China’s Rising Stars
March 9 2011 by Rebecca A. Fannin
Peggy Yu Yu, the executive chairwoman of a Beijing-based online bookseller modeled on Amazon, exemplifies the first generation of entrepreneurial business leaders in today’s China. Young, motivated, aggressive, with financial smarts honed on Wall Street, she took cues on how to shape her Chinese startup from strategies that had worked well in the West.
Returning to Beijing from New York in the 1990s, she designed a blueprint for a Chinese version of the American e-commerce giant and with her husband, CEO Guoqing Li, formed the look-alike Dangdang, a name picked because it sounded like a cash register’s ringing. This past December, she realized the dream of hearing that sound over and over when her 11-year-old startup, formally known as E-Commerce China Dangdang, went public on the New York Stock Exchange, raising $272 million.
It’s been only three decades since reforms began to change China’s economy from state-owned conglomerates to private enterprise. Yet in this short time span, the ranks of pioneering entrepreneurs have grown to nearly match Silicon Valley’s finest. Identifying eight top executives among this growing class of influencers in China is no easy task. Yet, Chief Executive narrowed the list by selecting individuals who are on the cusp of broad global recognition through major achievements in management and strategy across a range of industry sectors. This elite group ranges from the CEO of a clean energy operation in Nanchang and the founder of an automotive service in Shanghai to a Beijing investment banker and the maverick leader of a breakthrough international e-commerce site.
Red Hot Replicas
“We are seeing a whole new generation of smart, well-educated and confident Chinese emerging with skills that rival those in the West,” says Gary Rieschel, managing director of Shanghai-based Qiming Venture Partners, which handpicks Chinese startups to invest in, works with the CEOs to build the business and then take the best of the lot public.
This first generation of China entrepreneurs, commonly referred to as “sea turtles,” got their name for returning home to set up shop after a jump start of Western education and career experience. Influenced by the consumer lifestyle of the U.S. and the Silicon Valley entrepreneurial culture of tech titans, this group was largely defined by its canny ability to closely copy proven formulas from the U.S., then introduce similar concepts for Chinese consumers. While the entrepreneurial action has spread to retailing, automotive, clean energy and even biomedical, most among the first bunch of Chinese clones sprung up in the booming areas of the Internet and mobile communications, and were well-positioned for explosive growth as China climbed to claim the world’s largest pool of cell phone users and web surfers.
For seemingly every big idea from Silicon Valley—social networking to search engines—there soon was a redhot replica in China: the Facebook of China is Renren, the Google of China is Baidu, the eBay of China is Taobao and the YouTube of China is Tudou. Remarkably, such Chinese tech upstarts have gained a competitive edge against American brands in the Mainland, in part because of a better understanding of the local culture.
The CEOs managing this first wave of Chinese upstarts faced tough challenges in ramping up their enterprises. They’ve successfully navigated through a business landscape defined by lightning-fast growth, ultra-competitive threats, quick-paced product introductions, and speedy tech breakthroughs—not to mention piracy and regulatory changes. Carving out market space in the world’s fastest-growing economy—and one new to capitalistic ways—required meticulous attention to detail, clever tactics and fearless leadership.
Indeed, Jim Breyer, the primary investor behind Facebook and a partner at Palo Alto-based venture firm Accel, says Chinese entrepreneurs “look like they are on steroids” in comparison to their U.S. counterparts.
The success stories are multiple and expanding, as once-fledgling startups go public in the U.S. and begin ramping up outside China. Some already are recognizable names, such as Suntech for solar power and Haier for appliances— though it could be a decade or more before the CEOs of China’s emerging companies gain the star power of a Steve Jobs or Mark Zuckerberg.
China’s entrepreneurial surge is far from over as a new era begins to unfold. Indeed, the sea turtles are inspiring a whole new, just-emerging generation of young, local talent. This next era of entrepreneurship will be defined by those with home-grown skills, work experience and education—and tellingly, with original, designed-in-China ideas, not knock-offs, tailored for the Chinese marketplace. One sign of this progress is China’s ascent over the past decade to rank fifth in the world for new patent applications, according to the World Intellectual Property Organization.
Hurst Lin, the co-founder of leading Chinese Internet portal SINA and today a partner with investment firm DCM in Beijing, contends it will take at least another decade before true China innovation develops. He argues that creativity and originality needs to be stressed in China’s educational system before a new wave of entrepreneurship begins to swell.
Over the past decade, the leaders of China’s entrepreneurial boom have dealt with challenges that would be unimaginable in developed worlds—like getting goods delivered and paid for without a reliable post office or credit cards. The profiles on the following pages share their stories and look at some of the ways they adapted proven business models to a developing economy.
It was her well-rounded experience—an MBA from New York University, managerial training from UPS and Babcock & Wilcox, and Wall Street stripes at a boutique investment bank—that helped her forge ahead in China’s tough startup terrain. Yu came up with the idea for Dangdang upon returning home after a decade of living in New York City and endless shopping temptations. “I saw the sharp contrast in consumerism between the U.S. and China,” said Yu, adding that she wanted to bring products to Chinese consumers they couldn’t find on the city stores’ dusty and poorly lit retail shelves. Her goal? Turn Dangdang into China’s largest retailer.
Taking advantage of a later start in e-commerce than American counterparts, Dangdang benefitted by studying examples and cherry-picking the best strategies, while avoiding the errors. Yu tells how she honed her managerial focus on mining product categories she knew best, skipping over diversification into unrelated categories, such as pet food, that had proved unprofitable for Amazon in the U.S.
By keeping the discipline, Dangdang reached profitability in 2009 on revenues of $218 million and clocked in for the first nine months of 2010 at $235 million in sales and $2.4 million in income. The company remains focused on selling books and media, where it has a leading share, but has moved into potentially more lucrative areas, claiming more than one-third of sales from carefully selected merchandise: clothes, cosmetics, toys and household goods.
Another top entrepreneur who has capitalized on the newfound opportunities in China is Jack Ma, the charismatic founder of China’s leading business-to-business trading site, Alibaba, and auction site Taobao. A multimillionaire from taking Alibaba public in late 2007 and later cashing out some of his holdings in a record-setting $1.5 billion IPO, it was only a decade before that Ma got his start with Alibaba in his hometown of Hangzhou.
Ma has achieved one milestone after another—beating eBay in China and taking over management of Yahoo in China as two examples—by perseverance, hyper-competitive tactics and an independent-minded streak characteristic of breakthrough leaders. For instance, in going after eBay’s head start and lead in China, Ma boldly undercut its pricing and even offered free listings. He also tailored the site’s features to Chinese consumers, with features like extended merchandise returns.
What makes Ma’s story all the more remarkable is that he did not have any experience in the Internet, and in fact had never been online until a trip to Seattle in the mid-1990s. His work before Alibaba was as a schoolteacher and translator.
The lesson here is that winning the race in developing China can hinge on personality traits and sheer ambition, rather than in-depth industry knowledge. In fact, Ma calls himself a tech dummy, which he says has been a benefit in developing easy-touse features of the site.
No doubt, his journey to riches stems from a flair, he says, for “thinking differently. I didn’t follow people but developed my own way of thinking.” Former Yahoo CEO Jerry Yang, who engineered a $1 billion investment in Alibaba in 2005 that resulted in the Chinese startup’s running Yahoo in China, says of Ma: “He is a good example of the great ideas and strong management that are emerging today in China.”
Today, Ma continues to chart new courses, expanding Alibaba internationally and devoting his energy and newfound wealth to such charitable causes as forming a Chinese offshoot of the Grameen microfinance group for the underprivileged in his homeland.
The SUNY Buffalo-educated cofounder and CEO of Nasdaq-listed search engine Baidu, Robin Li benefitted from career experience in Silicon Valley’s startup culture before returning to his homeland in late 1999. Within a few years he had set out on a mission to one-up Google in China.
In his toolset were specifically tailored features for local consumers, such as community billboards for answers to search queries and a search engine acclaimed for producing more relevant results in the Mandarin language than the American brand. Investor and former board member Asad Jamal, founder and CEO of ePlanet Capital, credits Baidu for having an eye for “fundamental innovation in technology” as a key to its success.
But of all the advantages, it was Li’s strong strategic vision, matched with his masterful ability to deal with daily details and even public relations nightmares, that kept Baidu in front. Not too many executives try out three business models—all misguided— before convincing the board to rely on a risky and unproven strategy: paid search or pay-per-click, monetized through online advertising. It was a model that Google at the same time was testing, and by 2004, it did prove to be a money-making formula.
Li has stayed in the executive seat from Baidu’s start in 1999 to today despite blow-ups that might have derailed others. For instance, Baidu was widely criticized for search links to pirated MP3 downloadable files, but Li handled the potential crisis by working with authorized music labels and stores and redirecting clicks to their sites. Li also stayed centered while rival Google battled censorship issues and cyber-attacks, and eventually withdrew its search engine from the Mainland. Since the Google retreat, Baidu’s market share jumped to 73 percent by the third quarter of 2010, according to research firm Analysys International, and its stock price has reached new heights.
Keep an eye on Joe Chen, the visionary founder and CEO of social networking power Oak Pacific Interactive and its Facebook-like site Renren. This year, Chen’s eight-year-old Beijing-based startup is poised to go public after having raised a record sum of $500 million from leading investors, including a $430 million investment in 2008 led by Japan’s Softbank Corp. No doubt, Chen’s Stanford MBA degree and his experience in running and selling a successful startup while still a student have come in handy in building OPI from startup to maturity.
Chen has assembled a web empire of social networking brands with a two-fold strategy of developing sites in-house and acquiring startups with a high barrier to entry that would be difficult for rivals to match. “We have always wanted to be longer-term oriented, remain fiercely independent and build businesses with ‘moat,’ ” says Chen.
Having built a foundation of multiple leading brands, Chen admits that his biggest challenge today is battling other well-established Chinese players in the Internet arena: namely Baidu, Alibaba and instantmessaging service Tencent, which he collectively labels the BAT. Chen’s trick to try and outmaneuver them is to churn out new products and features and grab market share quickly by pumping products into the marketplace, rather than waiting for test market results. This finely honed competitive instinct helps him pivot to the most promising areas to keep an edge in the fast-moving marketplace, says David Chao, co-founder and a general partner at DCM and one of the startup’s backers.
For Ray Zhang, the founder and CEO of eHi Car Rental in Shanghai, the biggest hurdles he faces would make most executives envious: Manage super-fast growth in a highly competitive business, invest $70 million raised late last year in a deal from Goldman Sachs (on top of $24 million from four venture investors) and decide when to take the company public. Certainly, Zhang got the timing right for his four-year-old automotive venture. Car-crazy China needs a service such as eHi, which offers an all-in-one Hertz, Carey limousine and Zipcar as an alternative to owning a vehicle.
The Shanghai native has the background for the job, having run logistics software maker Adelph in Emoryville, Calif., for 12 years and gained a MBA from CEIBS (China Europe International Business School).
This year, Zhang is aiming to double eHi’s sales to $60 million and, judging by the investment banks clamoring for the IPO, maybe take eHi public too. But he says he is not rushing, preferring to make sure the company is ready and the capital market climate healthy before jumping in prematurely or being prodded by the bankers and investors.
Count on Zhang to stay in the driver’s seat and set his own agenda. “I like the uncertainties, challenges, unknowns and excitement of being an entrepreneur,” says Zhang. “I feel very bored if I already know where and who I will become 30 years from now.”
Not very many execs can simultaneously start and run a venture investment fund while also taking charge of one of the more promising startups in its portfolio of deals. But Wu has set high standards before.
In forming GSR Ventures in Beijing in 2004, he and a small group of investors set out to find and finance newly developing Chinese firms with leading edge technologies. Back then, few believed that China could develop world-class technology of its own, but Wu is proving them wrong. He has gone on to raise three sizeable funds to invest in dozens of hidden startup gems.
His firm’s startups are gaining traction, the most notable being LatticePower in Nanchang, the producer of a cost-efficient and patented LED. LatticePower just succeeded in raising $55 million in a round led by the International Finance Corp., and the upstart’s products—one a household LED light bulb—are positioned to go mainstream.
This startup probably never would have gotten off the ground without the attention and support of Wu, who stepped in as CEO when the founder, PhD physicist Jiang Fengyi, realized he was more athome in the lab than in the executive office.
Proud of having groomed the company from the lab to the factory to the warehouse and outlets, CEO Wu is envisioning that when Lattice-Power goes public, it will be a “billions-dollar IPO.” He also doesn’t blink in describing founder Jiang, who remains the company’s chief scientist, as a modern Thomas Edison. That sort of personalized coaching goes a long way toward team-building and putting Lattice-Power on the map.
Turning to high finance, Hong Chen made his name in Silicon Valley as a serial entrepreneur and leader of the influential Asian-American tech group HYSTA before he could not resist the call of his homeland. His vision was a bold one: to create a Chinese Goldman Sachs.
By 2003, the SUNY Stony Brook PhD had laid out his plan to jump into the biggest startup story of all—China— and to make a fortune with the formation of a homegrown boutique investment banking firm, Hina Group, in Beijing. His timing was right—an instinct he developed as the CEO of an earlier tech startup, GRIC Communications, which survived the boom-and-bust years of the telecommunications revolution.
Starting off by providing due diligence for investors in China, it wasn’t long before Chen forged ahead and leveraged his contacts on both sides of the Pacific to help Hina become the go-to cross-border investment bank for advice on mergers, acquisitions and public offerings. With the ambitious Chen at the helm, Hina now has additional offices in Shanghai, Singapore and Silicon Valley, 60 professionals and counts 49 transactions valued at more than $8 billion.
Chen doesn’t hesitate to point to his firm’s big deals, its latest in December 2009, a $734 million merger of Chinese tech companies AsiaInfo Holdings and Linkage Technologies. And while not on the scale of a Wall Street powerhouse, Chen takes pride that his role gets him access to China’s top entrepreneurial leaders such as Robin Li and Jack Ma, as well as membership in Beijing’s Club 100 for socializing with more movers and shakers.
Kai-Fu Lee had already made his mark as the president of Google in China and head of Microsoft Research Asia, but he keeps on reinventing himself. Leaving his bigname multinational jobs behind, he ventured into entrepreneurial turf in late summer 2009 and formed Innovation Works to invest in and to nurture Chinese tech startups. He has raised a $100 million fund to support these ventures and set up office in the Silicon Valley of Beijing, Zhongguancun Software Park—in the same office building as Google.
The Taiwan-born, U.S.-reared Lee knows it’s a bold move, but he reasons that over the next decade China will generate its own tech brands that can compete globally. With investment in these ventures at an early stage, coupled with mentoring by him and his team, he’s sure that Innovation Works will profit along with the startups.
A recent visit to Innovation Works showed that his initiative is on track. The bustling office is crammed with young Chinese software engineers developing code and the spirit is like that of Silicon Valley during the height of the dotcom era. Indeed, Lee, with a PhD from Carnegie Mellon, is seen as a hero to many of the young entrepreneurially minded in China, and he’s often greeted at the office by a line of potential entrepreneurs jockeying to become one of his startups.
The scene recalls that of Silicon Valley before the bust of the late 1990s. China’s own entrepreneurial chapter has yet to be completed, but judging by the progress in such a short time, it seems clear that as this trend continues to unfold, China will give rise to its own Steve Jobs.