Picture a boardroom in China. What do you see? Well, big changes are coming. In the next decade, you will start to see much younger faces filling up these spaces. I'm not just talking about China's international giants. I’m talking about China’s small- and medium-sized local businesses. With 100 to 500 million US dollars in revenue. There are local giants in beverage, snacks or fashion. As we speak, there are 50-, 60- and 70-year-old founders who are getting ready for a boardroom transition. And a whole new generation will rise to power.
Why does this matter, you might ask. Because competition is only about to get fiercer in China, and the new masterminds behind these businesses are also eager to take their family businesses onto the global stage.
I live in China. I spent the last 10 years consulting with Chinese companies, and I've worked with over 50 chairpersons. From my conversations with them and the broader data, I can tell you that those local players are gradually gaining market share across many industries. So why are these local companies suddenly more competitive? One big reason is that these new leaders look nothing like their parents. They grew up with greater access to the internet. They left China to study business in the US, the UK, Australia, Canada and Singapore. They are multilingual. They have advanced degrees. They can tap into their vast networks of professional services, private equity and venture capital. And now they are coming home to take over their family businesses, catapult them onto the world stage and change the face of business in China forever. Here is what you can expect.
Number one, fewer copycats and more innovation. In the 1970s and '80s, many entrepreneurs were cash-strapped. To succeed fast, let's just say imitation was the sincerest form of flattery. If you saw someone selling energy drink, you'd launch your own energy drink. However, this new generation knows that copycatting is a dead-end model. They are figuring out how to kickstart innovation in-house through competition.
For example, I worked with a snack company who was struggling with sluggish sales. Their research and development process was just not working. They developed a lot of new flavors but nothing truly innovative. Until the second generation came up with a surprising idea. They split this large R and D team into two smaller teams to compete against each other. The team with the winning product would get a share of profits. When one of the teams talked with their consumers, they realized there is an unmet need. Their beef jerky packaging was difficult to open, and the beef was too long and too tough. The consumer felt self-conscious eating it in public or at work. So the team redesigned the packaging and made the jerky smaller and softer. This design won the blind test and was launched to the market, where it enjoyed great sales, especially in the company's original flavor jerky. And the winning team got five percent of all the profits that exceeded the original target. Since the new generation launched this new system, new products have generated over 40 percent of the company's annual sales revenue.
Number two, smart investments in bold ideas. Many first-generation entrepreneurs in China succeeded through grit, through experience and through keen market intuition. They didn't have an MBA or professional team to fall back on. When it came to making big decisions, they often went with their gut. Of course, failure wasn't a bad teacher either, but this new generation can think like an objective investor.
I worked with a plant-based beverage company whose founder had always sold their drinks to restaurants, never direct to consumer. But when COVID hit the restaurants, their sales plummeted. The second generation knew they needed a change, even if change was hard. So she first founded an investment committee and then announced open auditions to fund new business ideas. The winning idea would get funding, but financial performance would be quarterly reviewed by the investment committee. One sales manager suggested switching from large glass bottles to smaller paper carton packaging. They'd market them to mothers as a nutritious breakfast drink with kid-friendly flavors like sesame, like jasmine. When it launched, within three months, the new drink ranked into the top three plant-based milks on major e-commerce platforms. With this investor mindset, the new generation is helping team members become the CEO of their own ideas.
And number three, businesses will expand into the entire ecosystem. In an age of scarcity, first-generation entrepreneurs focused on doing one thing and doing it right. But the new generation grew up with internet giants who have built massive digital ecosystems: vast interconnected networks of e-commerce, logistics, social media, payment, etc. They don't just do one thing, they do nearly everything. I worked with a livestock producer whose founder focused on rearing the highest quality pork and poultry, and they were very successful. But the second generation is thinking way bigger than raising livestock. It's only the first step in a very long value chain. What if they expanded downstream? They could get into meat processing and develop their own line of sliced ham, sausage and jerky. They could even invest in companies that buy their meat products, like dumpling brands. By thinking about the entire ecosystem, from farming to food and even to retail, they can simplify the supply chain, spend less, earn more and expand faster. All three of these examples show what's possible when the future second-generation leaders take over Chinese businesses. They’re not just looking to imitate but to create and lead their own ecosystems and be bullish on every growth opportunity. These new leaders don't shy away from competition. In fact, they embrace it and push change vertically and laterally. And they don't take no for an answer.
To compete internationally, we might even see a new wave of major multinational companies emerge from China. So don't be surprised when China's boardrooms have a lot less gray hair in the coming years. China's future has never looked more colorful.
Thank you.
