Over the past few years, China has emerged as a powerhouse in the increasingly digitized, e-commerce-driven world. Its digital economy accounted for 38.2% of its GDP growth in the first half of 2018,1 and it also happens to be home to 9 of the top 20 internet companies in the world, including the search engine Baidu, e-commerce behemoth Alibaba and internet services provider Tencent.2 China's success can serve as a lesson for companies and economies around the world that are pushing to remain relevant and keep a competitive edge.
Policy Initiatives Help Drive Digitization
One driver behind China's success is the government's focus on shifting to a digital economy. In 2015, China's State Council, the highest organ of state administration, issued a report called "Made in China 2025." The document outlines its strategy for transforming China's manufacturing base through digital innovation. Its strategic goals include greatly increasing manufacturing digitization and "informationization." For instance, within the category of integrating IT and industrialization, the report lists a goal of increasing broadband penetration from 37% in 2013 to 82% by 2025.4
That said, the initiatives outlined have also prompted concern among policymakers across the globe.5 Some fear that an industrial policy directed by the government will include financial assistance to Chinese companies, creating an uneven global playing field. Some also worry about China's investments in foreign technology firms. At the same time, the goals and strategies outlined in the report signal that China's leadership intends to focus on ensuring the country is prepared for an increasingly digital world.
Investments Are Bringing the Digital Future Into Focus
To that end, investments in research and development from Chinese companies, research institutes and the government have skyrocketed. Since 2000, it's gone from about $40 billion to $443 billion, just shy of the $484 billion invested within the U.S., according to data from the Organization for Economic Co-operation and Development.6
China is also working to minimize any digital divide between citizens in its major cities and more remote areas. Several provinces have developed plans to digitize their economies. For example, the province of Guizhou plans to grow its digital economy by 20% annually.7 The World Economic Forum also explains that, in what are known as Taobao villages, at least 10% of households run online stores for Taobao, which is the shopping site for e-commerce behemoth Alibaba. Across one such village, this generates e-commerce revenues of at least $1.6 million, and more than 1,000 of these villages dot the Chinese countryside.8
Along with financial investment, policies that enable technology companies to thrive are essential to an economy's digital transformation and success in an e-commerce world. This includes an educational model that helps students develop critical-thinking and problem-solving skills, as well as digital literacy. Moreover, education shouldn't stop once students graduate — instead, it needs to continue through training programs that help those employed stay abreast of advancing technology.
Robust capital markets, solid protection for intellectual property and mechanisms to prevent and detect corruption are additional requirements for a strong, innovative technology sector. Collaboration between private and public sectors, such as programs that nurture new businesses, also contributes to a thriving digital environment.
Start with Your Employees to Build a Digital Workforce
Businesses, as well as governments, can prepare for a growing digital environment and remain relevant and competitive. Somewhat surprisingly, it makes sense to focus on the workforce first and then the technology. Employees can make or break even the most advanced technology solutions.
Here are three requirements for an innovative work culture:
1. Means: This refers to the tools and authority employees need to conceive an idea, establish the right team, build the business case, and develop and test it.
2. Motive: Organizations provide motivation by encouraging employees to think beyond their immediate job function and even take risks within a predefined framework. They can also enable them to participate, perhaps through a bonus, in any financial upside resulting from their work.
3. Opportunity: Employees need time, tools and space for brainstorming and innovation.
Agility is also key to an innovative digital workplace. Employees should feel confident collaborating with colleagues across functions and sharing ideas without encountering undue criticism. A solid budget for training will also ensure employees obtain the skills they need to contribute to their employers' success on an ongoing basis.
Invest in Technology to Keep Pace with Innovation
Of course, technology plays a vital role in digital success. Constraints, such as inadequate network capabilities and legacy applications that can't integrate with new systems, have impacted the digital transformation activities for three quarters of brands, according to a survey by manufacturing services company Jabil. Fortunately, 99% are investing in new technology to replace outdated platforms that hinder their operations.9
China's rise as a digital power is the result of planning, investment and work — and both companies and countries can learn from their digital efforts and e-commerce successes.
1 China Academy of Information and Communications Technology (CAICT) under the Ministry of Industry and Information Technology (MIIT), Xinhua News, December 23, 2018,http://www.xinhuanet.com/english/2018-12/23/c_137693489.htm.
2 Heimburg, Fabian von, "Here are 3 lessons Europe can learn from China's flourishing start-ups," World Economic Forum, September 15, 2018,https://www.weforum.org/agenda/2018/09/3-lessons-europe-can-learn-from-china-flourishing-start-up-ecosystem/.
3 World Payments Report 2018," Capgemini and BNP Paribas Services, https://worldpaymentsreport.com/non-cash-payments-volume/.
4 State Council of China, "Made in China 2025," IoT One, July 7, 2015,http://www.cittadellascienza.it/cina/wp-content/uploads/2017/02/IoT-ONE-Made-in-China-2025.pdf.
5 The Made in China 2025 Initiative: Economic Implications for the United States," Congressional Research Service, August 29, 2018,The Made in China 2025 Initiative: Economic Implications for the United States," Congressional Research Service, August 29, 2018,https://fas.org/sgp/crs/row/IF10964.pdf.
6Gross domestic spending on R&D," Organization for Economic Co-operation and Development (OCED), accessed on April 1, 2019,https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm.https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm.
7CAICT under MIIT, "China's digital economy surges 18.9%, drives growth," China Daily, July 20, 2017,http://www.chinadaily.com.cn/business/2017-07/20/content_30179729.htm.
8Wenway, Winston Ma, "China's mobile economy, explained," World Economic Forum, June 26, 2017,https://www.weforum.org/agenda/2017/06/china-mobile-economy-explained.
9Digital Transformation Strategies: How are They Changing?" Jabil,https://www.jabil.com/insights/blog-main/how-are-digital-transformation-strategies-changing.html.