China’s innovation economy has warnings and lessons for The West Posted in Strategy by Ross Hall on Wednesday November 21, 2018 Just a few years ago, the business press had written China off as a “me-too” economy. It was steeped in copycat enterprises, a place where rip-offs were common and Western companies went for low cost manufacturing. How quickly that view has changed. Almost by stealth, China has been transforming itself into a hub of innovation. From consumer electronics (Huawei) to renewable energy generation (Goldwind), Chinese companies have been pouring trillions of yuan into R&D. Slowly they’ve been easing their way up the innovation indexes and market capitalisation charts, threatening to match and even surpass their Western peers. A different way of working Underpinning this surge are some profoundly different ways of operating that would be difficult to match in the West. The Chinese economy is a fascinating mix of planned and market driven. Five-year plans give business leaders certainty about strategic aims and directions that can be lacking in a reactive economy often driven by prevailing political soundbites. Market liberalisation has also allowed capital to flow into China. Jack Ma’s Alibaba broke global records when it floated in 2014. Since then there has been a steady stream of IPOs which, while less dramatic, have nevertheless demonstrated investors’ willingness to back Chinese innovators. Within the country there is a greater willingness to talk about internal problems, at least to some extent. This has allowed entrepreneurs and established players alike to locate opportunities to innovate and then tap into them. Coupled with a more global outlook and state intervention in strategic industries, and China’s companies have increasingly looked less like low-cost followers and more like potential market leaders. Huawei leads the way in innovation Huawei has caught the mobile phone wave. Starting out reverse engineering foreign PBX units for China’s fledgling telephone network, the company has moved aggressively into the mobile handset market. Although its initial offerings were poor, it learned quickly. With innovation at its core, a sequence of products have been launched that have won praise and customers. Recently it passed Apple in worldwide handset sales and is knocking on the door of global leader Samsung. Officially the business is majority owned by its Chinese employees through a trust maintained by its trade unions. This has almost certainly helped it align its culture and its strategy. Perhaps more importantly, it still speaks to the Communist ideal of workers owning the means of production. It’s a position that’s strongly rumoured to have given it access to Chinese state support. “Socialism with Chinese Characteristics” Not that China is a model to be eagerly copied for successful innovation. “Socialism with Chinese Characteristics” still relies on a command-and-control culture that can be terrifying. Individualism remains tempered with a suppressing desire to “belong”. State surveillance and seemingly random acts of detention against even its most recognised stars are commonplace. The booming high-tech metropolises of Beijing and Shanghai are set against the sometimes crippling poverty of the rural heartlands where land is stolen by developers and human rights abuses rife. Concern about state influence and involvement has cost major players to lose out on some lucrative markets. Particularly in the West, there are fears about foreign state surveillance and influence that could further hinder growth, no matter how innovative the product. Aligning strategy and culture is critical The most applicable lesson from the Chinese experience appears to be about culture. Companies are far more likely to report high alignment between R&D strategy and corporate culture than anywhere else. This creates structures that allow innovations to flow quickly to market. While Western counterparts may try to undermine innovations that threaten their personal position, Chinese management seems more willing to embrace and enable change. Their loyalty, it seems, is not to their particular piece of the political landscape, but rather to the success of the enterprise as a whole. Perhaps “Innovation with Chinese Characteristics” is a new aim for business to aspire to. Subscribe for updates Receive our regular updates on digital marketing and business direct to your inbox. We won't share your data. Latest Being a “green business” is no longer a differentiator “Sustainable” is no longer a source of differentiation. Promoting your “green credentials” in content is important, but so too is avoiding “greenwashing” Related The first 90 days: how to increase customer loyalty If you someone doesn’t engage with your customer loyalty programme within the first 3 months chances are they won’t become a loyal customer.