The achievements of China’s innovation are evident, backed by indices that include the growing role of Chinese companies in a diverse range of industries.
As the competition gains steam in China in both the business-to-business and business-to-consumer sectors, distinctive innovation is no longer just a “nice-to-have” but a priority that will shape the future of doing business in the next decade. The innovative prowess of companies will differentiate them from competitors and place them on a global pedestal for success.
The presence of Chinese companies and multinationals bring their strengths and weaknesses to the competitive landscape. The government’s emphasis on indigenous innovation coupled the traditional bias which Chinese companies have had towards innovation through commercialization (which sees them put new products in the market and subsequently improve product offerings across generations) are strengths that Chinese companies have. However, different industries experience varying levels of innovative capability and there exists room for improvement.
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Success in China’s B2B innovation can be largely alluded to friendly government policies that establish market access barriers which influence greatly the nature of cross-border collaborations by setting high intellectual-property requirements in electric vehicles, high-speed trains and other segments; and ensuring that domestic laws favour Chinese-made goods and services. Beyond government support as the reason for China’s B2B success, the country is experiencing a massive growth of scientific and technical talent, and local companies across various industries are proving their mettle and bringing innovative capabilities to the competitive landscape.
On the other hand however, multinationals playing in China bring their years of experience and generations of knowledge to dominate industries where they play, like the market for vehicles powered by internal-combustion engines which remain dominated by multinationals – which proves that there is difficulty in breaking though industries with decades of intellectual capital. Local companies need to invest in transferring these skills needed to design and implement complex manufacturing systems through mentorship, instilling the right company culture, and being patient. The willingness of multinationals to cooperate and invest with local companies will ensure that indigenous innovation is matched with requisite experience.
Apparently, there are disparate challenges and opportunities that domestic and multinational players face in China. However there are key priorities that innovators in China must take note of while doing business and interacting with stakeholders in the ecosystem. Seeking new means and ways to innovate their way past these challenges and unlock key opportunities should be the priority of Chinese business owners, looking to retain market share, and improve efficiency in their business and operating models. This article seeks to lay bare the priorities that business leaders in China should focus on.
The first of them is a deep understanding of Chinese customers. Beyond qualitative intuitions, companies need to make decisions about the needs of customers using analytic data-driven insights. Understanding the needs of customers and catering to them require a broad stakeholder-mapping of the shortcomings of systems or alternatives. For example, Taobao, the internet-based trading platform gained massive success and user traction because it possessed a sophisticated understanding of the Chinese banking system and how customers felt underserved by them which led to an inability to effectively connect to suppliers.
Chinese companies need to have the systemic ability to develop a deep understanding off customers’ problems and move away from the manufacturing-led approach to reapplying existing business models to deliver products for fast-growing markets, which may not yield profitable growth. Multinationals need to build their understanding of the domestic markets and build relationships locally to apply analytic capabilities for growth. Companies must invest in R&D of the Chinese markets, its customers and directly feed its teams with locals who understand the China context.
Retaining local talent will enable companies tap into a massive inflow of talent from local Chinese institutions. China has maintained focus on economic and industrial indices that emphasize the development of technical human capital as a basis for driving a world class economy. The government has supported powerful technological institutions that produce graduates comparable to those of the other developed nations. It encourages creative innovation by its intellectuals in all areas of innovation.
Promoting cross-company and cross-industrial collaborations is a great way for Chinese companies to pursue new business opportunities which are the products of insight. They must be careful not to conflate pursuing organizational models that encourage the churning out of products in large volumes to the market and ensures mass commercialization, with ones that emphasize the importance of organizational efficiency and insight derivation. What have hitherto been linear procedures for bringing new products and services to the market should be checked to not create too many hand-offs where insights are lost and trade-offs for efficiency are allowed. To innovate, companies must jettison a reliance on processes that are solely designed to build and reward scale in manufacturing. The technical and commercial aspects of businesses must work together to allow maturity, efficiency and success.
Finally, for companies to innovate and navigate competition in China, they must repel attitudes of strict adherence to “rules” that seeks to totally avert the possibility of failure: which is a required element of any process of innovation. The probability to take initiative should be encouraged and better rewarded. An approach to mitigate the losses that accrue when risk-taking fails is to transfer risk from individual innovators to teams. This diminishes the likelihood of failure due to collaborative insights, and instils collective accountability for safer risk-taking. The pecking-order culture present at state companies often holds this approach back.
Innovative success by any business in China will ensure global success of such business. The ecosystem is changing rapidly. Businesses need to collaborate with each other to make them high-performers in their industries. High performers push the envelope. They transform industries. They outperform the competition, and themselves.
