Change at the Global Factory

Innovations in China? Really? To those who know it as the global factory with entrepreneurs skilled at making low-cost copycat products, the combination may sound like an oxymoron. But it would be wise to put presumptions aside while considering a country that is clocking almost 10 per cent GDP growth and that whizzed past Japan last year to establish itself as the world’s second largest economy.

Today, multinational business heads are heard worrying if they can ever really capture the Chinese market, the way they have managed to push frontiers in other regions. Local players, seasoned under the tough conditions of the past and the country’s state-directed capitalism, are really the ones who rule. Transnational Chinese firms such as Lenovo, Huawei and Alibaba, among others, are assiduously building global clout, while local players control the domestic terrain. Coca-Cola ran into rough weather in its attempt to acquire Chinese juice player Huiyuan, though it was willing to cough up as much as $2.3 billion. So, what is it that the Chinese do, that continues to fox outsiders?

Two advantages local companies have –especially media and technology companies– are state enforced curbs on the entry of foreign firms in these sectors – as well as their own familiarity with the Chinese language. This is a country where Facebook has only around 300 million active users, while QQ, mainland China’s most popular free instant messaging computer programme, has over 500 million. Facebook has only recently become profitable, while QQ has over $1 billion in profit.

The signs of innovation are everywhere. Chinese companies have been aggressively filing patents. An official document of the State Intellectual Property Office of China, released last year, called National Patent Development Strategy (2011-20), reveals impressive patent filing targets: as many as two million patents by 2015. There are fears that it will soon be filing more patents than the United States.

Given the context, it is clear that Yinglan Tan has been sharp in timing the release of his book, Chinnovation – How Chinese Innovators are Changing the World. He has impressive credentials: a Kauffman Fellow, he serves on the boards of several innovative growth ventures in Asia. He was the first director of 3i Venturelab China, a joint venture between private equity firm 3i and INSEAD. He has studied the enterprise space in China in detail, and spliced through various models of Chinese business successes.

But innovation means different things to different people. It could simply be getting firstto-the-market, it could be process-related, it could involve re-engineering or branding. The author has considered both players who have‘done the same thing in a new way (process)’and those who have ‘done new things by creating a product or service’. He has also accounted for the success of the large-scale‘ripping’ (or copycat) models.

The book also provides interesting business facets relating to China, which, says Tan, can even assist companies in their recruitment efforts in that country. Last word: if you are seeking information about radical shakeups in China from this book, you will be disappointed. But for those who want to know anything and everything about China, this book is useful.