5 Trends That Will Power Digital China / Asia for the Next Decade (Tech Strategy – Podcast 54)

These are my predictions for the biggest trends in digital China / Asia for 2020-2030. They are all underway already. And most of them are unique to China / Asia – so I don’t think we will see them elsewhere. My prediction is:

  • In 2020 – 2030, China / Asia will become the world’s largest and most innovative digital ecosystem – with unmatched infrastructure and capabilities.

And these the 5 trends I am watching for:

  1. China / Asia will become the smart devices leader as innovation in digital is combined with innovation in hardware.
  2. Smart IoT logistics platforms will emerge and connect consumers, retailers, businesses and others autonomously and in real-time.
  3. New Manufacturing will emerge in Asia that is flexible, efficient and connected.
  4. Smart cities will emerge and may become operating platforms.
  5. Digital finance may leapfrog the traditional banking and financial system.

You can listen to this podcast here or at iTunes, Google Podcasts and Himalaya.

This is part of Learning Goals: Level 7, with a focus on:
  • #26: Advanced New Retail

Concepts for this class.

  1. New Retail
  2. Online Merge Offline
  3. Smart IoT Logistics Platforms
  4. China Digital Consumer Network (CDCN)
  5. New Manufacturing

Companies for this class:

  • Xiaomi
  • DJI
  • Xunxi
  • Cainiao
  • JD Logistics
  • Insta360 / Arashi Vision


I write and speak about digital China and Asia’s latest tech trends.

I also teach Jeff’s Asia Tech Class, an online course and daily commentary for busy executives on Asia tech and China’s digital leaders.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

——transcription below

Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the topic for today, five big trends for digital China Asia for the next decade. And this really came from a discussion. I’ve been talking with quite a few of the subscribers to the class over the last weeks. If you’ve gotten an email from me or my assistant, thank you for that. I appreciate that. It’s been incredibly helpful. Anyways, in one of the conversations with someone who is in the investment world and looking at unsurprisingly, digital companies coming out of China, Asia, of which you know the names, Alibaba, Ant Group is a big story. There’s a lot of them and there’s actually a huge number coming. And one of the questions, also my standard thing was what do you care most about? What would be the number one thing that you’re looking for? And this person said, you know, basically trying to get a better sense of the ecosystem of digital China. And I thought that was a great question and something I haven’t really addressed too much. I tend to focus on micro stuff, companies, concepts within companies. I like to focus on small things, but you know, in a digital world, it really is the ecosystem that often leads and it’s almost like the companies just grab these big waves that are already passing by and that you know launches them forward That is you know a big part of this is the evolution of the whole system So I’ve been thinking about that for the last couple days and said okay Looking back over the past 20 years of digital China, which has really become digital Asia now ex Japan It’s all evolving more or less in the same direction, but China is obviously sort of the leader in a lot of it. I look back at the last 20 years and then said, okay, what’s going to come next? What’s the next 10 years? And what do I think are the most important trend, the real seismic changes? And I came up with basically five, which I’ve already been thinking about a lot. I just didn’t really write it down. So that will be the topic for today is just here’s my five. Here’s where I think it’s going. And on top of that, There’s this idea that I think we’re kind of at a, not a turning point or a tipping point, those phrases get overused way too much. It does jump out, obviously, that in so much of the digital world, payments, entertainment, e-commerce, logistics, that China, Asia is now significantly better than anywhere else in the world. And that wasn’t the case five years ago. And I’ve been kind of ranting about this on Twitter a little bit. I try to stay off Twitter because I’m not good at it. And but, you know, Alibaba is much better than Amazon now. It just is. And social media in China, Asia is just better than Twitter and payments are better and logistics and delivery are better. And none of that was true five years ago. And the what are the biggest stories this year of digital? Well, some of the biggest stories. The biggest IPO in the world of any company, but a digital company is happening right now, which is Ant Group, Ant Financial. 330 billion dollar market cap on IPO. That’s huge, there’s nothing that big anywhere else. I think it’s gonna surpass Saudi Aramco, the oil giant. But also. It’s purely a creature of China. There is nothing like Ant Financial outside of China. There’s nothing even close to it in the United States. I mean, PayPal and Stripe and Square, I mean, they are just the most, it’s like looking at Ant in 2011. So it is so far ahead in what it’s doing and it’s such a unique creature and it’s huge money. So that’s a huge story. Well, that’s unique to the system. And the other big story is bite dance and TikTok. Arguably the most advanced, let’s say the coolest entertainment media story of digital globally of the last three years has been TikTok. You know, it’s everywhere. Okay, another Chinese company. You can just see the, you know, and then we talk about mobile payments and things like that and super app and how Facebook is basically copying WeChat. And you can just sort of see that something has changed in the last really four years, where I think really Silicon Valley has lost its leadership position. I really do. Not in everything, electric vehicles, rockets, most of the B2B side, healthcare, hospitals. I mean, nobody dominates everywhere, but in so much of the consumer facing space, I don’t think they’re the leader. And I don’t think they’re the leader in terms of mobile innovation, mobile app innovation. You know everything is happening so much faster in China Asia now So I think we’re you know within this spectrum of the evolution of 20 years of this I think we’re at a significant moment. That’s also what kind of jumped out at me as I was thinking about this Okay with that backstory Let me just sort of get into what I Think are the five biggest trends. Well the ones I’m paying the most attention to let’s say But first if you haven’t subscribed, please do so you can go over to Jeff Towson comm And there’s a free 30 day trial, try it out, see what you think, join the class. We’re starting to sort of evolve it. And as I mentioned, I’m doing a lot of interviews. We’re gonna sort of upgrade or at least change a lot of stuff. We’re starting to do in-person meetings now in Thailand, just sort of trying those out, see how they go. And it’s been great fun. It’s really fun. I think we’ve got 20 people coming next week. So, you know, it’s gonna be great. Anyways, so trying a lot of stuff and anyways. Feel free to join in, it’s fun. Okay, let me get into the five. Now, for those of you who are subscribers, the learning goals for today, this is all gonna go under learning goal 26, which is advanced to new retail. Basically, a lot more new retail thinking. And the sort of three ideas are one, new retail, which I’ve also referred to as OMO, online merge offline, combining physical and digital assets into more. one sort of seamless data-driven experience. Retail just happens to be the first industry to really go into that. So new retail, I consider that sort of the first attempt at OMO. So that’s sort of one idea. The other one is the China Digital Consumer Network, the CDCN, which I’ve talked about that basically you want to think about Chinese consumers as a connected network, not as a demographic, as a connected network that is operating in real time. very vibrant, very rapid to adopt things. It’s easier to view it as a connected network. And then the third one is new manufacturing, which Alibaba has a new project in that, which is pretty cool and we’ll talk about. Okay, so those are the ideas. Learning Goal 26, advanced new retail. It’s new retail, CDCN, and new manufacturing. All right, the first, well, let me give you a little bit of history. Let’s say the China digital world really begins in 1995. Now it kind of began a lot of places in 1995, if we’re talking internet. I mean, obviously Silicon Valley is decades before that, but the internet digital age, prior to that, if you looked at Silicon Valley, people were doing a lot of hardware. I mean, there’s a reason it’s called Silicon Valley because you use the silicon to make semiconductors. And there used to be a lot of hardware. And then really in the mid early 90s, everyone started focusing, well, not everyone, but it seems like everyone. started to focus a lot more on the software side and stop doing manufacturing and building chips and video game consoles and stuff like that for various reasons, one of which is, it’s a lot more profitable. Okay, so 1995, we definitely had that in China and you saw the first internet companies around that period. There’s the old story that Jack Ma created the first internet page for China, which was sort of a Yellow Pages he set up while he was in the United States, and he listed his companies there, which was a translation company at that point. And then he sold it very quickly. And it was basically just a, I mean, it was literally just a phone book. You put addresses up there and then people called. Okay, that’s kind of true, kind of not true. A lot of this, you know. is getting a little rewritten in history, but it’s around that time. And then he really goes off and works at a government sort of state-owned agency for a while who had bought his company. He was kind of out of the picture. He actually missed the first wave of the China internet. The first wave was in sort of the 1996, 1997 period when you saw these portal businesses get launched like Sina and Sohu, and they were basically like Yahoo. You have a bunch of people who are curating content and putting it together, almost like a newspaper. And that’s how you access the web is through these portals. And so we had the first wave of sort of Chinese tech giants emerged in that period. Most of whom the people who founded those companies, they aren’t widely known. But then 1998, December-ish, early 1999, that’s when we get… Baidu, Alibaba and Tencent all founded within a couple months of each other, ironically in different cities. Tencent’s founded in Shenzhen, Alibaba’s founded in Hangzhou, and then Baidu’s founded in Beijing, obviously by Tony Ma, Jack Ma and Robin Li. But it was all within a couple weeks of each other, more or less. And those three cities today are the digital capitals of China, arguably Asia. But definitely China. And it all happened to that month. So most people, and that’s when the bat companies start getting referred to by Alibaba Tencent. And that’s generally where people start thinking about the China internet digital story. But it was actually, that was kind of the second wave of entrepreneurs. And Jack Ma got onto that wave, obviously. Okay, but really, let’s say we go from that period up to about 2010. It was really actually quite small. It wasn’t that big, even when companies like Alibaba and Baidu went public in early days, 2002-ish. The numbers were tiny. The number of people on the internet was absolutely tiny in China. You’re talking about a couple million people and then maybe tens of millions. We didn’t have smartphones and most people didn’t have PCs. So back then the internet was going to the local cafes, the internet cafes of which there were a handful of licenses. I think there were 10 licenses in China, something like that, which was a very lucrative business if you had one of those 10 licenses. And that was kind of the internet. This is why, you know, the real adoption of users didn’t happen until 2007, eight, nine, 10. That’s when we started to see the numbers move. And the e-commerce spending, so apart from the activity, the spending didn’t really happen until 2010 to 2015. And that’s not just the digital story of China, that’s really the consumer story of China. If you look at any of the big trends that shaped the economics and business of China, and we wrote a book about this called The Six Megatrends, we talked about urbanization as a huge, economic trend, a lot of real estate, a lot of infrastructure. We talked about, let’s say, manufacturing scale. Story of the 80s and the 90s of China was a lot about manufacturing scale, the world’s workshop exporting to the world, everything became made in China, huge money. We could look at finance and capital, a lot of money flowing in those days, big money. But if you looked at the other ones, which we had digital China, one was called brain power, but we won’t talk about that. But… The consumer story and the digital story, it didn’t really happen. And people used to ask this, I remember being back, you know, this is back in Shanghai in 2007 and eight. And, you know, the common question you would read in the press was, why don’t Chinese consumers spend? How can we get this group to spend? Because they have the money. The money’s coming into the country, the manufacturing base is huge, and Chinese families did have accumulated wealth, but they did not spend. And it was just this standard question. And then sort of 2008, nine and 10, they really did start to spend for the first time. And the chart, the numbers, it’s like your typical hockey stick graph. It’s low, low, low. And then around that period, the spending on everything, home appliances, furniture, electronics, it just goes vertical, 2009, 10, 11. And then from about 2010 to 2015, and we can call that, we can call 2010 to 2020 sort of digital China 2.0 and everything before that 1.0. But 2010 to 2015, that’s when China started to become a massive market for the rest of the world, not just digital, but everything. That’s when Macau went from, hey, it’s a kind of sleepy and corrupt. place with triads and smuggling and a lot of prostitution and stuff like that, to three times Vegas in gambling revenue. That’s when it didn’t just pass Vegas, it dwarfed Vegas very quickly. That’s when the car market became the largest auto retail market in the world. That’s when online gaming started to take off. That’s when retail took off. I mean, it was almost like every month there was a new announcement. China is now the number one market for X. Or if it wasn’t number one, it was usually number two. It was usually passing Japan. It was, you know, now it’s number two. And it was all the time, but that was 2010 to 2015. You know, I often tell people when I sort of give talks about China, you know, keep in mind. Eight years ago, nobody really thought about Chinese consumers as a massive market. And now it’s regularly acknowledged as the number one or number two market in the world for whatever. Handbags, shoes, makeup, art auctions, casinos, online gaming, offline gaming, pretty much movies are going to get their retail. That’s just eight years. Imagine what it’s going to be five to 10 years from now. We are just at the beginning of this and it’s happened very quickly and we’ve all kind of taken it for granted. But I remember back in 2008, it was not a big deal. It was kind of agonizing. Why don’t people spend here? Okay, so at that same period of transitioning of Chinese consumers, that’s when everyone got smartphones. 2010 to 2013, 14, everybody in China got a smartphone. They all got data plans and all that shifting, starting all that spending started to go on phones all the time and things just took off. I mean, that’s when you start getting all these companies popping up all the time. Didi, Toe Tiao, ByteDance, what’s this ByteDance? Jing Dong went off like a rocket ship. Pinduoduo, Alibaba, I mean. Weibo, WeChat, I mean, mobile payment, Alipay, it was just company after company after company. pretty amazing and that period 2000, well let’s say digital China 2.0, that period 2010 to 2020 is my standard story on this is that’s when you have to start thinking about the epicenter, well let’s say not epicenter, let’s say the engine. The core engine of all of this is the China digital consumer network. That’s driving everything else. 600, 700 million consumers on smartphones all the time. They’re super eager to adopt things. They all get on mobile payment and they’re all connected to each other. Word of mouth, which is traditionally how the China markets have run. People, when you wanna find a good doctor or washing machine, you ask your friends. Everyone has personal networks. That’s how you figure out what’s what. It’s not a lot of trust. So word of mouth was always sort of the go-to mechanism. Well, word of mouth became digitized. Now it was chatting online. So that sort of CDCN period, the China Digital Consumer Network, that’s the core engine of all of that. And that starts to shift business behavior, because suddenly businesses have to respond to this. If you’re not offering delivery, people just stop using your restaurant very quickly. So on-demand delivery became an expectation. By every business, every restaurant, you have to offer delivery. Doesn’t matter, well, coffee’s a bit of a stretch, but most everything. That became demanded, why? Because people started to expect the ability to buy things on their phone and have it delivered. It was expected by very demanding consumers who basically operate like a network. you had to accept mobile payment. Had to. You had to provide information. You probably had to have chat and customer service online. You had to be ready for consumers to be talking about your business in chat rooms and such all the time. And if you had to respond to negative stuff in real time, you had to become active. So the businesses started to become what I would call digitally superior. than what we see in, say, the United States. Most, you know, there’s some decent digital behavior by a lot of businesses, but it’s not absolutely demanded. In China, it became demanded. These businesses started to tilt in that direction because they had to. It was just the consumers demanded it. You offer it to them or you don’t. And so that was kind of, if the engine is the China Digital Consumer Network, the CDCN. The first impact was to drive business behavior to adopt these things very aggressively. They had to get on T-Mall. And you could try and avoid it, but good luck. Even the luxury brands, the high-end Gucci products, who never wanted to go e-commerce, they have found, they’ve sort of finally bent the knee. And now they’re on T-Mall and JD, because that’s where, because 40% plus of luxury purchases globally are done by Chinese consumers. and they are digital first. So they’ve had to sort of adapt. And it’s not just businesses in China, it’s businesses all over the world who wanna sell their have to sort of become much more digital friendly in their behavior. All right, it also that sort of level two, the next level is we start to see what I would call superior infrastructure being built to support this. The regulations for say e-commerce are quite good in China. They’ve responded to what’s going on. They’re handling fraud in a much better way than they used to. I think they’re actually quite good. And particularly when you compare that to some of the regulatory attempts that we’ve seen in say California or Australia, which are, I think, idiotic. Now they’re trying to ban, they’re trying to make gig workers like drivers of Uber become full-time employees in California. It’s ridiculous. So regulations are consistent. They’re pretty good and they also apply over an entire continent of 1 billion plus people. You know, that’s something we don’t see in other geographies because we don’t have a common language, common regulatory environment, common payment networks across such a big population really anywhere else yet. And there’s a lot of benefits to that. The logistics that starts to get built up gets more and more sophisticated. on-demand delivery. I mean, waiting two days is almost unbearable. Like I barely will wait till tomorrow. If I order it this afternoon, I kind of expect it this afternoon or tonight, maybe I’ll wait till tomorrow morning. After that, I get pretty testy. And that’s standard now. So the logistics infrastructure is also covering a continental geography, a vast territory, but it’s becoming standardized. And that’s much harder to do in, say, Southeast Asia or Europe. Or the United States could do it. But even then, the United States does not have the urban density we see in China. We just got a ton of people packed into cities there, and a lot of this becomes better. So the logistics, the regulations, the payment, we basically see better infrastructure, or at least infrastructure that is more suited towards digital activity. And when you get those three pieces, the consumers driving the businesses and the infrastructure, it sort of becomes a virtuous cycle where then it becomes very easy to launch new things on this infrastructure. So vending machines are crazy, you can buy lobsters and you can get free gifts and I can get coffee delivered to my room in 15 minutes. And if I go out and I have too much to drink, someone I can hit an app on my phone and someone will drive over and. drive my car home with me in the back and I can ship stuff across town and if I leave my phone in a meeting, there’s an app where a person will go get it and bring it to you. I mean there’s just crazy stuff all over the place because it’s so easy when you have all the infrastructure, the payment, the regulation, the digital first behavior of business is all in place. And so it’s kind of accelerating away and I think that’s really what we’ve been seeing in the last two years is we’re seeing… those gaps between what is available in say China today and let’s say the US, the gaps are apparent and they’re widening. Alibaba is getting much better than Amazon. It’s not like Amazon is closing the gap. Alibaba is pulling away. Ant Group, Ant Financial is dramatically ahead of anything we see in the West and it’s pulling away. So. And I think it’s the whole picture. You have to have all three pieces. So anyways, that to me, that’s 2010 to 2020. in terms of the story. And I think there’s an awareness now that, you know, the super apps of China, WeChat, that’s kind of a China Asia phenomenon. Who is the super app? Now everyone else elsewhere in the world wants to be a super app. Mobile payment, integrated digital finance, e-commerce, new retail, all of this. I think there’s an awareness that these things are moving in pretty much anything we see in China, most things. We are now seeing earlier versions of that in Southeast Asia and parts of North Asia, except for Japan has its own little trajectory. So that is being copied to the rest of Asia and into other locations like cross border e-commerce into Russia is kind of taking off somewhat into say Poland, Italy, Spain. And so it’s spreading beyond this, but I think that’s. the driving force or at least the example. Okay, that was not a short history. I kind of went off on a rant there. All right, let me get to my five big trends, but it does sort of sit on the back of everything I just said. So it’s not a, I wouldn’t call it a diversion. All right, let me get into my five trends. So my prediction for 2020 to 2030, call that Digital China 3.0. I think this will be the decade where China, and to a lesser degree Asia, becomes the largest and most innovative digital ecosystem with unmatched infrastructure and capabilities. So there’s a couple points in there. The first is it’s going to be huge. It’s already big. It’s going to be the biggest thing, but it’ll be the most innovative digital ecosystem on the planet. and it will have capabilities and infrastructure that the rest of the world doesn’t have. It will be able to do things and we’ll see things there that other places won’t be able to match. I’ll explain why. So within that five trends, five big trends. Number one, we will see Asia as the sort of leader for smart devices. that combine innovation in digital with innovation in hardware. I think that’s we’re already seeing some of this but you know we have this before the digital thing took off for China Asia it was already the world’s manufacturing base and not just China, Taiwan, Japan, South Korea. I mean this is where things are made. You know this is where all the all the world smartphones are already made there. Okay the Apple ones are designed in Apple but all the I mean in California but all the rest aren’t designed and manufactured in this part of the world. It’s just where the manufacturing base is. And as we start to see hardware increasingly combine with software where things that used to be dumb, like phones become smart smartphones, that innovation is gonna happen here. I mean, and you can see this all over the place now, and I’ll give you some examples. But let’s say I was down at the shopping mall today and I was looking at a 360 camera. I’m gonna probably start doing videos again. And I was looking for a 360 camera and arguably, the most for action cameras, you put them on your snowboard, you put them on your bike, whatever. It’s kind of been GoPro has been a well-known name, but then out of the blue becomes instant 360 or Insta360. which is a Shenzhen-based company called Arashi Vision, or Arashi, I think it’s Arashi Vision. You know, Shenzhen-based company. And what was different about Insta360 as opposed to the GoPro was Insta360 was a smart device from the get-go. It was, we’re gonna put two, if you haven’t seen one of these things, it’s a camera with two lenses, one on each side, and it takes a 360-degree picture or video. And then the software stitches it all together and you can basically look at anything within that 360 degree view from any dimension you want. So you can, it’s like you built a little virtual world and then when you wanna show a video, you can show whatever viewpoints you want. That’s software plus hardware from the get-go. And it’s pretty amazing and they’re arguably the best 360 camera maker out there. And GoPro has since responded. There’s like a GoPro Max, and now other people have figured this out. But Insta360 is already sort of moving down the, you know, moving down the path onto the next thing, which is modular cameras, where you have one camera and then you pop in and out different types of lenses. That’s their new thing. Now, I think they’re better. I think they’re, they very quickly. brought something new to the table that combined software and hardware in action cameras we hadn’t seen before. And they tied, if not surpassed, GoPro, which was the leader at that point, arguably. Okay, I think that’s a good example of this. Another example, let’s say Xiaomi, which I’ve talked about previously on the podcast. They have always sort of sat at the intersection of hardware and software. Now it turns out they really wanted to be a software company from almost the day they were launched, but they thought they would get there by being a smartphone maker and then get the apps. I would have just gone and done the apps directly, but you know, they’re the billionaires, so what do I know? Yeah, but that’s what they do best today is they combine hardware and software into innovative and fun devices, and they have. Xiaomi scooters and they actually have a Xiaomi 360 degree camera, although I think they’re discontinuing that. They have smart chopsticks, they have laptops, they have obviously smartphones, smart TVs. I mean they just always coming up with new products all the time. They’re very creative and anytime you go into a Xiaomi store you’ll find something you never heard of before and it’s real fun, it’s interesting. You know they’re innovators on the hardware plus software side and they can do that. because they’re in China and that’s where everything is made. You know, the ecosystem for manufacturing is there in a way, if you’re going to do this out of Palo Alto, how do you do that? Well, you pick up the phone and you call Shenzhen and then you send them your designs and then you wait until they come back to you. I mean, it’s not like you’re running back and forth down the street. So it’s natural that you would see all the innovation, the rapid turnarounds, the prototyping, all happening on the ground. in China as opposed to sending back and forth from say Silicon Valley. Okay so the Xiaomi they’re rolling out tons of devices some of them are crazy some of them are great. DJI drones you know DJI really did take over the consumer side of the drone market wiped out most of the American companies fairly quickly and it had a lot to do with their ability to innovate very quickly on the hardware and the software side, where the drones can fly themselves, they can circle you and keep you in frame, they can follow you, you can navigate them with GPS. I mean that is a device that really does integrate the hardware and software in real time. And unsurprisingly DJI took over the space pretty quick. Other ones, refrigerators, okay fine, those come from China. not that interesting air conditioners. There’s a company called Nioh, N-I-U, which means little bull. They make smart scooters, which are sort of these electric scooters that look pretty cool. And then they’ve got some app for your phone. The software’s not that big a deal. It’s basically just an electric scooter. But when you look at, let’s say, the scooters you see around San Francisco, the Limebikes, these little stand dump scooters, Those are all made in Asia, China. I mean, that’s when these companies like Lime found these. The first thing they do is they call someone in China and say, would you make this for me? So I mean, all those sort of micro transportation products, those are all coming from here as well. And then of course there’s Huawei. Last example of this. I mean, Huawei is a hardware manufacturer at massive, massive scale. 194,000 employees. 70 plus percent of them, 65, 70 percent are engineers. Their R&D budget, last year and who knows this year, $18 billion per year in R&D. I mean, there are a handful of companies on the planet that spend that much on R&D. If they hit 20 billion, which they may not, but they were going to, I think that makes them number two or number three in the world for R&D spend. And they make everything from base stations. to the telco networks, to the microwave transmitters and all that stuff, I don’t understand. But on the consumer side, their standard statement has been one plus eight plus N, which is in the future, everything will connect with devices, smart devices that are all around us. And the number one, the most important smart device around us will be our smartphone. That’s the one, one plus eight plus N. That’s gonna probably be the primary interface. So they make smartphones. And up until their semiconductors get kind of cut off, I would argue they made the best smartphones on the planet. I mean, I think the latest Huawei phones before their chips got cut off, the handset, not the ecosystem, Apple makes really, has an amazing ecosystem, but the hardware was better. I think it was probably the best high-end smartphone on the planet was the Huawei one. Okay, so they make that. and then they had the eight plus eight, that’s a smart TV, that’s your smart car, maybe it’s a smart speaker in your home. It’s this idea you’re probably gonna have seven or eight other devices that play major roles that probably extend your smartphone more than anything else. They may not be your primary interface, but you might control your lights and your temperature and your fridge and your TV and your PC through your phone. So one plus eight, you probably have a small number of those. depending on what setting you’re in. And then plus N, which is infinite, this idea we’re gonna put IoT sensors in everything. The streetlights, the roads, the hallways, the elevators, the factory floors, every robotic, the UPS truck, every UPS package. You would have an infinite number of these sensors and smart IoT devices all over the place, just permeating everything. And… that would all be connected. And that’s what their operating system that everyone talks about, since they got cut off from Android, they’re gonna create their own operating system and they have a Harmony operating system. But the thing is Harmony was always built to be an operating system for IoT devices, which are tiny little things that have very low power and very limited ability to transmit. So that’s what that was actually for. It was never for something like a smartphone. Now they’re building it, but. That’s when Harmony was always about IoT mostly. Okay, so that’s kind of point number one, which is, if we’re gonna live in a world over the next five to 10 years where smart devices permeate our world. Yeah, I think the smart devices leader, this is my trend number one, the smart devices leader is going to be China, Asia, they’re going to more effectively combine innovation with digital in digital with innovation and hardware. And I don’t see how that can be replicated anywhere else, because I don’t think you have this unique combination of the world’s largest manufacturing place, base, plus this incredibly vibrant digital ecosystem. So I think that’s a China Asia trend. that’s gonna get bigger and bigger and bigger as this becomes a bigger part of our world. Okay, big trend number two. Basically, smart IoT logistics platforms are going to emerge in China and they will connect consumers, retailers, and businesses autonomously and in real time. Now, that’s kind of a mouthful there, but about a year or so ago, every now and then I sent, you know, I send notes to companies and I sort of asked the folks at JD and I also asked the folks at Alibaba, what are the three most important things you think you’re working on? Because they have a ton of initiatives, right? A lot of them are cool, a lot of them are fun. But what are the three major issues? And both of them said this gave me three, but within the three for both of them, in those top three was. this idea of smart IoT logistics platforms. Now they use different language, but it’s basically the same thing. So what does that mean? Really in the last, you know, logistics sort of started getting built out in China in 2008, 2009. JD was the most aggressive in terms of putting their own money at stake. They built it in-house, spent billions of dollars. It was a really bold move by their CEO. They built it out, lots of warehouses, very manual. You know, they were opening new warehouses every couple days, it was crazy. You know, tens of thousands, now hundreds of thousands of delivery people, and this was done internally to JD, but also there’s the external groups like SF Express and ZTO and YTO and Alibaba has Tsai Niao, which is more of a contract version, franchise version, as opposed to an in-house non-crack. contracted version. There’s different variations of this, but basically we saw a huge amount of money flood into logistics and delivery, airplanes, warehouses, and we eventually did see the whole country covered. So every village more or less, or at least every city designation was then covered by warehouses plus distribution points plus delivery people. But it was… It was sort of dumb in the sense that it wasn’t done intelligently. Like it wasn’t automated. There wasn’t a lot of data. It was kind of a manual process. And then the big wave of money that’s been going in is to really digitize this process and make it smart and make it hopefully autonomous and able to really much really connect anything to anything. And here’s my understanding of what both of these companies are basically building. Let’s say Tsai Niao, which they call it their smart logistics network. And they do these things by partnerships, right? So they have lots of groups they work with for both supply chain and fulfillment. And here’s their phrase. Quote, the IoT platform will allow partners and developers to share information and establish standard protocols to help logistics firms deploy IoT solutions at scale. Now one of the reasons I like Alibaba is because their language is very precise and you can go through each word and understand what they’re saying because they’re very good at platform strategy. First thing, anytime Alibaba builds anything, it’s a platform. So what are they saying? So IoT platform will allow partners and developers. So they’ve basically told you they’re building a platform business model. They literally say the IoT platform. but it’s an IoT, Internet of Things platform. Okay, that’s interesting, what does that mean? But it’s a platform, and then they tell you, well, who are the user groups? Well, they tell you, partners and developers. Partners are consumers and businesses, maybe manufacturers, but the one they mention by name is developers. Developers, people who write apps. So in terms of my five platform business model types, one of them I call the innovation or audience builder platforms. Audience builder, I’ve talked about like TikTok and YouTube, but that to me is a sub case of an innovation platform where you’re creating a space where other people come to create things. That’s the app store, right? It’s, you know, it’s, well, it’s in the app store. Let’s say the Microsoft operating system or the Android operating system, they’re creating a platform that other people come and make apps. Usually the group that everyone wants is developers, not YouTube content creators. They want developers who write apps that run on these things like Excel and Word and things like that. Well, I mean, I think they are clearly targeting developers as the user group, where they want them to come and build things on this platform, apps that run on their system. So what is the platform? Well, they say they are going to get this to share information and establish standard protocols. to help logistics firms deploy IoT solutions at scale? I’ll just jump to the answer. Here’s what I think they’re doing. Step one. They are digitizing and connecting the logistics network that they have built, which means, within all of this, you got warehouses, you got delivery people, you got trucks, you got boxes, you got forks lifts, you got conveyor belts, you got heat bulb, I mean, there’s stuff all over the place. They’re gonna digitize the whole thing, which means let’s put sensors in everything. We’ll put them on every box, we’ll put them on every truck, we’ll put them on every delivery person. We’ll have cameras that can see things within the warehouse. We’ll have robots in the warehouse. We’re gonna digitize everything and we’re gonna standardize it. You know, this is like if you’re building railroad tracks and you wanna connect the whole country’s railroad tracks, everyone’s gotta be using the same size track. So we’re gonna standardize the protocols that allow all of these things to communicate with each other. That’s kind of important. So they’ll digitize, standardize, and then everything will become connected where they can have data flowing between all of this and they can write apps or do software and it’ll go from the truck to the warehouse to the conveyor belt to the package to the sorter, all of that. Some of the things they talk about, they’re gonna put robots in different scenarios, they’re gonna put smart. equipment with image recognition functions. They’re gonna use near field sensing systems and quote, acoustic photoelectric systems, all of which will quote, help efficiently connect orders, equipment and workers. That’s Sineo aims to connect 100 million smart devices in this IoT tech platform in the next couple of years. So that’s connected devices, warehouses, delivery robots. And then I guess you tie it all to an algorithm-based management system that can see the whole system and it’s all connected to each other. Okay, that’s what has been going on. That’s, let’s call that step one. You digitize and you connect. Standardization is a big part of that. What do you do with that? Well, this is like when Steve Jobs created the iPhone. and he built the operating system and they built all the apps internally at that point, which there were not very many, because he didn’t want other developers to run their stuff on the iPhone. And then someone eventually convinced him that was not a good idea. And he said, okay, we’ll let other people write apps for the app store. And the iPhone, you know, has millions of things you can do on it. Now, I think they’re going to open this platform to developers. and businesses and logistics firms and delivery people. And they’re gonna let other people start to write apps that can run on this and they will be the platform. I think this is why they kind of left it vague in terms of who their partners are. Because who would, you know, let’s say you have a system that can send things anywhere. Well, who would wanna do that? I don’t know. We know businesses like to send packages to consumers. That’s OK. We know that one. We know B2B businesses like to send packages to other businesses. OK. But there could be a lot of situations here. We don’t know what people are going to use this for. So we’ll let people write the apps. I mean, the iPhone, the app, Apple certainly never saw all of these apps coming. They saw some of them, but a lot of surprises along the way. So they’ll open the data to everyone. and they can start to write apps and they can access the APIs and all of that. Phase three, the whole thing increasingly becomes autonomous and smart. Once you’ve got all this connected, you’ve got it, it’s an open platform, people writing stuff, some degree of openness. Well, then you can start to run things in the cloud and maybe the software starts telling the robots where to move and maybe it can respond dynamically. Maybe if there’s weather. you know, coming in in Southern China, all the drones, all the robots, all the planes, all of that, they just start to reroute packages in real time and nobody makes the call. The system just does it on its own. I don’t know. I think that’s phase three is you make it smart. So that’s kind of my second prediction here is smart IOT logistics platforms will emerge and connect consumers, retailers, businesses. and other groups autonomously and in real time. I think that’s gonna be a huge story. I think it’s at this point, China is the only country this big that’s doing this. We can actually see some stuff going on in Japan, in Korea, that’s very cool, but they’re much smaller geographies. I mean, at this scale, we don’t see this in the US, we don’t see this in Europe. So that will be, I think, a uniquely Asia. thing and then everything they’re building there they’re going to extend that right down to Southeast Asia because once you got the tech figured out they can just port it down there although the islands are a problem. Okay trend number three and I’m going to finish these up pretty quick because I’ve been talking for a while here. Trend number three new manufacturing will emerge in Asia that is flexible efficient and connected. This is another sort of Alibaba thing in the last month or two. Although this idea has been floating around for a while, it’s this idea that we’re gonna sort of do the industrial internet. We’re gonna put sensors and robots and autonomous vehicles in factories and they’re gonna start to become smarter and more efficient and they will understand and have predictive maintenance and all of those things. And that’s kind of interesting. And obviously China, Asia, Japan, South Korea Vietnam will be a big part of that because that’s where again, that’s where the manufacturing base of the world is. I think what’s more interesting apart from the efficient part is the flexible and connected part and that’s you know this new announcement out of Alibaba about Shunji which is kind of sort of their fast rhino which is their first prototype new manufacturing facility in Hangzhou which is doing apparel. What’s interesting about it is it’s the flexible and connected part, which is, okay, look, clothes are already pretty cheap to make. If you’re going for efficiency, hey, we’re gonna automate stuff and make it a little bit cheaper. Okay, that game’s been around for a while. That’s not like the huge margin in making clothes in a factory anyways. What there is is this idea of being flexible and connected is that if we have the China Digital Consumer Network connected to new retail, an IoT logistics network, those things are all connected now and they can see what the other aspects are doing. The last sort of bit of closing that loop would be manufacturing, where suddenly, you know, if consumers start to get interested in a new type of shoe, maybe there’s a micro fashion trend taking off in who knows where, Guangzhou, the data will show that. and the manufacturers can immediately start making that based on whatever design. It’s immediately delivered through logistics. The retailers are ready. The whole system becomes sort of connected and very flexible. I don’t think we see that anywhere else in the world. We see sort of simplistic versions of this, like fast fashion, which is like H&M and Zara. where they don’t make their whole season’s goods and then ship it and then see how it goes three to six months later. They may make half of the season’s goods, but the other half they kind of make in real time based on what people are buying. This Harvard Business Case is written about fast fashion. Well, this is light years beyond that. And it’s interesting that they chose apparel. Like why would you, why would they choose apparel as the subsector to do their first manufacturing project in this space? Well, because it’s kind of like fast fashion. It’s hard to predict what people want. Your demand projection, inventory management is very difficult if you’re doing fashion or clothing. You don’t know what people are going to want. So demand projection is difficult. But then the other problem is you have inventory obsolescence. Like people don’t want last year’s fashion. So you can’t just sit there. So there’s costs, there’s both of those problems you can maybe solve if you have a smart, connected and flexible system that can, you know, not make 2000 pairs of the same shoe in an hour, but can make 2000 different types of shoes in the same hour. That’s kind of a Jack Ma quote on this. So what if you have that flexible and connected manufacturing tied in real time with what consumers want? because you can see that, and you can deliver and get it to them because you have new retail and new logistics in place in mainland China. I think that’s pretty awesome. And we’ll see how that plays out over time. But, you know, one, Asia is the place that has a manufacturing base. So it’d be harder to do this sort of real time responsiveness if you’re shipping stuff from halfway around the world to the malls of California. But if… you know, the manufacturing is already local like it is in China, Asia, maybe you can do this. So I think that’s pretty awesome and something to look at. That’s number three, new manufacturing will emerge in China, Asia that is flexible, efficient and connected. Number four, and I’m just gonna sort of mention these last two and finish up. Number four is just smart cities, which I’m putting more of a question mark on that. This idea, I’ve talked about this before, that you’re gonna combine infrastructure with sort of IoT and smart devices and smart tools and traffic lights are gonna get smart and bridges are gonna know what you’re doing and the cars are gonna go underground and people are gonna walk. I mean, this whole idea of smart cities based on digital technology, it’s a lot of pie in the sky stuff, but approximately half the world’s pilot projects are in China. Turns out one thing China’s very, very good at is infrastructure. And they’ve got the digital piece. So they’ve got both pieces here. And Alibaba and Huawei and Ping An and Tencent are all sort of designated local domestic champions for smart cities and they’re all overseeing projects. Alibaba’s city brain gets a lot of attention, but Huawei’s doing some interesting stuff in Shenzhen. It looks like that’s gonna be a pretty cool thing. Now, whether that just ends up being a handful of use cases like security, traffic flow, electricity grid maintenance, pollution monitoring, things like that. Maybe it’ll be a handful of use cases or the bigger vision would be that turns into another platform business model where they digitize the city, the infrastructure, the traffic, the electricity, the water. some social services, and then they open it up to developers and people can start writing apps for Shenzhen the same way they might write an app for an iPhone. Maybe, I’m not totally convinced, but it could become a platform play. These could become operating systems for cities the same way you have an operating system for your phone. We’ll put that as number four. Smart cities, if smart cities are gonna emerge, it could be anywhere. We do see stuff in Europe, we see in other parts of the world, but you gotta definitely keep your eye on Asia. for that one. Last one, number five, that we might see digital finance leapfrog the traditional banking sector. And this is Ant Group, right? Ant Group is not just digitizing a bank. I mean, they are leapfrogging the entire sort of traditional banking and insurance sector. They’re not opening branches. They’re not hiring loan officers. Everything is AI first, zero human operations. We know what that looks like for mobile payment. That worked out pretty well. It’s not a huge upgrade. Credit cards actually work pretty well, but it’s pretty good. We’re seeing them do that with credit tech. We’re seeing them do that with insurance tech and investment tech, which are sort of the three digital finance areas Ant Group is focused on. It could leapfrog. It could be that when you do things digital first, there are new possibilities like offering credit and bank accounts to people that don’t have banks who are too poor or could never qualify for a credit card. Or you can start to offer new types of insurance we’ve never thought of before because we never had the data to ensure certain types of situations before. Maybe. I think it’s definitely worth watching. This is probably the area of China that I think outside of digital is the most compelling, which is the idea that manufacturing in the 80s and 90s became very big, but it was also fairly basic. It was sort of labor-intensive factories. And then the whole thing got a lot smarter, where the factories upgraded, the goods went from soccer balls and tennis shoes to laptops and smartphones. You know, first you built the system and then you improved it. We could be seeing the same thing in the financial sector of China, that there is a very large financial sector, capital does move around, but it’s kind of manual, it’s not very efficient, it’s not very effective, that there may be a huge opportunity over the next 10 to 20 years to just upgrade the entire system, because the money is big. I mean, these are huge dollars. But the system is fairly basic, not unlike manufacturing in 1995. So maybe this will be part of just an upgrade of the entire financial system of China. We’ll see, but I’m kind of watching We Bank, which is the 10 cent one. And that’s my five. So to repeat, the big summary of all of that, the next decade, 2020 to 2030, China Asia will become the largest and most innovative digital ecosystem with unmatched infrastructure and capabilities. Within that big trend one, China Asia will become the leader in smart device innovation as they combine innovation in digital with innovation in hardware. Number two, smart IoT logistics platforms will emerge and connect consumers, retailers, businesses and others. autonomously and in real time. Number three, new manufacturing will emerge in Asia that is flexible, efficient, and connected. Number four, smart cities. Number five, a possible major upgrade in leapfrogging of the financial system. Okay. That was a lot. I think I’m definitely out of time. For those of you who are subscribers, again, this goes under Learning Goal 26, but basically think about The ideas are new retail, new manufacturing, and new retail, I really combine that with sort of retail plus logistics. I mean, those are two sides of the same coin. New manufacturing and then the China Digital Consumer Network, those are kind of the key ideas for today. All right, turned into kind of a lot of theory. Anyways, I generally like to talk at the company level, but okay, today was kind of higher level, hand waving theory day. I’ve actually had a pretty awesome week. You ever have one of those times weeks when, you know, you’re doing a lot of things. You’re pushing things forward, you’re trying things, and some days things work out, and a lot of times they don’t, usually they don’t. And then every now and then, like, everything just falls in place in one week. Like, all the things, like, five different things I’ve been working on for quite a while all just sort of got approved or happened in a couple days. And it’s like, this is great. Like, I’m doing some visa stuff, I’m working on some business stuff, I’m launching some other things and just sort of pushing them slowly over time. It’s just like I wake up and I get another approval. I’m not sure what you call that. But it does seem to happen in these sort of waves. So I had a very good couple days. I know that’s a little vague. And then I had this funny experience where there was a China just announced its… its next five-year plan, its 14th five-year plan, which these are kind of big plenum announcements by the party leadership about what the goal is. And in this one, there was a lot of tech stuff because of what’s been happening with Huawei in the US and China and all of that. So I got a bunch of calls on that and I ended up going on China TV like three times in one day talking about this. And… You know, you go down to the studio sometimes, but often I’ll just do it from the apartment now. And so it is, I’m sitting in the apartment and you know, you put on the, it’s like a secret, you put on the suit and the tie, but then you wear shorts and flip flops underneath because nobody can see you below, like waist down. So, every time you ever watch the news, like you ever wonder how many people are sitting in their underwear? Like, I don’t think it’s zero. I think there’s a solid percentage of people. Or in shorts and maybe underwear. But anyways, so shorts and… Anyways, I was on this and… So you’re watching on the screen. And up on the screen the other guest pops in and it’s Jim Rogers. And I don’t know if you’re familiar with Jim Rogers. He’s been like one of my, let’s say not hero, but I’ve been following this guy for 20 years. I mean, Jim Rogers is a… pretty famous investor. He was George Soros’ partner when they did, I think, the Quantum Fund. Early days of George Soros, he was the partner. He became very wealthy. And then he moved out to Singapore, and he started writing about China in 1990s. And he wrote some of the first books. Like, he was literally buying stocks in the, I think the Shanghai Stock Exchange in the 90s. So he would write these books. He had a book called The Bull in China. And then he wrote one called Adventure Capitalist, where I think he was on a motorcycle going around. And he’s always on CNBC and stuff, CNBC and stuff. And they will ask him, like, where do you want to invest? And he’ll say stuff like North Korea and Myanmar. Like, that’s literally what he said. Like, those are the two most undervalued markets. That’s where you want to be, North Korea and Myanmar. So a very colorful guy, and he lives in Singapore. And I think his children speak Mandarin. Anyway, so I’ve been reading this guy forever and up on the screen, Jim Rogers pops up. I was like, this is really cool. And so I, of course, screen-shotted it and sent it to my friends and family, which is, you know, a little perk of life. Anyways, I sent him a note afterwards because I sort of haven’t really ever met him, just emailed once. So anyways, that was a little thrill of my week. It’s like having, let’s say not hero, but let’s say someone you admire for a long, long time and suddenly you’re on a Zoom call. That was my, the end of an already good week was Friday morning, uh, looking up and having Jim Rogers on my laptop. Anyways, random. Um, but I think that’s it for me. I’m going to let you go. This was a lot of theory, but next week we’ll do a, we’ll probably do a little bit more digital economics cause there’s a couple more ideas I haven’t, I’m basically filling in gaps in the content. Uh, when I look back that I think. I needed to talk a bit more and then hopefully we’ll get back into cases soon because I think that’s more fun. But yeah, probably one more of these talks will be a gap filler. Okay. Anyways, that’s it for me. Thank you so much for listening. Thank you for being a part of this and for subscribing. I really do appreciate it. Have a great week and I will talk to you next week.

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