Digital Transformation In China: 2016

Hu Yoshida

chinaThis is the view from my hotel room in Shanghai. Although I have been to China many times since the 1980s, 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 1980s. The contrast between this picture and the picture above illustrates the rapid economic growth of China in the past 30 years.

I was in Shanghai recently to participate in an executive briefing about digital transformation for several customers in the Shanghai area and Western China. When you talk to people in China about digital transformation, most of them will say that they are three to five 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 it lags countries like the U.S., 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 smartphones and e-commerce.

When I tried to use my credit card (as I do in almost any country in the world) to take a cab from the airport to my hotel, 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 that has investments in similar companies – like Lyft in the U.S., 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.

PCs have the problem of Chinese characters that require double-byte coding and larger, complex keyboards. Smartphones have eliminated that problem. Apps like WeChat and Alipay have long offered 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 smartphone 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 from 1Q 2015; 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 five quarters.

c3China has adopted social and mobile in a big way, but it still may be lagging in adoption of cloud and analytics by traditional businesses. 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 compete 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 total cost of ownership and increase their entire estate’s return on investment. 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 APIs, and DevOps tool enhancements. Traditional business need to do these things 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 flash module drive; HCP, our mobile-to-core-to-cloud object store; and our Pentaho data integration and analytics platform.

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China’s high use of mobile systems puts a huge stress on online systems. China Railroads is the largest rail system in the world and it’s rapidly extending its rail systems to connect more citizens from north to south and east to west. During the Spring Festival rush, also known as Chunyun, which starts with Chinese New Year, China Railroads supports the largest human migration in the world, as millions of people travel back to their hometowns. In 2016, there was an estimate of 2.9 billion passenger journeys during Chunyun. Hitachi helped to transform the 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. Its website also saw a record high of 29.7 billion page views!

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.

For more on responding to the unicorns, see How Much Will Digital Cannibalization Eat into Your Business?


Hu Yoshida

About Hu Yoshida

Hu Yoshida is responsible for defining the technical direction of Hitachi Data Systems. Currently, he leads the company's effort to help customers address data life cycle requirements and resolve compliance, governance and operational risk issues. He was instrumental in evangelizing the unique Hitachi approach to storage virtualization, which leveraged existing storage services within Hitachi Universal Storage Platform® and extended it to externally-attached, heterogeneous storage systems. Yoshida is well-known within the storage industry, and his blog has ranked among the "top 10 most influential" within the storage industry as evaluated by Network World. In October of 2006, Byte and Switch named him one of Storage Networking’s Heaviest Hitters and in 2013 he was named one of the "Ten Most Impactful Tech Leaders" by Information Week.