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The Rise Of China’s Innovation Machine

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China has long been the factory floor that churns out popular gadgets for companies world-wide, but the country’s own technology products were rarely viewed as leading edge.

Now, that is beginning to change.

Increasingly, China’s own technology companies are challenging market leaders and setting trends in telecommunications, mobile devices and online services.

Keeping better-known global competitors at bay in their massive home market, they are hiring Silicon Valley executives and expanding overseas with aggressive marketing campaigns featuring international sports stars and celebrities.

Lenovo Group
BUSINESSES:
PCs and mobile devicesFOREIGN COUNTERPARTS:
PCs: Hewlett-Packard, Dell; Smartphones: Apple, Samsung

ANNUAL REVENUE, 2012:
$33.9 billion

KEY POINTS:
• Became world’s biggest PC maker in 2013
• Bought IBM’s PC business in 2005 for $1.25 billion
• Generates more than half of its revenue overseas

Chinese companies still face a perception problem among consumers in many parts of the world that their products aren’t as high-quality or reliable as others. Some foreign competitors have alleged that Beijing gives unfair advantages through subsidies, cheap financing and control over the currency market.

But, many executives at Chinese and Western companies contend, China’s technology sector is reaching a critical mass of expertise, talent and financial firepower that could realign the power structure of the global technology industry in the years ahead.

“Traditionally Chinese companies were fast followers, but we are starting to see true innovation,” said Colin Light, partner at PricewaterhouseCoopers.

The rise of China’s tech industry is fueled in part by its growing investment in research and development. According to a study released in December by U.S.-based Battelle Memorial Institute, R&D spending in China will likely reach $284 billion this year, up 22% from 2012. That compares with just 4% growth forecast in the U.S. to $465 billion for the same period. It forecasts China will surpass Europe in terms of R&D spending by 2018 and exceed the U.S. by 2022.

At Shenzhen-based Huawei Technologies Co., the world’s second-largest telecommunications-equipment supplier by revenue after Sweden’s Ericsson, annual R&D expenditures rose fourteenfold in a decade to $5.46 billion in 2013 from $389 million in 2003.

When Peter Zhou joined Huawei straight out of graduate school in 2000, the company’s Shanghai research center had a few hundred workers in a shared office. Every Wednesday night after work, Mr. Zhou and other young Chinese engineers gathered for study sessions, sometimes using university textbooks from the U.S.

“At that time, Huawei was not at the same level as Western companies,” Mr. Zhou, now an executive at Huawei’s wireless-equipment business, recalls.

“We were like students.”

But in the past decade, Huawei overtook Western rivals such as Nokia Corp. NOK1V.HE -0.51% and Alcatel-Lucent SA ALU.FR -1.10% in the telecom-gear market. Part of its success stemmed from Huawei engineers’ creative ways to upgrade wireless networks using software instead of a costly method of replacing all hardware components, according to Mr. Zhou.

Huawei now has an R&D center in Shanghai that employs more than 10,000 engineers, many of whom have computer-science degrees. As the mobile industry deploys faster fourth-generation networks, Huawei is already working on the technology for fifth-generation networks, which could be ready around 2020.

Huawei’s global expansion has met some skepticism. Last year, some European Union officials alleged that unfair subsidies from the Chinese government allowed Huawei to sell its gear at lower prices in Europe. Huawei denied those allegations.

In October, when Danish telecom carrier TDC TDC.KO -0.68% A/S announced a $700-million deal to replace its existing Ericsson equipment with Huawei’s gear, TDC Chief Executive Carsten Dilling said that he chose Huawei for its technical expertise, not its prices—adding that Huawei was “actually quite expensive.”

Glory Global Solutions Ltd., a U.K.-based global supplier of cash-handling machines used at banks, opened a research center in Shanghai in 2011. The center’s Chinese engineers are developing advanced sensor technology to identify various security features embedded in bank notes to detect counterfeit bills, combing software programming, hardware engineering and scientific methods like spectrometry.

Working on cutting-edge technology with Chinese engineers involves a risk of them leaving to set up local competitors, said its Chief Executive Paul Adams. Still, local engineers are bringing new ideas to Glory Global, he said.

China is also moving up the technological curve in sophisticated areas like mobile processor chips, where it used to be absent. U.S. competitors like Qualcomm Inc. QCOM +0.28% and Nvidia Corp. NVDA +0.31% are still far ahead, but China’s Fuzhou Rockchip Electronics Co. and Allwinner Technology Co. are increasing their presence in the fast-growing market for chips used in low-end smartphones and tablets. Last month, the Chinese government announced plans to spend almost $5 billion to create a fund to make investments in the country’s microchip industry.

In consumer products, few Chinese brands have succeeded in becoming household names globally. But personal-computer maker Lenovo Group Ltd. 0992.HK -2.68% , which last year overtook Hewlett-Packard Co. HPQ +2.50% as the world’s largest PC maker by units sold, is setting a new precedent with its aggressive global expansion in smartphones. In the third quarter of last year, Lenovo ranked third in smartphone sales globally after Samsung Electronics Co. 005930.SE -0.15% and Apple Inc., AAPL -0.56% according to research firm Gartner.

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Huawei spent $5.46 billion on research in 2013, up from $389 million in 2003. Above, a Huawei phone at CES. Associated Press

Lenovo, which bought International Business Machines Corp.’s IBM +0.54% PC business in 2005, released its first smartphone in China in 2010. At that time, its executives knew that the company lacked many of the resources necessary to compete globally in smartphones. Lenovo recruited many people from telecom and Internet industries to inject “new blood,” according to Chief Strategy Officer Zhou Qingtong.Around 2010, Lenovo also created a team of mobile-app developers. In mid-2013, it launched Qiezi, an app for both Apple’s iOS and Google Inc. GOOG +0.66% ‘s Android operating systems that enables two phones to instantly share photos and videos without an Internet connection. In four months after its debut, Qiezi gained more than 30 million users, according to Lenovo.

“We needed a game changer,” said J.D. Howard, a former Silicon Valley entrepreneur who joined Lenovo in early 2012 to head its overseas mobile device operations.

In 2012, Lenovo signed a three-year sponsorship deal with the U.S. National Football League that allowed it to use NFL trademarks in its marketing. Lenovo also hired National Basketball Association star Kobe Bryant for its smartphone ads in Asia and enlisted Hollywood actor Ashton Kutcher in its latest marketing ploy in the U.S.

Since 2012, Lenovo has launched smartphones in overseas markets such as Indonesia, India and Russia. In Indonesia, it now takes up more than 10% of the local smartphone market.

“Apple is of course a cool brand, but I think Lenovo is cool too,” said Amalia Pulungan, a nonprofit worker in Jakarta who bought a Lenovo smartphone in October.

In late December, Lenovo opened its new hub for research, development and production of smartphones and tablets in the central Chinese city of Wuhan, after it spent $800 million to build the 200,000 square-meter facility.

“We definitely want to be number one in smartphones, but it will be a long journey,” said Lenovo Chief Executive Yang Yuanqing during an interview.

While Chinese companies have made big gains in hardware, many of them face a challenge that has plagued other Asian technology companies: developing software and user interfaces that appeal to a global audience.

Tencent Holdings Ltd. TCEHY +0.20% , which owns the WeChat smartphone application, is bucking that trend. Launched in late 2010, WeChat dominates China’s mobile messaging market and the majority of the app’s 272 million monthly active users are in China. But last year, it spent $200 million on overseas ad campaigns to push WeChat into many markets including India, South Africa, Spain and Italy. Tencent says the app has more than 100 million downloads abroad.

WeChat was ahead of competitors in offering an easy-to-use feature for sending recorded voice messages and it is challenging the dominance of Silicon Valley’s WhatsApp, which has more than 300 million monthly active users globally.

Mikey Mashila, an 18-year-old fashion designer in Johannesburg, downloaded WeChat last summer, after seeing the app’s TV ad featuring Argentine soccer star Lionel Messi.

“Everyone knows Messi in South Africa,” said Mr. Mashila, who invited his friends to join WeChat and now uses the app as often as WhatsApp.

“In handsets or laptops, Chinese tech companies’ global expansion has been much more of a hardware story so far, and I think what’s fascinating about Tencent is that it’s becoming a software and services story,” said Michael Reynal, a portfolio manager at San Francisco-based RS Investments, which has about $27 billion in total assets under management.

Tencent’s share price nearly doubled last year and its market capitalization of $123 billion isn’t far from Facebook Inc. FB -0.71% ‘s $139 billion market value.

Tencent isn’t alone. A basket of Chinese tech stocks rose 42% over the past six months, according to Reorient Financial Markets. Over the same period, the S&P North American Technology Sector Index rose 18%.

Behind the overseas expansion of Lenovo, Huawei and Tencent, the domestic startup scene is also becoming more vibrant. In China, where smartphones are sole Internet tools for many consumers, the behavior of local mobile users has at times presaged trends in the U.S.

Several years ago, Chinese entrepreneur Tang Yan researched his idea of a location-based mobile dating app that would connect strangers in close geographic proximity, and was surprised to find few examples of such services among major U.S. apps. “I thought if the idea is right, then it would get hot in America first,” said Mr. Tang, who is now chief executive of Beijing Momo Technology.

Mr. Tang launched Momo, a dating app, in China in 2011 and now has more than 35 million monthly active users. The most similar app in the U.S., Tinder, launched in September 2012.

“More Chinese players are beginning to realize that to survive in the long run and have sustainable growth, they really have to innovate,” said Bernard Kwok, a Beijing-based senior vice president of U.S. software maker Symantec Corp. SYMC +0.70%.

written by experts at ClamorWorld, where you can express openly. see more

Entrepreneurship

Is There A Coworking Space Bubble?

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An annual growth rate of nearly 100%, almost five years in a row? More than 60 coworking spaces in a city like Berlin? Are these the characteristics of a bubble? Nope, these are characteristics of a lasting change in our world of work, which has been further catalyzed by the recent economic crises in many countries. But what makes this change different to a bubble? We’ve summarized some arguments of why the coworking movement is based on a sustainable change. However, that doesn’t mean it’s an easy job to open a good working coworking space.

Five reasons why the growth of coworking spaces is based on organic and sustainable growth: 

1. Coworking spaces invest their own money and create real wealth

Already, there is a convincing argument supporting why coworking spaces are not developing in a bubble: the fact that they create real wealth.

Whether referring to the dotcom bubble a decade ago or the real estate crisis in Spain or the United States, the crisis originated in a glut of cheap money, in an environment in which the sender and the recipient were unacquainted. From funds and banks, money flowed in steady streams to investments which offered little resistance and the most promising returns – which only a little while later turned into delusions and ruined investments.

Redistributed risks create illusions. Those people who distributed the money rarely wore the risk of investment decisions. The risk was mainly taken by small shareholders or people who bought parts of those investments. This was because either both parties’ (better) judgement was drowned out by the noise of the market, or because shareholders were unaware of the risk, and were at the mercy of banks and funds for reliable information.

Another fundamental condition for the creation of bubbles are the sheer amounts of money that flow from various locations globally and are concentrated, by comparison, in much fewer places.

Most coworking spaces, however, receive their funding from local or nearby sources and do not operate within this financial system. In fact, the founders mainly inject the bulk of the required investment, and turn to friends or relatives for additional support. They wear the full brunt of the risks that are involved in small-time investment.

They have access to much more information, because it is their own project, rather than a foreign one thousands of miles away. This also includes failures and mistakes that are encountered along the way, but the risk is less redistributed, thereby decreasing the probability of failures.

2. Labor market changes demand on certain office types lastingly

Most users of coworking spaces are self-employed. The proportion of employees is also on the rise, in many cases simply because they work for small companies that increasingly opt to conduct their business in coworking spaces rather than in traditional offices. The industry of almost all coworkers fall within the Internet-based creative industries.

With flexibilisation of work markets, new mobile technologies that are changing work patterns, and the increase of external services purchasing from large and medium-sized enterprises (outsourcing), the labor market has changed radically in many parts of the world.

The long-term financial and emotional security of becoming an employee no longer exists, especially for younger generations of workers. Bigger companies are quicker to fire than hire, and precarious short-term contracts are on the rise. Promising options on the labor market are more often recuded to freelancer careers and starting your own company.

And that’s possible with less money to invest. All you need is a laptop, a brain and a good network. For years, the number of independent workers and small businesses has been growing worldwide – particularly in internet-based creative industries. Anyone who has sufficient specialized skills and the willingness to take risks may adapt more quickly to market conditions if they own a small business or are self employed; more so than if they were to work in a dependent position in an equally volatile market.

Coworking spaces provide an environment in which to do this. Once they have joined a (suitable) coworking space, these factors become apparent to coworkers, who will remain in their space for years to come.

Furthermore, independent workers rarely fire themselves in crises, and even small companies are less likely to give their employees the boot – compared to their large counterparts. This combination enables more sustainable business models – and less business models à la Groupon.

3. Coworking spaces don’t live on crises

Global economic growth is waning while the number of coworking spaces is continually growing. Do coworking spaces thus benefit from this crisis?

The current crises accelerate the formation and growth of coworking spaces, because they offer solutions and space for the resulting problems. Coworking spaces are therefore not a result of a crisis, but the product of change that pre-dates their existence. A crisis is simply the most visible expression of change.

The first coworking spaces emerged in the late 1990s; the movement’s strong growth started six years ago – before the onset of economic downturns in many countries.

4. Coworking spaces depend on the needs of their members

Most coworking spaces are rarely full. Does this mean they are unsuccessful? On average, only half of all desks are occupied. But the average occupancy rate of 50% refers only to a specific date.

In fact, coworking spaces generally serve more members than they can seat at any given time, since members do not use the spaces simultaneously. Coworking spaces are places for independents who want to work on flexible terms. Smaller spaces rely more on permanent members. Larger spaces can respond more flexibilty to the working hours of its members, and, can rent desks several times over.

If a coworking space is always overcrowded or totally empty, the purpose of said space would be defeated. Firstly, it is rather impossible to work in an overcrowded room. Second, it’s impossible to cowork in an empty room. Given the nature of flexible memberships, a coworking space only can survive if they fit the needs of their members. Members would otherwise be quick to leave, and membership would be much more transient.

5. The coworking market is far from saturation

Less than 2% of all self-employed – and even fewer employees – currently work in coworking spaces. Reporting on coworking may increase, but inflated reporting on the coworking movement in the mainstream media is still far away.

Coverage of coworking space are most likely to be found in the career or local sections in larger publications – front cover coverage remains the dream of many space operators. This is because the whole coworking movement can’t be photographed in one picture. What appears to be a disadvantage, however, is actually a beneficial truth: niche coverage allows the industry to grow organically, and avoid over inflation.

Conclusion

Coworking spaces don’t operate in parallel universes – like the financial market. Demand and supply are almost exclusively organic and operate in the real world economy.

For the same reason, there is no guarantee that opening a coworking spaces will be automaticly successful. Anyone who fails to learn how to deal with potential customers in their market, or is unfamiliar with how coworking communities function, will have a difficult time of making one work. In the same way that business people in other industries will fail if they do not understand their market.

Those who simply tack on the word ‘coworking’ to their space’s facade will need to work harder. The structure of most coworking spaces is based on real work, calculated risk, and real-world supply and demand.

_______________________________________________

About the Author

This article was produced by Deskmag. Deskmag is the magazine about the new type of work and their places, how they look, how they function, how they could be improved and how we work in them. They especially focus on coworking spaces which are home to the new breed of independent workers and small companies. see more.

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Callum Connects

Dextre Teh, Founder of Rebirth Academy

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Dextre Teh is a consultant and marketing guru, helping F&B businesses to tighten their operations and grow their businesses.

What’s your story?
I help frustrated F&B business owners stuck in day to day operation transform from a glorified operator into a real business owner. I’m a 27 year old Singaporean second generation restaurant owner and a F&B business consultant. Entering the industry at 13 years old, I have always been obsessed with operations and systemisation. At the age of 25, I joined the insurance industry and earned a six figure yearly income. However, I left the high pay behind because it was not my passion and returned to the F&B industry. Now I help other F&B companies to tighten operations and grow their businesses with my consulting and marketing services.

What excites you most about your industry?
The food. I’m a big lover of food and even have a YouTube show on food in development. But that aside, it is really about impacting people through food. Creating moments and memories for people, be it a dating couple or families or friends. Providing that refuge from the daily grind of life. So in educating my consulting clients and training their staff to provide a better experience for their customers, I aim to shift the industry in the direction of creating memories instead of just selling food.

What’s your connection to Asia?
I was born and bred in Singapore. I love the culture, the food and travelling in Asia.

Favourite city in Asia for business and why?
Singapore hands down. The environment here is built for businesses to thrive. The government is pro business and the infrastructure is built around supporting business growth. Not to mention the numerous amount of grants available in helping people start and even grow business. If I’m not mistaken, the Singaporean government is the only government in the world that offers grants to home grown businesses for overseas expansion.

What’s the best piece of advice you ever received?
Learning to do things you do not intend to master is a BIG mistake in business. Focus on what you are good at and pay others to do the rest.

Many business owners including myself are so overwhelmed by the 10,000 things that they feel they need to do everyday. We try to do everything ourselves because we think it saves us money. The only thing that, that does for us is overload our schedules and give us mediocre results. Instead we should focus on what we do best and bring in support for the rest.

Who inspires you?
Christopher M Duncan.

At 29, Chris has built multiple 7 figure businesses. He opened me to the possibility of building a business on the thing that I loved and gave me a blueprint of how to do it. He also showed me that being young doesn’t mean you cannot do great things.

Imran Mohammad and Fazil Musa
They are my mentors and inspire me every single day to pursue my dreams, to focus on celebrating life and enjoying the process of getting to where I want to be.

What have you just learnt recently that blew you away?
Time is always more expensive than money. Money, you can earn over and over again but time, once you spend it, will never come back.

If you had your time again, what would you do differently?
I am a firm believer that your experiences shape who you are. I am grateful for every single moment of my life be it the highs or the lows, the successes and the failures because all these experiences have led me to become the person I am and brought me to the place that I’m at so I will probably do things the same way as everything was perfect in its time.

How do you unwind?
Chilling out in a live music bar with a drink in hand, listening to my favourite live band, 53A. Other than that I’m big on retail therapy, buying cool and geeky stuff.

Favourite Asian destination for relaxation? Why?
Bangkok. It feels like a home away from home where the cost of living is relatively low, the food is good and the people are friendly.

Everyone in business should read this book:
Everything you know about business is wrong by Alastair Dryburgh. It is a book that challenges commonly accepted business “truths” and inspires you to go against the grain, think different, take risks and stand your ground in the face of the challenges that will come your way as a business owner.

Shameless plug for your business:
I’m the creator of the world’s first Chilli Crab Challenge. It gained viral celebrity earlier this year with 3 major newspaper features and more than a dozen blog and online publications featuring it in the span of two weeks. In the span of the two weeks, the campaign reached well over a million people in exposure without a single cent spent in ads.

Now I help F&B companies to tighten operations, increase profits and grow their businesses with my consulting and marketing services. Chilli Crab Challenge (https://www.chillicrab.com/nationalday)

How can people connect with you?
You can connect with me on Facebook (www.facebook.com/djtehkh) or visit www.rebirthacademy.sg for more information or book a 10 minute call with me @ www.tinyurl.com/dexclar

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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