Most depictions of Chinese innovation tend to paint the country in broad generalizations. The country is either a nation of copycat products whose schools have left its low-cost workers devoid of any ability to think creatively. Or it is a forward-thinking society that is pumping in funding and pumping out patents in such innovative sectors as life sciences and clean energy.
As usual, the reality is more nuanced. The truth is that China is better at some types of innovation than others. Bill Dodson, the author of “China Fast Forward: The Technologies, Green Industries and Innovations Driving the Mainland’s Future,” described innovation as a “spectrum of change,” during a recent talk in Shanghai. Ingenuity falls at one end of the spectrum, while paradigm shifts like the Renaissance fall at the other; in between are commercial innovation and discovery, said Dodson, who is a contributor to China Economic Review.
Original discoveries remain uncommon in China, and the country is nowhere close to producing paradigm shifts. Commentators usually attribute this to several deficiencies in the Chinese society: The lack of a free exchange of ideas, financing for small companies, legal protection for intellectual property and an educational system that encourages students to stand up to authority.
But when it comes to the other end of the spectrum, small leaps in ingenuity, China does far better. In fact, the country forces ingenuity on its businesspeople, Dodson said. “You have to be ingenious to get around the red tape [or] the tax man in order to get your business done and even live your lives.” The country is also catching up in terms of commercial innovation, with major Chinese companies such as Lenovo and Huawei close on the heels of their competitors in Japan and Korea.
In the laboratory
Examples of Chinese companies doing business better than their foreign counterparts – rather than just bigger – are few and far between, but they do exist.
Chinese companies tend to specialize in derivative innovations – tweaking products developed elsewhere to adapt them to the Chinese market. For example, internet giants like Tencent Holdings and Alibaba Group have made names and massive businesses for themselves by adopting Western models and remixing them to suit the Chinese market.
Of course, these internet companies offer some services that are simply copies of those that already exist. Baidu is working on rolling out a version of the Google Glass, while Alibaba has been criticized for merely modifying Google’s mobile operating system to create its own. Tencent and Sina have released services that ape What’s App and Twitter, and practically every social media site in China sports a game that is almost identical to Facebook’s Farmville.
But in the process of copying their Western counterparts, Chinese companies sometimes develop micro-innovations that gradually improve on existing ideas in the marketplace.
Nowhere is this truer than in the life sciences sector. Chinese scientists often try to create certain biological medicines (called “me-toos”) that duplicate those used in the West to treat cancer, diabetes and other serious diseases. But because of the fluid nature of organic compounds, in the process of reverse-engineering researchers can produce different permutations that may actually be more effective, which the industry calls “me-betters.”
“Me-betters” have also cropped up in the technology industry. Alibaba, Tencent and Baidu employ hundreds of designers to create permutations of every possible design and then test them among consumers. This process has led to some superior business models: For example, many people regard Sina Weibo as an improved version of Twitter, allowing users to post many different forms of media. Ditto for Alibaba, China’s long-standing leader in e-commerce innovation. It was the first company to successfully combat fraud by holding consumer money in escrow through its Alipay service until goods are delivered.
Chinese innovations do not just center on creating superior products but also adapting business models and services, according to a recent report on innovation by consultancy McKinsey. In addition to Alibaba, the report cites as an example Broad Air Conditioning, which developed a way to commercialize gas-powered air conditioning systems for large buildings. Chinese companies can also innovate by providing superior services. Haidilao, the hot-pot chain, has established a strong brand name by providing its customers such perks as free manicures, noodle-pulling demonstrations and video teleconferencing.
The value of baby steps
Small product innovations may not be as impressive as some of the disruptive innovations that have come out of the West, but observers should not discount them. Mitch Barns, Greater China president for the Nielsen Company, has noted that product innovation is often the most important driver of corporate growth. With cookies and potato chips, one new product is often responsible for more than half the market’s growth, and it’s much the same for cell phones and cars, he said.
And whereas US and other markets around the world often celebrate the idea of disruptive innovation, some Chinese managers reject the strategy as imprudent and overly expensive. Especially in a competitive environment like China’s, companies often invest in research and development only to see their products fail. According to Barns, 70% of new products decline or are withdrawn from the market within two years of their launch.
Sticking to the lower end of the innovation spectrum may be more appropriate for China’s current economic development and income levels. Ralph Gomory, the former head of IBM’s research department, pointed out in an interview that up until the 1930s the US also propelled most of its growth by adapting technologies from other nations. The US was only forced to ramp up its investment in R&D and its focus on innovation by World War II and the Cold War.
Hopefully it won’t take a war to push China toward more innovation. As Chinese income levels rise and the country shifts toward an economy more powered by domestic consumption, disruptive innovations are likely to become more common.