Op-ed: A deeper look inside China’s innovation boom

Columnist Micheal Kelly says two recent business books are must-reads for anyone who wants to understand how China’s tech renaissance is reshaping the world’s economy
China

Book review: China’s Next Strategic Advantage: From Innovation to Imitation by George Yip and Bruce McKerm . The MIT Press, 2016; Business Ecosystems in China, Alibaba, and Competing Baidu, Tencent, Xiaomi and LeEco by Mark J. Greeven and Wei Wei. London: Routledge, 2018.

China is currently in the midst of a technology and innovation renaissance. A recent U.S. National Science Foundation report concluded that the country is on the verge of becoming a global scientific and technical superpower. Similarly, the World Intellectual Property Organization has reported that China is poised to become the world’s largest user of the international patent system.  

In an increasing number of areas – including fintech, electric vehicles, artificial intelligence, gaming and more – China is becoming a world leader in technological innovation. Many of the trends emerging there are now beginning to have a significant impact on the global technology landscape.  

If you still think of China as just a large unsophisticated market, populated by unprofitable state-owned enterprises and copycat companies, these two books will open your eyes to this new competitive reality.

Global tech leader

China’s Next Strategic Advantage by George Yip, a professor at Imperial Business School in London, and Bruce McKern, the former co-director at the Centre on China Innovation at the China Europe International Business School in Shanghai, charts the re-emergence of China as a global technology leader.

Book coverBased on interviews with hundreds of innovation-related executives and CEOs of both foreign multinational and Chinese firms, the book is an in-depth guide for globally minded companies on navigating this new world innovation hub.  

According to the authors, China’s evolution from a producer of copycats and knock-offs to a leader in state-of-the-art innovations has been fuelled by a number of factors.

These include consumers who are among the fastest to adopt new products and applications; a home market that lets firms attain huge scale before going abroad; a large number of low-cost and rising-quality scientists and engineers; massive investments by the government in the national innovation infrastructure to support business R&D; and tens of billions of dollars in venture capital investment. Fierce internal competition is also forcing Chinese companies to compete on the basis of innovation as cost advantages disappear.  

The authors argue that western companies today must look beyond the traditional view of China as a place to sell products. Increasingly, they need to think about how to take advantage of the growth of advanced knowledge and technology in the Chinese market.

This means figuring out how to embed themselves in the Chinese technology ecosystem. By doing so, they will have a front-row seat on which universities and institutes are producing leading-edge knowledge, which startups are worth partnering with or acquiring and which venture capitalists and companies are creating innovative businesses. They would also be better positioned to understand and respond to the aspirations of leading Chinese technology companies to conquer global markets.

The book provides great advice for participating in the Chinese innovation boom, especially the rapidly growing open innovation system which includes universities, institutes, suppliers, government agencies and others. There is also an excellent chapter on one of the key concerns of western companies in China – the protection of intellectual property, which while improving, according to the authors, needs to be addressed both legally and strategically.

Business Ecosystems in China is an excellent companion to China’s Next Strategic Advantage. Written by Mark Greeven, a professor at Zhejiang University in China, and Wei Wei, the founder of an innovation management consultancy, the book provides in-depth portraits of the networks supporting some of China’s leading technology companies. While few of these companies are yet household names, they are all less than 20 years old and are massive conglomerates that are rapidly emerging on the global scene.

Disrupting markets

The companies profiled in this book are the Amazons, Googles and Facebooks of China. For example, Chinese internet leaders Tencent and Alibaba currently have a combined valuation of US$1 trillion. Baidu, Xiaomi and LeEco are rapidly amassing size as they diversify, incubate new ventures, innovate, acquire and internationalize. They are using their profitability from their domestic sales, government assistance and their innovation capabilities to attack foreign markets.

Today, China is creating companies and business ecosystems that are disrupting markets in both China and the rest of the world. Every senior executive of a western company needs to understand the Chinese drive for innovation that is about to hit western markets and position their companies to deal with this new and sophisticated competition.

These two books provide some useful insights and guidance to help in dealing with this challenge.

Micheál Kelly is dean of the Lazaridis School of Business and Economics at Wilfrid Laurier University in Waterloo and the former dean of the University of Ottawa’s Telfer School of Management.