Can China innovate its way out of a prolonged economic growth slowdown?
Shaun Rein, managing director of the China Market Research Group, believes so. In his new book, “The End of Copycat China – The Rise of Creativity, Innovation and Individualism in Asia”, he argues that China will start innovating now because it has to – and that it didn’t before simply because it didn’t need to. That’s an interesting theory, but is he right?
Rein first does battle with common perceptions that the Chinese political system or culture limits its ability to innovate. It’s not because China is a communist-led country with limited individual freedom, that it does not come up with corporate inventions, he says.It’s also wrong, he says, to think that Chinese are simply unable to innovate because of some perceived “Confucian conformity”, as academic Panos Mourdoukoutas argued in Forbes in 2012. For Rein, such an argument is historically incorrect, as even at the height of Confucianian influence, the country brought about huge innovations such as “gunpowder, multi-stage rockets and the compass”.
The real reason why we saw less innovation – and more imitation – emanating from China in recent decades, has simply been that this approach was best suited to the country’s economic reality until now.
In a country where common products have often been under-supplied, there was little motivation to strive to create the most sophisticated technologies. Better not to reinvent the wheel; rather make as many wheels as cheaply as you can with the technology provided by those who invented it in the first place. That’s exactly what many Chinese companies did in the last few decades, whether in manufacturing washing machines, computers, mobile phones, or online marketplaces.
It is not until the next phase of development that we would expect to see some innovation. As companies such as Haier, Lenovo, Xiaomi and Alibaba faced internal competition to their cheap and relatively straightforward products, they responded not by aspiring to the cutting edge of global technology, but by upgrading their existing technologies and producing them more efficiently.
Having won the battle to provide the most basic goods to domestic consumers, Chinese companies are now increasingly, and often for the first time, forced to turn to product innovation, Rein writes. They either have to start climbing the value chain abroad or in China, as the low hanging fruit of supplying basic goods has gone. They won’t fail. Why? Because they didn’t when faced with the previous challenges.
As examples, Rein points to companies like Alibaba. Through its subsidiary, TMall, it made consumers trust small and even unknown sellers of branded goods online. Through AliPay, a third party online payments system that is equivalent to PayPal, it addressed China’s weak consumer protection environment by collecting personal details from vendors that allow them to be tracked down if they sell substandard products. It seemed to work; Alibaba raised $21.8bn in its recent debut on the US stock exchange.
Such cases – for which Rein gives a few more examples from companies such as Tencent, Huawei or Xiaomi – have to show that a communist or developing country background can be as fertile of a ground for innovation as any other. Indeed, the innovations Rein puts forward use the flaws of communist China to their advantage, rather than to be paralyzed by them.
For sure, Rein is not alone in his view that Chinese companies are getting to the innovation phase. Consulting firm BCG this year put four Chinese companies (Lenovo, Xiami, Tencent and Huawei) in its annual list of the world’s most 50 innovative companies.
In the later chapters of his book Rein comes up with a number of fields in which we can expect to see Chinese innovation, such as health care, healthy living, or tourism. In each of the fields, Rein shows that with increasing demand from Chinese consumers, innovative solutions are likely.
But are the examples of a handful of companies enough to prove the bigger picture? Or is innovation in China still the exception, rather than the rule? After being convinced by Rein’s appealing storyline in the first few chapters, the reader is left wondering just that. While we are prepared to accept that some Chinese companies have innovated to a significant extent, we are less ready to believe that this means that the longstanding habit of copying is dead, as the title of the book suggests.
Yet Rein’s is an intriguing book, with many interesting anecdotes, mini-case studies, and interviews. If you discount the author’s obvious self-interest in writing it (he is, after all, the founder of a consulting group helping Chinese and foreign companies succeed in the Chinese market), you will be pleasantly surprised by the author’s fluency, and the “teachable moments” that arise from his writings.
“The End of Copycat China – The Rise of Creativity, Innovation and Individualism in Asia”, (227p) by Shaun Rein, and published by Wiley, will be available as of November 14, 2014 in the UK for £15.39. It is already on sale in the US ($25.00).