Shen Nanpeng, Founding Partner of Sequoia Capital about Chinese economic transformation through tech

‘Of course, scientific & technological inventions and IPs are important, but the drivers of development are entrepreneurs, people.’ said Shen Nanpeng - Global Executive Partner of Sequoia Capital, at the ‘China Development Forum 2017’ that was held in Beijing on March 18.

Shen Nanpeng, founding and managing partner of Sequoia Capital China

China Development Forum was approved by the State Council and hosted by the Development Research Center of the State Council. This year’s theme was ‘China and the world: Economic Transformation and Structural Reform.’

At the conference ‘From the new-technology revolution to the new industrial revolution’, Shen Nanpeng shared the views of Sequoia Capital. He believes that new technologies and new industrial developments have brought different standards for enterprise value and social productivity, promoting globalization reciprocally.

He mentioned that, in the past, the evaluation of enterprises was focused on their assets, but the fact that a lot of scientific and technological researches became real products and services is a result of entrepreneurs' initiative creation. ‘No matter what science and technology have achieved, ultimately, the key chain of transferring science and technology into industry or productivity, and giving birth to a successful enterprise is entrepreneurship, the wisdom and strength of people.’

Standards for judging traditional economic development have been dominated by GDP growth, yet the evaluation of technological innovations is now more focused onwhether it can improve efficiency, reduce consumer costs, restocking and so on. Shen Nanpeng takes the business model of ‘sharing economy’ as an example, saying that new technologies and industries are different from the increasing of productivity in previous industrial revolutions, as they bring a more convenient way of life to society and they reduce the cost of services.

Finally, he believes that,when daily necessities, entertainment and health industries are widely industrialized in the rest of the world, only then will they be able to produce more substantial returns, and in turn encourage more investments and human resources to be poured into the industries to promote development. Therefore, new technologies and globalization are bound to promote each other.

The following is the speech of Sequoia Capital Global Executive Partner, Shen Nanpeng:

"I am very honored to have the opportunity to participate in ‘China Development Forum’. Sequoia Capital is a fund which is actively investing in new technologies or new industries all over the world. In the investment community, Sequoia Capital can be said to be synonymous with new technology investment. Today 's topic fits with our business very well, so there are some opinions I’d like to share with our friends here.

First of all, new technologies and industries should be ‘people-oriented’. In the last ten years, we have seen that technologies were transforming into innovative products at a faster rate, bringing revolutions in many industries. In the past, when we were talking about enterprise value, we are talking about enterprise’s assets. But we should note the fact that, no matter what science and technology have achieved, ultimately, the key chain of transferring science and technology into industry or productivity, and giving birth to a successful enterprise is entrepreneurship, or the wisdom and strength of people. So we need to be ‘people-oriented.’

In the past 100 years, the number of intellectual property (IP) created by mankind is probably dozens of billions. However, among these technological inventions, even in the application area, the number of those which have been transferred into productivity is not significant. Part of them are already successful large enterprises, such as the world’s top five hundred, which have successfully combined some technological inventions with users’ needs. We can see that, more entrepreneurs are taking the initiative to use technologies, to find the appropriate technical means to create products and services that users like. This is an important point in the new industrial revolution.

Of course, scientific & technological inventions and IPs are important, but the drivers of development are entrepreneurs, people. If we talk about new technologies or new industries today, what might be associated are some fresh images: Steve Jobs, Elon Musk, Zuckerberg, Ma Yun, Ma Huateng and so on. They are worthy of our attention. We might be thinking about what kind of education opportunities and environment our society needs, so that good entrepreneurs can be given full play to their talent, so that they can continue to bring new technological innovations and entrepreneurship to the outstanding enterprises. The Chinese government's call for ‘Innovation and Entrepreneurship’ is a very successful policy push.

The second point I want to share with you is about standards for evaluating new technologies and industries. The evaluation of traditional economic development majorly consists of GDP growth, that is to say, the KPI assessment indicator. Our evaluation of technological innovations is now more concerned about whether it can improve efficiency, reduce consumer costs, destocking and so on. These points correspond precisely to what is required by the current Chinese governmental efforts to promote the ‘supply side reform’.

Over the past few years, the ‘sharing economy’ business models have emerged in the new tech revolution, with companies such as China's DiDi travel and the American Uber in the field of transportation, or Airbnb in the field of hotels and housing. From the angle of an application platform such as transportation, DiDi or Uber have really reduced the costs of traveling, enhancing the level of convenience and the efficiency of the platform. In the hotel and housing area, Airbnb has also helped to solve the efficiency problems or inventory problems. These business models and technical means have made our lives and lifestyles more convenient, while reducing the costs of services. They have played a very positive role in the current economic development, which is not exactly the case with the previous industrial revolution from an increasing productivity perspective.

Finally, new technologies, new industries and globalization are mutually influential. Today, globalization is an irreversible economic law. New technologies and industries are promoting a further development of globalization, which is consistent with the basic demands of increasing social efficiency.

In 1980, the economist Milton Friedman wrote a famous story about a pencil: when manufacturing a pencil, from the perspective of raw materials, the wood may come from the United States, the cartridge may come from South America, the rubber head may come from Malaysia and so on. Only the division of labor and the usage of advantage resources around the world with the highest efficiency of manufacturing, can make the price of a pencil down to less than one yuan.

This example is applicable in the eighties, and even more applicable today.

Let’s take a look. An unmanned aerial vehicle produced by DaJiang, whose headquarter is located in Shenzhen. Its main production process are completed in China, but a huge part of the accessories come from all over the world. If there is no global collaboration, even if there is no cross-border trade and investment, the success of this product is unthinkable, not to mention that the selling price can be reduced to only six thousand yuan. There is a similar situation with many enterprises in new industries.

Another example is the health and entertainment industry. Take a new medicine or a Hollywood product, if it has been industrialized only in one country, I am afraid there is no way that will reflect its full value and cover the entire R & D costs. It can produce more substantial return if it has been widely industrialized all over the world, and also, it can encourage more investments, human resources to be poured into the industry.

Therefore, globalization can accelerate the development of new technologies, at the same time, new technologies and new industries can further enhance globalization."

Origin article

[Caixin Report] (Reporter Wang Qionghui)

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