This case deals with the choice of growth strategy for a Chinese IoT (Internet of Things) start-up, Ace Company (Ace). Ace was founded in February 2015 by Ren (CEO), Zhang (CTO), and Jin (CMO), with the initial purpose of solving the pain points of the IoT industry by providing an unprecedented universal IoT operating system. Since its core product, Ace OS 1.0, was officially released in May 2016, more than 10,000 developers have joined Ace’s platform, and dozens of companies have applied Ace’s IoT technologies and solutions. Having proven the technical viability and market acceptability of its offering, Ace has to decide how to scale up, especially as it has received Series A investment of ￥21 million. However, there is a dispute between the CTO and the CEO: Zhang insists on extending Ace’s business to as many industrial scenarios and companies as possible, while Ren insists that Ace should focus on and penetrate deeply into a few industries. Jin is stuck in the middle and wants to know which path they should choose.
The dilemma faced by Ace is typical for a start-up that has succeeded in the entrepreneurial stage and needs to develop a growth strategy. The co-founders have different perspectives and it is hard to reach a consensus. The case also reflects the features of an emerging market (China) and the challenges and opportunities within.
Internet of Things (IoT)
China’s annual economic growth has slowed since the global financial crisis, dropping from 14.2% in 2007 to 6.9% in 2017. The question as to whether China would fall into the middle-income trap (MIT) has attracted plenty of discussions. However, China is a diverse country with uneven economic development. Some provinces are far more advanced than others. Therefore, it might be inaccurate to look at China as one single entity to make a judgment on the MIT issue. Instead, looking into each province and comparing provincial-level differences would be more insightful.
This case is essentially about economic growth and development in general, and that of China in particular. It makes the topic of growth more interesting by discussing the triggering factors of the MIT through comparing the differences between a “trapped” and an “escaped” province, i.e., Shaanxi and Jiangsu. To alleviate the regional development gap, Shaanxi and Jiangsu became paired poverty alleviation partners in 1996 under the guidance of the Chinese central government. However, more than 20 years have passed, yet there is still a huge gap between the two provinces in many fields. Jiangsu’s GDP per capita has surpassed the range of MIT, while Shaanxi’s has not and is very likely to be trapped with the continuing slowdown of its economic growth. The key difference between the two provinces is not their resources, but their development policies.
the Middle Income Trap