Good afternoon.
Thank you for inviting me to speak at TsingHua University, the pinnacle of Chinese intellectual excellence.
I am honored to be addressing the smartest students in the world.
When I spoke at TsingHua three years ago, I advised the Technical students to stretch themselves outside their comfort zones and learn management skills, so they could become top executives of global companies.
I gave this advice because I had traveled the same path and understand the technical mind.
I was a pure technical guy once – just me and the computer. I am basically shy, so I liked the fact that I didn’t have to deal with other people.
But because I was a technologist, I had to take orders from other people, and I didn’t like that.
Implementing other people’s ideas made me very angry when my ideas were better – or so I believed.
But how could I implement my ideas as a technologist? I couldn’t. I had to become a manager.
I had to learn how to lead…to believe in myself enough to bet someone else’s career on my ideas.
And I had to learn to communicate my vision, so other people were willing to bet their careers on me.
Acquiring management skills was hard work, but it was worth it.
Three years ago at TsingHua, I advised the technical students to do that work.
The recent growth of MBA programs in China shows that idea has become more popular.
I am pleased to see students from both the Technical and Management Schools here today.
I have come this afternoon to challenge you.
But first, let me tell you who is challenging you.
I am the co-founder, CEO, and chairman of BEA Systems, the No. 1 infrastructure software company in China, which will be 11 years old next month.
Our company has been a close partner of China business since 1997 – just two years after we started the company in Silicon Valley…
…on the way to becoming the fastest software startup in world history to grow from zero to more than $US1 Billion in revenue.
Today we serve more than 2,000 Chinese customers – including:
n all major telecoms
n important government authorities and enterprises
n the majority of banks and financial institutions, and
n the most successful manufacturing companies competing in domestic & global markets
BEA has earned dominant share in our target markets:
We are No. 1 in Middleware.
No. 1 in Application Server.
No. 1 in Integration.
No. 1 in Portal, and
No. 1 in Application Platform Suite.
And now we are No. 1 in helping customers move to Service-Oriented Architecture, or SOA.
One reason I am in Beijing is to attend our BEAWorld conference, where we are showing Chinese customers and partners how to move toward SOA.
SOA has special meaning to China enterprise, because it will allow China’s IT industry to zoom past the Era of Application Infrastructure into the Era of Service Infrastructure.
I predict SOA-based software will be a key driver of the domestic software industry, and speed China’s emergence onto the global stage.
Frankly, I would be very pleased to see Chinese intellectual property proliferate through the global software industry, embedding Chinese inventive skill in the world’s fundamental business processes.
As you can tell, BEA is proud to be a Chinese company.
We believe in China in a very personal way.
And we are investing money to help China drive toward an economy based on intellectual property.
We have donated a scholarship here at TsingHua University, and run an intern program for students from TsingHua and other top universities.
Two years ago, we opened a Research & Development Center in Beijing that helps us win business everywhere in the world, not just in China.
At our R&D Center, Chinese engineers – including a number of TsingHua University graduates – develop, enhance, and extend our core products on a global basis.
So that is who I am.
Now let me talk about who you are – or could be.
Here is my challenge to you today:
Over the next 5 to 10 years, China is the only country in the world qualified by education, culture, innovation, and drive to rival the United States in the creation of a domestic and global software industry.
If China is to succeed in that task, you are the people who must do it.
America right now is in danger of losing its edge, just when you are sharpening yours.
The number of U.S. students studying science and engineering is down 10 percent in the last five years, while in China the number of science and engineering students in universities is up 500%.
The U.S. government is investing less in research and innovation, while the Chinese government is investing more.
It is no surprise that the U.S. share of worldwide high-technology exports fell from 31 percent to 18 percent over the last 20 years.
Meanwhile, the compound annual growth rate of the China software industry is keeping pace with your Gross Domestic Product.
The China IT industry is on fire.
The opportunity is there, if you are able to grasp it.
I saw it happen in the U.S.
In a period of just 20 years, Silicon Valley went from orange groves and prune orchards to a global industry that represents just 8 percent of U.S. GDP but contributed 50 percent of the growth in U.S. productivity in the latter half of the 1990s.
Can China do it?
Can you do it?
Let’s take a look at the situation.
One of the most useful tools in analyzing a country’s ability to succeed is a 1990 book by Michael Porter, of the Harvard Business School – “The Competitive Advantage of Nations.”
Professor Porter identifies four broad groups of elements that determine national competitive advantage:
n “Factor conditions,” such as human, physical, intellectual, and financial capital…as well as infrastructure.
n “Demand conditions,” such as patterns, depth, and internationalization of domestic demand.
n The presence of related industries, which coordinate or share activities in a value chain when competing, and…
n “Strategy, structure, and rivalry,” by which he means the training & background of a nation’s business leaders, and the strength in society of individual initiative versus group-oriented thinking.
By this set of measures, China is potentially well-positioned to take its place as a world leader in software and information technology.
The hard job of turning potential into reality falls to you.
Let me share a few thoughts about China’s situation as it relates to parts of Professor Porter’s prescription for national competitive advantage.
I will keep my focus on software and IT.
In the first group – “factor conditions” – China arguably leads the world in human, physical, and intellectual capital.
That has been true for thousands of years.
But what about financial capital?
That is a tough one.
The current domestic finance system – focused on short-term returns – will not fill the need.
Sensing opportunity, foreign venture capital firms are rushing to do business in China.
U.S. venture capital firms invested $US 1.3 Billion in China in 2004, up 30 percent from the previous year.
But to control its destiny, China must develop its own venture capital system with many of the same strengths as U.S. VC firms.
Why has the U.S. succeeded where Europe, for the most part, has failed in creating global software industries?
Among other factors, experience in Silicon Valley created a clearly visible roadmap that innovators follow as they move their ideas from concept to business reality.
Chinese software success will depend, in part, on the creation of a multi-institution Chinese venture capital industry to act as both a protector and a ruthless hunter of the weak.
Venture capitalists look beyond the creative idea to determine if that idea will find a market.
Venture capitalists gather multiple resources – such as experienced management and financial practices – to protect the startup, and nurture its growth from one stage of evolution to the next.
There are many venture capital firms in Silicon Valley. Ideas rejected by one firm can become global successes when embraced by another.
The existence of many VC organizations, with their broad portfolio of companies, creates a relaxed, horizontal infrastructure that facilitates the free exchange of ideas.
In a similar manner, TsingHua University has a crucial role to play in the creation of a Chinese intellectual infrastructure that will help convert research breakthroughs to viable businesses.
For more than 60 years, Stanford University has played that role in Silicon Valley, as the birthplace of companies from Hewlett-Packard, in 1938, to such recent successes as Sun Microsystems – where I started my career – Yahoo, and Google.
There are obvious existing parallels between Stanford and TsingHua, such as bright students attracted by the best faculty, and well-funded government research projects.
The challenge will be to create at TsingHua a new kind of infrastructure that tolerates…no, encourages learning from creative failure, and provides an intellectual meeting place organized around a new paradigm:
Not just handing off university research to corporate development, but a two-way knowledge flow, as academic researchers and business people interact.
This will give business deeper research capabilities than it can usually afford, while the university receives real-world understanding of industry needs…
…And by the way, this two-way interaction will help your professors find you great jobs!
Professor Porter’s next element in determining national competitive advantage is “demand conditions,” which takes in the patterns, depth, and internationalization of domestic demand.
Here is where I believe China is uniquely positioned to challenge the software and IT leadership of the U.S.
China has the only economy outside the United States where software companies can grow and thrive by relying solely on the domestic economy.
This provides a longer runway for companies to develop…starting domestically and then going global when ready.
In terms of domestic software demand, no one knows exactly how many companies there are in China, but estimates go as high as 30 million. Competition among these companies is increasing, and as it does, so does the demand for software and IT innovation.
Every successful business in every industry succeeds through technology innovation.
Tens of millions of companies competing in the China domestic market will fuel enormous IT innovation.
On the domestic front, IT innovation will help solve one of the largest problems facing domestic China business – downward pricing pressure.
Foreign companies fear China industry because China drives prices down.
Domestic companies have the same fear.
Driven by competition, continuous innovation will address this problem by increasing productivity, maintaining profit margins even if prices decline.
Now here comes the really interesting part:
This sort of domestic IT innovation will have a global impact.
China will innovate domestically at its own affordability level.
And once you come up with low-cost solutions that work inside China, you will be able to take those innovations global – at China prices, and blow away the competition.
Finally, trends in domestic technology will position China to leap ahead of countries with older technology.
As I mentioned earlier, China’s growing adoption of Web Services and SOA is saving the country an entire generation of frustration and complexity dealing with massive applications.
Industry in other countries has spent years trying to dig out of the complexity imposed by applications from companies like Oracle, SAP, Siebel, and PeopleSoft, but those applications never bothered China because they never penetrated China enterprise.
Now you can jump right past them.
Another positive domestic trend is Internet Protocol Version 6, or IPv6. China is ready for the enormous speeds and capacity of IPv6 – and the new services it will bring – while many Western countries hesitate to rip out existing infrastructure…even though the West is running out of IP addresses.
By deploying IPv6 domestically ahead of competing countries, and extrapolating what it learns domestically on a global basis, China can be the first to write IPv6 software while the rest of the world plays catch-up.
Foreign software companies should be very afraid of you…if you can deliver.
Professor Porter’s fourth and final determinant of national competitive advantage is what he calls “strategy, structure, and rivalry.”
Here is where culture enters, and where China is at an advantage, in my opinion.
Porter has pointed out that Japan – despite its economic prominence in the 1980s – never really challenged the U.S. in software and IT innovation because innovation is not a Japanese characteristic.
As a nation, the Japanese are inclined to what Porter calls “group-oriented thinking.”
Personal initiative is subjugated to the will of the group.
To stand out is to offend.
That is not the way to create and market great software.
Lexus, yes.
Great software, no.
Here is a challenge that China appears ready to meet:
Rise to global leadership in software and IT innovation by encouraging, supporting, and rewarding individual initiative and truly original thought.
In the last 20 years, China has lifted 200 million people out of poverty.
That is an achievement of epic proportion.
Now it is time for this country to take the next step, and claim its place among the world’s economic leaders.
It will take imagination, hard work, and unshakable confidence.
If any young people in China can do this, you can.
My question to you is:
Will you be able to meet this challenge?
I plan to return to TsingHua University in another two years to learn the answer.
Good hunting!
Now I will be happy to take your questions.
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