China has a real tech edge over the US, and it's cultural

A technician inspects bitcoin mining machines at a mining facility operated by Bitmain Technologies Ltd. in Ordos, Inner Mongolia, China, on Friday, Aug. 11, 2017.
Qilai Shen | Bloomberg | Getty Images
A technician inspects bitcoin mining machines at a mining facility operated by Bitmain Technologies Ltd. in Ordos, Inner Mongolia, China, on Friday, Aug. 11, 2017.

Once known primarily for cheap manufacturing, China is fast becoming a major tech innovator. It is now not only a major magnet for U.S. venture capital investment, but also a dominant force in innovation — as demonstrated by the fact that the country just set a new record for filing the most patents, ever.

The Boston Consulting Group just released a massive report showing that Chinese unicorns are now reaching the $1 billion valuation mark faster than their American counterparts, and will soon overtake those in the U.S.

There is such a hotbed of tech activity in the region that China could soon rival — and even potentially overtake — Silicon Valley as the world's tech powerhouse. While many credit such a surge to the country's market size or government support, the true secret weapon seems to be the strategic and innovative mindset with which the Chinese actually approach the business of technology.

What's that mindset? It comes down, broadly, to three factors:

  1. A tendency to collaborate with other firms rather than compete with them.
  2. An approach to hiring that avoids some of the legacy baggage that U.S. firms are only now dealing with, like gender discrimination.
  3. An attitude toward product cycles that emphasizes the next iteration of a product, rather than staying attached to a currently successful one.

"China missed the Industrial Revolution but it is definitely a co-architect of the Information Age, said Arvind Sethumadhavan, CIO at Dentsu Aegis Network Asia Pacific.

The collaboration is evident among juggernauts like Alibaba, Tencent and Dji, which by now are all well-known success stories.

But now they are not only expanding into new arenas, but also combining forces — unlike their U.S. counterparts — giving themselves staggering investment power and reach. That collaborative spirit in this case means there's a huge capital base that can be used to power new innovations at rapid pace.

Beyond just having a lot of money to invest, Chinese tech has managed to avoid some hiring issues currently plaguing Silicon Valley.

For example, while controversy over diversity has plagued companies like Google and Uber, ride-share mammoth DiDi Chuxing — which beat Uber in China via such new moves as mobile pay discount partnerships with Tencent for ride-share business — is leading with the introduction of its Women's Network program earlier this year. The program has not only yielded significant numbers of women in many of the company's senior management positions, but the company also boasts women in over 37 percent of the company's tech positions, including product managers, engineers and data scientists — numbers much higher than Silicon Valley tech firms.

But the real growing strength comes from companies that are quietly building businesses focused on having an ongoing global impact, rather than thinking beyond current product iteration.

One example: Shenzhen Onething Technologies — a shared economic cloud computing company — is generating millions of dollars after just a couple of years, thanks to such customers like video behemoth Panda.TV. The company recently held court at the SXSW conference, and its new perspective toward video will enable it to compete globally in just a few months.

Given the massive storage that will be needed for all the AI-based computing and VR offerings, there will soon be ceiling issues. In an interesting move to anticipate and beat this problem, Onething is the first company in its category to offer content delivery networks (CDNs) of "infinite node," meaning it collects idle home bandwidth to overcome that problem.

Another company, OxyLED, is becoming a leader in smart home design and lighting. "We simply thought about how to create new lighting solutions leveraging technology that were easy to install and looked different," said Nick Niu, OxyLED GM.

People walk through Ltd.'s headquarters in Hangzhou, Zhejiang Province, China.
Nelson Ching | Bloomberg | Getty Images
People walk through Ltd.'s headquarters in Hangzhou, Zhejiang Province, China.

OxyLED, which is owned by Eric He, is focused on the smart home, and develops voice-controlled, Wi-Fi-supported LED products, and aims to capture as much of the $26.9 billion LED market as it can. The company was focused on LED long before the U.S. market seemed to even be familiar with the concept.

Its growth is a contrast to once-hailed Switch Lighting, from New Zealand, which experienced major leaks and other tech issues that led to its demise. While others have tried to take Switch's place, OxyLED's size, price and approach creates a product that is hard to compete with.

Still, even with these advantages, China has its share of potential pitfalls. The biggest is probably its centrally controlled marketplace.

"The Chinese central government picks winner and losers. Once this is happening, the government will do whatever it takes to build and scale tech companies that can compete with the best American tech companies," said Marc A. Ross, former communications director of the US-China Business Council and founder of Caracal Global.

That's the opposite of the American free market ethos, and there's no guarantee China's centrally directed method will work long term.

"China's central government limits or forbids foreign investment or foreign access to over 100 sectors of the Chinese economy," said Ross. "Much of this protectionism is to ensure Chinese companies do not have any real competition with the belief this will allow them to build the necessary skills and resources to be competitive on a global stage."

That creates the appearance that Chinese companies are big and successful, but appearances may be deceiving. Government support prevents the market from truly knowing how strong and resilient Jack Ma and Alibaba are for example, since the company is selected as the Chinese e-commerce "winner," said Ross.

"[Alibaba] is protected from a real marketplace challenge and hasn't had to compete against Jeff Bezos and Amazon in China," said Ross.

The different business landscape in China makes for a potentially formidable situation for U.S. tech stakeholders, and many in U.S. tech are worried. But Ross believes that China will hit many setbacks over a long, upward road before any real scales are tipped. The country could face geopolitical unrest, trade friction with the United States, or even global product shortages that could interfere with vital supply chains.

Others think that's little to stop China.

"China has spent heavily during the last few years developing its technology, especially on manufacturing. There are several other factors, like manufacturing ecosystems, evolved supply chain management, and low costs that will continue to make China a powerful force when it comes to tech," said Niu.

"And when it comes to new approaches using such ecosystems, we just think differently from the U.S. We have to, if we want to compete."

Lauren DeLisa Coleman is a digital business strategy and communications consultant, analyst, journalist and speaker. Follow her on Twitter @ultra_Lauren