Unicorns: Leading and reshaping the new economic landscape in China

All enterprises in China – including unicorns – faced a tremendously challenging environment in the early months of 2020 as the COVID-19 pandemic first impacted China’s economy. But the fact that our survey found just 38% of unicorns felt the pandemic had a significant impact speaks to the success of China’s containment measures and its V-shaped economic rebound in 2020. There is a sense that the public health crisis unleashed opportunities: as Exhibit 1 shows, among unicorns that said the pandemic did have a significant impact, more than half (51%) believed the positives outweighed the negatives, while just
one-quarter felt the opposite.

The relative calm over COVID-19’s impact among our surveyed unicorns underlines the increased importance of China’s huge market of consumers who are young and eager to embrace digital in all its forms in the
post-pandemic era. While most other major economies around the world continue to find themselves in the pandemic’s grip, China has roared back and is officially targeted to grow by at least 6% this year – accelerating from 2.3% in 2020. The strong recovery means that unicorns we surveyed are optimistic in their growth prospects for 2021: when asked about revenue growth for this year, nearly three-quarters (74%) forecast an annual increase of at least 50%. An even greater share of the companies surveyed, 82%, have plans to expand domestically.

The desire among unicorns to expand overseas has undeniably dimmed amid the COVID-19 pandemic and uncertainties around globalisation. As Exhibit 5 shows, the proportion of respondents that felt overseas expansion was a high priority roughly halved, while those that said they had no plans to venture abroad more than doubled. But we expect this slowdown will be temporary – China’s longstanding policy of encouraging its companies to ‘Go Out’ remains a tried-and-tested strategy for local enterprises to build their global competitiveness and pursue new growth opportunities.

Even as they reorientate for the post-pandemic era, technological innovation has remained the top priority for all unicorns. The importance of technology for unicorns cannot be overstated – in our survey results for the past three years, it has consistently led respondents’ answers when they are asked about their company’s core competitive advantage (2018: 49%; 2019: 61%; 2020: 58%). This is far higher than the next most frequent responses, business model (39%) and data (22%). And among the surveyed unicorns, 88% engaged in enterprise services ranked technology as their primary core source of competitiveness compared with 75% for healthcare and 64% for transportation/automotive.

New infrastructure development plans rolled out one after another in 2020 - adding new opportunities for all innovative companies in China, including unicorns. For enterprises, new infrastructure is very much an opportunity for transformation as well as business. The survey shows that nearly half (49%) of the respondents regarded new infrastructure development plans as an external factor that would have a significant or moderate impact on company direction in the next one to three years. As a key driver, 68% of respondents said that new infrastructure development plans would empower the digitalisation of conventional industries that are key pillars of China’s economy, such as manufacturing, construction, agriculture, and logistics.

While many Chinese unicorns are surrounded by a halo of venture capital, amid the impact of the pandemic, some unicorns were forced to confront a reality: to win in the business world, they must be able to gain profitability and create real commercial value.

The pandemic has made clear that the success of an enterprise depends on targeted strategies and effective management. In an era of rapid change, enterprises can only weather the economic cycle by making
long-term investments in improving their core competitiveness and paying closer attention to operation management and financial health.

Throughout the research undertaken for this survey, one essential attribute for unicorns came up repeatedly: the value of long-term thinking. And for our unicorns, a perspective that gazes beyond the horizon is indeed necessary when strategising for the future. Unicorn leaders – characterised by entrepreneurial frames of mind and guiding their company through an era of rapid change – must be prepared to stick with their original vision, make long-term investments in improving their core competitiveness, and pay attention to user demands and talented employees, to give their enterprise the best possible chance of growing through the economic cycle into a global champion.

Many aspects of business joined hands during the COVID-19 outbreak to offer support during the short-lived period of disruption and human suffering. For instance, faced with a severe shortage of masks, gowns and gloves, many companies – from home appliance manufacturers to automakers – swiftly retooled their production lines to produce personal protective equipment. Pharmaceutical and health enterprises joined forces to provide free online consultation services, other companies donated medical supplies, and some reduced customer fees in affected markets.

China’s unicorns have shaped, and will continue to shape, the start-up world of technology and services. The pace of technological innovation among them has propelled the country to the forefront of digital services such as mobile payments and e-commerce. This wave of technological momentum will not stop at China’s shores. In 2020, we observed a trend of China’s to-consumer model innovations spreading overseas while the market pushed to-business companies to innovate solutions that addressed customer pain points. Looking forward, Chinese unicorns are expected to create more new technologies that will feed global technological progress, changing the narrative from ‘Copy to China’ to ‘Copy from China’.