Entrepreneurship, the discovery and exploitation of new business opportunities, has become the buzzword of a knowledge-based global economy, and for a good reason. It is the only economic resource that cannot be transferred across corporate boundaries, and, therefore, the ultimate source of competitive advantage in global industries where imitation, market saturation, and lower entry barriers quickly eliminate market rents. Does China possess this resource?
To address this question, we must define and distinguish between two very different types of entrepreneurship, demand-side entrepreneurship and supply-side entrepreneurship. Demand-side entrepreneurship begins with consumer needs that have yet to be fulfilled and comes up with viable business concepts to bridge these gaps–the consumer is the center of the business universe. Economic resources, including capital, are raised after a business opportunity has been identified and explored.
By contrast, supply-side entrepreneurship begins with economic resources that are amassed before a business opportunity is identified and explored. Lured by the seeming large financial gains observed everywhere around them, investors can’t resist the urge to follow the herd and borrow heavily, often using faulty assumptions to evaluate the profitability of their enterprise or overestimating the true demand for their products. Which type of entrepreneurship is prevailing in China?
Both. Demand side entrepreneurship prevails in the majority of China’s private enterprises that pursue business opportunities on the demand side of the market like Baidu (NASDAQ:BIDU) a leading Internet company, E-Commerce China Dangdang (NYSE:DANG), Sina Corporation (NASDAQ: SINA), the on-line media company, and and Alibaba.com (1688.HK). Supply side entrepreneurship prevails in state-owned enterprises and town or village enterprises that pursue business opportunities from the supply side of the market like China Petroleum & Chemical Corporation (NYSE:SNP), China Mobile Communications (NYSE:CHL), and China Life Insurance (NYSE:LFC. Instead of starting ventures with market research to identify consumer demands, state-and town-village enterprises start from the opposite direction. They amass the financing, build facilities, hire the labor; then search to identify new customer demands.
Supply-side entrepreneurship also prevails in a minority segment of the private sector in companies that copy and replicate foreign product brands and business concepts–an unsustainable source of competitive advantage.
The division of demand and supply sides entrepreneurs is an interesting one, although real entrepreneurs need both and serve as a bridge between unrecognized demands with resource rich supply. In China capital has a louder voice than labor and ideas often stolen from west. Therefore, supply side entrepreneurs actually tends to dominate.