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Collaboration between organizations has never been more important. In the face of the current pandemic, a collaborative approach can help address market failures resulting from information asymmetry, misaligned incentives, or a lack of market intermediaries. Yet many companies restrict their partnerships to formal mechanisms such as joint ventures, limiting the extent of their collaboration.
Useful inspiration can come from China, where Covid-19 is but one of many crises that businesses have faced, and where a variety of pressures and opportunities have shaped a set of distinctive partnering practices. Through its rapid transformation from an economy lacking in basic commercial infrastructure to an e-commerce pioneer, China has emerged as a laboratory for developing new collaboration strategies. While these practices are partially shaped by China’s more collectivist norms and cultural proclivity for governance through personal relationships, they are relevant for any business interested in pursuing greater collaboration.
Based on our extensive research and work in China, we have found three models for collaboration that offer useful lessons for executives around the world.
“Data Sharing” Model
China’s burgeoning digital economy has seen the rise of ecosystem giants, notably Alibaba and Tencent, that have been at the forefront of creating ecosystem value (i.e., value resulting from shared functionality that cannot be created by any one company on its own). They’ve done this by adopting a more open data architecture. For example, Alibaba’s Freshippo allows established brands and lesser-known Chinese SMEs alike to share data in hybrid online/offline supermarkets. Cainiao, the logistics data platform affiliated with Alibaba Group, addresses the backend delivery challenges of the world’s largest e-commerce market through an intricate web of horizontal partnerships — an approach that can enable faster and cheaper growth than a predominantly acquisition-led strategy.
Further Reading
This is fundamentally different from the Western approach exemplified by companies like Amazon. In essence, Alibaba is a network that takes a commission on everything that passes through it without competing with ecosystem participants. Amazon, on the other hand, takes ownership of inventory, is said to be “notoriously tightfisted” when it comes to sharing data with third-party vendors, and often competes with its ecosystem partners. In his book Smart Business, Alibaba’s former Chief Strategy Officer Ming Zeng notes emphatically: “Alibaba is not China’s version of Amazon … Alibaba is what you get if you take every function associated with retail and coordinate them online into a sprawling, data-driven network of sellers, marketers, service providers, logistics companies, and manufacturers.”
This approach became even more crucial as companies worked to ensure uninterrupted e-commerce during the Covid-19 crisis. For example, data sharing enabled more than 3,000 Chinese companies to rapidly scale the production of medical supplies, such as masks and protective equipment, and to coordinate with hundreds of designers to produce plans in just 24 hours, in order to build the Huoshenshan Hospital in just 10 days.
Because many Chinese companies are digitally native, data sharing via horizontal alliances often comes more naturally to them than it does to traditional, non-digital companies. We are of course not advocating that Western companies abandon their traditional vertical M&A-based relationships; rather, we are suggesting that during these times of crisis they should consider complementing them with more horizontal alliances predicated on data-sharing, as this approach might help them create more value than they could on their own.
“Coalition-Building” Model
Another approach to collaboration that’s been effective in China is leveraging coalitions to scale business activities in pursuit of broad “whole-of-society” goals. These coalitions are often driven by state guidelines or other non-market actors that lay out an overarching goal for the industry. For example, to help contain the coronavirus, Alipay and WeChat worked with the Shanghai government to develop a QR tracking system that was adopted by 10 million users in just six weeks. Similarly, China’s widely-used digital payment platform UnionPay was developed by a coalition of tech companies and financial institutions organized through top-down government incentives and regulation.
This approach harkens back to past large-scale, government-led collaborative efforts in Western society, such as the race to the moon. But today, many Western companies may be hesitant about working in coalitions orchestrated by state or other non-market actors in the pursuit of whole-of-society goals. And to be sure, Western organizations will need to tailor the structures of these coalitions to meet their specific needs and concerns. But in general, issues that impact both corporate strategy and societal interests — such as the Covid-19 crisis — are well-suited to this kind of approach.
For example, experts suggest that successfully tackling the affordable housing crisis in the U.S. will require coordination between local governments, developers, nonprofits, investors, and other groups. A broad coalition of non-traditional allies organized around whole-of-society goals can achieve real results in everything from payment systems to the housing crisis and our Covid-19 response.
Superapp Platform Model
The superapp approach refers to the digital equivalent of a physical cluster of businesses for whom proximity enables improved collaboration in every aspect of the companies’ operations (such as Tencent’s WeChat, which serves as a common portal for multiple applications). For example, Songxia is a city two hours south of Shanghai that’s home to a cluster of umbrella manufacturing businesses. Because of their physical proximity, ideas and intellectual property are shared de facto. To be sure, this collaboration leads to copying, which can sometimes create internal conflict, but it’s often not viewed as an offense within a community where the norms are amenable to this. (Another example of this is the open-source community, in which code is shared freely).
The same is true for digital clusters or platforms. For instance, the Chinese health care app Ping An Good Doctor has effectively become a superapp, working with multiple local governments and digital companies to provide real-time online medical services and free Covid-19 consultation hotlines to more than 100 million users. Digital platforms offer opportunities for competing and cooperating at greater scale and speed, but it’s the same principle as a manufacturing cluster like Songxia — or even an Italian cluster of fashion designers.
To apply this approach to creating mutually beneficial collaboration in Western markets, businesses will simply need to specify protocols — for example, guidelines to address cybersecurity concerns and competition issues — that will govern exactly when and how joint action can be taken and information can be shared.
Of course, nothing we say should in any way abrogate the role of the regulator to ensure fair competition; indeed, in China, major players such as Alibaba and Tencent come under considerable regulatory scrutiny. But even in the U.S., the federal government has already issued statements recognizing that antitrust regulations could allow companies to work together in the fight against the pandemic (see, for example, the FTC-DOJ Joint Antitrust Statement Regarding Covid-19).
We recognize that a natural reaction from many non-Chinese readers will be that the Chinese context is unique, and therefore collaboration strategies that are effective in China may not work in the West. Yet while there are certainly differences in business practices, cultural context, and applicable regulations, the broad principles described in these three models are universal.
Moreover, the Covid-19 crisis, tragic as it has been, has demonstrated the effectiveness of these models in China. Thoughtful leaders can adapt these ideas to suit their local contexts by: complementing (not replacing wholesale) their existing vertical relationships with more horizontal ones conducive to sharing data; building coalitions that deliver organizational and societal value; and specifying protocols that provide suitable control to all parties while developing superapp-like collaborations.
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