How China is Moving from Imitation to Innovation

Centre on China Innovation

George S. Yip CEIBS Professor of Management

Co-Director, CEIBS Centre on China Innovation gyip@ceibs.edu

www.ceibs.edu/cci

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China is Stepping Forward in Innovation

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Nine Types of Innovation

1. Technological Innovation

2. Product Innovation

3. Application Innovation

4. Process Innovation

5. Cost Innovation

6. Value Innovation

7. Supply Chain Innovation

8. Business Model Innovation

9. Non-Customer Innovation

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Key Questions about Innovation in China

• What special aspects of China enable innovation?

• What types of innovation flourish best in China?

• How can MNCs innovate faster in China?

• How can MNCs best work with Chinese companies to innovate?

• How can MNCs spread innovations out of China?

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China’s Advantages for Innovation?

Supply enablers

• Talented and low cost researchers, engineers and scientists, in quantity

• Support of national and provincial governments

• Entrepreneurial spirit

Demand enablers

• Fast growth of large market

• Empty market spaces and lack of heritage

• Market demand for simple, cheaper products

• Fast-moving large-scale government projects

Foreign Companies Increase R&D in China

Source: Arthur Yeung, Katherine Xin, Waldemar Pfoertsch, and Shengjun Liu. The Globalization of Chinese Companies: Strategies for Conquering International Markets. John Wiley & Sons (Asia) Pte Ltd. 2011

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Examples of Western MNCs Innovating in China

China Challenges for MNCs

• Hiring and retention

• Protection of IPR

• Slow relative to locals

• Standards too high

• Quality reduction or product paring often not sufficient

• Process too cumbersome

• Need for HQ approvals

These are challenges in all foreign countries but much more so in China with its size, growth rate and differences.

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Typical Paths of Evolution for MNCs

1. Set up small unit for localization.

2. Product adaptations

3. Product inventions for China market

4. Some reverse globalization

5. Given regional or global mandate for some project(s)

6. Replace HQ activities by R&D units in China.

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Barriers to Evolution for MNCs

1. Building up local capabilities

2. Hard to understand needs in higher standards countries.

3. Home country engineers and scientists do not value local capabilities

4. Desire to protect home employment

5. Unwillingness at HQ to allocate resources to China

6. Fear of loss of IPR and core capabilities

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Enablers for R&D and Innovation for MNCs

1. Bringing back Chinese scientists and engineers from abroad

2. Developing and implementing good policies for hiring and retention of Chinese staff

3. Linking to Chinese universities

4. Connecting to the Chinese innovation ecosystem

5. Creating a healthy linkage between HQ and China

6. Giving stronger autonomy to China R&D operation, even setting up a China-based center with a global mandate

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What’s Different About Chinese Companies’ Innovation?

1. Greater focus on local needs

2. Acceptance of good enough standards

3. Push for incremental not radical innovations

4. Willingness to supply special needs

5. Throw numbers at the problem

6. Work their staff harder

7. Fast trial and error – fail fast

8. Less formal, faster processes

9. More intervention by the boss

10. No need to refer back to distant HQ

11. Closer to government

12. Closer to community/ecosystem

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Examples of Innovative Chinese Companies