Academic research and high-end product novelties
Already today there are specific fields where China can pride itself of being in the top league of the world’s innovators. The quality and activity of Chinese academic and industrial research is rapidly improving.
Innovative applications and business models
Today the real strength and innovation power of China lies in application and process innovation and in creating innovative business models. It’s the capability of taking existing technologies and components, combining them to something new and to make money from it.
One of the famous and commercially profitable examples comes from the online industry: Wechat was built along the line of the existing WhatsApp but added with a lot of interesting features, which put it to number one in China and has become WhatsApp’s strongest international competitor. “If you just look at the technologies these companies use, you could say they are not different from foreign online companies. But the way these firms have adapted to the nuances of especially the Chinese market is very, very good,” Alan Huang, a partner at McKinsey’s & Co. Shanghai office comments. Innovative business models can also be found in more traditional product segments. “Our industry is very competitive,” says Mr. Yin the head of design and product development at BeiFa, one of China’s largest pen and stationary manufacturers. “In order to differentiate ourselves from others and to create more customer value, we are working on becoming a specialized partner and a one-stop-shop competence center for stationary. Offering not only products but also design, product development and supply chain management across the whole field of stationary and comprising all aspects from esthetics to material to manufacturing to supply chain knowhow. This by drawing from scale, our years of experience and a huge supplier network.”
Cheaper, faster, more
Edmund Phelps, the American Nobel Prize winner in economics points out another important Chinese innovation strength: “In China, there is a particular ability to combine the three characteristics of tempo, scale and cost reduction. If you are in a manufacturing activity that needs to be scaled up or down while achieving cost reductions, I would argue China is probably the best place in the world to do that. Chinese companies have an edge over multinationals when it comes to scaling and cost reduction.” In 2013 Beijing’s XiaoMi launched the world’s fastest smart phone, in 2014 the company Gionee put the world’s thinnest smart phone on the market. Both companies were using standard components but could position their products in the medium-low-price segment of the global smart phone market. “I think we Westerners sometimes have a tendency to over-engineer our products,” Swiss engineering company Helbling’s chief project engineer for China critically reflects. “One of the main things I’ve learned from my Chinese customers and employees is to keep an eye on what’s really necessary and to focus on a reasonable balance between cost and usability.”
“I’ve visited several European pen manufacturers who have high-tech machines and are fully automatized to create volume and competitive prices. We are not quite there yet and our cost structures are still different,” relates BeiFa’s Mr.Yin “For now we are still successful by constantly innovating our work flow around a lean process, manual labor and simple machinery to keep and improve our competitive advantage.”
Misuse? Practical!
Another observation made by Helbling’s Swiss engineer is that “several Chinese innovations seem to come from the misuse of things. Chinese are very practical people and they have little hesitation to use something if it solves a problem, even if it’s far off from what it was initially designed for.” Such an example is the story of a clothes washing machine from Haier. Their sales teams in rural China had received complaints from local farmers that the machines were clogging up after washing their sweet potatoes. With a simple redesign of a few components (such as the dirt filter) the machine can now be used for both washing clothes and washing crops, which became a major sales driver in the countryside.
Commercialization is driving innovation
Chinese business people have a very strong focus on commercialization. “Most Chinese companies don’t want to make products that change the world, they want to make products that sell,” Mr. Ma the design director at ARTOP, one of China’s largest product design agencies clarifies. “What China does better than any place else in the world is to innovate by commercialization, as opposed to constant research and perfecting the theory, like the west,” writes McKinsey & Co. “Because of fierce competition the price and being an early mover are very important factors to be successful on the market,” ARTOP’s head of design points out. The combination of dedication to commercialize and the focus on optimizing cost and speed leads to what one might call “innovation on the fly”. Products are being developed very quickly, launched on the market at a very early stage and then get adjusted and improved step-by-step in reaction to customer feedback. “It took us exactly 390 days from the first idea to having a mass product,” says Ben’s Group CEO and inventor of a remote controlled, cloud based cooking pot. An example supporting McKinsey’s observation that “the Chinese have an innovative way that the rest of the world is struggling to understand.”
Mentoring and pooling knowledge
China’s society and economy is evolving at such speed, that structures can hardly keep up the pace and tend to lag behind developments. Education is a field where the gap between industry demand and institutional output is especially wide. Experienced personnel and applicable industrial and business knowledge are rare and precious goods in China. Companies have therefore come up with innovative ways to overcome this challenge. Many have initialized their own educational programs, which are mostly based on mentorship, where experienced employees share their knowledge with younger or less qualified staff. In the search for talent, only few companies hesitate to put young but well educated and highly motivated people into key positions. “It’s great and I’m very proud to already be a CTO,” smiles 30 year old Ni of E.MC, one of China’s leaders in pneumatic automation. “There is considerable pressure and responsibility and I’m working very much. But I’m motivated and dedicated to bring this company forward.” More and more firms are aiming to engage their entire staff in innovation and in evolving the company. This marks a major shift in management patterns and opposes the formerly famous Chinese models of rigid hierarchy and the staff’s focus on plain execution. “Anyone is encouraged to come up with ideas that benefit the company,” states Mr. Gong, the chief production engineer from Jiulong Machinery. Ms. Zou, the head of sales hands over a bunch of Xcel files with schedules and evaluation criteria. “We have weekly meetings and brain storming sessions in each and every department. Every idea is welcome. This can range from saving paper or electricity, making work places safer or developing new products or markets. The person who has an input that proves successful after implementation receives a bonus. This bonus system has clear criteria everyone knows and understands.”
Cooperation with universities
The Chinese government is putting large financial and organizational efforts into bringing university research departments and companies in the field closer together. This is beginning to pay off, as an increasing number of companies are engaging in cooperation with educational institutions. Some firms lacking the knowledge or resources t develop products of their own even go as far as to outsource their entire R&D to university departments. Ms. Lou, CEO of the pneumatic technology manufacturer E.MC relates the advantages. “We’ve been cooperating with Zhejiang University and their highly qualified professors for a couple of years and it has been very successful. We do have our own R&D department, but they can cover fields where we lack knowledge. So it’s a complementary innovation resource.” “We do also benefit from government funding and government information that we get through these cooperation projects,” adds the operations manager. “The inputs and knowledge coming from our research cooperation are very useful, especially for me as a young engineer,” remarks E.MC CTO Mr. Ni “The university department we are working with is also cooperating with foreign companies from the same industry, so the level of expertise is increasing very quickly.”
See More: Innovation in China: Copy Cat? Innovation Tiger?
