For China’s Economic Reform to Succeed, Its Entrepreneurs Need an ‘Inner World’

Remarks by a Chinese economist on why businesses need to move from imitation to innovation
June 15, 2015 Updated: September 13, 2015

With China’s economy contracting, Chinese business owners are facing an urgent need to adopt new business models. This entails thinking more creatively and moving from imitation to innovation.

China’s economy needs to move into a period of mid-speed or mid-high speed growth. There are different understandings on such a new norm. My understanding of the new norm is this: first, the government no longer sets up a target of high economic growth; second, the government no longer uses expansionary fiscal and monetary policies to maintain certain growth targets; third, dividends are achieved through reform.

New Way of Thinking

We should insist on a new way thinking in the new norm. Economic growth does not depend on demand. Economic growth relies on value generation. Demand consumes value. It does not generate value. We should focus our study and policy on supply. Enterprises must adapt to this new norm.

Many entrepreneurs have told me they all know that business would die without transformation, but business would also die as a result of transformation! Why is there such a concern and mentality? This stems from the inertia of our traditional way of doing business. In the past there were two prerequisites for success: an unsaturated market and long-term, low cost resources such as land, labor, and capital. But this era is about to end or has already ended.

Consumers are waiting for you to come up with new products. A mediocre business generates supply. A great business generates demand. A mediocre business follows customers. A great business guides customers. You need to come up with new products, new technologies, and new services.

Why do our enterprises have so much difficulty in the area of creativity? The difficulties do not lie in their employees, but rather in the companies and in entrepreneurs’ way of thinking.

For a long time, the opportunistic business models have been very popular. There is a statement to summarize it vividly–even pigs can fly up in the air with the right gust! This is a typical Chinese style of opportunism! My students asked me for my opinion of this statement. My answer is that if you put yourself at the level of a pig, you and I have nothing to talk about! Jack Ma, the founder and executive chairman of Alibaba Group, replied to this statement, “What would happen when the gust stops? The pigs would fall and die.” I think, first we need to change our ways of thinking and completely overcome the opportunistic business practice. 

Creativity and Meaning

China’s enterprises in general are clearly behind overseas enterprises in terms of numbers and level of innovation. Our businesses imitate each other very much. Why do you see this large spreading of traditional manufacturing enterprises in China? You can find many steel towns and cement towns in Hebei Province and many luggage towns and shoe towns in the south. The key reason is that they imitate each other. Chinese people are strong on imitation. Once they master imitation, many businesses are up and running. Why are we behind in creativity and strong on imitation? My personal observation is that Chinese entrepreneurs lack an inner world. If you want your product to have unique characteristics, you yourself must also have unique characteristics. Our entrepreneurs are weak in this area; our personal values ​​seriously converge.

It seems that we do not go into business for ourselves. Instead of enjoying the process of doing business, adding value to customers and bringing happiness to consumers, we do business by following stereotyped standards: profit, size, revenue, number of listed companies, accumulated net worth, kinds of houses to live in, and kinds of cars to drive. I am absolutely not against these values. But I believe that personal values ​​do not stop here. Personal values mainly come from one’s heart. My life, the several dozens of years given to me by God, did I make good use of it? Did I live a meaningful live? Businessmen pursue profit, of course. However, some people take money as the ultimate goal, while others use money only as a tool to achieve their personal goals.

Overseas entrepreneurs, large or small, focus on how to run their businesses well, instead of focusing on how to make them big. Take Germany for example. There are a lot of small- and medium-seized enterprises with as few as dozens of employees to as many as hundreds of thousands. These companies have been going for hundreds of years. They still have their unique features. Big companies depend on them.

Transformation and Success

So, what is the meaning of success for an entrepreneur? Is there any standard? I personally think that there is no standard. Success or failure depends on oneself. In the new norm, our businesses need to transform. Entrepreneurs need to change their way of thinking, get rid of the opportunistic state of mind and establish their own inner world. Only after you shift your values from external criteria to your inner world, will you be able to innovate and create value. Profit is a natural result of value generation.

What is value generation? First, you give the market an unprecedented new product or new service. Before Apple, there was no smartphone. Apple brought smartphones to the market. Second, you provide the market with existing products and services at lower cost, a sustainable lower cost. If you create value, making money is just a matter of time!

Good business development is not simply about cost control, as you should also be able to raise prices. It relies on innovation, differentiated products and services and differentiated technology. Differentiated technology, products, and services differentiate entrepreneurs.

As we all know, the Chinese economy has entered a stage of new norm. We can help enterprises enter the new norm sooner. This new norm is marked by research and creativity and is based on individual values.

This is an abridged translation of a lecture on the “New Norm of Economics and Enterprises” given at the 2015 Ruyi China Fashion Forum. Xu Xiaonian is a professor of economics and finance at China-Europe International Business School.