Emerging champions in the digital economy new theories and cases on evolving technologies and business models

Zhu conducts a holistic study of boththeoretical frameworks and business practices within the digital economy, a kind of theoretical innovation that is in line with the bold steps taken

Management for Professionals

Emerging

Champions

in the Digital Economy

The Springer series Management for Professionals comprises high-level businessand management books for executives The authors are experienced business

practice, and entrepreneurial vision to provide powerful insights into how toachieve business excellence

Emerging Champions

in the Digital Economy

New Theories and Cases on Evolving Technologies and Business Models

123

Xiaoming Zhu

China Europe International Business School

Shanghai, China

Translated by Xuehui Cao et al

ISSN 2192-8096 ISSN 2192-810X (electronic)

Management for Professionals

ISBN 978-981-13-2627-1 ISBN 978-981-13-2628-8 (eBook)

https://doi.org/10.1007/978-981-13-2628-8

Jointly published with Shanghai Jiao Tong University Press, Shanghai, China

The print edition is not for sale in China Mainland Customers from China Mainland please order the print book from: Shanghai Jiao Tong University Press.

Library of Congress Control Number: 2018955919

© Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd 2019

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This is the second time I have had the pleasure of writing a foreword for one of

Emerging Champions in the Digital Economy is only one of the impressivetomes he has published over the last seven years Besides the ones on innovationthat he has translated, his monographs mainly revolve around the theme of thedigital economy In addition to his latest work, those that focus on the topic include

10 Mega Business Trends in the Digital Age

digital era, Chinese companies are being transformed by a wave of innovation Insuch a fast-paced environment, business schools are faced with the challenges thatcome from having a limited number of textbooks and reference material on thedigital economy This new book by Prof Zhu conducts a holistic study of boththeoretical frameworks and business practices within the digital economy, a kind

of theoretical innovation that is in line with the bold steps taken by China EuropeInternational Business School (CEIBS) over the years

As a pioneer in management education in China, CEIBS has long been mitted to case development and case-based teaching that integrate theory with realbusiness practices It has provided Chinese companies with local management

Eastern business wisdom The book Emerging Champions in the Digital Economy

digital economy in China The eleven cases in the book showcase a vigorous and

for more cases to be developed and more academic research to be done

Fast-growing Chinese companies are a gold mine for cases on the digitaleconomy Those written and presented by Prof Zhu in this book are not onlyinformative, but also enjoyable to read This is not surprising, as he has fullyembraced digital technology inside the classroom, skillfully leveraging multipledigital tools to facilitate case presentations As a result, his classes have been wellreceived by MBA and EMBA students

The digital economy has become a major trend that cannot be ignored Weshould embrace the changes it brings and take a lead role to further enhance its

v

development As General Secretary of China Xi Jinping said during the opening

of the 19th Meeting of the Academicians of the Chinese Academy of Sciences andthe 14th Meeting of the Academicians of the Chinese Academy of Engineering,

“The integration of internet, big data and AI into the real economy should be

economy in the world With a total value of RMB 27.2 trillion, it is 32.9% of the

In this large digital nation, Chinese companies are pioneers in the digitaleconomy; they are at the forefront of technological innovation and commercialapplications As the cradle for future global business leaders, Chinese businessschools should proactively take the initiative, fully harness and leverage theirimpact, and push for further development of the vitally important digital era

President, Professor of Management

CEIBS

Professor Zhu Xiaoming has a very rich experience After an excellent education,

completely different When Deng Xiaoping opened China in 1978, China was avery poor country lacking from education to infrastructures and obviously all kind

of social services

projects and in state-owned companies that they really started and made a greatcontribution to the developing of China toward becoming the leading economy inthe world

Professor Zhu Xiaoming was one of those entrepreneurs as General Manager ofJinqiao Export Processing Zone Developing Co Ltd., and also Chairman of theShanghai Foreign Trade and Economic Cooperation Commission and ShanghaiForeign Investment Committee From these positions, he contributed a lot to thedevelopment of Jinqiao as a very entrepreneurial model in the Shanghai environ-ment From his government positions, Prof Zhu Xiaoming supported the launching

During our years sharing the president level at CEIBS, I must say that we workedvery well as a team and the school enjoyed the successful growth that it has alwayshad

Professor Zhu Xiaoming has always been a strong supporter of innovation atCEIBS and has been a pioneer, at international level, in stimulating the interest indigitalization as a source of innovation in the school process of teaching but also as

a new technology which undoubtedly is impacting the management practice Healready published a book with very interesting cases on how technological inno-

As I always remind, Peter Drucker, probably one of the biggest contributors in

case method and, comparing management and medical studies, he said that in

with all the medical analytical information available and the newest technologies.And Peter Drucker said that in the best management schools, the best professors

vii

also bring the real management problems to the classroom in the form of cases forstudents to learn and discuss.

Professor Zhu Xiaoming brings the cases to his books so that we can learn how

to improve management through the introduction of digital technology as a criticalsource of innovation which today is needed to guarantee the success of companies.This book is a great contribution to CEIBS and places the school in the frontstate of the management practice as we advance toward 2020 As President ofCEIBS, I express my gratitude, my congratulations, and my respect to Prof ZhuXiaoming for his continuous effort to follow the impact of innovation and speciallydigitalization to our basic concern: lead in management education on a global basis

Honorary President (European)

CEIBS

It is an honor and privilege to write a few words for Prof Zhu Xiaoming who has

recently the president and professor for nine years at China Europe International

as a global academic institution

his passion for digital economy driven by innovation and entrepreneurship

It is a practical book designed to help senior executives in business and ernment who are looking to unlock the promise of digital revolution and translate

It is a valuable resource for readers interested in the transformative ability of thedigital economy to change fundamentally how we create and deliver customer value

collaborate and design our businesses and organizations

time a company interacts with a customer it generates valuable data Such adata-driven economy will therefore impact everyone, whether you are a consumer,

articulates how the shift from the Industrial Economy to the Digital Economy willchange the business architecture, business strategy, and the business model ofcorporations competing globally

In particular, the book highlights that the digital revolution combined with cloud

a service mind-set will not only create but also sustain competitive advantage in themarketplace

Another key aspect of the book is its emphasis on the economic growth ofChina, which today has become the second largest economy in the world The book

economy The richness of the book comes from the illustrative examples of the

emerging technologies

Professor Zhu clearly highlights that the digital revolution is not only for

ix

transformation and human development Attracting, developing, and retaininghuman talent are core elements of corporate strategy today Furthermore, the spirit

of entrepreneurship is a major driver of economic growth globally It is my beliefthat corporations moving forward will combine innovation excellence with business

model for corporate executives and young entrepreneurs

Digital Economy and its impact on business and government; second is the

third is the emphasis on Entrepreneurship and Entrepreneurial Firms creatingabundant customer value in emerging markets

and entrepreneurs who are actively contemplating business opportunities in China

worthwhile experience

President (European)Professor of Marketing

CEIBS

We should greatly thank China (Shanghai) Pilot Free-Trade Zone JinqiaoAdministration Bureau for their strong and continuous support.

We should thank Lou Yongliang, Chairman of Zhong Tian Group, Chen Zhilie,

We should thank Huang Fanzhi, Yu Rong, Wang Bo, Zhang Jing, and LiWengang, who contributed to the CEIBS Smart Healthcare Entrepreneurial Pro-gram We should thank Prof Liang Neng and Chen Shimin from the CEIBS CaseCenter

We should thank Dr Xu Leiping from the CEIBS Case Center

We should thank Zhu Qiong, Qian Wenying, Zhao Liman, Song Yanbo, andother case writers from the CEIBS Case Center

We should thank those who contributed to this book They are Ni Yingzi, HuangChengyan, Zhu Yezi, Zhu Yifan, Shi Tianyu, Cao Xuehui, Xu Jianmin, WangDanping, Jiang Junzhe, Ma Lan, Fan Jingjing, Ren Yifan, Zhang Yu, Xiao Yingjun,Wang Chengde, Li Rui, Song Bingying, Zhu Shizhou, Zhang Yingwen, Jin Lijia,Zhuang Minyi, and Gong Xiaojing

We should thank Hu Zhifeng, Editor-in-Chief of the CEIBS Publishing Group,Wang Li, Li Dan, and Li Fengyuan from the Shanghai Jiao Tong University Press

We should thank the coordinators from CEIBS MBA, EMBA, FMBA, and EEPrograms

We should thank Wang Chen, Wang Yan, Sun Lulu, and Jin Luxi from CEIBSTranslation Department, and Xu Mengwei, Si Zheng, and other translators who areengaged in translation and proofreading

We also specially thank the companies who kindly support us in writing thecases and publishing the book They are iFLYTEK, JD.com, Shanghai Tower,

Hospital, First Respond, IBM, and Amazon

xi

Brief Introduction

The book Emerging Champions in the Digital Economy has the digital economy as

the data economy, service economy, platform economy, IoT economy, sharingeconomy, prosumer economy, long tail economy, inclusive economy, collaborativeeconomy, and smart economy The book collects eleven cases from ten differentrenowned organizations They are iFLYTEK, JD.com, Shanghai Tower, PPDAI,

relevant for professors and students from the business schools, researchers, andmanagers

xiii

Introduction: From the Industrial Economy to the Digital Economy:

A Giant Leap—Research on the “1 + 10” Framework of the Digital

Economy 1

The Data Economy 4

The Service Economy 7

The Platform Economy 10

The Internet of Things Economy 14

The Sharing Economy 24

The Prosumer Economy 31

The Long-Tail Economy 34

The Inclusive Economy 37

The Collaborative Economy 44

The Smart Economy 47

Conclusion 54

Appendix 1: Institutional Innovation in China and Other Countries 58

Appendix 2: Policies and Regulations on Bike-Sharing Services Adopted by Local and Central Government Authorities in China 61

References 64

Case I: iFLYTEK: A Technology Innovator’s Journey from Intelligent Speech to Artificial Intelligence 67

iFLYTEK 68

Starting up: Foray into the Intelligent Speech Market 71

From Lab to Commercial Application 71

From Speech Synthesis to Speech Recognition 73

From Losses to Profits 73

Transformation: From a Speech Technology Provider to a Speech Ecosystem Platform 74

Changed Landscape of the Intelligent Speech Market 74

Platform Construction: From B2B to B2B2C 75

Open Innovation: Tapping into More Sectors in the Intelligent Speech Industry 77

Going Further: From Intelligent Speech to AI 81

xv

The Trend of AI 81

iFLYTEK’s Hyper Brain Project 82

Looking into the Future 83

References 88

Case II (Part A): JIMI’s Growth Path: Artificial Intelligence Has Redefined the Customer Service of JD.Com 91

The Launch of JIMI 91

The Development Trajectory of JIMI 92

The Working Principles of JIMI 93

Core Technologies of JIMI 96

Internal Resources for JIMI 98

Big Data 98

Improving Customer Experience as a Goal 99

R&D Management 100

The New Goal of JIMI 102

References 103

Case II (Part B): JD.com: Migrating from Labor-Intensive Model to Technology-Intensive Model 105

Profile of JD.com 106

China’s Retail Market 107

JD.com’s Competitors 110

Alibaba 110

Amazon 111

Why JD.com Aspires to Make a Technical Transformation 112

Breaking the Bottleneck 112

Maturity of New Technologies 113

Specific Demand of Business Scenarios 114

JD.com’s Technical Capability Building 114

Cloud Technology 114

Big Data 115

X Division 116

Y Division 116

Artificial Intelligence 117

Silicon Valley R&D Center 117

DingDong Speaker 117

Challenges Ahead 118

References 123

Case III: Shanghai Tower: Lean Innovation Powered by Leading Technologies 125

Shanghai Tower 125

A Team with Lean Management Thinking 127

Flexible Organisation Structures 127

Improving Management Workflows to Eliminate Corruption and Waste 130

Software Enabled Lean Innovation 131

BIM-based Problem Solving 132

BIM-driven Innovation 133

Future BIM Applications 134

Case IV: PPDAI: Navigating the Digital Finance Landscape 143

Evolution of Business Models 144

P2P Lending in China 144

P2P Consumer Lending in China 148

PPDAI’s Business Model Iteration 150

PPDAI’s Risk Control System 152

Risk Control Ability 152

Polishing the“Magic Mirror” 154

Barriers Created by the Risk Control System 155

Mobile APP 156

References 159

Case V: 3DMed: Digital Technology—Navigating Precision Medicine Towards Success 161

The“Three in One” Business Model 162

Definition of Precision Medicine 163

Investment Opportunities for Precision Medicine 163

3DMed’s Development Path 165

Benefits of the “Three in One” Business Model 168

Financing and Investment 169

From Series A to Series B Financing 169

Investment and Expansion 170

Three Strategic Businesses 172

First Business Area: Early Precision Screening for Cancer 172

Second Business Area: Precision Diagnosis of Cancer 175

Third Business Area: Precision Drug R&D 176

Future Trends and Challenges Ahead 181

Challenges of the Market Environment 181

Ongoing Capital Requirements 182

Recruiting Specialised Staff Remains a Key Issue 188

References 192

Case VI: Children’s Hospital of Shanghai: A Pioneer in Smart Healthcare 195

Smart Healthcare 195

Children’s Hospital of Shanghai 196

Development Path 196

IT System Upgrade for Informatization 197

“Grade IV Level-A” Hospital 198

Smart Pediatric Care 199

IT-Based, Patient-Centered Healthcare 199

Patient-Centered Service 200

Initiatives Geared Towards Doctors and the Hospital 203

Prospects: Obstacles Ahead 206

References 209

Case VII: Shanghai Ninth People’s Hospital: A Leader in Personalized Healthcare 211

Personalized Healthcare and 3D Printing 212

3D Printing Applications from Other Chinese Hospitals 213

China’s Policy Environment 214

Exploration of Personalized Healthcare at Shanghai Ninth People’s Hospital 215

Shanghai Ninth People’s Hospital 215

30 Years of Exploration 216

Introducing 3D Printing Technology 218

Self-Financing of Medical 3D Printing Business 219

References 223

Case VIII: First Respond®: A Universal Mutual-Aid Emergency Platform in the Digital Economy 225

First Respond® 226

Company Background 226

Best Practices in Developed Countries 227

Landscape in China 228

Lean Innovation of SOS Emergency Response System 229

Exploration: A Digitized Emergency Care System in Race Events 229

Duplication: A First Aid System as the Norm for Multiple Scenes 234

Impact: To Raise Attention of the General Public Towards the Emergency Rescue System 235

“One-Button Mutual Aid” Social Emergency Platform 235

First Step: Information Collection and AED Mapping 236

Next Step: Building a Social Emergency Platform for “One-Button Mutual Aid” 237

Issues and Challenges 237

References 240

Case IX: IBM’s Launch of Its Cognitive Business Strategy 241

Internal and External Motivations for IBM’s Cognitive Business Transformation 242

The History of IBM’s Reform and Development 242

Seeking for Transformation in an Era of Cloud Computing and Big Data 242

Virginia Rometty Took the Office 243

The First 5-Year Plan for IBM’s Next Hundred Years: IBM Roadmap 2015 244

Debut of Watson 247

Not just an Answering Machine 249

IBM Watson and Cognitive Computing 250

IBM and Cognitive Business 251

Exploring Cognitive Business Model 253

Offering Cognitive Solution 253

Building Cloud Platform to Deliver Cognitive Solution 254

Focusing on Industry 254

Challenges Ahead for IBM’s Cognitive Business Strategy 255

Difficult Restructuring 255

Competition on Cognitive Technology 255

Cross-Border Localization 257

The Urgency to Boost Performance 258

Appendix 1: The History of IBM’s Transformations 258

Appendix 2: Examples of Watson-Based Services and Products 261

Appendix 3: Examples of Watson Business Applications 262

References 266

Case X: IBM and Cognitive Healthcare: Smart Healthcare Based on Cognitive Computing 269

IBM’s Healthcare Dream 270

IBM’s Traditional Healthcare Business in the 20th Century 270

Exploring Smart Healthcare in the New Century 270

Cognitive Healthcare in the Big Data Era 271

Strategic Blueprint of Cognitive Health 274

The Five Solutions 274

Technological Support 276

Converting the Cognitive Health Technologies into Commercial Medical Services 277

Deep Data Mining 277

Diagnose Disease and Manage Health with Clinical Data 277

Genomics Data Can Help Win the Battle Against Cancer 278

Big Data on Health 279

IBM Cognitive Health in China 280

Severe Challenges Facing China’s Health Care Industry 280

IBM’s Blueprint in China’s Health Industry 281

Looking into the Future: A Long Way to Go 284

References 286

Case XI: Amazon’s DNA: Driving Technology Innovation in the Digital Economy 289

Innovation in Company’s DNA 291

A Disruptor of Traditional Book Market 292

Driver of Innovation: Massive Acquisitions of Technology/Internet Companies 293

Core of Innovation: Customer-Centricity 297

Better User Experience 297

Lower Costs 298

Digital Economy: Building a Global Ecosystem 299

Digital Technologies Behind FBA 301

Amazon Logistics Plus 302

Visualization of Supply Chain 302

Big Data 302

Smart Picking: Algorithm to Optimize Picking Routes and “Octopus Picking” 303

Smart Warehouse Robots 304

Drone Delivery 304

Shared Logistics 305

Amazon Web Service (AWS) and Innovation Incubator 305

Functionality and Pace of Innovation 306

Partner and Customer Ecosystem 306

Experience 306

Smart Hardware Ecosystem and Mysterious Lab126 307

Alexa/Echo 307

Mysterious Lab126 308

Disruptive Innovation: Where Is the Next Growth Engine? 309

References 309

Congratulations 313

Postscript 317

Prof Zhang Weijiong

Vice President and Co-Dean, Professor of Strategy, CEIBS

innovation, and entrepreneurship have become the main themes of the businesscommunity In this process, some companies harvest enormous success, while moreother companies face setbacks They have to review their strategies, reposition

become a great inspiration for business leaders The book Emerging Champions inthe Digital Economy uses the theme of digital economy running through all theeleven cases When reading these cases carefully, the readers can understand how

This book is another important book authored by Prof Zhu after his recently

Ahead of Business Trends

Dai Kerong

Shanghai Jiao Tong University School of Medicine

In the digital economy, both patients and doctors are getting smarter and more

use mobile phones to get registered, and pay for the medical bills, while doctorsstart to use digital technologies to offer telemedicine services, make the rounds

per-sonalized medical service Professor Zhu Xiaoming and I have taught the CEIBSSmart Healthcare Entrepreneurship Program, and both of us have a strong belief

turn the unstructured data, which accounts for over 80% of the total, into structureddata to offer patients precise, smart, and mobile healthcare services In the future,the communities in the world will work together to provide inclusive healthcare

xxi

reality and demonstrate the cutting-edge technologies It is a worthwhile readingexperience for readers from different walks of life.

Chai Hongfeng

Academician, Chinese Academy of Engineering, Director, National EngineeringLab for E-commerce and E-payment

digital economy It is a kind of creative research with a unique perspective, and aschool of knowledge that should be mastered by the business school students.Innovation in both business model and technology is critical to the success of the

attend to the business model innovation and not lose sight of the science andtechnology innovation This book is originated from the programs of DigitalFinance, Trends and Innovation for MBA, EMBA, and FMBA (Finance MBA)students These programs are very popular among students because students canlearn up-to-date theories and pragmatic cases This book is a new valuable addition

better that the digital economy should better serve the real economy

Prof Chen Shimin

Professor of Accounting, Zhu Xiaoming Chair Professor, the Case Center Director,and Former Associate Dean

received by our MBA students With a focus on innovation economics and

career exploration and development CEIBS MBA students, in particular ourinternational students, are very keen in understanding and studying how Chinesefirms innovate in the global competitive business environment Professor Zhu’snewest book, Emerging Champions in the Digital Economy, collects many of thecases that he developed and used successfully in the classroom I strongly rec-ommend this book to any business student and/or business executive with an

studying these cases

Prof Juan A Fernandez

Professor of Management, MBA Director, Associate Dean, CEIBS

Professors and MBA students from business schools are experiencing the bigswitch as the world is making a giant leap from the industrial to the digital econ-

rapidly changing world, they must go beyond the conventional route of teachingcontent, research interests, and pedagogy Since 2011, Prof Zhu Xiaoming has

published four translated books on innovation, and five monographs on digitaleconomy and business trends Sharing his insights with participants from MBA,EMBA, EE, FMBA, and Smart Healthcare Startup programs, Professor Zhu con-

increasing numbers of Chinese companies are transforming from followers to

has been very popular among the CEIBS students, mostly because it has anextraordinary and unique lineup of digital and teaching technology, tools, and

the big transformation taken place in China toward innovation and digitalization,and leader because he is also part of the realization of the changes through his role

as professor of management at CEIBS As of today, business schools have verylimited textbooks in digital economy, we are fortunate to have this book Emerging

rec-ommend this book to readers who have interest in digital economy

Prof Zhu Qigui

Party Secretary, Professor of Economics and Statistics, Ph.D Supervisor, ShanghaiAdvanced Institute of Finance, Shanghai Jiao Tong University

opti-mize the relations between supply and demand With the power of the digitaltechnologies, the economy is becoming more advanced, better structured withclearer division of labors and bigger potential The digital economy represents anew direction for higher productivity, a key area of growth for supply-side reformprograms, and a commanding height for a new round of industrial competitionworldwide Professor Zhu Xiaoming has published substantial amounts of books,which produce a great social impact His new book Emerging Champions in theDigital Economy is an excellence textbook for business school students, and also a

About the Author

Dr Xiaoming Zhu

Professor of ManagementZhongtian Chair Professor in Management, ChinaEurope International Business School

Dr Xiaoming Zhu is Professor of management atCEIBS, where he served as President from June 2006 toMarch 2015 He graduated from Shanghai Jiao TongUniversity with a doctoral degree in engineering

sub-sidy, he was Adjunct Professor and Ph.D Supervisor inthe College of Economics and Management at Shang-hai Jiao Tong University and at Shanghai University ofFinance and Economics He is also Ph.D Supervisorfor the China UnionPay postdoctoral program andMember of IAM (International Academy of Management)

He assumed the positions of Vice Chairman of theChina Society of Industrial and Applied Mathematics,Director of the Shanghai Pudong Evaluation Committee

of Senior Professional Titles, and Director of theShanghai Evaluation Committee of International Busi-ness Professionals He was also the Deputy SecretaryGeneral of the Shanghai Municipal Government,Chairman of the Shanghai Foreign Trade and Economic

Investment Committee, Vice Chairman of the Shanghai

The major honors awarded to him include the second

xxv

Consultation”, Distinguished Award of the International

Excellent Academic Publications of the ChineseUniversity Presses in 2015, and the CEIBS ExcellentTeaching Award in September 2016

He has published substantial amounts of research oneconomics and technology, including the ShanghaiForeign Trade and Economic Cooperation Series, theMathematical Model Study of Economic and Manage-

E-payment Revolution, the Chinese Translation ofMastering the Hype Cycle, 10 Mega Business Trends inthe Digital Age (Chinese, English, and Arabic Editions),Selected Cases of Business Trends and TechnologicalInnovation in the Digital Age (Chinese Edition), Chi-

Creat-ing and StayCreat-ing Ahead of Business Trends (EnglishEdition), the Chinese translation of Innovation in theFamily Business: Succeeding through Generations, theChinese translation of New Frontiers in Open Innova-tion, Emerging Champions in the Digital Economy:New Theories and Cases on Evolving Technologies andBusiness Models (Chinese and English Editions), theChinese translation of Managing Open Innovation inSMEs

Introduction: From the Industrial

Economy to the Digital Economy:

of the Digital Economy

Professor Zhu Xiaoming, CEIBS

If 1992 marked the beginning of the Internet era, the past 25 years have witnessed a giant leap from the traditional industrial economy to the digital economy.

A core emerging technology, digital technology continues to integrate with theeconomy and drive global change as the world watches in awe Countries, bothdeveloped and developing, are seizing opportunities to develop new technologies,institutions and business models, marking a new chapter in human history.Major economies worldwide are focusing on the digital economy According

to statistics from August 2017, seven digital enterprises made it into the list of the

Facebook, Amazon, Berkshire Hathaway, Alibaba, Tencent, Johnson & Johnsonand Exxon Mobil) Although major countries worldwide have nearly identicalstrategic objectives for the digital economy, scholars and entrepreneurs continue todisagree over its implications from the view of economics In 2015, Germany came

businesses to digital goods and services across Europe; creating the right conditions

maximizing the growth potential of the digital economy According to the ChinaAcademy of Information and Communications Technology, the digital economy in

higher than the global GDP growth rate

China has transformed itself from a follower into a front-runner Presently,

© Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd 2019

X Zhu, Emerging Champions in the Digital Economy, Management for Professionals,

https://doi.org/10.1007/978-981-13-2628-8_1

1

trillion RMB, accounting for 30.1% of GDP; the 16.6% growth rate of the digital

up one-third of 262 unicorns (startups, listed or unlisted, with a valuation of morethan 1 billion USD) across the world In e-commerce, China accounted for less than1% of the value of worldwide transactions only about a decade ago; that share isnow more than 40% According to McKinsey & Company, the current value of

venture capital investments totaled 38 billion USD, 75% of which was pumped intothe digital economy (including digital companies and relevant industries).China’s thriving digital economy is in the global spotlight Unveiled by theFletcher School of Tufts University in July 2017, Digital Evolution Index (DEI)

2017 measured the digital economic progress in 60 countries The report attributed

China has evolved into one of the global leaders in the digital economy At the G20Hangzhou Summit in September 2016, together with the other G20 members, theChinese government formulated the G20 Blueprint on Innovative Growth andcalled on all other countries worldwide to seize this historic opportunity in inno-

the digital economy The G20 Digital Economy Development and CooperationInitiative was also adopted at the Summit During the Fifth Session of the National

BRICS Business Forum in Xiamen in September 2017, President Xi Jinping

In the era of the digital economy, we should try to break new ground intheoretical research Some fear that in the digital era, economics and managementresearch cannot keep pace with the rapid expansion of startups In fact,

Table 1 Development of China ’s strategy for the digital economy

Time Leaders of the Chinese government laid an emphasis on the development of

the digital economy

September

2015

During President Xi Jinping ’s state visit to the U.S., the U.S.-China Internet Industry Forum focused on win-win cooperation in the digital economy October

July 2016 At the “1 + 6” Roundtable, Premier Li Keqiang said, “We need to make

efforts to foster new sources of growth, such as innovation, new industrial revolution and the digital economy ”

September

2016

During his speech at the G20 Summit and B20 Summit, President Xi Jinping laid an emphasis on the importance of the digital economy and unveiled the G20 Digital Economy Development and Cooperation Initiative

(continued)

technological innovation and new economics and management theories often gohand in hand The invention of the steam engine spawned an array of economictheories in the era of industrial economy, including industrial economics, econo-mies of scale, industrial organization, marginal utility, and macroeconomics andequilibrium prices Afterwards, new areas of research, such as industrial economics,supply chain logistics, managerial economics and engineering economics emerged.

If the digital economy is regarded as a framework for macroeconomics research, its

Table 1 (continued)

Time Leaders of the Chinese government laid an emphasis on the development of

the digital economy

October

2016

At the Politburo Study Session on the national cyber development strategy, President Xi Jinping emphasized, “We need to step up our efforts to make the digital economy a crucial driver of economic growth ”

March 2017 At the 5th Session of the 12th National People ’s Congress, “boosting the

development of the digital economy ” was written into the Report on the Work

of the Government for the first time

May 2017 At the Belt and Road Forum, President Xi Jinping emphasized, “We should…

intensify cooperation in frontier areas such as the digital economy … so as to turn them into a digital silk road of the 21st century ”

July 2017 At the G20 Hamburg Summit, President Xi Jinping emphasized, “we should

boost cooperation in the digital economy and the new industrial revolution ” July 2017 Premier Li Keqiang emphasized, “As the digital economy has enormous

potential, traditional industries should pick up speed in going digital and automatic ”

September

2017

At the opening ceremony of the BRICS Business Forum, President Xi Jinping emphasized, “We should pursue innovation-driven development created by smart manufacturing, the ‘Internet Plus’ model, the digital economy and the sharing economy ”

September

2017

Ahead of the National Mass Innovation and Entrepreneurship Week, Premier

Li Keqiang issued an instruction emphasizing the development of the digital economy and platform economy

Table 2 Digital economy: framework for economics and management research

Framework no Digital economy: framework for economics and management research

We refer to the research into“one master framework plus ten sub-frameworks”

exploring the sub-frameworks one by one

The Data Economy

The research into the digital economy begins with the data economy The basicresource in the age of agricultural civilization was land, and in the age of industrialcivilization it was raw materials (including fuels) Data is the basic resource in theera of the digital economy During his visit to the Chinese Academy of Sciences in

Microsoft, all rely on tons of data

Just as smelting allows us to extract gold from raw ore, data mining and

by Wu Yu, Accurate Data Mining for Big Data (2013), for which I wrote a preface,summarizes four models for accurate data mining: (1) Logistic regression is used

to predict the probability of events based on the variables with different weightingfor the purposes of precision marketing and risk control For example, a bank hasapplied a logistic regression model to design variables with different weighting in

non-credit-card business in order to create a simple credit rating and deliver ferentiated services (2) Cluster analysis aims to group a collection of data into

hier-archical clustering; DBSCAN; Gaussian mixture model; and BIRCH) For example,China Mobile has applied K-means clustering to segment its mobile users into

“high-end commercial users”, “commercial users in the mid-market”, “regular users

aim to providing them with customized services (3) Decision tree analysis aims to

example, a golf course applies decision tree analysis to predict whether its memberswill come to play golf based on weather conditions, including strength of the wind,and degree of humidity (4) Based on logistic regression, the neural network

self-learning For example, AlphaGo, a computer program developed by Google toplay the board game Go, beat world-renowned human players Lee Sedol and Ke Jie

by sharpening its skills through continuous machine learning The neural network

model can also be applied in thefinancial industry ICBC has developed a financial

Presently, the development of the data economy necessitates morecutting-edge technologies, collaboration among companies and synergy with

which provides a graphical representation of the maturity of emerging technologies

“Peak of Inflated Expectations” in 2012 and 2013, and “Trough of Disillusionment”

value of a data lake depends entirely on the availability of effective analytics skills;what lies at its heart is the storage strategy, not storage characteristics

The rapid development of big data owes a great deal to the following conditions:First, technological advancement and big data accumulation and mining arecomplementary to each other In the e-commerce sector, Amazon and JD.comestimate user demand through big data and feed marketing information to target

control model that is in constant iteration through machine learning

Second, the sustained development of the data economy depends on thecollaboration with a countless number of well-established and emergingcompanies in the data economy Presently, over 2000 companies are engaged in

Fig 1 Position of big data on the hype cycle (2011 –2016) Source Hype cycle unveiled by the world-renowned technology consulting firm Gartner on its official website

the data economy (big data) across China: Internet companies like Baidu, Alibabaand Tencent; IT companies like Huawei, Inspur and ZTE; and startups, such asKingbase and Datatang, that specialize in innovative big data application Generally

application (including big data application in the government, industry, agriculture,finance, healthcare, marketing, transportation and telecommunication); data ser-vices (including data exchange, data mining and preprocessing, data analysis andvisualization, and data security); and infrastructure and auxiliary facilities (in-cluding network, storage and computing infrastructure, resources managementplatforms, and methods and tools for data mining, preprocessing, analysis anddisplay)

indispensable to the development of the data economy As key enterprises in thebig data industry have scaled up their R&D investment, the integration of big dataand other technologies has made much headway Based on big data and cloud

“Hyper-Brain” project also depend on big data analysis, artificial intelligence, andcloud computing Along with the development of the data economy, technologicalintegration will gather momentum The data economy market will spawn morebusiness models and emerging sectors

Fourth, the data economy will go nowhere without government support

into the Report on the Work of the Government; in the same year, the State Councilpromulgated the Outline of Action Plan for Promoting the Development of BigData In 2016, the 13th Five-Year Plan laid an emphasis on the national big datastrategy: carrying out the action plan for big data across the board, and acceleratingthe sharing, development, and application of data resources so as to help transformindustries and facilitate innovations in social governance Beijing, Shanghai,Tianjin, Chongqing, Guangzhou and Guizhou have drawn up big data programs.Guizhou Province, in particular, has promulgated and enforced the Provisions ofGuizhou Province for Promoting the Development and Application of Big Data,

data are mushrooming across China, including the Beijing-Tianjin-Hebei Big Data

Shaanxi Province, and Wuhan Optics Valley in Hubei Province have set aboutestablishing state-level big data centers

Presently, the industrialization of data exchange is taking shape In April

positioned as a strategic platform for big data that combines data trading, cation services, and advanced industries It is committed to establishing an industrychain for big data, which covers a trading house, an innovation center, industrialfunds, a development consortium, and a research center Thanks to a series of

appli-industrial policies, the data economy industry has made huge strides The data from

hardware and software and big data services, hit 310 billion RMB in 2016 andwould maintain a 35% growth in the next two to three years

In Greek mythology, Prometheus was credited with stealing fire from the gods and giving it

to humanity; but as Pandora ’s Box was opened, evils were let out from the container In the era of the digital economy, big data, like fire, offers humanity with both opportunities (such

as access to smart technologies) and risks (such as data leakage) We must determine how

to ensure data security and proper big data application through institutional and logical innovations.

techno-The Service Economy

Business Trends in the Digital Age Following the agricultural economy andindustrial economy, the service economy is a new type of economy that providesservice offerings If service is a non-trading activity, the service sector represents anindustry, where economic behavior is based on transactions In industrial econo-mies, the service sector is referred to as the tertiary industry The service economy

is a form of economy, which comprises the service sector and relevant institutions(e.g taxation) In his book The Choice of China Growth Mode, Prof Wu Jinglian

“digital technology” is perhaps a more appropriate term) Many years ago, peopleworried that the development of the service sector would squeeze the manufac-turing economy and industrial economy Admittedly, the resulting market compe-tition has posed a challenge to many industries and enterprises, but growing theservice economy is the key for economic growth in developed countries and thepath to prosperity in developing countries The historical data concerning the ter-

shed some light on the correlation between the digital technology and the thrivingservice sector

In the era of the service economy, cloud computing and service is one of themost critical technologies, and cloud service will become a rising star Although

generally based on non-material, non-manufacturing and real-time services in terms

of economics In the era of the service economy, there are growing trends for goods

as a service to meet varying consumer needs and production as a service to make

computing In 2015, IBM conducted a survey among over 5000 CXOs (e.g

companies worldwide are undergoing a digital transformation, the cloud service

industry has kicked into high gear Gartner predicted the global public cloud servicemarket would grow from 209.1 billion USD in 2016 to 245.4 billion USD in 2017and 436.4 billion USD in 2021 at a 15.9% annual growth rate According to the

Fig 2 Share of value added of the national tertiary industry in GDP Source National Bureau of Statistics of the People ’s Republic of China

Fig 3 Share of value added of the tertiary industry of Shanghai in GDP Source National Bureau

of Statistics of the People ’s Republic of China

computing market would grow to more than 69 billion RMB in 2017 Leaders in thecloud service market include Alibaba (Alibaba Cloud), Tencent (Tencent Cloud),Huawei (Huawei Cloud) and Baidu (Baidu Cloud) in China, and Amazon, Google,Microsoft and IBM in the U.S Chinese companies are fast catching up withoverseas competitors in the cloud service race Some Chinese corporate groupshave started providing a portfolio of cloud services Alibaba has opened more than

11 cloud centers in China and abroad (including the U.S., Europe, Middle East,Singapore, Australia and Japan) JD.com, which started off as a retailer ande-commerce company, has put a premium on the cloud service

The upgrade of the underlying communication technology will be required

4G In the 5G era, cloud services will bring about more rapid data-storage/reading.The computer mainframe will become less relevant as cloud storage and cloudcomputing enable online real-time data exchange With a memory capacity of only

256 GB at most, smartphones pale in comparison to PCs When smartphones are onpar with PCs in terms of Internet speed and time spent searching for information,however, memory will seem no longer important Instead, it will be the cloud thatmatters most A large amount of information is stored in the cloud, and as 5G can

channeling more resources into cloud-based hardware manufacturing and softwareservices

smartphone manufacturers are hitting the ground running with 5G R&D ChinaMobile plans to commercialize 5G on a large scale by 2020; China Telecom hasalso put the commercialization of 5G on its agenda; China Unicom has secured vastfunding to improve its ability for 4G/5G operations China has taken a global lead

pioneered for 5G have been adopted by the ITU The Polar code work initiated by

Fig 4 Five promising technologies selected by IBM in 2015 Source IBM Institute for Business Value

Huawei and the physical-layer and multi-user shared access technology developed

by ZTE have given China a greater voice when it comes to set 5G standards

in the areas of communication, chips, and instruments and consoles, including

Cloud service will figure prominently in the service economy, but information security cannot be ignored in the development of cloud service and 5G communication technology.

As an underlying technology in the era of the digital economy, cloud service will be an incubator of emerging technologies like blockchain, quantum transmission, and quantum communication Ensuring that both technological innovation and cloud service operate under an ef ficient legal system will be critical.

The Platform Economy

As an outgrowth of two-sided and multi-sided markets, the platform must depend

on the mobile Internet Key characteristics of the platform economy are opennessand maximization of services, some of which are free of charge Before the era ofthe digital economy, physical platforms delivered a dismal performance in the

abroad There are a few key platform qualities:

intelligence, providing a sound operating environment for relevant project opment Afterwards, leading machine learning teams worldwide made the Ten-sorFlow framework their top choice in developing smart services This, in turn,brought Google an advantage in smart services In China, iFLYTEK has beencommitted to establishing an AI ecosystem In 2010, the Company rolled out

interaction platform, which develops smart applications for segmented sectorsunder various scenarios iFLYTEK Open Platform is also known as a smart, openAIUI platform for human-machine interaction By the end of June 2016, iFLYTEKOpen Platform had covered a total of 810 million end users, amassing over 160,000

1 Wang ( 2017 ).

+ (AI platform) is in the same ballpark as Google’s TensorFlow Face++ providessmart services for 600 enterprises and over 50,000 developers, with the daily uservisits hitting 26 million Some of its well-known customers include Ant Financial,Meitu Xiuxiu, Cainiao Logistics, Amazon AWS Innovation Center, and Bank of

① upgrading algorithms to make detection more accurate, rapid and stable; ②launching APIs for ID card recognition, image recognition, and text recognition, in

mainstream technology for facial recognition in the Chinese market

Table 3 Top 25 publicly traded platforms

Source Global Platform Survey, The Center for Global Enterprise, January 2016

2 Of ficial website of Megvii Technology’s Face++.

The platform economy is booming Policymakers, regulatory authorities,legislators and law-enforcement agencies should be open-minded about

interagency platform, government institutions need to refrain from settingself-imposed limits or adopting a beggar-thy-neighbor policy The interagency

coordination among government institutions A state-level e-government platformwill need to be opened for real-time monitoring and prompt coordination ofoperations and connectivity of government institutions so that they can providecompanies with services in the shortest time

Second, when developing the platform economy, it is necessary to maximizeservices by enabling both consumers and producers As an outgrowth of thetwo-sided market based on the mobile Internet, the platform acts on the principle of

Table 4 Top 25 privately-owned platforms

Source Global Platform Survey, The Center for Global Enterprise, January 2016

“maximizing services” Compared with traditional enterprises, excellent

consumers So far, most platform-based companies, which excel at enabling sumers, have implemented technological innovations They have introduced speechrecognition technology, video recognition technology, and even VR and AR tomake it more convenient for consumers to browse commodities and place an order;brought in an AI storage system and even driverless vehicles and unmanned aerialvehicles to shorten the time from allocation to distribution and to customer delivery;and put in place RFID and electronic payment (QR code) systems so that con-sumers can make payments more conveniently

con-Platforms will need to go further to enable producers In a two-sided ormulti-sided market, a platform serves as a bridge between purchasers and providersand between consumers and producers across the supply chain Since the inception

of e-commerce platforms, people have seen their positive outcomes Recently,however, they have suffered the growing pains Consumers complain about fakesand inferior goods, while producers feel angry that their brands are often knockedoff Published in April 2017, Alibaba in the Era of B+: Enabling Small-and-Mid-Size Enterprises states that Alibaba is evolving from a consumer enabler to a

Over the past 15 years, Alibaba has accumulated vast amounts of valuable data forthe establishment of a credibility system Together with producers, on the strength

of algorithms, Alibaba is trying to stamp out the production and sales of counterfeit

credit-worthy small-and-mid-size enterprises build their own brands and reputations.Speaking to a reporter at the Bloomberg Global Business Forum on September 20,

ecosystem enabling both consumers and producers Within this ecosystem, forms will also be enabled by consumers and producers These three parties will act

plat-in concert to tackle problems plat-in busplat-iness and seek wplat-in-wplat-in cooperation

of The Long Tail, published Free: The Future of a Radical Price The prefaces to

costs as soon as possible; does the book Free really urge companies to offer freeservices all along the way? Battle-hardened e-commerce platforms learned long agohow to leverage free services They usually start off by offering services free of

Sina.com and Netease.com have all built a vast user base by leveraging digital

a large user base will earn e-commerce companies the pricing power Presently,

“free” service models continue to emerge The hardware is free but the software isnot, or vice versa; one item has a price tag, but the other comes free of charge.While saving consumers money, myriads of free services have stoked fears aboutthe disclosure of personal information Presently, large e-commerce platforms have

The platform economy is an outgrowth of two-sided and multi-sided markets Openness and maximization of services are its de fining features and core advantages Free services are only coming from the marginal effects brought about by this openness and maximization of services But mistakenly equating “free services” with these platforms, or treating such services as a necessary product of platforms, goes against the principles of economics and does a grave disservice to the startup ecosystem in the era of the digital economy.

The Internet of Things Economy

In the era of the digital economy, mobile technology that connects ubiquitousterminals with vast computing power has expedited the evolution of the Internet tothe Internet of Things (IoT), connecting not only people, but also people with thingsand things with other things The IoT economy, therefore, is considered a goldenopportunity for development by visionary entrepreneurs

turning each device into the point of transaction between owner and user and thecreator of economic value, the IoT will create a new real-time digital economy and

shipments in advance, avoiding problems of overstocking and stockouts Thissophisticated and valuable operational management approach has been appliedskillfully by Chinese companies such as JD.com Logistics, Cainiao, and Suning

it has replaced the traditional storage model in the retailing industry (goods stored on

goods randomly at any shelf available so as to make effective use of storage spaceand save investment in new staff training Second, Amazon has disrupted the tra-

grid marks on the ground), visual systems (to locate goods by reading shelf

barcodes), wireless connections (to ensure seamless integration with other wirelesssystems), automatic charging (to bring robots to charging stations when necessary),and route optimization through wireless positioning by the software system.These IoT technologies are supported by algorithms such as heuristic algorithms

intuitive judgment or rules of thumb It produces a feasible solution at a reasonablecost (computational time and storage) for each combinational optimization problem

closer the evaluated value to the actual value is, the better this evaluation function

flex-ible and intelligent logistics automation solutions by virtue of robotics and AItechnologies Its solutions have been adopted for logistics management by manycompanies such as Tmall, Vipshop, Suning and Lianhua Supermarket Its R&D teamincludes many graduates of prestigious domestic universities and award winners inrobotic competitions at home and abroad

The Geek+ robotic system offers comprehensive solutions by integrating

Fig 5 Methodology of data insight and analytical optimization Source IBM Institute for Business Value, Internet of Things+

warehousing modules of Geek+ robots can be tailor made for different businessscenarios Its algorithm simulation system includes optimization strategies such as

in Jiading district, Shanghai is one of the largest logistics centers in China Put into

90% as it uses automated equipment and robots for storing, picking, packaging,

Fig 6 Replacing “people to shelves” with “shelves to people” Source YouTube

Fig 7 Kiva systems Source YouTube