Three ingredients fuel China’s innovation, says professor
George Yip believes China is moving aggressively from a strategy of imitation to one of innovation, driven by its scientific capability, manufacturing resources and huge domestic market.
The professor of marketing and strategy at Imperial College Business School said the triple combination has been seen only twice before: the British Empire and the United States’ commercial empire.
China’s scientific capability has come about because “the education system produces a lot of scientists and engineers, almost to Western standards but at a much lower cost”, he said.
Many Chinese who go to the West to study and to get doctorates are now encouraged to return to China through government initiatives such as the Thousand Talents Program, he said.
In addition, Chinese companies have grown large and are rich enough to invest in research and development, particularly private enterprises.
The reason it is possible to do R&D is that “you need a big market to amortize the cost of what you spend, and the Chinese market is so big, the second-largest market in the world”, he said.
Yip cited the example of China starting to challenge the aircraft makers Airbus and Boeing in the commercial jet sector.
Innovation in China is a mixture of learning from Western models and indigenous innovation, he said.
“Chinese companies have made it cheaper, but also added many more features. A Chinese product compared with a Western product has twice the features for half the price.”
Take Haier for example, the multinational Chinese home appliances maker, with its wellknown innovation story being how the company worked out how to allow farmers to wash potatoes as well as clothes.
When the company entered the US market, it started with “low innovation” by adding a folding tabletop so that refrigerators in university dormitories could double as a desk, he said.
“Now it has moved beyond that. It has pioneered a three temperature compartment refrigerator, where the third temperature is in between the ice box and the regular one. You can take the ice cream out of the third compartment, and it is not hard, so you do not have to wait (to eat it), because Americans do not like to wait, and it took a Chinese company to understand the psychology of Americans. It is typical of the Chinese that it is pragmatic and profitable innovation.”
The challenges for innovation in China lie in the fact the country started from a low base with basic products, Yip said.
“Yet it has overcome that challenge, partly by participating in the global supply chains of foreign companies. That has raised Chinese standards.”
Another challenge, he argued, is that there has been fierce competition in China, which on the one hand brings pressure for low costs, but on the other creates pressure to be different, to innovate.
Yip was born in Vietnam to a Eurasian mother and a Chinese-Indonesian father, and grew up in Hong Kong, Myanmar and Britain. He was educated at Magdalene College, Cambridge, and went to the US in 1975. He went on to obtain an MBA and PhD from Harvard Business School.
His business experience ranges from marketing and product management to consulting and innovation.
He started his career at Unilever, working in marketing and product management, and was also a senior manager at Price Waterhouse’s strategic management consulting services in Boston.
His current research on innovation in China began in 2011, when he was appointed co-director of the China Europe International Business School’s Centre on China Innovation. Together with fellow professor Bruce McKern, Yip published research in April in a book, China’s Next Strategic Advantage: From Imitation to Innovation.
He argued that although China may trail the West in radical and disruptive innovation, its companies are making a lot of money by being innovative in other ways, as most of the products that people buy are based on incremental innovation.
According to the Innovation Policy Platform, a radical or disruptive innovation is one that has a significant impact on a market and the economic activity of companies in that market, while incremental innovation concerns a significant enhancement or upgrade to an existing product, service, process, organization or method.
The US has made money out of those through incremental innovation and manufacturing for the mass market, while Germany started out doing imitations of British products and doing applications innovation. Radical innovation is not the only way forward, he said.
What is different about the Chinese companies’ approach to innovation is that “it is fast incremental, and makes mistakes quickly, not trying for a radical innovation, but pragmatic, profitable, and very customer-focused”.
While the West has focused on innovation for its own sake, China has been very practical, wanting innovation that makes money, Yip said.
“The West is very good at going from zero to one; China is very good at going from one to 100, and one to 100 is all about scaling up from incremental innovations.”
During his research, Yip visited China six times a year for five years.
He said he was particularly dazzled with the innovation he saw at Broad Group, a private manufacturer of central air conditioning in Changsha, Hunan province.
Broad started out innovating with air conditioners using gas instead of electric, and its latest innovation is in building construction.
“They innovate by building faster and cheaper than Western processes. I have been inside one of their buildings — prefabricated steel structures, prefabricated panels and sealed air conditioning — so they can make these much quicker and cheaper. This is typical Chinese application, cost and processed-based innovation.”
Most Western companies, especially older ones, have become too cautious, partly because of domestic regulation at home, legal issues and bureaucratic strictures, Yip said.
“Again and again, Western companies in China say, ‘ We are being slowed down by these cautious procedures that the headquarters at home are imposing on us, and in China we are learning to be quicker and to take more risks,’” he said, adding that the West needs to relearn how to be bold and experimental.
He said he was also surprised to find that, in terms of management, Western companies are realizing that China is a good place to send managers to learn how to manage diversity and foreigners.
“You could not do that in Japan, because Japan does not accept foreign managers, but China does accept foreign managers, and they can manage different types of employees, including Chinese.”
George Yip believes China is moving aggressively from a strategy of imitation to one of innovation. /