Innovation at Speed

In previous articles on the changing face of Innovation in China, we have highlighted China’s rapid transition from a culture of ‘copying and low cost manufacturing’, to one of ‘innovation and commercialisation’, a transformation which has surprised China’s doubters and detractors. As if this wasn’t amazing enough, we now believe that its time to point out the rapid pace at which this is happening.

China’s Government has vowed to become an “innovation-driven society by 2020”. The nation has successfully combined its manufacturing capacity and capabilities with a policy targeted at creating a “nurturing ecosystem for innovation” which will see China become the world’s leading innovator. Since 2005, China has doubled its global percentage of patents and the number of Chinese companies in Booz and Co’s “Top 1000 Global Innovators List” has grown from 23 in 2010 to 47 in 2012. PetroChina was the first Chinese company to make it to the top 100 in 2012.

Developing China’s innovation prowess is crucial to the global competitiveness of Chinese companies and will be the key domestic differentiator to measure the top performing companies. In sharp comparison to the longstanding bottlenecks and lack of capital investment into infrastructure development and start-ups in the western world, China is investing heavily in its technology and infrastructure. Innovation is therefore shifting to China for three main reasons; (i) market opportunities; (ii) abundant capital resources and (iii) Government incentives. What is different about China’s model of innovation is the speed at which products are developed, tested and launched - in a fraction of the time that it would take for a similar product to reach developed markets. In addition, whilst China’s Government actively promotes, initiates and provides finance to support innovation, their western counterparts tend to rely on an entrepreneurial culture and new start-ups to lead the way.

The Chinese model for innovation is primarily driven by the increasing speed of consumer demand and sophistication. Whilst some argue that China’s innovation potential is no match for Apple, P&G and the Microsofts of the world, China’s new model for innovation, arguably decades behind the USA, will rival the world’s leading multi-nationals in years to come. Waves of Indian executives are visiting China to observe their methods and process of innovation – the most common observation being their incredulity at how rapidly ideas or changes within an organisation are identified and executed. Whilst the West certainly has the availability of human capital and talent, which is as good and, in some instances, better than China’s on a like-for-like basis, it doesn’t have an ecosystem that unifies and delivers innovation at pace.

As a relative latecomer, China is able to leapfrog many stages of development, infrastructure and investment through which other countries have laboured for decades. In the future, three qualities will be required to differentiate successful innovators from the rest. These are:

  • an ability to break into a market and establish a strong position… speed
  • a culture which encourages continuous improvement, development and enhancement
  • a desire to move up the value chain, invest in the future and search for new opportunities.

China’s innovation engine is underpinned by its historic approach of “test-and-fail”. This has resulted in an industrial innovation cycle that is consumer centric and an ecosystem that is able to rapidly allocate financial and human capital. Western companies must become more aware of the indigenous innovators and ‘Shanzhai’ companies in China, and should not underestimate their low-cost Chinese competitors. As Ted Greenwald of Technology Review put it “Chinese companies iterate, build things and grow faster than their US counterparts…..Beijing compressed thirty years of start ups into five!”