How Are China's Legacy Industries Embracing New Technologies?

"China's consumers lead the world in their fast adoption and frequent use of new technologies such as mobile payments, online financial management and e-commerce," according to a report by The Economist Intelligence Unit (EIU). Released by the EIU on May 31, 2017, Bridging the gap in a new technology paradigm explains: "With consumers setting the pace, Chinese companies are adopting new technologies to deliver products and services, and view this uptake as crucial for future success. While the world now hears much about China's big technology players Alibaba, Tencent and Baidu, less is known about smaller tech players or about the technology adoption of companies in traditional industries." Focusing on the latter, the report, which is available in both English and 简体中文, is the result of the EIU surveying "350 companies across China on their attitudes, plans and strategies toward adopting technology solutions to improve their products or services, with a focus on the finance, retail and healthcare industries."

Commissioned by Intel China, the EIU conducted the survey from February to March 2017 among companies headquartered in mainland China. They polled 50 respondents from each of the finance, retail and healthcare sectors, with the remainder spread across various industries. One in four respondents hailed from companies earning less than US$200m in annual revenue, while 13 percent were from companies that earn US$10bn or more. One in four held C-suite or board titles, while the remainder were senior executives and managers. Geographically, 39 percent work in Beijing, Chongqing, Guangzhou, Shanghai, Shenzhen or Tianjin, and the rest in smaller urban areas.

The report's key findings are listed below in its entirety as found in the Executive Summary:

• Over two-thirds of companies say they have a clear vision and strategy for using new technologies in products and services. They largely recognize the benefits that technology can bring to their firms, but somewhat contradictorily, they also rank "lack of need" as the chief challenge to greater uptake of technology in products and services. Strategy, however clear, might be imposed from governing bodies rather than developed internally; need may be synonymous with urgency and not prioritized in slow-moving industries due to both government and market forces.
• The hand of government ownership guides both strategy and objectives in some legacy industries. Companies are responding to policy objectives and playing a game of catch-up in adopting new technology, rather than considering it as a means of increasing profit or return on investment.
• Partnerships with technology companies are driving much of the uptake. For some sectors, these partnerships can bring many benefits: they can help traditional companies achieve scale, reach new markets, gain visibility over their users or even formulate new business models. However, relying too much on partnerships to drive technology uptake may leave companies merely as passive observers, rather than active drivers, of innovation.
• Finance companies—having been stung by nimble fintech players—see the need to move toward greater technology adoption, but have been hamstrung by regulation. As the regulatory environment potentially grows more favorable, however, they will likely increase their technology uptake, via both partnerships and endogenous development.
• Retail players consider themselves innovative when stacked against the competition. Some are leveraging their own expertise to offer integrated online and offline shopping and supply chain solutions. This could allow them to excel in areas where their technology partners struggle, such as last-mile delivery. Largely free of government intervention, they also may experiment with different business models.
• Healthcare's main objective for technology is to improve patient experience. Maintaining a technological edge is generally recognized as crucial to staying ahead of competitors, but healthcare respondents in the survey feel less strongly about this than respondents in other industries. They have a different sense of what competition means to their industry, which government policy and objectives guide to a large extent.

The report's conclusion says:

For years technology has allowed companies in China to boost internal efficiency by speeding up internal processes, reducing input per unit of output and helping firms get better at going about business as usual. Now a new paradigm is emerging: the incorporation of cutting-edge technology such as cloud computing, big data and remote connectivity directly into products and services themselves. This is transforming the very nature of a firm's output, helping them reach new markets and please their customers, and in some cases laying the groundwork for entirely new business models.

The challenges for China's legacy industries, particularly those in the healthcare, finance and retail space, are to take more agency over the technological advances that are transforming the Chinese business world and develop more in-house platforms that can help them reach their goals. In some cases this is already happening. Many, however, will need to forge or deepen partnerships with companies such as Tencent, Alibaba, Baidu or their smaller counterparts in the technology space, whose innovations will likely continue diffusing into the wider Chinese business world for the time being.

Do you agree with the report's findings and conclusion?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.