For a price equivalent to about 13 euro cents, you can rent a zippy little silver and orange bicycle in Shanghai for half an hour, use it to get where you want to go, and then just leave the bike wherever is convenient for you. Unlike most urban bike rental schemes sprouting up around the world, you don’t have to return the bike to a docking station (and then have a panic when you discover that your chosen docking station is already full and you have to cycle beyond your destination to find one that has a space available). The e-payment mechanism connects with the lock on the bike while an app allows users to find the nearest bike using GPS technology.
Being Dutch, I’m obviously interested in bikes – especially orange ones. But what’s remarkable about the MoBike system is the way it combines three technology trends that, together, are driving change in supply chain models – and the driver is coming from China. When you bring together the Internet of Things along with easy e-payment systems and a ‘pay as you go’ business model, you get a very powerful combination and a compelling customer proposition.
But don’t worry: you don’t have to travel all the way to China to experience the way that that country is revolutionising the supply chain. That’s because China is coming to you – and I don’t just mean the recent MoBike trial in Manchester, England.
China is coming to Europe
The truth is, a lot of ecommerce and logistics service companies are eyeing up Europe at the moment. The biggest example is JD.com – the number two online retailer in China after Alibaba. (To understand the difference between the two companies, think of JD.com as being like Amazon, providing fulfilment and logistics services; Alibaba is more like eBay or Airbnb, bringing together supply and demand without getting involved in the physical supply chain.)
JD.com announced in February this year that it is about to launch in Europe, taking on Amazon, head-to-head. It will start in France, then Germany and the UK will be next in line. According to ecommercenews.eu, JD.com will be investing around €1bn in France over the next two years to build its logistics infrastructure. Amazon, according to that report, has invested €15bn across all of Europe over a six year period, so there is clearly no lack of commitment on JD.com’s part, even if it isn’t yet quite up to the scale of the more established e-retailer.
But there’s even more to JD.com’s intentions than simply building a big box distribution centre at a convenient motorway crossroads. The company also has plans to create a research centre near Cambridge (known as ‘Silicon Fen’ in England), which will likely specialise in artificial intelligence and big data technologies – exactly the sort of science that is necessary to completely revolutionise supply chains.
Global players, digital payers
The broader issue is that JD.com and other Chinese businesses are becoming global players. And because they have developed consumer financial solutions so rapidly over the past few years, they are much more digital and much more flexible in organising their payment flows and digital flows in China than we are used to in Europe.
With WeChat and Alipay and similar kinds of platforms, it is now very normal in Chinese society to pay through digital e-wallets and e-payments solutions. That gives flexibility for smaller companies to use platforms such as Alibaba to start selling their products. It also makes it easier for smaller companies in Europe or the US to take their products to China through these e-commerce platforms.
This connection between physical objects and ‘pay as you go’ services is an innovation revolution that’s largely emanating from Shenzhen. The link with supply chain finance is the link between physical assets and payment flows. And the move from buying something to using something is a big trend, pushed partly by the circular economy, partly by new business models, and partly by a change in the idea of ownership.
In the west, these ideas are pretty much restricted to ‘car-to-go’ types of solutions, but there is so much more that can be done by linking payments and GPS to a network of assets. China, meanwhile, is basically a living lab where they are experimenting with these concepts all the time.
China’s supply chain policies
It’s important to understand that these examples are more than just one-off examples of interesting initiatives by Chinese businesses. There is a larger theme here. Policy paper number 84 launched just before the 19th National Congress of the Communist Party of China in October last year is an official statement of the need for China to develop its supply chain expertise and to make budget available to do so. Six “major tasks” were laid out relating to: the agricultural supply chain; supply chain collaboration in manufacturing; logistics innovation; supply chain finance; sustainability and green supply chain; and the global supply chain network.
The underlying reasoning behind this paper is to move away from just selling and marketing – which has been the main thrust in China over the past decade – to focusing more on creating a lot more operational and supply chain efficiencies. It’s not easy to make a lot of money any more as margins are being squeezed and exports are under pressure because of the world economy. So instead the emphasis is on efficiency, cost-reductions and risk mitigation. That’s why the need for supply chain expertise comes in.
One of the six points is supply chain financing but China also recognises that their financial system needs to develop more to support actors that are further up the supply chain like farmers and smaller companies because their banking system doesn’t really cater for them enough. Hence the innovation we’ve been seeing in e-payment systems.
China is outgrowing the perception that the world has of it as the world’s factory. Where the physical world, the Internet of Things and logistics are linked to a financial system and ‘pay as you go’ business models, that big trend will be driven by all the innovations from China. It’s not coming from elsewhere.
China also wants to rebalance its global dependencies, which is why we’re going to see a real push for Europe. China is too dependent on the US. But what’s particularly interesting is how the entrepreneurs in China – the ones at the digital coalface who are developing these technologies – are being urged and encouraged by the state, through policy initiatives. China is allowing – in fact, enabling – these companies to expand, to move in these new directions and to acquire companies for the critical mass or the knowhow that they bring.
So we in turn need to look eastwards. What’s happening in Shenzhen is coming to Europe and will change physical and financial supply chain models. Hop on a bike and don’t get left behind.