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Leadership in the Age of Exponential

Disruptions

4th China Leadership and Executive Coaching Conference

June 22nd, 2017

Shanghai

Presentation by Dr. Edward Tse

Founder & CEO, Gao Feng Advisory Company

CONFIDENTIAL

Gao Feng Advisory Company 3

The age of exponential disruptions

Vacuum Tube

1900 1920 1940 1960 1980 2000 2010 2020

Computer technology climbs

Analytical Engine Relay Transistor Micro Processor

The accelerating pace of change 1

2 3 Computer surpasses human brainpower?

Computing Power

Agriculture

Revolution

Industrial

Revolution

Light-

bulb

Moon

Landing

World

Wide Web

Human

Genome

Sequenced

8,000

years

120

years

90

years

22

years

9

years

Computing power is improving according to the

Moore’s Law, and achieved exponential growth

especially in the past 5-10 years.

Today

vs

Human

Brainpower

Source: The Economist, Gao Feng analysis


A mega meeting point

Technology China

Source: Gao Feng analysis


Middle Class

Technology

Communications

“New Rural”

“New Retail”

Globalized Resources


New shifts

Gao Feng Advisory Company

Non-state enterprises revenue and profit trump

those of state-owned enterprises

6

0

10

20

30

40

50

60

70

80

2013

‘12

‘11

‘10 ‘06

‘09

‘08

‘07

‘99

1998

‘05

‘04

‘03

‘02

‘01

‘00

Source: National Bureau of Statistics, “Monthly Industrial Survey”, Gao Feng analysis

Revenue by Company Type 1998

- 2013, Trillion Yuan

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

‘02

‘01

‘00

‘99

1998

2013

‘12

‘11

‘10

‘09

‘08

‘07

‘06 ‘04

‘03

‘05

Profit by Company Type 1998

- 2013, Billion Yuan

Non-state-owned enterprises State-owned enterprises


Waves of entrepreneurs in China

7

First generation

Chinese

entrepreneurs Little experience

Little training and

education

Little legal framework

Responses to Deng

Xiaoping’s

encouragement Many ex-Govt officials

“Jumping” into the sea

High risks of failure

Emergence of BAT “Grassroot”

entrepreneurs

Some overseas

returnees

Began to embrace

the internet

Inflection point Entrepreneur-ship

began to take off

“Why not me?”

Acceleration

Post 80’s, Post 90’s More “Why not me?”

“Why not?”

“What failure?”

Pre-1990’s Early 1990’s – Mid 1990’s

Mid 1990’s – Early 2000’s

Early 2000’s – Late 2000’s

Late 2000’s –Present

Liu

Chuanzhi

Lenovo

Liu

Yonghao

New Hope

Ren Zhengfei

Huawei

Wang Shi

Vanke

Guo

Guangchang

Fosun

Chen

Dongsheng

Taikang Life

Tian Yuan

CIF

Feng Lun

Vantone

Holdings

Jack Ma

Alibaba

Pony Ma

Tencent

Robin Li

Baidu

Charles

Zhang

Sohu

Lei Jun

Xiaomi

Richard Liu

JD.com

Wang Jingbo

Noah Wealth

Management

Hu Weiwei

Mobike

Li Xiang

Autohome

Zhou

Hongyi

Qihoo 360

Cheng Wei

Didi

Wang Tao

DJI



Exponential organizations

8

0

5

10

15

20

25

30

35

Didi Chuxing Valuation,

Pre- and Post-mergers

OPPO’s and Vivo’s

Smartphone Sales

Wechat’s Number

of Registered Users

* Pre-merger values are combined of both companies

USD

Billion

0

100

200

300

400

500

600

700

800

Q2

2015

Q1

2016

Q2

2014

Q2

2013

Q2

2012

Q2

2011

Million

May-15 Jan-16 Sep-16

Merger with

Uber China in

Aug 2016

Merger

announcement

in Feb 2015*


0

20

40

60

80

100

2011 2012 2013 2014 2015 2016

Vivo**

OPPO

Millions

** Pre-2013 sales data of Vivo is not available


Their characteristics

9

Why not me?

Fearless experimentation

Speed, agility, adaptability

“Triple jumping”

In and out of industry boundaries

Platforms; ecosystems; resource leverage


The third way

10

Core Competencies Multiple Jumping Conglomeration

Competencies Jump

or not?

Current

Competencies

Self-defined,

confined

boundaries

New Opportunity

Capability

Gaps

Random business clusters

1 3 2



China NEV sales breakdown (‘000)

40%

2013

18

83% 17%

2012

13

89% 11%

2015

331

75%

25%

2014

75

60%

2016

507

81%

19%

BEV

PHEV

979

813

439

303

11247189

487

306255

14370

913

0

200

400

600

800

1,000

2016.6 2016.12 2017.1 2016.8

488

2016.1 2016.5 2016.11

11

2016.7

12

2016.9

Shared bike monthly active users (‘000)

Ofo

Mobike

Third-party mobile payments transaction

volume (Trillion RMB)

162

111

63

42

219

2015 2014 2013 2012 2011 2010

Food delivery O2O market size in China (Billion RMB)

Across the board

0.30.20.20.10.1

13.2

10.4

8.0

5.8

1.9

2018F 2019F 2017F 2016 2015

China

US

Source: iResearch, Forrester Research, National Bureau of Statistics of PRC, QuestMobile, Gao Feng analysis


They are all over

12


Internet

Auto/Connected Mobility Energy

Technology

Jack Ma - Alibaba

Pony Ma - Tencent

Robin Li - Baidu

Lei Jun - Xiaomi

Richard Liu - JD.com

Wei Jianjun

- Great Wall

Chen Haibin - DIAN

Diagnostics

Wu Gang - Goldwind

Wang Tao - DJI

Wang Jian - BGI

Health

FS

Wang Jingbo

- Noah Wealth Management

Li Shufu - Geely

Diane Wang - DHGate

Peng Lei - Ant

Financial

Ma Mingzhe - Pingan

Consumer & Retail

Zhang Jindong - Suning

Shen Ya - VIP Shop

Zhang Ruimin - Haier

Jean Liu

- Didi

Zhou Hang

- Yidao

Hu Zhihua - EHang

Wang Jun - iCarbonX

Logistics

Wang Wei - SF Express

Yu Gang - Yiyaowang


China’s (emerging) global leadership

13

AI

VR/AR

Advanced Manufacturing

Biotech

Fintech

Mobility / Autonomous Driving

EXAMPLE

Genomic Dreams

Coming True In China

Source: Bloomberg, Financial Times, Forbes, Gao Feng analysis


What drives China’s innovation?

14

Decade-long, gradual transition from planned economy to market

economy

‒ Generating discontinuities

Society’s “pain points” were exposed

‒ Providing opportunities for entrepreneurs

Intense and transformative competition

Massive market scale

‒ Allowing rapid scale up

Prevalence of technology, especially the wireless internet

Availability of VC and angel funds

‒ Overseas and local


In China’s Disruptors, we chronicle power of the

Chinese entrepreneurs

15

The real force in Chinese economy is

increasingly private companies, not

SOEs

Leading private Chinese companies are

innovative and ambitious

They are changing not only China but

increasingly also the rest of the world

Key Themes (book released in July 2015)

Five of the best new books on

innovation – China’s Disruptors’ public

recognition by Fortune.com, April

2015

“ ”


What happened to the SOEs?

16

• SOEs remain some of China’s largest enterprises

• SOE reform is imminent

− Supply-side economics

− Overcapacity; underperformance

− Corruption

• Driver for top-down innovation and/or government plans

• Major role in overseas expeditions

− M&A’ s

− Geopolitical initiatives, e.g., One Belt, One Road


China is not just complex but is also becoming

sophisticated

17

Short-term

Advanced Manufacturing

Short-term transition

Product Market Segmentation

Digital Disruption

Short-term transition

Business Thought Leadership

x x x

15 years ago Today

Current

Competencies

Competency

Gaps

New Opportunity

Multiple Jumping Ecosystem




China for the world


Reverse Shanzhai

19

“Alipay of India”

“Alibaba of India” “Alibaba of Indonesia”

“Alibaba of Southeast Asia” “Alibaba of Africa”

“Mobike of the US”



China entering a new era

20

Stage I Stage II Stage III Development

stage

Reform and Opening

Up

Low value added

manufacturing

China joins WTO

Factory of the

world

Consumer class

appears

Innovation and

entrepreneurship

Knowledge

Going Out

The China Dream

while embracing

the world

1990s

Early 2000s

After 2010



21

Game-changing strategies and organization


Major Shift in Demand Patterns

Prevalence of Technology Enablers

Fundamental Change in Value Chain

Disruptive Strategies

Organization / Ecosystem

New

Game

Old

Game

Wh

ere

to

co

mp

ete

?

How to compete?

Old

Old New

New


Context for MNCs (1)


Typical Issues Overcapacity Pricing

pressures Intensive

competition

Typical Issues Restrictive

regulations Interpretation

of regulations can vary

Positioning and guanxi

relationship skills for

entry, but not

guarantees success

Need best-in-class

capabilities

Market/Ownership Liberalization Matrix

ILLUSTRATIVE


Context for MNCs (2)


Positive

China is a very

rewarding market

‒ One of the largest

markets in the world,

e.g. luxurious

German auto OEMs,

GM, Ford, Apple,

Nike, Starbucks

“Wait and see”

Overcapacity (structural

and chronic)

‒ MNCs are taking a

“wait and see”

attitude, e.g. cement,

steel, solar panels

Disappointments

Withdrew – Think that

China is not their place

for business

− Eg. Home Depot,

Best Buy, Media

Markt, Mattel


MNCs: What’s China for you?

Same way in China,

regardless of what China

is and will be

Willing to explore

different ways given the

characterization of the

China market,

competition and global

implications

My way

of doing

business in rest

of would


What’s your market?

My market 1

My market 2

China’s market


Who are your competitors? Or, collaborators

Traditional MNC

competitors

“New” Chinese

competitors

“My industry”

“The new and

real industry”


MNCs in China by clusters

Acceptance of China as a source of thought

leadership and inspirations

Low High

China’s strategic

importance to

global business

(business size,

market,

disruptions etc.)

Very

few

Majority of

sectors

Restrictive

industries

Pack leaders


High

Low


From Fringe to Core …


China

China as Fringe

China

China as Core &

Integral Part of Global Strategy


… And from Core to Fringe


Exploring new opportunities at fringe Dynamic balance at the edge


Two key factors drive the success of MNCs in

China

30

• China Leadership

– Local leadership must understand and internalize the China context

– Battlefield commander/coordinator with a helicopter view and temporal,

institutional knowledge and memory

• Alignment between global HQ and China realities

– Expectations of the global HQ often dictate whether an MNC can succeed

in China or not

– Often, the global expectations can be overly optimistic or overly pessimistic

over a very short time horizon, making decisions on China erratic

1

2


China leadership: different styles and roles

31

P&L

Responsibility

Thought

Leadership

Business

Planning

People

Development

Institutional

Memory

Government

Relationship

Ceremonial

Facilitator

Local

Coordinator

Business

Leader

Local

Coordinator

Plus

Range of China Leadership Roles


NOT EXHAUSTIVE


What’s real localization?

1. Starting point

2.Ceremonial figure

3.Thought leadership

4.Global Leadership

▪ Hire local people

for mid-level or

junior level

▪ Appoint local

people or long-

term expats as

“China readers”

but with limited

decisions rights

▪ Empower China

leader with a range of

critical decision rights

and an thought

leaders in critical

strategy and

organization issue

▪ China leader

becomes core part

of global leadership



MNCs no longer guaranteed winner of talents

battle Michael Evans

Ex-Goldman, joined Alibaba

Qingyun Xiong

Ex-P&G, joined JD.com

Jonathan Larsen

Ex-Citi, joined Ping An

Source: Literature research, Gao Feng analysis

Allen Lv

Ex-Ford, joined LeEco

Dr. Daniel Kirchert

Ex-BMW, joined FMC

Qi Lu

Ex-Microsoft, joined Baidu


Leadership in Chinese enterprises also evolves


Jack Ma, Alibaba Tang Wanli, Tang Wanxin, De Long

Yang Yuanqing, Lenovo Xu Ming, Dalian Shide


Key requirements for MNC leaders

With the Global HQ, explain the China context based on insights and

foresights

- A thought leader who can drive decision-making

Internally, build a team through alignment of purpose, vision and

culture

- A feeling that we are in it together

A drive for innovation and entrepreneurship with speed and intensity

- Leveraging global and local capabilities

A developer of appropriate ecosystems in and out of China

- Complementarity and mutual benefit

In short, someone who embraces the notion of “Competing on the

Edge” (dynamic balancing)


Who is Gao Feng?

36

THANK

YOU

A pre-eminent strategy and management consulting firm with roots in

China and global vision, capabilities and resources network

We help our clients address and solve their toughest business and

management issues

Our behavior is led by our values

− We put our clients’ interest first and foremost

− We are objective and we view our client engagements as long-term

relationships rather than one-off projects

− We view our people as strategic assets and not merely “units of capacity”

− We believe that every member of our team can contribute to problem

solving for our clients, from the most senior to the most junior

Our seniors are former senior consultants at leading management

consulting firms and/or senior executives at large corporations


Gao Feng’s heritage and our deep roots in China

37

Our name Gao Feng 高風 is taken from

the Song Dynasty Chinese proverb Gao

Feng Liang Jie 高風亮節

Gao Feng denotes noble character while

Liang Jie refers to a sharp sense of

integrity

We believe this principle lies at the core of

management consulting – a truly

trustworthy partner who will help clients

tackle their toughest issues

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