Swisscom’s Chinese outpost
Digitalisation is in full swing in China. The government and the private sector are launching a massive development initiative. In an outpost specially set up for this purpose, specialists from Swisscom are to study new ideas and business models.
Text: Hansjörg Honegger, Images: Keystone, 13 july 2018
In the city of Xi’an in north-west China, smartphone users have a footpath specially reserved for them: the approximately one metre-wide strip is intended to protect them from hurting themselves by colliding with obstacles. The power users are known in China as the “heads-down tribe”. And there are millions of them. In no other country in the world do inhabitants use these mobile devices as intensively as in China.
There is a specific reason for this: the Chinese government is repositioning its economy. The giant country is no longer to be simply the world’s cheapest workbench. China wants to take over the technological lead in the most important high-tech sectors. The five-year plan approved in 2016 sends a clear signal: the average income of the Chinese is to double in comparison with 2010, while expenditure for research and development is to be massively increased. Key technology sectors such as space travel, electromobility and artificial intelligence are to receive particular attention, including government funding. 700 million Chinese people are online and use the offers provided by Alibaba and co. Around 500 million of them pay with their smartphone. China prints around 15 percent less paper money each year. It’s a gigantic laboratory in which technologies and possible applications are tested on a large scale. That’s reason enough for Swisscom to set up a third outpost (after Silicon Valley and Berlin) in Shanghai in 2018.
The footpath for smartphone users – the “heads-down tribe” – in the Chinese city of Xi’an.
“In China, technological trends are adapted very quickly”, explains Yanqing Wyrsch, head of the Swisscom outpost. “We can study at close quarters how, for example, a fully automatic supermarket works. Just a few weeks ago, customers still had to pay with a QR code. Now, facial recognition is already being used.” This systematic further development of technological possibilities also fascinates Urs Lehner, head of Corporate Business at Swisscom: “The focus is not on developing a new technology but rather on implementing existing ideas. And doing it courageously and thoroughly.”
Swisscom is concentrating particularly on the adaptation of business ideas which might also be interesting to Swiss companies. For example, the booming bike sharing business: “The costs of purchasing and maintaining the bikes are not covered by the users’ contributions,” Wyrsch explains. “But that was never the intention. The providers use the motion data of their customers to provide further offers, for example to advertise businesses just around the corner.”
China is on its way to becoming the leading digital nation. (1:43 min)
In China, it is quickly revealed whether such business ideas are successful. “Regulation is weaker than it is in Switzerland, and things are implemented more quickly,” Wyrsch explains. “We can learn on the spot what works, and then reflect on how it could be, at most, adapted to our market and our culture.”
Western high-tech companies are increasingly feeling Eastern competition breathing down their necks. For example, there is already speculation as to whether China will overtake the USA as the most innovative country in the world. “The times when China simply copied without being innovative itself are definitely over,” Yanqing Wyrsch emphasises. This is shown, for example, by the number of patents which are submitted in China: in 2015, 51% of all patents were applied for in China, compared to 15 percent in the USA, 14 percent in Japan and just 5 percent in Europe. This is a complete revolution since the year 2000, when the USA, Europe and Japan combined accounted for 81 percent of all patent applications. Experts agree, however, that the figures alone reveal nothing about the quality of the patents.
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The aim of the Swisscom outpost in Shanghai is to keep track of new business ideas, maintain interesting contacts and support Swisscom employees who are visiting China. Yanqing Wyrsch heads the outpost. She has Chinese roots and obtained a Bachelor of Arts in Western Languages and Literature at the University of Beijing in 1987. She has been living in Switzerland since 1989 and working for Swisscom since 1999 in various positions, for example as Head of Complaint Management and Head of Customer Data Management. In 2007, she obtained a Masters in Business Administration (MBA) at the University of Geneva, focusing on strategy marketing and e-commerce. She has been Director of Swisscom Outpost China since 2016. Swisscom has been running an outpost in Silicon Valley since 1996 and in Berlin since 2017.
However, a glance at Chinese efforts to promote education, as well as research and development, is revealing: China is currently spending 2.1 percent of its economic output on research and development. Each year, 8 million graduates leave the universities, and 1,177 Chinese per million inhabitants become researchers. This number is still far away from the 4,321 in the USA. However, this deficit is more than compensated by the sheer size of the population.
China is on the advance, and the USA, in particular, is reacting nervously to this. The central conflict concerns digitalisation: chip manufacture – the basis for AI or big data – is currently still firmly in US hands. But the fortress is shaky: the Chinese are making tremendous efforts to promote artificial intelligence (AI). The latest five-year plan puts the advancement of AI right at the top. The Chinese State Council also presented the next-generation AI plan in June 2017. The aim is to catch up with the USA by 2020 and overtake it by 2025. By 2030, China aims to be the world leader in this field. The country is becoming a giant testing laboratory: nowhere else is protection of privacy so little regarded, which means that nowhere else is so much data from the government and large enterprises available for evaluation. Large players such as Facebook and Google are prohibited and have to leave this market to their Chinese competitors. Ideal conditions to promote the growth of machine intelligence: the larger the data volume, the more quickly AI learns. The Chinese population is currently still enthusiastically going along with this. The mobile phone has long since established itself as the central point of contact for all aspects of life. In the fields of telecommunication and online payment services, China is likely to be way ahead of practically all other countries. For example, the online trader Alibaba transports more goods than Amazon and eBay combined. Even the rural population, most of which used to be very poor, has long since jumped on the bandwagon and industriously uses the various online services. Delivery by drone is much more practical in these regions than in the densely populated cities, and is being tested over a large area.
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However, China is not only interested in the economic development of the country, but still also in political control: the government – in close association with the large companies, which happily grant it access to all their data – wants to obtain complete control over its citizens using artificial intelligence and big data. The majority of surveillance cameras today are already equipped with powerful facial recognition software. Citizens’ loyalty to the party line is recorded using a Social Credit Score. Those who do not conform are put on a blacklist. Ostensibly, this is intended to fight criminality, but it is also about silencing dissidents. Those on the blacklist are heavily restricted in their freedom; they cannot buy a house, start a company, or in some cases even book a train ticket.
“The Chinese market is exciting for us, but we are drawing a clear red line against certain approaches”, stresses Urs Lehner, who is very much aware of the darker side of the development. But the basic dynamics of the economy and of technological development provide Swisscom, too, with interesting illustrative material. “Currently, 12,000 start-ups are founded in China – each day”, says outpost director Yanqing Wyrsch. Already, a third of unicorn start-ups worldwide – with a value of over a billion dollars – are located in China. The top 10 of new entries in 2017 is practically completely dominated by Chinese companies: seven companies come from China, including Toutiao, Lianjia, Nio, Mobike and Ofo. This is a further indication of the powerful momentum with which this market moves.
Beijing, above all, is known as a hotspot for start-ups in the AI field. But there are other hotspots: “Hangzhou is the world’s first cashless city”, Wyrsch says. “Yinchuan is a pioneer in the field of Smart Cities, and in Shenzhen, a billion mobile phones are produced each year.” Nine of the 20 largest internet companies are located in China. Just five years ago, China had two of them and the USA nine.
The Swisscom outpost is located in China’s most international city: Shanghai.
Digitalisation has long been a reality in China - a different mentality makes it possible. (1:42 min)
However, the ambitious five-year plans depend not only on the will of the Communist rulers, but also on economic development and, not least, on the Chinese people themselves. According to Yanqing Wyrsch, they have a strong ambition and hunger for success and prosperity. “Until recently, the majority of China’s population was still poor and uneducated. That has changed. People are enjoying the economic possibilities available to them. They are very keen to try out new things. That’s why smartphones and their possibilities are used so enthusiastically.” It doesn’t matter if the services on offer are not always perfect, according to Wyrsch. For Swiss companies, the current main aim is to learn from the Chinese momentum and to draw appropriate conclusions from the numerous business cases for the domestic market.
Yanqing Wyrsch, Director of Swisscom Outpost China
Why is the Swisscom outpost located in Shanghai?
Shanghai is China’s most international city. It is the hotspot for e-commerce, internet security and fintechs, three topics which greatly interest us. Our office is located in an Incubation Acceleration Centre, where numerous start-ups have rented offices. Half of them are from outside China. For example, a French bank and the Australian government also have outposts here.
Where do you see interesting approaches for Swiss companies, other than AI, fintechs or e-commerce?
Smart Cities are very interesting to us. Yinchuan is the best-known Smart City in China. A large summit takes place here every year, attended by specialists from 150 countries. Then there is Hangzhou, which is attempting an exciting and bold experiment as the world’s first cashless city.
In China, 12,000 start-ups are founded each day. What is this community like?
In China, there are over 3,000 Incubation Centres, some of which are funded by private investors, and some by the government. The community is organised in a complex way, with cooperation on the one hand – there are well-attended summits and other events for every topic – and, on the other hand, fierce competition.
Could Switzerland learn something from China with regard to funding start-ups?
Not necessarily. Switzerland also has numerous StartUp challenges and other promotional measures, and Swisscom is also contributing to this. In China, the numbers are simply in completely different dimensions.
Is it difficult for you to succeed as a woman in China?
I have never had to ask myself this question. In China, women are not disadvantaged. Women are politically and economically encouraged. In our culture, the family’s money is always in the hands of the women. For example, the founder of the very successful Mobike is a woman, and a woman is also among the senior management of Alibaba. There are a great many examples of this.
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