Tuesday, January 17, 2006

The Innovation Race heats up

Somewhere along the line I signed up for an email subscription to "strategy + business", a periodical published by Booz Allen. I have found it to be well-written and it almost always includes an article on innovation.

The most recent edition, which I received today (Jan. 17) has an article about business in China, and the things that might surprise you about business in China. The one that caught my eye was the topic of innovation in China. According to the article, China has several structural and cultural advantages for innovation.

One of the first is a lack of conventional wisdom or existing business paradigms. Since China's economy and businesses are growing so quickly, there's not a lot of existing business process or knowledge which will quickly knock down new ideas, the way more bureaucratic companies in the US or Europe will quickly kill many new ideas.

Another advantage in China is the customers and the market. With rapid urbanization and rapid income growth comes demand for many new products and services. A rapidly growing economy means consumers have more money and are more willing to purchase new products, and are very open to new innovations.

Third, China is focusing and spending vasts sums of money to promote technology and innovation. This money goes towards improving existing universities and encouraging technology education, new business parks and consortia and encouraging business investment. Already, China is third in the world economy in terms of investment in R&D, trailing only the US and Japan.

The final advantage that the article talks about relates to the first two. The Chinese entrepreneurs are very willing to take risks and make mistakes. Given a rapidly growing economy and a population with money to spend and a lack of products, the Chinese entrepreneur is encouraged to try many new things and to quickly abandon those that don't work out.

What the Chinese are doing is a top-down approach to innovation by the government, but they seem willing to allow a lot of autonomy at the local or business level. The Chinese government has recognized that the country needs new companies, new products and new exports to grow and remain competitive. What they don't have right now are repeatable processes and methodologies. Most entrepreneurs and businesses are simply learning by doing when it comes to innovation. As the Chinese market evolves, it will become harder to simply create new products and abandon those that don't work, and the Chinese businesses will need improved processes, marketing intelligence and systems to support their innovation. But they don't need them now.

We need to counter this approach in the US and western countries to demonstrate a purposeful, methodical approach to innovation. The US and the west will not necessarily remain the leaders long term in innovation dollars, but we can remain the best in return on innovation.
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posted by Jeffrey Phillips at 4:38 AM

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Historically, one of the differences in China in relation to innovation has been a lack of copyright/intellectual property/patent protection.

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