New disruptors driving the Chinese economy

Edward Tse believes companies like Alibaba are now the real drivers of the Chinese economy.

The founder and chief executive officer of Gao Feng Advisory, a management consultancy, insists they are not just changing the face of the world's second-largest economy but also having a major impact globally.

"Private companies are now the real strength and driving force of the Chinese economy," he says.

"The financial headlines this year are about China with fears of slowing growth and the fall in the stock market but it underestimates just how dynamic China's private sector has become."

Tse, regarded as one of China's leading management gurus, was speaking in the China World hotel in Beijing.

His latest book, China's Disruptors: How Alibaba, Xiaomi, Tencent and Other Companies are Changing the Rules of Business, was published in Chinese in December.

"People outside of China often wrongly assume that China is a state-controlled economy and that the success of the economy is dependent on state-owned enterprise reform. That is important and it is going to take time but it is the private companies that will lead the economy."

Tse, who was witness to the early beginnings of these businesses from the time he was China managing partner of Boston Consulting Group in the 1990s, says what stood out even then was their ambition.

"When they came to me what came through in our conversations was the genuine desire they had to be successful. We now have these very successful companies such as the BATs."

Tse admits he now shares others' concerns about Alibaba's recent diversification outside of the e-commerce sector, including the acquisition of South China Morning Post.

"They previously had what I termed a jumping strategy but they were jumping to other areas within e-commerce. But since their IPO (in 2014) they raised a lot of money and have diversified very fast, becoming very extended.

"I am not sure this is a good idea in my view because there is a question as to whether you have the management bandwith to handle so much at the same time."

Tse is more impressed by Alibaba's rival Tencent, the Shenzhen company behind WeChat.

"It has close to 100 percent penetration of China's 600 million Internet users. The reason why it is so successful is that is improving functionality all the time, if not every day, then certainly every month.

"WhatsApp has had very little innovation and the current configuration is not that much different from the initial design 10 years ago."

He believes Tencent's strategy to invest in and focus on its core business has been key to its success.

"They are more focused. The core of the business was games and it evolved into social media and now WeChat has become a real core to what they are doing across the board."

Tse quit as chairman, Greater China of Booz & Co (now Startegy&) in 2014 to launch Gao Feng, a pioneering consultancy based on the idea that Chinese companies were being badly served by the international consultancies that did not understand China-specific problems.

Previously the author of the highly acclaimed The China Strategy, his new book analyzes the disruptive effect a number Chinese companies are having on traditional modes of doing business.

He argues that they are following in the footsteps of Mark Zuckerberg at Facebook, Larry Page at Google and Jeff Bezos at Amazon.

"Disruptors are people who try and do things in a very different way, fundamentally different from what has gone before.

"I think these disrupters are now coming from just two places: one is Silicon Valley and the other is most definitely China."

He says young people in China increasingly have entrepreneurial ambitions in marked contrast to their counterparts in Europe.

"They want to be the next Jack Ma. Whereas 20 years ago graduates in China wanted to work for Procter & Gamble or Coca Cola, they now either want to work for one of the e-commerce giants or start their own business," he says.

Tse says that if they do start their own business there is no place in the world where they can scale up their operation so quickly.

"Even America cannot offer the same opportunities. This applies particularly in the technology sector because of the sheer size of the number of Internet users."