 2008 strategy to reach 2018, and he can't use his 2018 strategy to reach 2028. This is the process of continuous self-iteration. 1 Four Cycles of Chinese Enterprise Transformation I study Chinese enterprise transformation. In the long run, this year marks the 40th anniversary of China's reform and opening-up. We all commemorate these 40 years. Everyone here today is a beneficiary of these 40 years of economic reform, or at least the vast majority of Chinese citizens are. But I want to tell you that China's reform over these 40 years was not the result of a single policy logic. There have been several major iterations, long-term ones, and the policy cycle changes about every 10 years. The first cycle was from 1978 to 1992, the reform of the 1980s. The theme of that reform was four characters: "allow messing around." Whether it's a white cat or a black cat, if it catches mice, it's a good cat. So it was a bottom-up, vigorous reform. From 2003 to 2012, China's economy experienced extensive development, with the biggest manifestation being continuous monetary easing. The government relied on land finance, and heavy industry and real estate became huge profit-makers because resource-based industries and land became the largest carriers of quantitative easing. In the next decade, looking from 2018, what major changes have occurred in the environment and factors we were familiar with over the past three or four decades? First, the stagnation of globalization and the end of the "golden decade of Chinese manufacturing." After 30 years of reform and opening-up since 1978, China became the biggest beneficiary of globalization. Through cheap labor and low-cost preferential policies, China formed a huge manufacturing advantage, attracting global production capacity. We traded time for space, selling the cheapest products to countries around the world. But now, many factories have moved to Vietnam, Malaysia, and other countries. China's cost advantage is over, which to some extent also means the process of globalization has ended globally. From 2008 to 2016, global trade growth was almost zero, and manufacturing needs to be reimagined. Second, rising costs plus e-commerce impact, leading to a large-scale reshuffle of traditional industries. When the global environment changed, the sky fell and the earth cracked. In the domestic market, we saw the huge impact of e-commerce on manufacturing. The channel environment changed dramatically, and the relationship between manufacturing and consumers was brutally severed. Third, the rise of the middle class and the collapse of the "cheap and good" model. In 2009, we interviewed more than 20 entrepreneurs who had been doing business in China for at least 20 years. From this visit, we concluded that local entrepreneurs lacked innovation in the face of the market. Why? Because at that time, no consumer was willing to pay for your innovation. But today, with the rise of the middle class, people are beginning to be willing to pay for innovation and good products. Fourth, mobile internet, causing structural disruption to manufacturing, services, and finance. In 2005, I made a judgment that within the next decade, 80% of traditional manufacturing enterprises in China would be eliminated. Today I still firmly believe that a large portion of manufacturing enterprises will leave this market. Like Ma Yun back then, if he hadn't broken through himself, he wouldn't have reached 2008. Today is still an era of great change, with structural disruption in manufacturing, services, and finance. 2 China's Industrial Transformation Enters the Second Half What exactly has been changing in the past few years? These changes are definitely not over; they are ongoing. First, media mutation: from one-way communication to social communication. In 1995, I started a column in Southern Metropolis Daily. Back then, I wrote every article very seriously and received many reader letters. By 2014, I was still writing every article diligently, but I received fewer and fewer letters. Where did my readers go? Later I found they had all gone to their Moments. So in May 2014, I told all the media outlets I had columns with that starting May 8, I couldn't write columns for them anymore; I would write for myself. That's how the Wu Xiaobo Channel came about. British historian Berlin believed there are two models of communication: positive freedom, where you can freely express your views in the square, and negative freedom, where you have the right to express and the right to leave. Before the internet, or before WeChat, the Chinese market did not have the right to negative freedom. But today you can refuse to be communicated to. Even if they brainwash you in the square every day, you can hide in your room and refuse to accept it. Second, audience mutation: the mass disappears, circles emerge. Today, no matter what product you sell—refrigerators, air conditioners, washing machines—there is no unified market in China. Everyone lives in different circles. At this point, the "market" actually no longer exists. Everyone chooses different brands based on age, aesthetics, income, and regional characteristics. So almost all industry brands are completely segmenting. As long as you find people who like your product, you can build a very good company. The space for product innovation is enormous, which is why China is still an innovative country. Third, channel mutation: the pyramid distribution model collapses, social and express delivery rise. When I wrote about Wahaha in 2002, its production and sales had just surpassed Coca-Cola for the first time. At that time, Mr. Zong did two things right. First, he made a bottle of water priced at one yuan that could be sold nationwide and worldwide. Second, after selling the water, he could still collect the money. At that time, we discovered that making money selling goods in China didn't rely on charging ahead with your "head," but on those who moved forward with their "waist." The "waist" referred to the national pyramid distribution system. But today, Wahaha has declined, with revenue dropping from 60 billion to 40 billion, precisely because of the decline of the distribution system. In addition, social media has become an invisible channel. Last year, two social e-commerce companies rose rapidly: one is Pinduoduo, and the other is Hangzhou's Yunji Weidian. There's also the express delivery that solves the last mile, a very special Chinese phenomenon. How many people deliver packages on the streets in China every day? The answer is 14 million, meaning on average 1 in 100 Chinese people is a delivery person. Tmall is currently experimenting with clothing brands. When you place an order on Tmall, instead of sending the order to a warehouse, it now sends the information directly to a nearby store, which then delivers the clothes to your door. Fourth, aesthetic mutation: from European and American styles to Chinese style. For a long time, we felt inferior to Europeans and Americans. Our technology came from the West, our society from the West, our business models from the West. Our aesthetics also came from the West. We watched what Americans watched, ate what Americans ate, and lived like Americans. But when we began to rise, we started to rediscover Chinese culture. Having money and having awareness are two different things. When the self-awareness of the middle class began to rise, some people started to pay for Eastern aesthetic elements. Fifth, mainstream mutation: from emotional people to new middle class. As the middle class emerges collectively in China, today's consumers have entered a rational market. If you have a product that doesn't sell in China, there can only be two reasons: first, you didn't explain it clearly; second, you didn't stand in the consumer's shoes. 3 2018: Redefining the Core Capabilities of Enterprises Returning to the enterprise itself, we need to redefine core capabilities. What do these include? First, reimagine product power. After I wrote "Going to Japan to Buy a Toilet Seat" in 2015, the toilet seat market expanded from a market capacity of over 3 billion to today's 20-30 billion. According to industry development, a price war should have occurred, but why hasn't it happened in the toilet seat market? Because those buying toilet seats in China are new middle-class families. Price wars alone cannot convince them; they care about brand and quality. Secondly, because toilet seats themselves are iterating. Last June, Panasonic released a toilet seat that tells you your blood pressure, blood sugar, blood lipids, and many other data when you get up. A simple product that continuously iterates can escape the death trap of price competition. This phenomenon is not limited to toilet seats; it happens in almost all industries in China. Take another simple product as an example: shirts. A small shirt has undergone several evolutions in the past three or four decades. The earliest evolution was in 1984, starting from Bu Xinsheng's factory, where the first piece-rate reform in Chinese corporate history appeared. Before that, all factories paid by the hour. By 1996, shirts all looked similar. Youngor made an "HP cotton non-iron shirt" that sold 10,000 pieces a day. In 2007, PPG and Vancl appeared, selling 10,000 pieces a day through the internet. Their low-cost customer acquisition model is still used by some companies today. Ten years later, a new transformation emerged in shirts: using the internet to acquire customers and offline measurement services, solving the problem of quality control in online shopping. In the first half of this year, I met a young man who found a big data company for analysis and started doing online measurement. Within less than half a year of starting his business, he became the fastest-selling shirt company in China in the past 12 months, selling 3,000 shirts a day. At the same time, we also saw a "nano shirt" in the United States that tells you how many calories you've burned and when your heart rate peaked. This nano shirt uses data to tell you about your health. When shirts become nano materials, can we still call them a traditional industry? So the first thing is to reimagine all products. I believe that today in China there are no so-called high-tech enterprises, no so-called traditional or emerging ones. Second, rethink the "city wall" and the "moat." The "city wall" is your core technology. When you have core technology, is it continuously iterating and innovating? The biggest difference between Tencent and other companies is its fast iteration. The "moat" refers to how you resist enemy attacks. This mainly relies on two things: first, consumer relationships; second, capital tiered protection. Flexible use of capital, from financing to investment, has become very important today. I've seen many large enterprises where the chairman sits on the top floor. Some are pitiful, enjoying a whole floor alone, becoming the loneliest person in the world. But the higher you sit, the less you understand the bottom, and all changes happen at the bottom. To solve this problem, you either deconstruct the entire organization or continuously invest in tracks through investment, forming tiered protection. Many companies now set up industry funds for the same reason. Today, the biggest corporate investors are Alibaba and Tencent. They are also afraid, because you never know when Douyin or Kuaishou will appear, because Ma Yun and Ma Huateng also stand very high. Third, rebuild the organizational ecosystem. Today, all challenges faced by enterprises occur within the company's walls. No enemy can kill you unless you already lack resistance. Therefore, we need to carry out organizational self-revolution. The most impressive thing Zhang Ruimin did in the past four years was rebuilding Haier's organizational ecosystem. At Haier, employee business cards have no titles. In Haier's new organizational model, there are only three levels: platform owners, micro-enterprise owners, and makers. In the future, all enterprises will form honeycomb-like organizations. The death of any small honeycomb does not mean death, but at the same time, the entire organization is constantly splitting. Underneath the honeycomb, there is a base plate, which is the company's values, capital, and talent. Above the base plate, each unit fights independently and grows uncontrollably. Moreover, you must firmly implement the three new principles: new team, new governance, new capital. The direction should be decided by those born after 1985. Don't use large company structures to govern small teams. You must form capital relationships to give new teams new momentum. My biggest impression from writing "Tencent: The Biography" is that in the past 20 years, the products that influenced Tencent's fate—QQ, QZone, WeChat—were not the ideas of decision-makers, but were created by people below. It is precisely because Tencent has honeycomb capabilities that endogenous innovation can be continuous. Today's entrepreneurs must fully trust young people, give them opportunities through pricing and capital models, and realize that we are getting old. Fourth, the emergence of investment-entrepreneur companies. The 3Q War in 2011 was Tencent's most difficult time. Ma Huateng realized the company had reached a bottleneck. At a Tencent meeting, Ma Huateng gave everyone a piece of paper: "You've worked at Tencent for many years. What are Tencent's core competitive capabilities? Write two each." Ultimately, Tencent's core capabilities were defined as: first, traffic; second, capital. The day before yesterday, Tencent announced it would block all video websites. The reason behind this is that it touched traffic, the most fundamental thing sustaining the Tencent empire. It wants to gather more traffic and grab traffic from outside; it absolutely cannot let you share its traffic. As for how to monetize traffic, Tencent originally sold QZone ads and online games, but traffic also has a huge monetization capability through capital. So Tencent has been monetizing traffic and capital. Next month, Lei Jun will list on the Hong Kong Stock Exchange. People are discussing whether the company is worth 60 billion or 100 billion USD. In fact, Xiaomi's phone business is barely worth 30 billion USD. But Xiaomi phones plus Shunwei Capital, plus Xiaomi's ecosystem chain, this capital architecture model is unique in the world, making it very valuable because it creates a new model of corporate existence. Ma Huateng and Lei Jun are typical investment-entrepreneurs. They are a new species of "entrepreneur + investor," with amphibious characteristics. Investment-entrepreneurship is a direction that 90% of entrepreneurs will evolve toward in the future, and it will definitely become a new entrepreneurial paradigm. 4 What Will Happen in the Next Decade? Finally, let me share some views on the future—things that are highly likely to happen in the next decade. First, the elderly care industry will become China's number one industry. China's economic aggregate will approach that of the United States. China's urban population will reach 940 million, with 70% of people becoming urban residents. China's aging population will exceed 30%. So in ten years, the largest industry in China will definitely not be real estate, but elderly care, which will become China's number one industry. The post-60s and post-70s generations, all of us here, will become the world's largest high-net-worth group. We will buy all the good services in the world. Currency issuance will exacerbate asset bubbles, meaning that if your money doesn't appreciate, it may become worthless in ten years. This is certain or highly likely to happen. Second, the singularity is approaching: robot intelligence approaches the human brain. Recently, there's an American TV series called "Westworld," where humans and robots are indistinguishable, and robots themselves don't know they are robots. When the "singularity" arrives, how will human ethics and understanding of self-ability change? In the next ten years, one thing will happen: many abilities we consider today will no longer be abilities in ten years. A few days ago, a doctor friend visited a medical school in Massachusetts. When he returned, he told his dean that the radiology department in hospitals will disappear within 5 to 10 years. Why? Because he saw at MIT that a doctor wearing AR glasses can scan all your lymph nodes without any scanning equipment. American self-driving cars still can't hit the road and can't get legislation passed. Why? Two reasons: First, if a car is driving and there's a cliff on one side and a mother with a child on the other, a human would choose to avoid and fall off the cliff. But a self-driving car would definitely hit the child. So, did the car kill the child or did you? Second, once self-driving cars are legalized, the first to be affected won't be family cars, but trucks. There are 3 million truck drivers in the US and 8 million in China. The US truck drivers' union is the second-largest union in North America after the steelworkers' union. Would you dare offend those 3 million people? These technological changes face ethical issues on one hand and social issues on the other. So the next ten years will definitely be more exciting than the past ten. Third, centralized internet will disappear: the era of the Internet of Everything arrives. Recently, blockchain has been very hot. If you bought a Bitcoin in 2008, with 1 yuan you could have made up to 20,000 yuan. Now it's around 8,000, and with the US dollar coming out, it went back up. So in the past decade, the biggest money-maker wasn't buying Tencent stock, but buying Bitcoin. In the next ten years, today's centralized internet will definitely be iterated and revolutionized by decentralized internet thinking represented by blockchain at some point. This is certain to happen. Fourth, the new energy revolution will end the oil era. The Middle East might one day become a region ruled by camels again. Fifth, the entrepreneurial revolution: 70% of existing brands will disappear. Finally, I want to share this quote from Toynbee, the greatest British historian, who studied the rise and fall of 29 human civilizations and concluded: He said: How can a civilization last for hundreds or thousands of years? "The creative minority that successfully responds to a challenge must undergo a spiritual rebirth to qualify for the next and subsequent challenges!" I hope we can all withstand the next and subsequent challenges brought by the times and technology! -END-