8 innovation myths in china
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1) The document discusses 8 myths about innovation in China. It provides data and examples to show each myth is inaccurate. 2) Local Chinese companies can be innovative through superior understanding of Chinese consumers. Multinational companies tend to import or localize products rather than develop truly innovative products for China. 3) Success of innovation depends on a combination of factors, not just R&D spending. Companies must have strong consumer understanding, process, engagement and talent to achieve innovation success.
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8 innovation myths in china
- 1. 8 Innovation Myths In China Mitch Barns The Nielsen Company Topic of PresentationTitle of Presentation
- 2. 8 innovation myths in China 4) Innovator > Follower 5) Multinational company = 3) China ≠Other countries Innovator 2) Innovation in China = success 6) Local company = guaranteed Follower 1) China ≠ Innovation 7) Local brand = Mass 8) R&D Spending = Success
- 3. Myth #1: China is not an innovator 4) Innovator > Follower 3) China ≠Other 5) Multinational company countries = Innovator 6) Local company = 2) Innovation in China = success Follower guaranteed 7 1) China ≠ 7) Local brand = Mass Innovation 8) R&D Spending = Success
- 4. No… China is becoming more innovative # of patents granted ('000) in China +19% CAGR +32% CAGR 582 596 412 352 268 214 182 190 114 132 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 YTD Sep10 China is projected to lead in patent activity… patent filings in China will outpace Japan and the U.S. in 2011 Thomson Reuters Data Source: State Intellectual Property Office of PRC
- 5. Attracting global giants’ innovative brains 2008, Coca-cola constructed 2010, Nielsen set up the global R&D centre in Shanghai 2009, Unilever launched 1st global R&D program (90MM US$) global R&D centre in outside the US in Beijing Shanghai (50MM Euro) 2006, Pepsi set up the 1st overseas R&D centre in 2009, Kraft established their Asian Shanghai biggest biscuits R&D centre in Suzhou 2010, P&G debuted global R&D centre in Beijing (80MM US$) 2003, GE opened global R&D centre in Shanghai (64MM US$)
- 6. China is 3rd biggest country in terms of innovation testing Client spending on innovation testing with Nielsen by country Year 2007 Year 2008 Year 2009 YTD 2010 Ranking Country Country Country Country Projected 2nd in Y2011 1 USA USA USA USA 2 UK UK UK UK 3 Germany France Germany China 4 France Germany France Germany 5 Brazil Brazil Brazil France 6 Italy Canada China Brazil 7 Canada China Italy Italy 8 China Italy Canada Russia 9 Mexico Mexico Mexico Mexico 10 Spain Spain Spain Japan 11 Japan Russia Japan Canada 12 Australia Japan Russia India 13 Russia Australia Thailand Spain 14 Thailand India India Turkey 15 South Africa Thailand Australia Australia Data Source: The Nielsen Company
- 7. 迷思二：在中国创新很容易 Myth #2: Innovation in China is easy… 4 4) Innovator > Business potential in China Follower = 1.3 Billion Population X 10% Penetration 3) China ≠Other 5) Multinational company X Once purchase per year countries = Innovator X 10 RMB per purchase = 1.3 Billion RMB 2) Innovation in China = success 6) Local company = guaranteed Follower 1) China ≠ Innovation 7) Local brand = Mass 8) R&D Spending = Success
- 8. No… Mega brands require long term commitment Brand Category Shampoo Laundry Powder/Liquid Toothpaste Experience in China 18 years 17 years 18 years ~ 40 SKUs ~ 100 SKUs > 100 SKUs Profile Distribution 88% WTD 68% WTD 94% WTD # of Handlers 0.8 million 0.5 million 1.8 million Yearly Retail Sales 2.0 billion RMB 1.6 billion RMB 1.8 billion RMB Data Source: The Nielsen Company
- 9. 2% of ideas are actually successful in market BASES Innovation Tests in China Process Snapshot PreBASES Prioritize Concept ~ 1000 20% pass screening BASES I stage BASES II Refine Mix ~ 200 40% pass final validation Launch Product ~ 80 stage 30% sustain in the market Track Performance <25 Data Source: The Nielsen Company
- 10. Myth #3: China is different from other countries 4) Innovator > Follower 3) China ≠Other 5) Multinational company countries = Innovator 6) Local company = 2) Innovation in China = success Follower guaranteed 1) China ≠ Innovation 7) Local brand = Mass 8) R&D Spending = Success
- 11. While China is different in terms of culture and habits Chinese take shower Child is the king in the at night family White is perceived Chinese prefer indirect beautiful expression China most likely to share negative opinion online More likely to share positive More likely share negative
- 12. …the ingredients behind innovation success are common across countries 12 success criteria derived from 78 measures Distinct consumer Catching attention Salience proposition Communication Internalized message Focused message Interest Attraction Substantial need/desire Credibility Lack of barriers Unique solution Point of Purchase Find in store & on shelf Acceptable Costs Performance versus Endurance Longevity Expectations
- 13. But the hurdle to reach on these measures is higher in China Success hurdle of innovation is higher in China Median CPI 26.3% 26.8% 29.4% +10 -2% % US, UK Database Global Database China Database Competition is intense # of Brands contributing 80% sales (Shampoo) Retail environment is diverse China 20 • 3.3 million outlets in Y2009 • Only 2 of top 10 retail chains are multinationals • Huge difference between regions (only 7% retailer chains France 11 operate in both Shandong and Guangdong) Brazil 10 Data Source: The Nielsen Company
- 14. Myth #4: Innovators are more successful than followers 4) Innovator > Follower 3) China ≠Other 5) Multinational company countries = Innovator 2) Innovation in China = success 6) Local company = guaranteed Follower 1) China ≠ 7) Local brand = Mass Innovation 8) R&D Spending = Success
- 15. Not always… First mover can have advantage if you are able to… Create the category & Set high entry barrier • Target relevant needs by better • Promote expert image as the category understanding consumer founder • Be disruptive and provide unique solution • Quickly build strong awareness and accessibility • Educate consumers to adapt to the new category and in the long run change the • Plan a long-term investment and sustain the behaviour support
- 16. But there is no guarantee that first mover can win Nescafe successfully introduced instant coffee Listerine came first into China but mouthwash into China and is still the #1 brand in today’s is still an underdeveloped category market Mouthwash is only 4% of toothpaste today in SH, BJ, GZ Same size as Tea Powder Comparatively… Double size as Tea Bag 23% Hair conditioner : Shampoo 23% 15% Fabric softener : Laundry 15% Data Source: The Nielsen Company
- 17. As a follower, simply copying rarely works Ba Wang Softto 8 National ‐ Value % Share 6 Softto Ba Wang boomed from Y05 4 Ba Wa ng Softto launched a similar campaign in Y07 2 0 MAR05 AUG05 JAN06 JUN06 NOV06 APR07 SEP07 FEB08 Data Source: The Nielsen Company
- 18. Second movers also have a chance to win For “me too” followers To enter a saturated category • Quick action: beat first mover before it • Be salient to differentiate from the first mover dominates the market and be an innovator in specific domain • Outspend the first mover in terms of distribution • Leverage on manufacture / parent brand equity and awareness building Sales Performance Distribution Support Media Support C 100 Hello C Xiang Piao Piao MAY08 SEP08 MAY09 SEP09 JAN08 MAR08 JUL08 NOV08 JAN09 MAR09 JUL09 Milk Tea L’Oreal Paris Shampoo MAY08 SEP08 MAY09 SEP09 JAN08 MAR08 JUL08 NOV08 JAN09 MAR09 JUL09 SEP08 SEP09 MAY08 MAY09 JAN08 MAR08 JUL08 NOV08 JAN09 MAR09 JUL09
- 19. Myth #5: Multinational companies are innovative in China 4) Innovator > Follower 3) China ≠Other 5) Multinational company countries = Innovator 2) Innovation in China = 6) Local company = Success guaranteed Follower 1) China ≠ 7) Local brand = Mass Innovation 8) R&D Spending = Success
- 20. Import, localize and acquire are three more common ways for multinationals to play in China Directly import … Localization … Acquisition … versus Home grown innovation …
- 21. There are few “true” China specific innovation from MNC’s New Category Initiator Multinational / Local Way of Innovation Deodorant Nivea MNC Import Male Skin Care Nivea MNC Import Toner Nivea MNC Import Mouthwash Listerine MNC Import Liquid Hand Wash Jojos Local Create Brand Baby Diaper Pampers MNC Import Juice Yogurt Nutri Express Local Create Brand Asian Traditional Tea Wang Lao Ji Local Create Brand Vitamin Water Coke MNC Import Tea Bag / Tea Powder Lipton MNC Import Instant coffee Nescafe MNC Import Breakfast Cereal Nestle MNC Import
- 22. MNC’s should initiate more China specific innovation 。 Immersion Better Co-creation Develop understand Chinese consumers, concept and product locally with not only the superficial behaviour the end users but needs and culture in depth Execution Be prepared for great investment and long term commitment
- 23. Myth #6: Local companies do not innovate 4) Innovator > Follower 3) China ≠Other 5) Multinational company countries = Innovator 2) Innovation in China = 6) Local company = Success guaranteed Follower 1) China ≠ 7) Local brand = Mass Innovation 8) R&D Spending = Success
- 24. No… Local companies can be innovative thanks to superior consumer understanding Apple Peel Electric Racket Nutri-Express
- 25. Myth #7: Local companies cannot play in premium segment 4) Innovator > Follower 3) China ≠Other 5) Multinational company countries = Innovator 6) Local company = 2) Innovation in China = Follower Success guaranteed 1) China ≠ Innovation 7) Local brand = Mass 8) R&D Spending = Success
- 26. Wrong… Local companies can also be successful in premium by playing the “Chinese card” National ‐ Value % Share 8 6 Demonstrate the advantage by using Chinese elements 4 2 •Ingredients: Yun Nan Bai Yao, Ba Wang, 0 •Origin: Telunsu (Inner Mongolia), SEP07 FEB08 JUL08 DEC08 MAY09 OCT09 MAR10 AUG10 •Emotion: Vive (Shuang Mei) •Nationalistic feel: Wang Lao Ji • WTD reaches 66% and still increase • Sales per store is continuously growing Price index = 400 Heavy support by leveraging strong relationship with retailers and media channels, especially •Local retail chains •Sales network in traditional trade Leveraging on domestic brand recognition Yun Nan Bai Yao Data Source: The Nielsen Company
- 27. Myth #8: Success of innovation heavily depends on R&D spending 4) Innovator > Follower 5) Multinational company 3) China ≠Other = Innovator countries 6) Local company = 2) Innovation in China = Follower Success guaranteed 1) China ≠ 7) Local brand = Mass Innovation 8) R&D Spending = Success
- 28. No… Success of innovation is a combination of knowledge, process, engagement and talent • Systematic • Consumer understanding • Rigorous • Category knowledge • Forward looking Market • Speed to market Process Knowledge Success = Knowledge X Engagement X ( Process + Talent ) • Strong leadership • Long-term plan • Creative team • Continuous support • Innovation mindset • Responsibility of consumer education Engagement Talent
- 29. Apple is recognized as the most innovative company with all 4 qualities iPod iPod Mini Shuffle Innovations iPod iPod iPod iPod iPod iPod iPod iPod iPod Touch Touch Touch 1G 2G 3G Photo Nano Video 1G 2G 3G Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Mini HD Wheel MulticolorScreen Touch Screen Wifi Voice Control Bluetooth Windows System Photo Function Video Function Voiceover New Functions
- 30. Find your own innovation strategy ) Nutri-Express Shuang Wai Wai Feicha Cola (Juice Yogurt Ji Huo – “Activate” (Yogurt for Children) (Coffee Cola) (Functional Drink) You You Smoothie Pi Er Cha Shuang (VC Juice) (Milk Tea, Milk Coffee) (Juice Milk) (Beer flavoured Carbonated Tea) (Skin Care) (Hair Care) (Hair Care) (Deodorant)
- 31. 8 innovation truths in China 4) Innovator <> Follower 5) Multinational More 3) China ≌ Globe localized China innovation 2) China = Opportunity + Investment 6) Local Be bold to innovate 1) China = Land of innovation 7) Local Break the boundary of price barrier 8) Successful Innovation = knowledge X engagement X ( Process + Talent )
- 32. Topic of PresentationTitle of Presentation