years, American firms far and wide have bemoaned Chinese
these days, the water-cooler chatter in Silicon Valley
has turned to the meteoric rise of Alibaba, which in
September sparked the world’s largest IPO. With
millions of users and merchants, the Chinese firm
handles more transactions than Amazon and eBay combined.
Rein, managing director of China Market Research Group,
says the company’s success betrays a larger story:
Chinese companies are focusing less on replicating what
worked in the West and finding ways to innovate in their
own right. He documents the shift in his new book,
"The End of Copycat China: The Rise of Creativity,
Innovation, and Individualism in Asia," which was
published in October.
Rein, who founded The China Market Research Group, is
author of "The End of Cheap China: Economic and
Cultural Trends that will Disrupt the World."
was in New York when we talked with him about why
Chinese companies are taking a new approach, how the
shift will reverberate in Silicon Valley and what
American tech giants need to do to gain traction in
China. The conversation has been edited for length and
Talk to me about the changes that are afoot in the
It would be a mistake for Silicon Valley companies and
American companies in general to underestimate the rise
of innovation in China. It’s true that over the past
30 years, China had mostly been a copycat nation. A lot
of people have said it’s because the Chinese
culturally can’t innovate or the government stifles
innovation. Those were factors, but it was really
concerns about intellectual property protection and a
lack of funding for research and development that
stopped innovation. And there was so much low-hanging
fruit — either manufacturing something for export or
copying something from the West — that you didn’t
need to focus on innovation in order to get wealthy.
that the economy has changed and it’s getting harder
to make money in China, a lot of companies are being
forced to innovate just to survive. And what we’ve
seen in the past six months is that some of the early
innovators, like Tencent or Alibaba, have made a ton of
money. That’s created a wholesale change among VCs and
entrepreneurs. They’re now saying, "We can make
more money by being innovative than by copying."
What role have venture capitalists played in the shift?
Ten years ago, the VCs didn’t know how to operate in
China. They were scared of the country. They would say,
"Let’s invest in the Google of China or the
Groupon of China." They wanted to minimize risk and
basically recreate what worked in the U.S. and back
Chinese entrepreneurs who spoke English well. Now, in
just the past two years, Chinese entrepreneurs have
become VCs for the first time, and they’re looking to
invest in innovation.
Will Chinese entrepreneurs’ new approach help or hurt
companies in the valley?
There’s a threat in the mobile space because some
Chinese companies are light years ahead of what a lot of
the players in Silicon Valley are doing. Many of the
dominant players in Silicon Valley were made for a PC
environment. When they shifted to mobile, they had to
transport the experience, and the result wasn’t always
great. In China, companies like WeChat (a messaging app)
were built with the mobile interface from the very
beginning because many Chinese have never accessed the
Internet through a PC. You’ll find a security guard
who makes $100 a month, and he’s accessing the
Internet all day from his mobile device.
there are also great opportunities for Silicon Valley
companies. Some Chinese tech companies that originally
were copycats are cash-rich and looking to buy
innovation by investing in and acquiring Silicon Valley
and Canadian startups. And the valuation they’ll pay
is often higher than an IPO.
China is clearly a priority to the valley, with both
Facebook CEO Mark Zuckerberg and Apple CEO Tim Cook
traveling to the country in recent weeks. What do they
need to do to succeed there?
Looking at Apple, I think they’re in a lot of trouble
in China. They have been very slow getting product into
the market and developing the right sales channels. And
they haven’t customized their products at all. That
worked before. It’s not going to work with Chinese
electronics companies Xiaomi and Huawei coming up. Tim
Cook understands there is an issue, and he has been
coming to China a lot more. They’re definitely
improving, but when you sell a product that’s double
the price of Xiaomi’s, then why would anybody buy you?
Cook and Alibaba CEO Jack Ma have both said publicly
that they’d like to team up on mobile payments. What’s
the likelihood they’ll come together?
I think a partnership would be great, and of course they’re
going to say nice things about each other, but it would
benefit Apple far more than it would benefit Alibaba.
Alibaba would play coy.
place: Concord, New Hampshire
Founder and managing director of China Market Research
jobs: Chief of research and head of IT investment at
Inter-Asia Venture Management; managing director and
head of China, Taiwan and South Korea for WebCT, an
educational technology company acquired by Blackboard
B.A. in East Asian studies and economics from McGill
University; M.A. from Harvard University in regional
studies, East Asia, with a focus on the Chinese economy
Lives in Shanghai with his wife and 7-year-old son, Tom
things about Shaun Rein
He was in a body cast for a year after a sports injury,
then used a cane or a wheelchair for five years. Now, he
runs 10 kilometers several times a week.
When he was 9 or 10 years old, he started his first
business: buying and selling baseball cards.
He travels extensively. If you ever see him on TV in the
same suit and tie for three weeks, that probably means
he’s staying in Thailand or Bali.
He wrote a book, "Shaun Rein’s Guide to Getting
into Harvard," that was published in China in 2003.
Over the past year and a half, he’s given speeches on
every continent except for Antarctica and South America.