There is no uniform picture when it comes to innovation in the Chinese business world. The industries and company structures are simply too diverse and the market is far too big for any consistency in this regard: in China, there are 22 million companies, 7.5 million of which are in manufacturing and 650,000 in IT-related industries. It therefore comes as no surprise that what we see is colorful, diverse, and at times even contradictory. On the one hand, the Chinese government is very ambitious concerning innovation. For example, by 2020, it wants investment in research and development to amount to 2.5 percent of gross domestic product – something that would rank China directly behind the USA.
On the other hand, from my experience, most Chinese entrepreneurs – above all those in traditional industries – are pragmatists. You don’t often see the average mechanical engineer or textile manufacturer wanting to create something radically new. They are far more focused on making specific, step-by-step improvements to their products, processes, and, most of all, their cost structures.
In the majority of cases, they don’t have the financial means, the experience, or the patience for extensive research and development. To them, innovation in the sense of disruption – i.e. taking a bold, progressive step forwards – is more about buying modern machines from international suppliers. While simple processing has now been replaced by more complex production methods in many manufacturing businesses, it is often the case that key technologies and know-how are still in the hands of foreign companies.
In addition, it should be noted that the feedback culture so common throughout companies in the West is not the norm in China; after all, Chinese culture is based very much on hierarchies. Above all companies with links to the government and quasi-monopolistic enterprises are seldom open to self-criticism or prepared to try something new. So for any innovators within these organizations, it is often more difficult to bring about change. This cultural legacy also stands in the way of necessary restructuring programs at many of these organizations.
China goes digital: curious, motivated, and ambitious.
Thankfully, there are opposing trends: more recently founded Chinese companies in the IT, digital, and consumer electronics industries are incredibly open-minded. The world’s main players from Silicon Valley – the likes of Google, Apple, and Facebook – provide them with great role models for economic success and the culture of flat hierarchies, speed, and competition for the best ideas. These traits are also valued by charismatic founders and visionaries like Lei Jun, head of consumer electronics group Xiaomi, or Frank Wang, founder of DJI, the global market leader in the manufacture of civilian drones – to name just two.
Developments like these are proving to be a great source of fascination for the upcoming generation of students, entrepreneurs, scientists, and managers. It’s something I certainly notice in my lectures. Today’s 20 to 30 year-olds are incredibly curious, motivated, and ambitious. In many areas they are oriented towards the world elite.
One indicator of this is the rising contribution made by Chinese authors to scientific publications around the world. Thanks to these scientific publications, China has now replaced Germany in second place in the “
”, a seal of quality for research output. Excellence in research is therefore not uncommon. Commercial success, a key characteristic of successful innovation, remains a challenge, however. Nature Index
Chinese start-ups: pragmatic, quick and – a little – dirty.
Pragmatism among Chinese entrepreneurs is also evident in the speed with which Chinese start-ups test marketable products, services, and business models. Chinese businesses are often very quick to expand horizontally. For instance, when mobility service provider Didi started out, it was initially very much oriented towards its US role model Uber.
But in contrast to Uber, the Chinese company quickly broadened its range of services to win more customers: today, you can use the service to order normal taxis, chauffeurs, a limousine service, or even to look for carpooling options. Didi was pragmatic, following the principle,”Is that what customers want? Then we’ll provide it as quickly as possible before another company does, and we’ll take care of the details later”. Business model innovation and quick trial-and-error cycles are the hobbyhorse of many successful Chinese start-ups. The results are impressive. In august this year, Didi took over Uber China.
This all fits in well with the fact that Chinese consumers are pretty willing to take risks and are quick to accept new products, services, and business models. That quickly provides young, agile companies like Didi with a significant number of users, along with the market power that goes with them. The downside is that customer loyalty is less pronounced. While consumers are quick to reach for something new, they are just as quick to move on to the next thing at the earliest opportunity.
Digital transformation: contradiction and captivation are close together.
That makes China a fast-moving market, and sophisticated technology sometimes pays the price. The necessary know-how and attention to detail is lacking in order for a technology to blossom. A good example is the electric car: despite being massively promoted and sponsored by the Chinese government, and China already having the largest market for “new energy vehicles” measured by sales volume, we haven’t yet seen a Chinese production model comparable to Tesla or the BMW i series that could compete on the world market.
A taxi I took recently was a pretty successful make of car – at least according to sales figures – by the Chinese electric car manufacture BYD. I asked the driver what he thought of it. The man dismissed my question with a wave of his hand: it has all kinds of teething problems, the car isn’t reliable, and BYD has got a lot to learn, he said. A few days later, I read in a trade magazine that the Chinese-American start-up NextEV, founded in 2014, had set a new record for an electric vehicle on Nürburgring’s legendary Nordschleife (northern loop) with its NIO EP9, an electronically powered sports supercar.
A production model by the company NextEV is set to come onto the Chinese market in 2018. The taxi anecdote on the one hand and news of the record on the other give “Innovation made in China” a unique charm: contradiction and captivation are close together. In light of what I have experienced, I would personally wish to see Chinese companies regard innovation not as a sprint, but rather as a marathon.
About Think Tank “Digital Transformation”
Digitalization creates a powerful imperative for us to change our business thinking and activities. But that is easier said than done. Where do the challenges lie for entrepreneurs and managers? Do companies have a nucleus in which digital change can begin particularly well and effectively? What basic conditions must be created – not only in companies, but also, for example, by the government and society – for this to take place? What skills should employees have and, in a company experiencing digitalization on several levels, who is actually in a position to keep up with the changes involved?
In this article, which is continually updated, we look to answer these questions and many more. We hear from digitalization experts from a variety of scientific fields such as business economics, management, futurology, or IT, as well as from entrepreneurs and practitioners from large companies with management roles or responsibility for staff or processes. And finally, we hear from thinkers who are looking at the main issues of digitalization from the outside.
This article does not aim to be exhaustive, but rather offers a platform to express a wide range of different opinions. It aims to be a space for reflection, to provoke, and perhaps even trigger an argument and debate. A think tank that, to a certain extent, you can watch while it’s thinking.
Image credits: istock/aiqingwang, istock/RyanJLane