Denis Barrier is Managing Partner of Cathay Capital, which manages over €3.5 billion for limited partners that include some of Europe’s biggest corporations, and co-founder and CEO of Cathay Innovation which invests in scale-ups in Europe, China and the U.S. He previously managed the international activities of the Orange/Publicis fund from San Francisco, served as the head of corporate venture at Orange Telecom, and was Managing Director at Innovacom Ventures. He has also worked as an officer at the French Treasury Department, in charge of all the sovereign holdings in aerospace, defence, and media companies. Barrier has a technical background and started as a researcher in the laboratories of Orange Telecom, working mainly on semiconductor quantum dots. He holds a Ph.D. in solid state Physics, is a graduate of Ecole Normale Supérieure, and earned an engineering degree from the Ecole Nationale Supérieure des Telecommunications. He recently spoke to The Innovator about what the West can learn from the impact of COVID-19 on business in China.
Q: What can China’s experience teach us about how business services will be impacted elsewhere?
DB: The coronavirus has accelerated the digitization and automation of business services. The companies that will benefit the most will focus on cloud communications, security and supply chain operations as well as those who offer vertical applications in medical treatment and financial services. As the economy rebounds we expect to see a large number of new brands emerge and try to take market share. These new brands will leverage new innovate marketing services and channels and bring a new wave of tools and solutions. While new investments in the industrial category will be slower than others expect to see a new business models and industrial technologies like smart, unmanned manufacturing to emerge.
Q: What about the impact on healthcare?
DB: Expect to see more investment in healthcare over the next few years as the coronavirus highlights the gaps in medical treatment across different regions of China. New innovations are likely to emerge in areas such as drug-related services and platforms leveraging artificial intelligence and machine learning to help improve the efficiency of drug and healthcare-related services. They will become more personalized and we will move from creating solutions for curing people who are sick to anticipating disease. Right now there is concern about what to do when people get out of confinement to make sure there is not a second wave so apps are being developed to tell if you are following social distancing, where you can go, who you have seen. Western countries are also working on these types of apps so maybe there will be a new equilibrium in healthcare that balances the need for privacy with what is necessary for health and what is good for society. This is not just about technology and the capacity of digital services to be more efficient but also will impact what kind of society we will live in.
Q: How do you see other business verticals changing?
DB: The automotive sector in China is beginning to start up again after a steep drop in sales volume in February. We’re expecting to see the sector consolidate. Companies that survive and then thrive will be technology driven and focus on synergy creation across the ecosystem. Expect to see demand for investment rise as new sustainable energy tech begins to emerge. China announced a new infrastructure building plan in March that’s decided to include sectors like EV charging, high voltage electricity transmission and industrial IoT. Areas that will see increased investment will be solutions that help operators and energy companies operate more efficiently as well as automate and digitalize operations.
Q: How are consumer services changing?
DB: We expect China’s consumer sector to return to pre-epidemic levels during Q3, with the exception of a select line of offline entertainment, tourism and cross-border e-commerce companies. We expect that companies in the consumer sector who release new products and use or create new marketing channels, offer new types of health lifestyle products or services and technology that helps improve the efficiency of the supply chain will get more attention from the market.
Q: COVID-19 highlighted issues with the global supply chain. What kind of adjustments need to be made?
DB: What we saw is that China is so efficient in terms of supply chain that we can’t just avoid it. That said, the crisis highlighted the dangers of relying on one economy so in the coming years there will be more produced in South East Asia and countries will evaluate what they will want to produce in their own countries in order to be self-reliant. I see a new equilibrium where a lot will still be produced in China because it is extremely well done and very efficient, but you will also see more produced domestically.
Q: Is it fair to say that COVID-19 is accelerating the transition to digital services and AI?
DB: Absolutely and some of our portfolio companies have really benefited. Look at Yuanfudao. It raised a $1 billion venture round at a valuation of $7.8 billion in early April, making it one of the most valuable ed-tech companies in China. Concerning the new ed-tech leaders, companies like DingDong are are fascinating because they are not just online courses with teachers. This is about a different generation of products with AI driven education. Young kids in China are taking courses driven only by AI. The teachers are avatars. The future of work has also been impacted. Companies did not have the choice, they had to adapt to working remotely and this is driving not only digital communications but also automation. Now is the time for B2B software in China and it will be based on AI. The first wave of digitalization in China was B2C services, the second wave was platform’s like Tencent’s and the third wave is corporates really entering into the digital age. I think this will happen very quickly in China and at a slower speed in Europe and the U.S. China doesn’t have all of the West’s legacy systems so they can leapfrog and go very fast with AI driven tech.
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