Chinese Disruption: What European Organizations can Learn from China’s Rising Tech Industry in Times of Digital Transformation

Abstract

The primary driving forces behind today’s globalization are the rapid advances in information and communication technology, which in turn are being propelled forward by globalization itself. These mutually reinforcing trends push the pace of change to an exponential rate that makes it increasingly difficult for global managers to plan with any kind of predictability. This new reality, or “new normal,” has been termed VUCA after the four characteristics of volatility, uncertainty, complexity, and ambiguity, which continuously deform and reshape the business landscape. Throughout the West, businesses struggling to keep up with change are embarking on digital transformations, often looking to Silicon Valley’s innovative tech entrepreneurs for inspiration. However, studies show that only 30 percent of digital projects are considered successful. In addition, while growth in Silicon Valley are showing signs of peaking, a vibrant tech industry is on the rise in China, whose innovative capabilities garner increased attention in the West. In this macro- and meso-level project, I explore these global trends from a European perspective and seek to identify learning opportunities by asking the question, “What can European organizations learn from the tech industry’s shift from the United States to China?” In order to answer this question, I take a systems-oriented high-context approach, beginning with a comprehensive look into how the tech industry is driving globalization and vice versa. We learn how the global business trend toward transnational organizations is being accelerated by technology such as cloud computing, which help enterprises achieve the three goals of global efficiency, multinational flexibility, and worldwide learning that form the basis of a transnational strategy. Traditionally, these three goals conflicted with each other, but today they can be achieved simultaneously in a mutually reinforcing manner. The result is a cross-industrial convergence of industries, which has led to enterprises embracing open innovation and open source software, which in turn has made it necessary for businesses to reinvent their business models around concepts such as subscription-based services and “access over ownership.” This evolution has resulted in multiple layers of complexity, which have given rise to agile practices as a way to deal with such complexity using a systems-oriented rather than an analytical approach. However, as linear analytical thinking is deeply rooted in Western culture, many organizations have trouble making the mindset makeovers necessary to succeed. In contrast, China seems to be thriving in the face of both political and economic, as well as technological, complexity, having demonstrated impressive growth rates since Deng Xiaoping began the Opening of China in 1979, and the country has since fostered its own agile tech entrepreneurs. I take an institution-based view of China’s politics, economy, and institutions in order to show how China with its philosophy of “crossing the river by feeling for the stones” has dealt with extreme complexity and rapidly changing conditions throughout its reform era. As China progressed through its period of technological catch-up, a vibrant ecosystem of fiercely competitive, “gladiatorial” tech entrepreneurs has emerged in China, and tech giants such as Alibaba, Tencent, Xiaomi, and Huawei are now global players challenging Western giants such as Facebook, Apple, and Amazon. Therefore, I proceed to take a resource-based view of Chinese tech entrepreneurs in order to show how they manage to compete on the edge between structure and chaos by developing the dynamic capabilities necessary to relentlessly produce a continuous stream of temporary competitive advantages in a constantly changing environment. Such capabilities require a systems-oriented and high-context mindset, and I turn to classical cultural orientations frameworks to show how Eastern ways of thinking are naturally aligned to deal with complex – often termed wicked – problems, as opposed to Western ways of thinking, which are more geared toward dealing with merely complicated – or tame – problems. This indicates that Chinese companies have an intrinsic advantage compared to Western firms whose analytical mindset shows a preference for tame problems. However, in a world of open innovation, solutions to tame problems can often be “proudly found elsewhere,” leaving the West at a disadvantage if they try to apply analytical thinking to solving their wicked problems. The major managerial implication for European organizations, then, is to develop and cultivate an organizational culture that appreciates a systems-oriented high-context mindset in order to deal with the wicked problems that predominate today’s business world increasingly shaped by the VUCA factors. Such an endeavor would also help the organization to increase its chances of successfully doing business in China, although it would be valuable even in a local context. These global shifts also give rise to reconsidering established theory, e.g., as new global value chains may distort Stan Shih’s classic “Smile of value creation.” In conclusion, the trends explored point to an interesting future for both research and practice in the field of international business.