The Chinese Way of Innovation

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The Chinese Way of Innovation. Keynote Speech at the Indonesian Chamber of Commerce - Bali Chapter on Nov 18 2010 in Denpasar, Indonesia.

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The Chinese Way of Innovation

  1. 1. The Chinese Way of Innovation: A learning journey from low-cost imitation to high-tech innovation by Prof.Dr.Hora Tjitra & Daisy Zheng Invited Speech Denpasar, Nov 18 2010
  2. 2. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 2 14 years in Germany 7 years in China Born and grew up in Indonesia Prof. Dr. Hora Tjitra - Cross-cultural and Business Psychology Dipl.-Psych.,Technical University of Braunschweig Organizational Psychology and Human Resource Management Dr.Phil.,University of Regensburg Intercultural Psychology and Strategic Management Executive Education,INSEAD HR Management in Asia
  3. 3. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 3 The People of Republic China - 中华人民共和国 The world largest car’s market The world largest export country The world largest Forex reserve (2.4 Trillion USD,30% of the world) The fastest growing country in the world The second largest economy in the world Four of the top 10 Global Bank (the first top 3,market value,FAZ 2010)
  4. 4. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Does (Product made in) China Innovative? 4
  5. 5. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 “Apple is the most innovative corporate in the world?” 5 Source: Bloomberg Business Week 2010
  6. 6. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Four Great Inventions of Ancient China 6 Compass • The earliest version of the compass was invented in China in the year 1044. • The first concept of a compass was glimpsed in the use of a needle that was kept in a bowl of water. • Basically, a compass is used to find the magnetic North Pole of the Earth. Mariners also used the compass to calculate the latitude and the longitude as well. • Today, the basic Chinese invention is modified and one can see many more advanced versions being used by professions across the globe. Gunpowder • The discovery of gunpowder has been credited to certain Chinese alchemists around 9th century. • The first recorded reference of the gunpowder was found in a passage of Taosism text, which was dated to the mid 800s. • Gunpowder was the result of many scientific experiments. There were various Chinese formulas that were used and these contained different proportions of nitrate. • The gunpowder was used not only for fireworks but instances were found in the Chinese military treatise as well. Printing • The method of printing and the invention of Woodblock printing was seen before the first dated book in 868. Woodblock printing was first seen in China in 220. Thereon, it spread to other areas of the world. • The first example of the movable type method was around 1040 AD. • Bi Sheng was credited for having invented the ceramic movable type of method for printing, which proved to be quite cumbersome at times but was useful when the number of books to be printed was on the higher side. Papermaking • Paper is also one of the Chinese inventions, and the process of papermaking was also first developed in China. • In the earlier years, during the Shang and the Zhou dynasty, any form of documentation was done with the help of bamboo. • Cai Lun is regarded to have invented the paper and also the entire process of papermaking, about 105 AD. Cai Lun is also considered to be the one who played a major role in the improvisation of the process.
  7. 7. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Five possible scenarios of China’s Future 7 By Professor William A.Fischer and Rebecca Chung,(October,2006) http://imd.ch Currently “the world’s factory”, we assume that for the most part, China has acquired sufficient ability to produce goods and services, which will improve over time, legitimately becoming “world-class manufacturing.”
  8. 8. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 From the Low-Cost Manufacturer to the High-Tech at a Low Cost 8
  9. 9. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 The Chinese Cost Innovation in Global Competition 9 High Technology at LOW COST Product variety and customization at LOW COST Specialty product at LOW COST and High Volume Ming Zeng & Peter Williamson, 2007
  10. 10. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Index 10 1 Does (product made in) China innovative? 3 2 Innovation at Different Levels in China 9 3 Case Study on Chinese Innovation 18 4 What can we learnt from China’s Case 32
  11. 11. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 How do we measure innovation? 11
  12. 12. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 What is Innovation and how to measure it? 12 • Following Schumpeter (1934), contributors to the scholarly literature on innovation typically distinguish between invention, an idea made manifest, and innovation, ideas applied successfully in practice. • In many fields, something new must be substantially different to be innovative, not an insignificant change, e.g., in the arts, economics, business and government policy. In economics the change must increase value; customer value, or producer value. An innovation is a new way of doing something. It may refer to incremental and emergent or radical and revolutionary changes in thinking, products, processes, or organizations.
  13. 13. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 G20 - Global Innovation Index 13 - Innovation Inputs: Included government and fiscal policy, education policy and the innovation environment. - Innovation Outputs: Included patents, technology transfer and other R&D result; business performance such as labor productivity and total shareholder returns; the impact of innovation on business migration and economic growth. March 2009,produced jointly by BCG,NAM & MI
  14. 14. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Innovation Input and Performance 14
  15. 15. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Chinese Innovation Policy at a Glance 15 Financial Policy • Current S&T programs (grants, loans, interest subsidiary, etc.) • Tax preference policy and FDI • Venture capital and stock market Business Innovation & Infrastructure Support • Science park and incubators • China high-tech fair • Productivity promotion centers Legislative Actions • IPR and competition legislations • S&T legislation • Education legislation Human Resources Policy • Education development policy basic education for 9 years • “211 project” for higher education • Ministry of education’s “Human Resources Programs” Reform in the Public S&T Institutions
  16. 16. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 China Poised to Lead World in Patent Filings 16 • Patents are considered a measure of technology prowess and innovation. Nations that file the largest number of patents are generally home to innovative corporations and Nobel prize winners. • A new study released in early Oct 2010 by Thomson Reuters says that by 2011 China will most likely pass the United States and Japan in new patent applications. • In 2009, China filed about 279,298 patent applications, ranking third behind Japan, which led the world with 357,338, and the United States, which had 321,741 filings, according to Thomson Reuters. • Experts acknowledge that it is difficult to measure the value of China’s patents (many may be for low-end, incremental technologies), but they say the quality appears to be improving and that China is on a path to becoming a more innovative country. source: http://economix.blogs.nytimes.com/2010/10/06/china-poised-to-lead-world-in-patent-filings/?
  17. 17. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Framework of Company Innovation Potential 17 Local demand & competition National power of research & production Business management: performance assessment National Innovations System Marketplace Competitiveness Technological & Financial potential Organizational processes Qualification of employees Networks Strategic business management Intra-Company Skills Company Innovation Potential
  18. 18. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 0 2 4 6 8 10 Strategy Organizational Learning Processes Organization External Linkages Comparison of German and Chinese SMEs 18 German SMEs Chinese SMEs Ideal score from Innovation Potential in Chinese and German SMEs, Prof. Werner Fees & Matthias Lankau, 2006
  19. 19. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Case Study on Chinese Innovation 19
  20. 20. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 The 50 Most Innovative Companies 2010 20 Source: Bloomberg Business Week 2010 No. 8 No. 28 No. 30 No. 44
  21. 21. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 • BYD was established in 1995 and started with 20 employees. • Until the end of 2008, BYD’s net assets is more than 13.3 billion CNY, 9 manufactory fields in China and branches in US, Europe, Japan, Korea, India, etc., and more than 13 million employees. BYD: Shining on the World Stage Nowadays 21 Rank 8th in The World’s Most Innovative Company Top 50 Rank 1st in Global “Technology Top 100” Mr. Wang Chuanfu, founder and CEO of BYD: Top 1 on The Richest People in China 2010 (wealth of 35 billion CNY)
  22. 22. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 BYD: Cost Innovation Through Process Flexibility I Situation at the very beginning (in 1995) • The estimated cost of establishing a NiCad production line using industry-standard processes was $1 million. • The international market leader was planning to replace NiCad batteries with Li-Ion technology, which costs much more than NiCad. But BYD had only $300,000 in start-up capital. ?How to solve the problem of capital shortage? Broke the automated production processes down and replaced expensive machines with manual procedures that could be completed by ordinary workers. Rechargeable batteries 22
  23. 23. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 BYD: Cost Innovation Through Process Flexibility II ! Amazing business result! • BYD could produce a NiCad battery for a total cost of $1, compared with costs of $5 to $6 incurred by rivals in Japan. • BYD could introduce new products simply by adjusting key equipment and retraining workers. Now, BYD ranks 2nd in global market share and serves for big customers such as: 23
  24. 24. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Haier: One of the Brands Chinese People are Most Proud of 24 Medical & Laboratory Products Logistic Home Appliances & IT Travel Real Estate • Top 1 in The World’s Write Goods Brands • Rank 27th in The World’s Most Innovative Company Top 50 • Most Valuable Brands in China • Rank 13th in The World’s Most Prestigious Enterprise Top 600 • Until 2009, Haier has patent 9,258 in total, of which 2,532 are inventions • Until 2008, Haier has established 29 manufacturing base and 8 R&D centers globally, 19 overseas trading companies, and more than 6 million employees worldwide.
  25. 25. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Haier: Recombinative Innovation I Creating new, improved models by recombining existing ideas and technologies in novel ways, rather than by developing additional products internally from scratch. European ones: used less water American ones: usually faster Asian ones: made better use of electronic sensors Haier decided to combine the best of all three 25
  26. 26. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Haier: Recombinative Innovation II The result was a washing machine that used only half the water of conventional machines, achieved close to 50% improvement in cleaning power at twice the speed, and also reduced the wear and tear on garments by 60%. Haier Washing Machine ranks 1st in global market share in 2009. 26
  27. 27. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Copy Cat as Chinese Innovation Factor? 27
  28. 28. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Just a COPYCATS? - 5Cs of Chinese Innovation 28 1C : Copy The line between copy and “inspiration”, “benchmark”, “best practice”, “proven model” is thin, and is often in the eye of the beholder. 2C : Competition Would a company innovate as much without competition? Think about government-run monopolies and you might get a hint. China has a handful of local copycats, those unable to innovate on top of what they copy do not stay long after they burn the initial investment money. 3C : Combination People looking at “Chinese iPhone” for the first time are generally underwhelmed by its looks and functionality. 4C : Constraints Compare “write a romantic message” and “write a romantic message in 140 characters”. Do you feel more creative with the latter? Constraints support creativity. 5C : China So far, none of the above criteria was specific to China. Some are shared by all countries and some mostly by developing economies. Where could be the “China factor”? As the world’s factory, China understands clearly that the higher value in the chain is in consumer-facing innovative products. Apple iPhone, HiPhone, HiPod, SciPhone, TiPhone, GiPhone, iOrgane, Meizu M8, iPhome Source:
  29. 29. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 QQ: “Copycats” of ICQ 29 Until 2010, QQ is the only chat tool which has more than 100 million registered users. Except for the chat tool, QQ has a number of other relevant products, such as:
  30. 30. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 How did Chinese Get “Here” So Fast? 30 • Access to low cost talent at all skill level • Access to state assets and IP at a discount • Exceptional management autonomy • Strong incentives to success Domestic Factors • Outsourcing open the gates • Modular product and services • Concentration and internationalization of retailing • Globalization of the markets for talent and services Benefits of Globalization Extreme Competition Chinese Customers
  31. 31. Unlocking the Chinese Innovation Power_v1.0 / 2010-08 Will the Future Favor Cost Innovation? 31 Changing Size of the China Market Maturing of the Product Life Cycles Increasing Modularization Ming Zeng & Peter Williamson, 2007
  32. 32. Thank You contact us at hora_t@mac.com visit us at http://sinau.me follow us at twitter@htjitra Invited Speech Denpasar, Nov 18 2010

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