How Tencent's John Lo is changing the world through digital technology

CFO John Lo has helped steer Tencent through a period of rapid growth. The company's founder, Ma Huateng, recently surpassed Alibaba's Jack Ma as China's richest man, according to Forbes' Billionaires list 2017.

John Lo, the man who holds the purse strings of internet giant Tencent, has a simple vision for the future: a world seamlessly linked by digital technology.

Updated 9 August 2017

One-stop shopping is a dream to which many digital heavyweights aspire. Make the experience for the user easy and convenient, the theory goes, and they will shop today - and probably again tomorrow.

Few have come as close to perfecting the process as Chinese internet giant Tencent, which credits one-stop shopping as the key to its formidable success. Shenzhen-based Tencent has its fingers in many digital pies – social networks and online games, news, video, music and payment systems among them. Its free social communications service WeChat has seen an encouraging response from users in Asian markets such as Hong Kong and Malaysia. WeChat now has 650 million monthly active user accounts in and outside China.

It was in 2012 that mobile technology really started to take off in China, with the number of people with smartphones surging from 150 million (still a staggering figure) to around 600 million today.

Chief financial officer (CFO) John Lo FCPA joined Tencent in 2004 – the year it listed on the Hong Kong Stock Exchange – after 12 years rising through the accountancy ranks at PricewaterhouseCoopers in Hong Kong and mainland China. Lo marvels at how Tencent has grown exponentially in that time and is only too happy to expound on the many and varied possibilities offered by mobile technology of the future.

“Tencent has been riding on the wave of the internet explosion.”

When Lo joined the company, Tencent employed just 500 people; now it has more than 30,000 on its books and is one of the largest internet companies in the world by market capitalisation. Making life convenient for users is the cornerstone of the business.

Related: Tencent's founder Ma Huateng surpasses Alibaba's Jack Ma as China's richest man, according to Forbes' Billionaires list 2017

Former CPA Australia chief executive Alex Malley met Lo on a visit to Hong Kong. Lo explained how the promise of almost instant results lured him from PwC to the heady world of digital at a time when internet penetration in China was about 7 per cent of the population, compared with the likes of the US, where it was approximately 60 per cent. China’s figure has now climbed to about 50 per cent.

Alex Malley: You became a CPA in your 20s and then spent about 12 years with PwC. What did you learn from working in a firm like that?

John Lo: Most importantly, it helped me to be an all-rounder, to be more persistent and to overcome challenges - there were a lot of different assignments. We were one of the pioneers to enter into the China market. Before that, all the assignments happened in Hong Kong. The firm has invested heavily in doing IPOs [initial public offerings] in China.

This was interesting, because, number one, it was the first time I’ve engaged in an IPO assignment and, number two, I was dealing with different cultures. We are all Chinese nationals, but some Chinese have a different character. Look at the hours of work: in Hong Kong, we used to work from 9am to say 8pm, whereas in China, for some of the state-owned enterprises, they would knock off earlier in the day.

Navigating cultures

Malley: Do you think that experience improved your ability to communicate and influence people to work together?

Lo: There are different types of people all around the world.

The Hong Kong clients have particular characteristics. In China, you might have to deal with pan-government officials at some of the state-owned enterprises - they have different cultures and sometimes you might not get what you need. You have to find ways to communicate with them and socialise with them in order to get the information you need for the assignments.

Malley: How do you compare the cultures now between Hong Kong and China?

Lo: There’s been some convergence, because many expatriates either from within Hong Kong or other parts of the world travelled to China to train people. And those people in China picked up the culture as well as the way to do things.

Malley: What was your mindset at the time you left PwC and moved to Tencent?

Lo: Tencent was very small when I joined and I was thinking about a few things. Number one, with the internet penetration in China at only around 7 per cent versus 60 to 70 per cent in the US, I could see a lot of potential.

Number two was the operating leverage – it would be very high for internet businesses, because the cost would be somewhat constant.

Number three was the scalability … with manufacturing companies it might take three to five years to expand or to build a new plant, whereas for the internet it would take you two weeks to buy all the servers needed to expand exponentially.

I was also thinking of an industry in which you can generate cash while you are sleeping, and the internet is one of the rare industries in which you can generate cash during nap time!

Professional Development: Leadership essentials: leading change

Mobile technology - the great evolution

Malley: Let’s discuss the cultural and business change brought about by mobile technologies and smartphones. What observations do you make as you watch this whole new world unfold?

Lo: The mobile evolution has been in the [Chinese] market since 2012. At the time in China, there were only about 150 million smartphone sets, whereas now there are more than 600 million smartphones there. And you might own more than one phone, so there’s a bit of an explosion in smartphones.

At the same time, smartphones are becoming bigger and smarter and every six months you expect a phone with a bigger screen and quicker connectivity, as well as cheaper prices. The reason they hadn’t been so popular in China before 2012 is because of the price, but in the past three years people have been upgrading from feature phones to smartphones due to the low cost. People used to spend US$500 to US$600 for a smartphone but now it’s quite cheap - maybe US$200 or even less to get an Android phone.

Keeping ahead of the curve

Malley: Can you explain some of the success Tencent has enjoyed to date?

Lo: Tencent has been riding the wave of the internet explosion. When I joined the company, there was about 7 per cent internet penetration in China; now it’s about 50 per cent.

Tencent has gone through a lot of evolution in the internet world in the past 12 years. People have been getting hooked up with portals, then there was short messaging service on your mobile phone, plus additional functionalities like offline-to-online initiatives and contact of offline merchants to online users.

Most important, it’s the ability to react nimbly to changes. Innovation is also very important. Innovation does not mean something purely invented by your company – it might be a generic thing, like an instant message application.

We have a similar service; we didn’t invent it but it’s the micro invention that really counts. We initially launched with the generic instant message services and then we found the amount of users was rising so we kept adding functionalities, including social networking services, online payments and putting merchants and users together.

Malley: When you talk about substantial investment in research and development, do you try to break up that investment into the long game and the short game?

Lo: For all R&D, it’s got to be more long term in nature. Since we listed 11 years ago, we have been consistently spending about 9 per cent to 10 per cent of our turnover on R&D. Of course, this would shock the short-term profitability, but we wanted a long-term gain.

Malley: Tencent’s social communications service WeChat has seen 650 million monthly active user accounts in and outside China, and this number is still growing. Can you tell us what Tencent does to stay ahead in the game?

Lo: Our philosophy has always been enhancing user experience rather than monetisation. The most important thing is to build up platforms in which users can be more sticky and you can put whatever content in there. Bear in mind that content can be obsolete any time but a platform can’t. The objective is to keep all the people engaged and on the platform. You can use big data to target advertisements.

Malley: Are there some interesting patterns of behaviour from users that you can share with us?

Lo: People like to share, people are hooked up with social networking services, they want convenience, so it’s good that people can hook up in our payment services. If you go to a 7-Eleven or McDonald’s, you can pay by scanning the QR code. That’s offline, or you can order something from online - you can buy wealth-management products through our apps. There are a lot of different verticals in which people are interested, and we want to give them convenience, one-stop shopping. That’s the key to success.

“Our philosophy has always been enhancing user experience rather than monetisation.”

Building the right team

Malley: What does leadership look like for you in a market that’s literally changing by the day? Who do you need to hire; what is the skills mix you need?

Lo: Before we listed, 50 per cent of the company was owned by the founders and the other 50 per cent belonged to a South African company. At the time of the IPO, they gave us a lot of guidance, especially in corporate governance. So the first thing I would like to share is that mutual trust is really important; without this, we wouldn’t be able to do anything.

Number two, the firm was founded by five people and three of them have since retired. During the first three or four years after listing, we hired a lot of professional executives from outside, from the likes of Goldman Sachs, Microsoft and PricewaterhouseCoopers.

In the management team, we have a mix of talents with local mentality in user experience in products and internationally experienced people with strong corporate governance skills and a strong international way of thinking of how things should be done – of how to create an ecosystem that would suit our partners as well.

Malley: How do you think the organisation has dealt with that growth of people and how has it maintained its culture?

Lo: I remember when I joined the company, we had about 500 people; now we have over 30,000. We hired a professor from Michigan, who helps us with people management [and] how to cultivate culture and try to avoid dilution of our original culture. There’s been a bit of change, but the main ingredients are there and we are on the right track.

Recognition is really important for employees, and we give our teams quite a bit of autonomy. In the internet world, if you invent 10 products, one or two might be okay. Our tolerance of error has to be higher. From an innovation perspective, what we want from the staff is the learning from failure.

The new face of today’s CFO

Malley: The role of the CFO has become much broader today. What do you see as the challenges for CFOs in the future?

Lo: You have to move fast and you have to understand the business world. Years ago, people thought the traditional CFO was a number-crunching type of guy, but now they are quite different. You need to keep abreast of business development, to understand the whole industry, to experience your own products, to react to possible changes.

I need to nimbly react to the settlement system – those small application developers can be cash poor and if you don’t pay them in time, they will go broke. So you might have a settlement cycle of 15 days instead of 90 days as you would with bigger-sized suppliers.

An interconnected future

Malley: As someone deeply involved in this ever-changing world, what do you see in the next 10 to 20 years?

Lo: There’s going to be a lot of offline-to-online initiatives – for example, group buying services, apps to find lifestyle-type things such as finding a spa, the taxi hailing apps or similar.

I feel that if all the merchants within different verticals could hook up, it can be very seamless. Say, for instance, when you want to book a doctor’s appointment, the first thing that will appear is the taxi app to automatically assign a car to you. Then once you go to the doctor, they will order a car for you. If you have an appointment with me for lunch, they will book a restaurant, maybe send a message to your friend that you will be coming in five minutes’ time and then the taxi will take you there.

And before you finish, the waiter at the restaurant will send data back to the cloud to let the taxi know you will be leaving in three minutes’ time.

So, everything will be within the ecosystem. Everything will be linked up seamlessly as opposed to now [when] everything is a single type of transaction.

Tencent by the numbers

  • Established in 1998 in Shenzen; CEO "Pony" Ma Huateng was among five founders. In 2017, he surpassed Alibaba's Jack Ma as China's richest man, according to Forbes' Billionaires list
  • Listed on the main board of the Hong Kong Stock Exchange in 2004.
  • Services include QQ, Weixin/WeChat for communications; Qzone for social networking; QQ Game Platform for online games; QQ.com and Tencent News for information; and Tencent Video for video content.
  • More than 50 per cent of Tencent's employees R&D staff.
  • Tencent is developing patended technologies in instant messaging, online browser, online payment services, information security and online games.
  • The aggregate number of Weixin Pay and QQ Wallet accounts bound with bank cards exceeded 200 million in September 2015.
  • Online advertising revenue rose 102 per cent in the third quarter of 2015, year-on-year.
  • Tencent has 860 million monththly active user accounts (MAU) for its QQ IM service and 650 million MAU for WeChat and Weixin (the sister product of WeChat, targeting users in China).

This article is from the February issue of INTHEBLACK


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