How China is innovating - McKinsey Quarterly

A series of two McKinsey Quarterly reports in February 2012 shows that contrary to popular perceptions, China is innovating rapidly in ways that harness what is the world's fastest-growing economy soon to become the world's largest. Such innovation is driven by quick commercialization even if the product is less than perfect, a rising and often foreign-trained talent pool that is increasingly competitive, superior local knowledge that stays on top of constant changes in consumer demand and market conditions, emphasis on indigenous innovation, and strategic supportive government policies and infrastructure.

Leveraging the gigantic market potential of China's economy, "Some Chinese companies are now moving to the forefront of a “built in China, for China” movement. Their clout is likely to mean that more semiconductor platforms will be designed locally. Consider the fact that in 2010, Chinese consumers purchased 19 percent of all PCs sold throughout the world, 18 percent of the LCD TVs, 14 percent of the mobile phones, and 26 percent of the automobiles (all by unit volume)", says "Three snapshots of Chinese innovation", one of the McKinsey reports covering, inter alia, China's semiconductors industry. Click here

"Chinese companies also benefit from their government’s emphasis on indigenous innovation, underlined in the latest five-year plan. Chinese authorities view innovation as critical both to the domestic economy’s long-term health and to the global competiveness of Chinese companies. China has already created the seeds of 22 Silicon Valley–like innovation hubs within the life sciences and biotech industries. In semiconductors, the government has been consolidating innovation clusters to create centers of manufacturing excellence," according to "A CEO’s guide to innovation in China", the first of these McKinsey reports. Click here

For global players, playing the Chinese market is posing increasing challenges. "..... the dilemma is clear: how to participate in what will probably be the world’s most dynamic technology growth environment while safeguarding core IP and know-how. These companies must remember that China seeks to use transferred IP and manufacturing methods to create its own champions that can compete with global countries around the world, not just in the local market,"  explains the "Three snapshots of Chinese innovation" report.

"One option is for foreign companies to launch indigenous R&D centers with Chinese universities and institutes and to focus these facilities on developing technologies for unproven but promising next-generation domestic markets. Multinationals that participate in such ventures align themselves with China’s goals while they contain IP risks to markets that are still evolving. Another approach is to focus on local product development in partnership with downstream players such as auto manufacturers. This strategy helps multinationals meet local-technology requirements and provides for more active risk management," the report continues.

"China hasn’t yet experienced a true innovation revolution. It will need time to evolve from a country of incremental innovation based on technology transfers to one where breakthrough innovation is common. The government will play a powerful role in that process, but ultimately it will be the actions of domestic companies and multinationals that dictate the pace of change—and determine who leads it", concludes "A CEO’s guide to innovation in China." 

In any event, innovation, by definition, is never static. Moreover, on a global scale, the winners will be those who manage to stay constantly at the leading edge, to re-invent what has been invented, and to ever expand the horizon of human endeavour. They are likely to be those who could capture the spirit of President Kennedy's clarion call, "Some men see things as they are and ask why. I dream things that never were and ask why not."

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