Hu Yoshida

Digital Transformation in China: 2016

Blog Post created by Hu Yoshida Employee on Aug 8, 2016

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This is the view from my hotel room in Shanghai. Although I have been to China many times since the 1980’s when I used to work for IBM. This was the first time I have been to Shanghai. As you can see it is a beautiful city, without the pollution of large cities like Beijing. Shanghai has a rich history as the international and financial center of China from before World War II. The area seen here is known as the Bund where many of the old banks like HSBC originated in the mid 1800s. Below is a view of Shanghai from the 1980’s. The contrast between this picture and the picture above, illustrates the rapid economic growth of China in the past 30 years.

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I was in Shanghai last week to participate in an Executive Briefing Center for several customers in the Shanghai area and Western China. The focus of this EBC was Digital Transformation. When you talk to people in China about digital transformation, most of them will say that they are 3 to 5 years behind western countries. However, digital transformation is about social, mobile, analytics and cloud and my impression is that China is far ahead of the rest of the world in social and mobile. China is the largest internet country with the largest number of smartphones. While on a per capita percentage basis they lag countries like the US. The individual numbers are much larger. This is the China Syndrome; a small percentage of a large number is still a very large number. Internet companies like Alibaba and TenCent are doing far more transactions than Amazon and Google. China skipped the PC and credit card era and went directly to smart phones and ecommerce. When I arrived at the airport and attempted to take a cab to my hotel using my credit card as I do in almost any country in the world, I was told that I needed to pay with cash or Alipay on my smartphone. My alternative in most countries is to use Uber, but Uber in China was recently sold to DiDi, a local Uber like company who also has investments in other similar companies like Lyft in the US, OLA in India, and Grabtaxi in Southeast Asia. In order to use my credit card I had to find a limo bus company that charged me two or three times what a taxi would have cost.

 

With PCs there was the problem of Chinese characters that required double byte coding and larger, complex keyboards. Smart phones have eliminated that problem. Apps like WeChat and Alipay have long used QR codes to pay for purchases, transfer money, and hail a cab or order a Pizza without switching to another app. The touch screen also enables a user to hold the smart phone in one hand and scribble Kanji characters on the screen with the edge of their thumb or flirt with nearby users with momo.

 

Another indicator of digital transformation is the list of unicorns in a country. Unicorn is a term used for startup companies whose business models are so disruptive that they achieve a valuation of more than a billion USD in a very short time. This is a list of Mobile Internet Unicorns that was put together in 1Q 2015. Here Chinese Unicorns make up 25% of this list. You can see that this is not comprehensive since some large names like AirBnB and DiDi are missing and the list has certainly grown in the last 5 quarters.

China has adopted social and mobile in a big way, but where they still maybe lagging is adoption of cloud and analytics by traditional businesses.

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Traditional businesses still seem to prefer to own things like infrastructure and licenses. They believe that ownership gives them better control of costs. This may also be where the China Syndrome works against them. They have such large estates of legacy hardware, software, and business processes that it is difficult to transform and be competitive with Unicorns who were born in the cloud and have no legacy to transform.

 

This is where we hope to help businesses transform from systems of record to systems of Innovation. We help businesses modernize their systems of record with virtualization, convergence, flash, automation and private cloud. We help them reduce TCO and increase the return on investment of their entire estate. We provide the tools and services to transition to systems of innovation with software defined infrastructure, object storage, structured and unstructured data integration, in memory and inline data analytics, open source and open API’s, and DevOps tool enhancements.  Traditional business need to do both to be relevant in today’s business environment. Hitachi Data Systems key enablers for digital transformation are our converged solution, UCP which supports private, hybrid and public cloud; Flash in the form of an intelligent FMD; HCP our mobile to core to cloud object store, and our Pentaho data integration and analytics platform.

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China’s high usage of mobile systems puts a huge stress on online systems. China Railroads is the largest rail system in the world and rapidly extending their rail systems to connect more of their citizens from North to South and East to West. During the Spring Festival rush, Chunyun, which starts with Chinese New Year, they support the largest human migration in the world as millions of people travel back to their home towns. In 2016 Chunyun, there was an estimate of 2.9 billion passenger journeys. Hitachi helped to transform their passenger reservation system with the high performance, Active/Active G1000 storage system. In 2014 when we first installed the G1000s, China Railroads sold a peak of 9.6 million tickets in one day with 5.6 million happening online. Their website also saw a record high of 29.7 billion page views!

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In many ways digital transformation in China is ahead of the western world, especially in mobile and social. While today’s traditional businesses may be lagging in cloud and analytics, we expect that with the help of technology companies like Hitachi and competition from the Unicorns, businesses will be quicker to adopt digital transformation in order to keep up with the exploding digital demands of new consumers.

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