the chinese way of innovation

The Chinese Way of Innovation:A learning journey from low-cost imitation to high-tech innovationby Prof. Dr. Hora Tjitra & Daisy Zheng

Invited SpeechDenpasar, Nov 18 2010

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 BraunschweigOrganizational Psychology and Human Resource Management

Dr. Phil., University of RegensburgIntercultural Psychology and Strategic Management

Executive Education, INSEADHR Management in Asia

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)

Unlocking the Chinese Innovation Power_v1.0 / 2010-08

Does (Product made in) China Innovative?

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“Apple is the most innovative corporate in the world?”

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Source: Bloomberg Business Week 2010


Four Great Inventions of Ancient China

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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.


Five possible scenarios of China’s Future

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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.”

http://imd.ch

http://imd.ch


From the Low-Cost Manufacturer to the High-Tech at a Low Cost

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The Chinese Cost Innovation in Global Competition

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High Technology at LOW COST

Product variety and customization at LOW COST

Specialty productat LOW COST and High Volume

Ming Zeng & Peter Williamson, 2007


Index

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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


How do we measure innovation?

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What is Innovation and how to measure it?

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• 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.

http://en.wikipedia.org/wiki/Emergence

http://en.wikipedia.org/wiki/Emergence


G20 - Global Innovation Index

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- 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


Innovation Input and Performance

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Chinese Innovation Policy at a Glance

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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


China Poised to Lead World in Patent Filings

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• 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/?

http://www.scribd.com/doc/38833317

http://www.scribd.com/doc/38833317

http://economix.blogs.nytimes.com/2010/10/06/china-poised-to-lead-world-in-patent-filings/?

http://economix.blogs.nytimes.com/2010/10/06/china-poised-to-lead-world-in-patent-filings/?


Framework of Company Innovation Potential

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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 NetworksStrategic business

management

Intra-Company Skills

Company Innovation Potential


0

2

4

6

8

10

Strategy

Organizational Learning

Processes Organization

ExternalLinkages

Comparison of German and Chinese SMEs

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German SMEs

Chinese SMEs

Ideal score

from Innovation Potential in Chinese and German SMEs, Prof. Werner Fees & Matthias Lankau, 2006


Case Study on Chinese Innovation

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The 50 Most Innovative Companies 2010

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Source: Bloomberg Business Week 2010

No. 8

No. 28

No. 30

No. 44


• 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

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Rank 8th in The World’s Most Innovative Company Top 50Rank 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)


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

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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:

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Haier: One of the Brands Chinese People are Most Proud of

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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.


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

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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.

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Copy Cat as Chinese Innovation Factor?

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Just a COPYCATS? - 5Cs of Chinese Innovation

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1C : CopyThe line between copy and “inspiration”, “benchmark”, “best practice”, “proven model” is thin, and is often in the eye of the beholder.

2C : CompetitionWould 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 : CombinationPeople looking at “Chinese iPhone” for the first time are generally underwhelmed by its looks and functionality.

4C : ConstraintsCompare “write a romantic message” and “write a romantic message in 140 characters”. Do you feel more creative with the latter? Constraints support creativity.

5C : ChinaSo 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:


QQ: “Copycats” of ICQ

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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:


How did Chinese Get “Here” So Fast?

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• 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


Will the Future Favor Cost Innovation?

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Changing Size of the China Market

Maturing of the Product Life Cycles

Increasing Modularization

Ming Zeng & Peter Williamson, 2007

Thank Youcontact us at [email protected]

visit us at http://sinau.me

follow us at twitter@htjitra

Invited SpeechDenpasar, Nov 18 2010

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